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Daniel Fairclough: Hi. Good afternoon, everyone. This is Daniel Fairclough from the ArcelorMittal Investor Relations team. Thank you for joining this call to discuss ArcelorMittal's performance and progress during the third quarter of 2025. Leading today's call will be our Group CFO, Mr. Genuino Christino. Before we begin, I would like to mention a few housekeeping items. As usual, we will not be going through the results presentation, which was published this morning on our website. However, I do want to draw your attention to the disclaimers on Slide 20 of that presentation. As usual, Genuino will make some opening remarks before we move directly to the Q&A session. [Operator Instructions] Over to you, Genuino. Genuino Christino: Thanks, Daniel, and welcome, everyone, and thanks for joining today's call. As usual, I will keep my remarks brief, beginning with safety, a core value for our company. The company is completing the first year of its 3-year transformation program, supporting ArcelorMittal's journey to be a zero fatality and serious injury company. The first year has focused on building the foundations for improvement across the business, and I'm encouraged by the progress we are making. We are already observing an improvement in the frequency of serious injuries and fatalities compared to last year. But there is more to be done, and there is clear determination across the entire company to implement the bespoke safety road maps that have been developed to drive lasting change. Now I want to focus this quarter on 3 key points. First and foremost, our results continue to demonstrate structural improvements. Third quarter EBITDA per tonne was $111. This is 25% above our historical average margin. To be achieving such improved margins at what we believe to be the bottom of the cycle demonstrates the positive impact that our asset optimization and growth strategy is having. Our strategic projects, together with the impacts of recently completed M&A will support structurally higher margins and returns on capital employed through the cycle. We remain on track to capture $0.7 billion structural EBITDA improvement this year, and the expected medium-term impact of $2.1 billion remains unchanged. My second point is on free cash flow. Our underlying business continues to generate healthy cash flows. Excluding working capital, 9 months free cash flow was approximately $0.5 billion positive. Remember, this is after having invested close to $1 billion in our strategic growth projects. As we head into year-end, I expect that working capital investment will unwind as it normally does. This supports the positive outlook for free cash flow and lower net debt. And then my final point is on the positive outlook for our business. Relative to where we were 3 months ago, the outlook for our business has clearly improved. We welcome the new trade tool proposed by the European Commission. They will support a more sustainable European steel sector, returning the industry to healthier capacity utilization levels. The proposal must now be transposed into legislation as fast as possible. And together with an effective CBAM, this can provide a solid foundation for our European business to earn its cost of capital as we have been achieving in other regions. With our advanced product offering and strong market franchises, we are well equipped to seize new structural opportunities and translate them into profitable growth. As a company, ArcelorMittal is actively enabling the energy transition. We are supplying the steel required for new energy and mobility systems and the steel required for infrastructure development. We are investing in high-quality, high-margin electrical steels and building a competitive renewable energy portfolio. Putting this all together, ArcelorMittal is in a strong position, both operationally and financially. We have a unique diversified asset base across geographies and end markets. We are delivering structurally higher margins, supported by an optimized asset portfolio and execution of our strategic growth projects. We have momentum and our growth will continue. We will continue to implement our clearly defined capital return policies. It is working well, allowing us over the past 5 years to grow our dividend at a compound rate of 16% as well as repurchase 38% of our equity. Each ArcelorMittal share now represents a greater proportion of our capacity, a bigger share of our leading franchise businesses, a larger stake in our growth projects and a greater ownership of our unique business in India. With that, Daniel, let's move to Q&As. Daniel Fairclough: Great. Thank you, Genuino. We have a good queue of questions in front of us. [Operator Instructions] But we will take the first question, please, from Alain at Morgan Stanley. Alain Gabriel: Genuino, I have two questions. I'll ask them one at a time. So the first one is looking forward to 2026 and before we take into account any impact from CBAM or the new safeguard, what are the unusual or exceptional costs that we need to consider while building our EBITDA bridge into next year? And I'm thinking here more the incurred U.S. tariff costs year-to-date, the stoppages in Mexico, et cetera. That's my first question. Genuino Christino: Okay. Sure, Alain. Well, thinking about 2023 in terms of exceptionals. So right now, I cannot really point to you when it comes to tariffs that we are seeing change, right? We will see, of course, in 2026, as we know, we have the USMCA. And I'm sure the negotiations between Canada, U.S., Mexico will continue. But of course, we have to wait and see how -- what comes out of the negotiations, right? Then clearly, we have the losses in Mexico, and we do expect that they will not reoccur in 2026. And that's really in terms of exceptionals, that's what I see. Of course, when you think about the bridge for 2026, there are many positives that we could potentially talk about, right? One is the contribution from our projects. So we have another about $800 million coming in 2026. We just saw also the first forecast of the World Steel Association in terms of demand for next year. I think we will start to see some of the benefits of the lower interest rates impacting the economies. We are seeing PMIs in Europe recovering. As we know, demand has been just moving sideways in most of our core regions. And I think there is hope that we might see a better picture next year also in terms of demand. I don't know, Daniel, if I'm missing something, if you want to complement? Daniel Fairclough: Thanks Genuino. So all I was going to do is perhaps just adding the numbers for Mexico. So if you recall back to the Q2 conference call, at Q2 results, we talked about a $40 million impact from costs and operational costs in Q2. In our release today, you will see a number for Mexico of $90 million. And then in Q4, things should improve, but there will still be a cost in Q4 of maybe $60 million, $65 million. So as Genuino said, that shouldn't recur in 2026. So then when you think about the bridge from 2025 to 2026, that is close to about $200 million there from nonrecurrence of Mexico. Alain Gabriel: That's very clear. And the second question is in Europe, you currently ship around 30 million tonnes of finished steel. If the safeguards work next year as intended or designed and imports dramatically reduce, how much can you flex your production in the near and medium term after taking into account the restart costs, the purchase of CO2 allowances, et cetera? So in other words, what is your achievable Blue Sky shipments in Europe if we go into that scenario where imports decline dramatically? Genuino Christino: Well, the way we see it, I mean, we do expect to be able to supply the market. I mean, as we all know, the expectation looking at the numbers, I mean there is an expectation that imports will come down by about 40% and flat as we saw, right? And it's not a secret that our market, it's about 30%. So we don't see any problems to make sure that we can capture that part of our market share. And you know, I mean, you have that also in our back book. So our capacity in Europe is way in excess of 31 -- 30 million tonnes that we are currently producing. So we feel very comfortable here to be in a position to supply the market when these new measures are in place. Daniel Fairclough: Great. So we will move now to the next question, which we're going to take from Tom at Barclays. Tom Zhang: Two for me as well. The first one, just the usual one on the kind of moving parts, maybe, please, into Q4 by division? And any color around realized pricing, volumes, that kind of stuff. Genuino Christino: Do you want to take it, Daniel? Daniel Fairclough: Yes, sure, Genuino. So when we look at the bridge from the third quarter to the fourth quarter, I think it's pretty simple. I think there are really 3 key building blocks for you to be thinking about. The first, of course, is the normal seasonal improvement in European volumes. The second factor or the second building block would be higher iron ore shipments. So as Genuino was talking about, we have good momentum in our strategic projects. So we're well on track to achieve the targeted 10 million tonnes of shipments in Liberia. And so that will be a nice increment in the fourth quarter. And then the third building block would be North America. So we would expect normal seasonality in volumes. So we do have 2 holidays in the fourth quarter. So normally, volumes are seasonally weaker in the NAFTA segment. If you look at pricing and if you just purely on a sort of a 2-month lagged basis, pricing should be lower in the fourth quarter than the third quarter, but that's going to be slightly offset by the improvement in our Mexican operations, which we just talked about in Alain's question. So those would be the 3 key building blocks: seasonally higher volumes in Europe, higher shipments in mining from the Liberia expansion and seasonally lower volumes and lower lag prices in the North America segment. Tom Zhang: Great. And then maybe just following up on North America. I mean, is there anything else that you guys would call out for the print in Q3, which I guess was very strong despite the sort of additional Mexico outages. I know you've added Calvert, but I guess, on the consolidation numbers you've given before, that was maybe sort of $60 million a quarter of incremental EBITDA contribution. So maybe that offsets the hit from Mexico, but U.S. spot pricing has been drifting. There's obviously extra tariff costs. Was there anything on either the cost side, the mix side that you flagged for North America? Genuino Christino: Yes, Tom. So first of all, we had a record level of shipments at Calvert. Calvert doing extremely well. So I would suggest that the contribution was a bit higher than what you referred to. Our Canadian team is also doing a very good job in managing what they can. Costs, there is a very high focus on making sure that we take cost out. So that is also supporting the results in quarter 3. So you have the strong operations in Calvert, you have strong operations in Canada in both of the facilities in the [ Long ] facility as well. So we have also a good contribution from some of the other business, our HBI DRI plant in Texas also performing well. So I think we have -- except for, of course, the problems in Mexico, we have our franchise business in North America operating quite, quite well. Daniel Fairclough: So we will move now to the next question, which we're going to take from Cole at Jefferies. Cole Hathorn: I'd just like to ask on the CapEx profile medium term and the envelope that you're thinking about because you do have a number of strategic projects in the pipeline. How should we think about broad buckets for CapEx '25, '26, '27? Any broad-based guidance you can provide? And then following up on working capital, it's a strong improvement into the fourth quarter coming back, but I imagine as you look into 2026, hopefully, we will benefit from a stronger pricing environment. And I'm just wondering how you're thinking about working capital into 2026. Are you hoping for kind of working capital outflows and stronger pricing and demand environment for 2026? Genuino Christino: So in terms of CapEx, what we have been saying is -- and then, of course, we are now -- we're going to be actually just -- we're going to be starting our budget discussions for 2026 and beyond. But what we have been saying is that the range that you have -- that we have been using over the last couple of years between $4.5 billion and $5 billion, including strategic sustaining maintenance, that is a good reference for now. So I would encourage you to keep that as your reference. And then I'm sure in Q4, we will be updating you with more details, but it's a good reference. In terms of working capital, I hope you're right. I mean I hope that in 2026, we have to deploy working capital because then it means that the business is strong. It's performing well. Prices are moving in the right direction, volumes as well. What we try to encourage is you should think about working capital moving in line with our EBITDA, right? So if you believe that if you have for 2026 high EBITDA numbers, then it would be fair to expect that there will be potential investments in working capital, which is something that we would see as positive. Cole Hathorn: And then maybe just as a follow-up, have you seen any changes in order books? Or how are you managing your order book for the start of 2026? Are you keeping some availability for higher prices? Or how are you seeing your order book develop into 2026? Genuino Christino: Well, as we talked about, the demand has been moving sideways, right? So we -- and our order book remains relatively stable, right? So we have segments doing better than others. The order books are relatively stable across the group. We are not doing anything special to try to anticipate a stronger 2026 other than making sure that we allow the business to keep the working capital that they need so that they can benefit from a stronger 2026 that we hope will materialize. So that's really how we are planning. And yes, that's how we are seeing it so far. Daniel Fairclough: Great. So we're going to move to the next question, which we'll take from Reinhardt at Bank of America. Reinhardt van der Walt: Can you hear me? Daniel Fairclough: Yes, we can. Go ahead. Reinhardt van der Walt: I just want to ask on capital allocation. So if the safeguard replacements in Europe come through in their proposed form, how would you think about Europe from a capital allocation point of view? And I don't want to necessarily draw into discussion about sort of decarbonization investment in CBAM. But just from a purely economic perspective, you talk about organic growth. Do you think Europe could be a home for capital in the future if we get this framework? Genuino Christino: I think you touched on it. I mean this is an important framework, right? And then what we are talking about is that this framework should allow the industry to be sustainable, to earn its cost of capital. And when you achieve that, then you are in a position to consider then investments. And that's exactly where we are. And so we are encouraged by these new measures. Of course, still waiting for the implementation. We still need to hear more about CBAM as we all know. And then the last piece of the equation is, of course, energy, energy cost. So I think once we have that framework very clear, then we're going to be in a position to move forward. And as we discussed before, this will happen gradually, right? So you should not expect ArcelorMittal launch a number of simultaneous projects. It will happen gradually. This is going to be a multiyear journey. Reinhardt van der Walt: Understood. That's very helpful. And could you just remind me, I mean, you mentioned the business in Europe could potentially return to its cost of capital. Could you just remind us what exactly is the installed capital base of the European business? Genuino Christino: Well, I don't think this is something that we are very specifically disclosing, Daniel? Daniel Fairclough: No, you're right, Genuino. It's not something that's broken out in our financials. Reinhardt van der Walt: Okay. No, that's fine. Maybe just one last quick one, Genuino. You mentioned that you've got the capacity to be able to deliver effectively your share of the 10 million tonnes. Can I just see what kind of costs you might need to incur in order to bring that capacity to market? I mean I appreciate it's there, but could you just maybe talk through some of the costs that you need to incur to actually get that utilization up? Genuino Christino: Yes. Well, it's a good point. And I would break it down into 2 components or 2 parts, right? First is, so you have the fixed cost part. So in a number of facilities, we're going to be able to leverage the fixed cost that we have, right? So you're just going to be running at a higher capacity. So you benefit on the fixed cost side. But then in such cases, normally, what you're going to see also, it's an increase in your variable costs, including then CO2 cost, right? If you want to improve your productivity, you might need to charge higher quality materials, pellets, more pellets. So that will be -- you should expect that to have an impact as well. So I would just encourage you to think about the 2 components. Daniel Fairclough: So we'll move now to a question from Timna at Wells Fargo. Timna Tanners: I wanted to ask two things. One, just kind of probing a little bit more your efforts to mitigate the tariff costs and specifically how you're approaching the annual contract negotiations with automakers at Dofasco? And then a separate question, just if I missed it, I apologize. I was just wondering if you commented on why not -- why there weren't any buybacks in the quarter. Genuino Christino: Yes. So we continue to renew our contracts, our OEM contracts. So we just -- we're basically almost done now for part of first half of next year. So signing even more than a 1-year contract. So I think fundamentally, our customers, so they like the product. They like what they get from Dofasco. So I think there is very good cooperation between us and our customers there. So we don't expect really here significant change in terms of -- looking at our North America business in terms of volumes going to automotive, of course, other than if we have lower production next year, which we are not talking about, but just because of renegotiations, we are not really expecting significant change in the overall volumes going to automotive. And in terms of buybacks, there is not really much more I have to say. And as you know, we have a very clear policy, and we believe that is a differential. I mean not all of our competitors will have a very clear policy. And I think we were in a way, lucky. We did a lot of buybacks at the very beginning of the year when the share price was still low. And all I would say is that you should expect that the company will -- on that policy, that 50% of the free cash after paying dividends will be distributed to shareholders. I would just also add that the policy is working quite well. I mean we talked about 38%. So we did 9 million shares this year already. And we have a very low average price. So we are really creating a lot of value to our shareholders. Daniel, if you want to complement? Daniel Fairclough: Yes. Thanks, Genuino. I think that was very complete. So we will move to the next question, which we will take from Tristan at BNP. Tristan Gresser: First one is on working capital. Just wanted to see how confident you are on the almost $2 billion of release that you expect in Q4? And what should be driving that? Is there any impact from outages at Fos or Mexico? And isn't there a risk of reducing inventories a bit too much and missing the recovery in Q1? And if you can discuss that as well. Is that not your base case that notably in Europe, you'll see a bit of a pickup in Q1? And also if you can comment on the CBAM uncertainty. And does that have any impact on your order book in Europe and pushing more buyers towards local producer? That's my first question. Genuino Christino: Yes. So we -- the working capital release in Q4 to some extent, it's seasonal, right? I mean, as we know, we have just less working days in December. So that will have an impact on how much receivables we carry at the end of the year, right? And then if you look also, we had a reduction in payables. So as we prepare actually for potentially a stronger 2026, so we start also increasing, and that should also start to normalize. And you're right. So there are a couple of one-offs such as the fact that we are not able -- we are not producing as standard in Mexico, some accumulation of raw materials that should also start to normalize, right? We have the reline of our Dunkirk blast furnace, which is also then in the process for now. We are normalizing the inventory of slabs. So yes, we are very confident that you're going to see a significant release of working capital as was also the case last year. So if you go back to 2024, you're going to see something very, very similar. And you're right. So we have a concern here not to squeeze the working capital that is available to the business. And that's why what you're going to really see is more on the receivables side and payable side, not so much in terms of inventories. Tristan Gresser: Okay. No, that's clear. And just following up then on Europe and with the steel action plan, do you believe that there is a possibility of seeing the new quotas implemented before July next year? And to come back to my earlier question, what kind of environment do you see in Q1? If the quotas are not implemented in January, April, but in July, do you see a risk of import surging? Yes, and if you could comment a little bit on your order books in Europe, if you're starting to see a bit more activity there, that would be helpful. Genuino Christino: Yes. Well, in terms of timing of implementation, so when we discuss internally, I think there is still hope that we might actually see it earlier. And I think that's quite important, and that's really the efforts in terms of making sure that the parliament and the council, they understand the urgency of having these measures implemented as soon as possible. So even though it's challenging, I think there is still hope that we may see this implemented earlier. But of course, we have to wait and see. One thing is for sure, though, I mean, of course, we don't even don't yet know for sure all the details of CBAM. But CBAM for sure is effective already from 1st of Jan, right? And then we will see what are the final terms. But that alone should already at least bring the -- make the imports less competitive. And then in terms of order book, I think we discussed, I mean, order books are at -- they are not higher than normal. I think it's just as we are seeing demand for now at least kind of moving sideways, demand -- the order book is relatively stable. Daniel Fairclough: Great. So we'll move now to take a question from Max at ODDO. Maxime Kogge: So my first question is on Mexico. So this is an asset where you have had a number of issues over the recent past. So there was this illegal blockade last year. There was the outage on the EAF earlier this year, and now there's this problem on the DRI plant. So how confident are you basically that the asset can return to a normalized productivity and performance and that on a recurring basis from next year? Genuino Christino: Yes. That's a fair question. And then, of course, we are not pleased. Some of the problems that we are facing this year, they are still a result of the legal blockade that happened last year. And what we are doing right now is really reviewing all of our SOPs. So we have our engineers, we have our CTO group going through all the procedures, making sure that we avoid repetition of some of these issues. So I'm very confident that with the support of the group, CTO and local team also very engaged, we're not going to have a repetition of some of these operational issues in Mexico. Maxime Kogge: Okay. And then a second question is on the import pressure in Brazil and India, which seems to be quite high at the moment, and it's reflected in very low prices. So it seems that the authorities there are not really willing to tackle the situation at this stage. So how are you confident that this will be the case? And would you be ready to scale back your investments in Brazil if that's not the case, given that I think one of your competitor has done such a move and Brazil is still the biggest region where you invest at the moment if we leave aside Liberia. Genuino Christino: Yes. Look, I mean, mid- to long term, we continue to be bullish on Brazil. We will continue to invest. You're right that we have seen imports rising in Brazil. And there is also a very close dialogue with the government showing what the governments are doing around the globe, right? And what is encouraging is we have a number of antidumping measures that should start to have an impact, we believe by end of this year or beginning of next year. So we have antidumping against China on cold rolled, which, of course, are products that we are selling domestically. So that should have a positive impact. I think the system, the way it is designed today, it also allows for -- if we see surges in other products that we can also then look to add them to the quota systems that we have in place today. We have seen a reduction of imports already in quarter 3 compared to quarter 2. So we'll see, but I think the fact that we have the antidumping is important, showing that the government is also concerned. Local mills, as we know, announced price increase as well beginning of the quarter, we'll see how it plays out. And India, I would say that demand continues to be extremely good, strong, rising, strong economic performance. You're right that prices are low, that the, I would say, -- there is also the impact of the new capacity that normally takes a while to be absorbed. So we are going through that process right now. But I think we can also be optimistic for the near term. Maxime Kogge: Okay. And just perhaps the last one is on Ukraine. It seems that the challenges there have gone bigger in recent months in terms of railways, in terms of electricity costs. So is there a point where you will consider shutting down production entirely? Or are you still committed to maintaining production as it is for the time being? Genuino Christino: Yes. The situation in Ukraine, you're right. So we are running today at basically at capacity that is available to us. So we are running 2 furnaces. So the trend is EBITDA positive. We are not yet free cash flow neutral as we discussed before, right? And the key issue for us remains the high energy costs. So again, here, we are trying to engage in discussions with the government to show the importance to bring that to levels that are -- that will allow the industry to be sustainable even in this very challenging conditions of the war. We'll see. But for now, the plan is to continue to produce. We have the mining operations that are also close to capacity. So we are able to sell the iron ore to our own mills either in Europe or to third parties outside. So yes, I think it's -- for now, we are managing through a very challenging situation. Daniel Fairclough: So we'll move now to take the next question, which is going to be from Bastian at Deutsche Bank. Bastian Synagowitz: My first one is on Europe, and can I please come back on the situation here in the context of the policy plans? So when you look at the European capacity landscape, do you believe that the current capacity, which is in operation, would be enough to pick up the additional market share, which the domestic industry would likely absorb from the imports? Or would this 10 million tonnes, which you referred to in the chart require idle capacity to restart? And then maybe just as a quick add-on to that, are you generally more positive on the volume or the price leverage for your business from the policy, which has been laid out? Those are my first questions. Genuino Christino: Yes. Well, I think in terms of -- as we know, I mean, and that was also made very clear by Europe, by the commission. As we know, the capacity utilization in Europe today is low. And that's the whole idea behind some of these trade actions to allow the industry to regain a level that is more sustainable, right? And I think, Bastian, it will depend on where you are in Europe, right? So there can be cases where you're going to need to bring some idle capacity. And then, of course, costs are going to be also higher because you're not going to have the benefit of the fixed cost, right? So it's difficult to be very precise on that. And for us, I think it's -- I guess what is important here is really to make sure that the industry can run at a decent level of capacity utilization, right? I think that's the whole idea because then, you can earn your cost of capital, you can optimize your fixed cost base, your cost base, et cetera, et cetera. So that's how we are seeing it. Bastian Synagowitz: Okay. And just in terms of the leverage for your own business, when you look at the gives and takes, are you more positive on the price effect? Or are you more positive on the volume impact on your earnings contribution? Genuino Christino: Well, I want to be drawn on that. I think for us, as I said, what is important is that we can run our facilities at a higher capacity utilization, right? And that should be then, if you have less imports, which as we know today, the cost or the price of imports is so low, right? Daniel, do you want to add anything to this question? Daniel Fairclough: Yes. So I think like you're saying, it's very difficult to isolate the sort of contribution of the fixed cost absorption, the sort of operating leverage or the impact of just higher industry utilization on spreads. But I think I'm sure you've analyzed this in the past that, Bastian, there's a good correlation between spreads and utilization. So there should be 2 factors, and those 2 factors should contribute to what Genuino is talking about, our business in Europe, the industry in Europe being in a position to covers cost of capital. And that's ultimately the objective here. Bastian Synagowitz: Okay. Sounds good. And my next question is on North America. And I guess one of your Canadian peers here is heavily loss-making. Could you maybe give us a bit of color on how Dofasco is actually performing on a single entity basis? And are you still making money there? Genuino Christino: Yes, absolutely. Dofasco is one of the best facilities in the world. And so it's still very much profitable. Bastian Synagowitz: Okay. Great. And then very last question, just on your expansion strategy in Hazira. Is that on track? And just, I guess, given what you discussed earlier in terms of the capacity, which has been brought on already this year. Do you think the market is ready for the ramp-up next year as you're planning it? Genuino Christino: Yes. I think, first of all, our projects are ongoing and going well. So we're going to be, as we discussed, commissioning some of the finishing lines still later this year, beginning of next year. And then during 2026, we're going to be completing the upstream, including coke batteries. And a lot of the new capacity has just come down. So I think we're going to be in a good position to ramp up our own capacity. So allowing some time so the market can absorb that. So I think in terms of timing, it looks good, Bastian. Daniel Fairclough: Great. So we still have a few more questions to take, Genuino. So the first of those we will take from Dominic at JPMorgan. Dominic O'Kane: Just a couple of quick questions on, again, sort of real-time indicators of demand. You obviously have a seasonal slowdown in the North American market. But are you seeing any visible signs of kind of new pockets of weakness in the U.S., particularly given the government shutdown? And then my second question relates to Europe and the auto segment. Do you have any insight you can share with regards to how you're approaching contracts moving into January? Genuino Christino: Yes. So starting with the U.S., you're right. So I think overall, we all know the numbers, right? So the demand moving sideways. But I would say that when I look at our business, Calvert is running absolutely full. We had record levels of production shipments, right? So the 2 segments where we are very much focused, the energy, automotive doing relatively well. And then when it comes to Canada and Mexico, I think that's where we also see some potential because, of course, the demand domestically, let's forget tariffs for a moment, also significantly impacted, right, with all the uncertainties created by the change in the relationship between the various governments within North America. So I think we see potential for stabilization there that should also support the shipments domestically in Canada and Mexico. Coming to the auto contracts, I mean, it's going to be just how it is. So I think we have a lot to offer to the automakers. In some cases, in North America, as we know, the negotiations will happen gradually during the year. And in Europe, there has weight to the beginning of the year. So this process is ongoing. And I expect that it will be -- as always is, we have an agreement that is -- that should be a win-win for both companies. Dominic O'Kane: Is there any sense that the price tension that we've seen over the last 2 years could alleviate this time around? Genuino Christino: Yes. As you know, I mean, we don't comment on -- specifically on prices, as you can imagine. So these negotiations, first of all, they are specific. And so we don't comment on prices. I would just -- of course, the spot price is always a reference, right, starting point. You see prices moving higher in Europe already. They are also coming up again in North America. We talked about prices in Brazil also, higher prices being announced. So I think the environment is, in that sense, it is positive. Daniel Fairclough: So we will move now to Andy at UBS. Andrew Jones: So just to go back to the European question about the CO2. Can you just remind us what your emissions are likely to finish at in 2025 if we assume the normal seasonal uptick in 4Q and how that compares to your free allocation levels this year? And going into 2026 with the reduction of the free allocations, and I guess at some of your sites, you produced less in recent years, so you may lose some free allocation because of lower production. Can you give us an idea by how much you expect your free allocation to change next year? And maybe as a follow-on to that, are there any assets which are kind of emitting less the reallocation where the uplift in production would have minimal cost on the CO2 side. Just to give us an idea for how much you could ramp production easily. Genuino Christino: Andy, I mean this is -- I mean, there are many, many moving parts, right, when it comes to DTS system, it is complex. I would just say that as we know, in Europe, most players, if not all players, they are short, right? So they don't meet the benchmarks. I would say a good rule of thumb, it's about -- you're paying CO2 costs for about 20% of your production, right? That's the ballpark to give you an idea. I think when we look at our -- and it's always based on an average, you have your how. So it's highly technical. So we don't really expect going forward in 2026 that we're going to be losing free emissions meaningfully because of levels of operation, right? But as we know, there are reductions, gradual reductions that will happen with the implementation of CBAM. You need to take that into account. And there are also revisions to the benchmarks, right? So that's the situation. Andrew Jones: But you don't have a number of credits reduction that you expect for next year? Genuino Christino: Well, I mean, we all know what's going to happen in terms of reductions. There is a 2% reduction in the DTS system, the 3 allowances, right? And then we have to see what happens now with the benchmarks. So it's too early to talk about it. I would just add that what is important here also is now with CBAM, right, and to the extent that CBAM is effective, then at least you are at par with imports. So they will be paying the same costs, right? I think I would encourage you also to see to the extent that costs increase in Europe, but you have at least the same cost being applied to imports, at least there is a level playing field in that regard, right, which is, I guess, what the whole industry in Europe has been advocating. Andrew Jones: Okay. That's clear. And just a second question on Canada. There was a recent document about medium and light -- medium and heavy vehicles, a proclamation on the auto industry from the White House, which have a paragraph in it talking about potential carve-outs for auto-grade steel from Canada where the tariff would drop by -- from 50% to 25%, conditional on some conditions around like investments in the U.S. and things like that. I was wondering how you interpreted that because it seems slightly unclear to me. But if you've got an asset in the U.S. that you're clearly investing in, do you see potential to use that recent proclamation to reduce the tariff from Dofasco into the U.S.? Genuino Christino: My understanding is that the negotiations at this point in time, as we all know, they are suspended, right? And we are hoping that they will resume the negotiations. And then we'll see finally what comes out of these discussions. I don't have anything else really to add. Daniel Fairclough: So two questions left. So we're going to take the first of those from Phil at KeyBanc. Philip Gibbs: Regarding North America, how is the Calvert EAF ramp going? And is that part of your incremental 2026 strategic EBITDA growth bridge as you look into next year as that comes up to the levels you expect? Genuino Christino: Yes. Well, we are ramping up. So our expectation now -- latest expectation is to end the year with a run rate between 40% and 50%. So it's progressing. We started also the qualification process. And you're right. So when you look at our bridge, that is on Slide 10 and the 800 million, then you're going to have contribution from Calvert in 2 buckets. One is, of course, we're going to be consolidating Calvert for the full year. And as you know, we started the consolidation in end of quarter 2. So you're going to have an extra contribution from Calvert consolidation, which is in our M&A bucket. And you're going to have the contribution from the EAF. Especially in this environment, right, when we are -- when Calvert is also paying for tariffs on the slabs. So that is also part of the 600 million that you see from projects. So Calvert next year, it's in the 2 buckets there. Philip Gibbs: And as a follow-up, you mentioned in your remarks in your analyst deck that Canada is beginning to address some of the unfairly traded steel or some level of reciprocity for the U.S. tariffs. What have they done specifically? And do you think they're doing enough? Genuino Christino: Well, as we know, we have a very large level of imports into Canada, right? So of course, they reduce the quotas for non-FTA countries. That's a good step, but it doesn't really address the problem. So we believe that Canada should be put in place a much stronger trade protection to make sure that the industry can again also regain market share vis-a-vis imports. As we know, a lot of the imports also come from the U.S., right? And there, we are hopeful, again, as we said, that Canada, U.S., Mexico, and maybe as part of the USMCA negotiations, they will also come to an agreement. And that would be very, very good, right, if you have the whole USMCA with similar rules, similar protection. So that would be extremely positive. And you would expect if you have a common trade block that the rules would be similar. Daniel Fairclough: So we'll take our final question, and we'll take that from Boris at Kepler Cheuvreux. Boris Bourdet: Two questions and one technical precision. The first is on Europe. I think you're quite close with politics in talks about those trade barriers to be implemented. What is your take on the fact that those proposals of the European Commission will be adopted in the current state they have been proposed or whether there could be some dilution? That would be my first question. Then on China, there is a lot of talks about the anti-involution measures. Do you see any chance that China might be moving towards a cut in production as some headlines were referring earlier this year? And lastly, just to confirm what you said earlier on the market share in Europe, is it 30% or 20% to 30%? Genuino Christino: Okay. So Boris, I will take your first question, and then I will comment on China. Well, I mean the dilution risk, I mean there is a process, right? So the proposal is now going through the parliament, it's going through the council. I think there is a desire expressed by a number of governments by the commission to have an accelerated approval process. And that is only possible if we don't have a significant change. So I think that's our request that we have these measures in place as soon as possible. And then on the market, that's -- I mean, that's -- I'm just giving you a reference. Okay. Daniel, do you want to talk about China? Daniel Fairclough: Yes, yes. So it's obviously a question that we receive on most of our calls around the theme of China excess capacity, when will they address it, when will they take measures to structurally reform the industry to balance domestic capacity with domestic demand and in an effort to restore the industry to health, to reasonable levels of profitability, reasonable margins, et cetera, et cetera. So to your question, there have, of course, been lots of headlines and suggestions that steel could be one of the beneficiaries of the anti-involution theme in China this year. But the reality is that we really haven't seen any changes in the impact that China is having in external markets. So they continue to have weak prices, very weak margins. Generally, there's a substantial proportion of the industry operating with -- on a loss-making basis. And they continue to export at extremely elevated levels, run rates of 120 million tonne, 130 million tonnes annualized. So those negative domestic dynamics are then being translated into other regions through those exports. So I guess my answer to your question is until we really see strong evidence of change, and that would be through improved prices, improved margins, improved profitability and most importantly, through reduced exports, then nothing is really changing. And that just puts even more emphasis on the requirement for governments to take appropriate actions to ring-fence those domestic industries from these negative impacts of excess capacity in China. So Genuino, he was just talking about the progress, the strong progress that we're making in Europe. We talked earlier about what's happening in Brazil. But it's clear that, that's the best way to deal with this issue is by putting appropriate protections in place. Great. So I think that's our last question, Genuino. So I'll hand back to you for any closing remarks. Genuino Christino: Thank you, everyone. Before we close, let me briefly reiterate the key messages from the start of the call. First, our results continue to demonstrate structural improvements. The fact that we are posting such improved results at what we believe to be the bottom of the cycle bodes well for when conditions normalize. Secondly, our underlying business continues to generate healthy cash flows. Looking behind seasonal working capital movements shows that we continue to generate good underlying free cash flow, and this is after having invested close to $1 billion in our strategic growth projects. These projects are delivering structurally high EBITDA, and this will continue in 2026. Finally, the outlook for our business has clearly improved over the past 3 months. The newly proposed trade tool, combined with an effective CBAM provides the foundation for our new business to earn its cost of capital. Together with the actions being taken in other regions like Brazil and Canada, this continues to point towards a more regionalized and better protected steel industry in which ArcelorMittal can thrive. With that, I will close today's call. And if you need anything further, please do reach out to Daniel and his team. I look forward to speaking with you soon. Stay safe and keep those around you safe as well. Thank you very much.
Geoffroy d'Oultremont: Good afternoon, everyone, and welcome to Solvay's Third Quarter and First 9 Months of 2025 earnings call. I'm Geoffroy d'Oultremont, Head of Investor Relations, and I'm joined here today on the call by our CEO, Philippe Kehren; our CFO, Alex Blum; and our COO, Lanny Duvall. This call is being recorded and will be accessible for replay on the Investor Relations section of Solvay's website later today. I would like to remind you that the presentation includes forward-looking statements that are subject to risks and uncertainties. The slides presented in today's call are also available on our website. We'll further discuss our third quarter earnings, then give an update on the operational excellence program and come back also on some recent developments at Solvay before taking your questions. Philippe, please go ahead. Philippe Kehren: Thank you very much, Geoffroy and hello, everyone. As usual, I will start with a word on safety. While the number of injuries is stabilizing at lower rates since the beginning of the year, the few accidents we saw in our operations remind us that we need to continue to work hard on the transformation of our safety culture. Changing the mindset and the behaviors is our main focus. Safety will always remain our #1 priority. . Slide 6, please. So Alex will go through the earnings in detail, but I would like to give you a few messages first. So first, the overall environment remains difficult. We didn't see any improvement in the general macroeconomic indicators and the geopolitical and trade environment remains volatile. Our Coatis business continues to see very difficult market conditions related to the direct and indirect impact of the increased tariffs for Brazilian imports to the U.S. Our soda business also continues to be under pressure, specifically in our seaborne export markets due to Chinese overcapacity. Our analysis of the situation is confirmed by the recent anti involution regulation announced by the Chinese government and its intention to restructure industries where there is overcapacity. If and when they will target the older synthetic soda ash industry in China, we estimate that the market will rebalance and rapidly improve. But as long as demand remains subdued and supply remains as such, we expect to see continued price pressure in the Southeast Asian region. We continue to think that this situation is unsustainable for the region with many players seemingly selling below their cash costs. In this context, we have reduced the quantities produced in our European soda ash exporting plants. The upside to this downside is we were able to save some CO2 emission rights consumption. And since we've been building our CO2 emission rights portfolio for quite some time at Solvay and as how coal phaseout is more and more secured, we decided to sell part of our CO2 emission rights inventory in Q3, and that generated EUR 40 million EBITDA and EUR 50 million cash gain. So allow me to be very clear about this. This is definitely not a one-off, but it is a business decision that we may repeat in the future should these market conditions persist. Now before we move to financial, I would also like to spend a few minutes on the good work that we've done related to our transformation. Slide 8, please. So earlier this year, we shared with you our essential for generation strategy to establish Solvay as the leader in essential chemistry. Operational excellence is the first lever of the strategy and will allow us to accelerate the transformation of the company. We've been updating you regularly on the progress of our cost savings program with the commitment to generate EUR 350 million of cost savings by 2028. Today, we have invited Lanny Duvall, our Chief Operations Officer; to this call to give you a deeper understanding of what we do and how we achieve real results on the ground. Lanny, the floor is yours. Lanny Duvall: Thank you very much, Philippe. My job is to translate this strategic commitment into hard numbers across the company. Today, I will zoom in on our industrial sites and describe how we approach the sustained improvements. Our savings targets are the results of 2 main programs. First, we may be a 163-year-old company, but we are becoming a digital-first company. Over the last 18 months, we've invested significantly in both infrastructure and in capability. We've created a world-class data structure where all key operational data resides, and we can leverage our scale to quickly deploy across the organization. Second, we're implementing what we call our Star factory program, where all plants have a road map for improvement in really all dimensions needed to operate our plants. All the examples that we are going to discuss are or will be implemented across all regions and all clients. Slide 10, please. Our maintenance strategy is important for our fixed cost and the reliability of our assets. This transformation in our operational performance comes from moving away from a time-based maintenance to condition-based monitoring or what we call CBM. We utilize real-time data analysis to predict equipment failure and determine the optimal moment for intervention. By utilizing sensors to major and asset status, CBM enables the collection of critical data such as temperature, vibration or sound. This data allows us to spot trends predict potential failures and determine the remaining lifetime of the equipment. This allows us to reduce the cost of the repair and plan for the interventions. This shifts our entire operation from being reactive to being proactive. This isn't a hypothetical pilot. We've deployed this on a global scale. We've gone from a couple of hundred sensors in 2023 to over 4,500 sensors today and 9,000 by 2027. Creating a more resilient, reliable and cost-effective industrial footprint. This is a good example of the value we are creating with our digital and data strategy, and demonstrates our ability to quickly scale across the company in all regions. Vibration monitoring is not new or novel. But the deployment strategy at scale is a best-in-class practice. As an example, at the Dombasle site helped to detect abnormal vibration on a fan and a malfunctioning of a lubrication valve. Thanks to the alerts generated by the IoT sensors, this could be quickly corrected, and we saved a potential EUR 100,000 repair cost. These highlights -- these examples highlight the effectiveness of the CBM in preventing failures before they escalate into more serious and costly issues. Again, the secret is how we have invested in our data platform, and we are now perfectly set up for using advanced AI tools to further our impact. Another example, we are redefining how we manage material and energy performance across our industrial operations. This isn't just about efficiency. It's about unlocking EUR 37 million of potential plant variable costs by 2027, which represents roughly 2% reduction compared to 2023. It's about building a smarter, safer and more sustainable future. At the heart of this transformation is digitization. We are rolling out standard real-time dashboards giving operations and engineers instant access to the metrics that they need. The helicopter view, as we call it, which is the standard in all of our control room includes everything our employees need, such as safety indicators to ensure our people and processes are protected, real-time production levels to track throughput and performance or material and energy consumption metrics to drive efficiency. This is not a technical upgrade. This is a cultural shift. It's about embedding performance thinking into every layer of the organization, starting with the shop floor. It's about making sustainability and efficiency inseparable from operational excellence. Next slide, please. Continuously optimizing our industrial footprint is a core part of our strategy to enhance performance. Let me give you 3 examples. First, we've aligned our regional footprint with demand. In our peroxide business, we've taken decisive action in Povoa, in Portugal and Warrington in the U.K. and reduced our capacity in the European merchant markets. Second, we recently announced different measures in our Special Chem operations in Germany to secure our long-term competitiveness. In practice, this means we will consolidate our Special Chem German production sites to improve efficiency by relocating the NOCOLOK Tech Center and production operations from Garbsen to Bad Wimpfen. We will consolidate expertise into one location. We will establish Bad Wimpfen as a global hub for production, innovation and customer applications, reinforcing Solvay's position as a worldwide leader in automotive brazing. Third, our energy transition, which is key to our long-term competitiveness. At our Torrelavega soda ash plant in Spain, we could not ensure competitive production costs after a full coal phase out. Hence, we will supply Latin American customers from our Green River plant with a very cost-efficient alternative. We decided to decrease the Torrelavega production by 1/3. We will allow -- this will allow for reduced fixed cost and CapEx at the site while making the energy transition project possible for the remaining capacity. Indeed, earlier this year, we announced moving forward with the biomass co-generation unit that will reduce the CO2 emissions by half in 2027. These actions are taken to ensure our operations are lean, competitive and ready for the future. The last example, our spin review challenge. This is a 5-step process that brings together a multidisciplinary team to challenge traditional ways of working and create value. The team analyzes spending at a site level and covers all of the site-related purchasing categories, operations, procurement and leadership all need to work closely together to create value for each site. This is an ongoing process. We started with the industrial categories, and we've expanded to include facilities, R&D services and goods, on-site logistics and packaging. The SRC has the potential to return EUR 15 million to EUR 20 million annually, primarily in fixed costs. In 2025, we have challenged EUR 330 million in spending across 21 sites and identified EUR 11.3 million in savings opportunities, but we're not stopping there. We plan to complete 9 additional sites until the end of the year, aiming for a 5% savings on the addressable spend. An interesting case from our Qingdao site in China, where we redesigned the plastic pallets to reduce the rate by 18% and allowing for EUR 230,000 in annual savings. So this change is better for our bottom line, more efficient for us and our customers' operations and better for the environment. We are currently investigating how to scale this initiative to other sites. Slide 12, please. We feel confident we will deliver the EUR 350 million in gross annual savings by 2028. Because we have invested in our digital transformation, have an execution at scale strategy, all while improving safety performance and providing a platform that is future-proof. The early results are speaking for themselves. We achieved EUR 110 million in 2024 and are on our way to exceed EUR 200 million by the end of 2025. At the core of our transformation is digitization, by embedding digital tools and building a common data infrastructure, we are ensuring that our operations are future-proof and AI ready. We are already rolling out machine learning and exploring options for GenAI and Agentic AI in operations. To conclude, I want to leave this -- I want to leave you with this, we are not just cutting costs. We are fundamentally improving how Solvay operates for the next generation. And this is how we contribute to the long-term financial resilience of Solvay. With that, I'll hand it over to Alex to walk us through the Q3 results. Alexandre Blum: Thank you, Lanny, and good morning, good afternoon, everyone. Moving to the financial I'll remind you that my comments are based on organic evolution, meaning at constant scope and currency, unless otherwise stated. Moving to Slide 14. In the context of subdued demand underlying net sales in Q3 2025 reached EUR 1.040 billion, down minus 7% versus Q3 2024. Volumes, were down minus 4% year-on-year, mainly driven by weaker performance in the Coatis business and in the soda ash seaborne market, while volumes for peroxide, Bicar, Silica and Special Chem were steady year-on-year. Pricing was overall resilient, although we continue to see strong pressure on seaborne soda ash market and in our Coatis business. As already highlighted by Philippe. Slide 15, please. Underlying EBITDA amounted to EUR 232 million in Q3 2025, down minus 7% compared to last year. However, EBITDA margin remained solid, up 22%. Volume [indiscernible] mix was up thanks to the positive impact of the optimization of our portfolio of CO2 addition rights. Excluding this one-off, of course, the volume and mix was down mainly due to soda ash export volumes. Net pricing decreased year-on-year, again, primarily driven by the seaborne soda ash market in Coatis. Net pricing in the other businesses remained very resilient. With regard to fixed costs, the year-on-year variation this quarter was negative EUR 9 million. But this is exclusively coming from the EUR 10 million temporary stranded costs related to the separation from SYENSQO as our selling program continued to exceed inflation. Looking sequentially, we have stabilized our manufacturing cost base and despite still low production, we have been able to keep our maintenance cost below Q2 level. Moving to the segment review, starting with Basic Chemicals. Sales in the soda ash and derivatives business unit were lower for the quarter by 8% soda ash volumes were down mostly from the seaborne market, where unsustainable pricing pressure persist due to the overcapacities built in China. On the other hand, the bicarbonate volumes are steady year-on-year. Peroxide remains resilient with stable volumes in the merchant market. benefiting from the growing demand in the electronic grade H2O2 for the semiconductor industry. The segment was down minus 15% compared to Q3 2024, while the EBITDA margin remained slightly -- only slightly decrease of 23%, still a very healthy figure in such a challenging environment. Performance Chemical, moving to Slide 17. Silica sales remained more or less stable with some slight volume slowdown in the entire market. In line with last quarter, Coatis saw the largest decline with sales of minus 26%. Volumes were down in all end markets impacted by strong competition from Asian players. And the overall weak demand further aggravated by the U.S. tariff from Brazilian imports currently reaching 50% or more. Special Chem for the quarter, sorry, Special Chem net sales for the quarter were flat with slightly higher volumes in autocat in rare earth and electronics. Offsetting lower fluorine demand . As explained earlier by Lanny, this drove us to take strategic decisions in Germany to ensure the long-term competitiveness of the fluorine business line. The segment EBITDA was down minus 21% due to the negative volume of the different business units and negative net pricing of Coatis. The EBITDA margin decreased year-on-year to 15%. Slide 18, Corporate segment results. The EBITDA contribution of the Corporate segment in this -- the third quarter was a positive contribution of EUR 22 million. As explained by Philippe, this includes a EUR 40 million gain from optimizing our portfolio of CO2 emission rights. Generally speaking, to manage our EUA deficit we use a mix of CO2 emission rights, free allowances, EUA, inventory, energy transition projects and financial hedging instruments. Thanks to the progress made on the energy transition project and given the current low production level in Europe we've decided to optimize our portfolio of CO2 emission rights in Q3. I said in part of our inventory without changing our overall risk profile. As a consequence, the full year EBITDA for the corporate segment is now expected to be between minus EUR 40 million and minus EUR 50 million which is in regard to the previous guidance of minus EUR 80 million to EUR 90 million, excluding the positive EUR 40 million I just mentioned. This brings us to the free cash flow to shareholders from continuing operations. We generated EUR 117 million of free cash flow in the third quarter. Bringing the total for the first 9 months to EUR 214 million. This result was supported by a contribution of EUR 50 million from the optimization of the portfolio of CO2 emission rates. CapEx reached EUR 81 million for the quarter and EUR 214 million for the first 9 months of the year. This is well in line with our objective to stay within EUR 300 million. The cash flow -- the cash outflow year-to-date from provision are in line with expectation and include EUR 37 million related to the energy transition project in. So to wrap up the financial, I would like to end with a word on net debt. Net debt has come down a bit since the end of June. And this is in line with our expectation of approximately EUR 1.7 billion at the end of the year. Our leverage ratio remained healthy at 1.8x. And with that, Philippe, back to you for the recent development in the outlook. Philippe Kehren: Absolutely. Thank you very much, Alex. But before we move to the outlook, I'd like to remind you of some recent developments at Solvay. You might have seen the expansion of capacity of our electronic grade H2O2 in China. The announcement and our willingness to accelerate the development of circular Silica. And the changes we announced in Germany, as explained earlier by Lanny. While we stay focused on the transformation of the company through structural adjustments, we were also able to ensure the future long-term value creation of our businesses through disciplined investments in high-growth areas. Rare earth is another example. Earlier in the year, we inaugurated our rare use production line for permanent magnets at's La Rochelle in France. And given the recent developments around this industry, we will take the opportunity of this call to provide a bit more details about Solvay's current activities and the future prospects in the rare earth industry. At Solvay, we've been rare earth experts for quite some time. Our La Rochelle site has been processing them since its opening in 1948, right after World War II. Today, our position in value chain is focused on separation, purification and formulation. High-value chemical rare earth oxides are formulated in 3 industrial units. So in addition La Rochelle in France, we have one site in Japan and another site in China, and they're all serving several advanced applications such as emission-controlling cars, chemical polishing for semiconductors and precision optics, green energy or medical contrast agents in MRI procedures or Scintillators for PET scans. This global footprint and the modularity of our 3 plants allow us to ensure business continuity for our customers in these different industries, even at times of supply chain disruptions as it has happened earlier this year. So let's now have a look at our projects in La Rochelle and the new high potential opportunities in rare earth separation and purification that we want to capture. Next slide, please. So we proudly inaugurated our new production line in La Rochelle in April this year. And since April, we've been producing Nd-Pr oxide, that's neodymium-praseodymium oxides for the permanent magnets end markets. This is what we call the light rares for permanent magnets. And I'm excited to share that we've made the decision to start separation and purification of 3 more rare earth elements. Samarium has already started in the second half of 2025. And Dy-Tb or dysprosium and terbium which we call the halves, this will be done by 2026 and they are all essential for permanent magnets as well. And Solvay will be the first in Europe to do that. Moving forward, we have the ambition to grow this capacity as the demand for permanent magnets is expected to increase significantly in the next few years especially thanks to growing needs related to energy transition, as you can see on the slide. When looking at the production of magnets in Europe, today, it's very limited. But it could represent up to 40,000 tonnes by 2030, which is equivalent to 15,000 tons of light and heavy rare earth oxide needs. And we can capture up to 30% of that European market with our existing assets in La Rochelle quite easily. We will need to invest to reach that level, and we can do this in different stages. And thanks to our process innovation and our operational leadership, our team is continuously improving the product cost and value creation. And the total investment to bring these assets at full capacity is now expected to be between EUR 50 million and EUR 100 million versus the more than EUR 100 million we announced earlier. But to do this, we are first aligning all stakeholders of the value chain. We are discussing with potential partners and customers in Europe, but also in other regions, including North America. Regarding sourcing, we are partnering with recyclers and miners for the development of a secure and sustainable supply chain that would not lead to rely solely on Chinese materials. This is concrete. This is happening now. Additionally, and beyond permanent magnet, we're considering also supplying other essential rare earths like gadolinium or yttrium, which are critical for aeronautics, medical and other high-end applications. To conclude on this, we can say that our solution offers the greatest potential within the rare earth value chain. We already operate as Europe's largest rare earth producer of or if automotive, catalysts and electronics industry, and our strength lies in our proven ability and unique expertise to separate, purify and formulate every main rare earth element. I'm confident that based on the current geopolitical situation that these supply chains will be developed and we're the obvious partner to do it. Now moving to the outlook now. As shared at the beginning of this call, the environment remains difficult, and we do not see any short-term improvement. However, the overall stabilization of activity levels that we've seen in Q3 and the positive impact in the actions that we've taken support our results. This is why we confirm our full year guidance for 2025. We expect the underlying EBITDA to be between EUR 880 million and EUR 930 million. And we confirm that the free cash flow from continuing operations to Solvay shareholders is expected to be around EUR 300 million with CapEx at maximum EUR 300 million. And this will more than cover the dividend payment. This, I think, concludes our introduction. Which was quite extensive. And thank you very much, and back to you, for the Q&A session. Geoffroy d'Oultremont: Thank you, Philippe, Lanny and Alex. We move now to the Q&A session. We have until 2:55 so that you can join the next call after. And Gaya, please you can now open the line for questions. Operator: [Operator Instructions] The first question comes from Wim Hoste from KBC Security. Wim Hoste: Wim Hoste KBC Securities. I have a couple of questions around soda ash, if I can. Can you maybe elaborate on the production footprints? How fast do you intend to ramp up the Green River capacity expansion? And to what extent will that then reduce the European capacities I think there was an example from the Spanish plant, but I would like to have a bit more guarantee on the whole European footprint in soda ash. And then also, can you maybe elaborate on how much of the clearance European production is exported outside of Europe to give an idea of that? And then any thoughts on, the last question, any thoughts on the pricing for 2026 contracts given the state of the soda ash market, that would also be interesting. Philippe Kehren: Thank you very much for your questions. So first, the production footprint. Clearly, today, as we said, there is enough capacity. So we don't plan to, in the very short term, obviously, to increase our production. So what we will do is, as you said, arbitrate in order to use the most competitive assets to supply in the different markets. And this is also one of the reasons why we can adjust our portfolio of Q2 instruments because indeed -- and we mentioned several times, Latin America. It is today more competitive to supply Latin America from the U.S. than from Europe. And this is freeing up a little bit of CO2 quota's that we can valorize on the market. So you see that this is really very much related to the business, you see when we say the sale of CO2 is not a one-off. This is the perfect illustration. It's the way we manage our industrial footprint. Then how much of the production is still exported? We are still exporting soda ash from Europe to the seaborne market and in particular, to the Southeast Asian market. And this is also where -- and that's done mainly from Bulgaria. So we use our asset in Bulgaria to export to Middle East, to Africa and to Southeast Asia. And today, given the situation on the Southeast Asian market and the volumes that are sold and the level of the margins in this area, we decided to reduce our production in Bulgaria. And this is also why we can revisit our portfolio strategy on our CO2 instruments. 2026, I think it's too early to say very clearly, the dynamic is still the same. Keep in mind that we see a certain good resilience in Europe and in North America. And more volatility on the seaborne market still and in Latin America and Southeast Asia, volatility and low level of margins. Operator: The next question comes from Hannah Harms from BNP Paribas. Hannah Harms: I was wondering more broadly, if you're expecting any improvement in the underlying trend through 2026. And if not, what additional levers can you pull to ensure that you're able to cover the dividend for next year as well? Philippe Kehren: So I think, again, I think it's early to talk about 2026 from a business standpoint. We don't see any big changes, but we continue to work on what we control. We will continue to deliver the cost savings. We will continue to have the payback of the different restructuring actions that we take both on our industrial footprint and on the operating model of the group. And beyond that, we will also have, I think, a lower level of cash out next year from the provisions because this year, we had a high level. This is, I would say what we can say at this one. Operator: The next question comes from Katie Richards from Barclays. Katie Richards: I think my question would just be why now? My understanding is that the CO2 certificates have the potential to rise sharply going forward. So why have you chosen to monetize these certificates now? Was it purely just the cash optimization or are you confident that your future needs will be structurally lower? And also just a question on your priorities on sort of growth CapEx versus protecting the dividend. So you mentioned that La Rochelle needs another potentially EUR 100 million CapEx to scale up further. Would you be willing to sell more CO2 certificates, for example, in order to fund further expansion of this site? Philippe Kehren: Thank you. I mean if we sell CO2 credit, it's not to fund anything, it's because it is the result of the assessment of our portfolio at this moment. Maybe I will let Alex explain a little bit one now. And that's, I think, a good question. And then I would probably give you the answer regarding the CapEx priorities in terms of capital allocation. Alexandre Blum: Yes. Thank you, Philippe. Yes, it's a good question what you have to keep in mind is because, as we said, we have several projects, we have the energy transition project. We have the EUA forward, we have the EUA stock and so on. And there are plenty of parameters. You have the regulation and you have the level of production. So why now is also because we are the consumption of 2 things. We are derisking and are progressing on our coal phaseout in Europe. We have mentioned that we have not exceeded coal in Germany, which was -- it's a quite large plant of soda ash and we've talked several times about our Dombasle project for which we had to record, as you may remember, a provision last year, but we are no less than 1 year from start-up. So this part is quite derisked so it means we are confident to be able to exceed coal from France next year. So when you have the consumption of less demand for EUAs and at the same time, a production level, which is slightly more, yes, we are to take the positive part of the negative the business contract. So that's why we decided. But again, we will do that only if we think we are fairly covered until 2030. Philippe Kehren: And on your question regarding the prioritization of CapEx, I mean, let me just first remind you how we see the capital allocation main principles. First, we will dedicate between EUR 250 million and EUR 300 million for our essential CapEx. This is, I would say, #1, obviously. And we're working, Lanny can testify, as hard as we can to optimize this bucket, right? And this year, even if we have also a little bit of discretionary CapEx, we will be at a maximum of EUR 300 million. Number two, payment of the dividend. So that's EUR 250 million, EUR 260 million, more or less -- that's the #2 allocation of capital. Number three, it's discretionary allocation of capital to create additional value. First comment is obviously, in the current market environment. We don't need big investments in a new soda ash plant, in a new Dombasle plant and so on. So this question is addressed. But we want to continue to invest in small targeted investments in order -- in markets that are growing fast. And I mentioned that it's electronic grade H2O2 because artificial intelligence requires a lot of processors, and this requires more EG, electronic grade H2O2. I mentioned circular Silica and we also talked a little bit about rare earth. Those are investments that are, I think, important because we have a real differentiation in these different businesses, but there are a lot of big ticket items, right? So -- and we will do these investments only if we have secured offtake of the products that will be produced through these investments. So we will do them. We will do them if the conditions are here to get the right level of comfort on the profitability. Operator: The next question is coming from Matthew Yates from Bank of America. Matthew Yates: I had a question relating to the carbon trading you did in the quarter. I acknowledge this trading is possible to the extent you've got excess permits relative to the lower rates of production. And so Philippe it was pretty clear in the introduction there, that is definitely not a one-off, but it is made incredibly difficult for us from the outside to understand the size and recurring nature of this and the level of disclosure from the company is so limited around this carbon position. So maybe for Alex. Alex, what can you tell us today to help us better understand what that CO2 position of the group looks like as it stands. And in light of sort of the proposed changes in regulatory phase outs, your decarbonization projects and your potential production shutdowns. How do you think that evolves over the coming years so we can think a bit more intelligently about such trading opportunities going forward? Alexandre Blum: Okay. I think what we meant by saying I think it's not a one-off. I mean it's significant. We will not get 40 million every quarter, and that's key. What we meant is that it cannot be looked in isolation from the rest of the business situation. That's really what we mean. If the plant were saturated, everything was running high, we wouldn't have this flexibility. There, okay, from disclosure, I cannot give you a lot of detail. What I can tell you gather many parameters that will be the benchmark, what will be the volume of action. But I mean, when we look at the overall picture, even if we do this transaction, we consider we are fairly hedged, we are fairly covered until 2030. So it means whatever we are no longer exposed to variation of the price of the CO2 in Europe. That's the main element I can give you. And it should -- the quicker we do our -- the best protection we have are our energy transition project because when you move to -- from coal to biomass or to recycled waste, then I mean you significantly reduce your exposure and you have the opportunity to release some CO2. Matthew Yates: Okay. But when I think about your level of disclosure compared to other carbon-intensive businesses, whether that's a are in fertilizers or a utility company it still seems to be on the rather limited side. So why are you not able to be more forthcoming in quantifying the position of the group? Philippe Kehren: Well, I think we can probably check this, but we have -- we provisioned our annual report a certain number of elements, I guess, such as the inventory and hedges and so on. Our energy transition projects are public. I will communicate on them. And every time I think we say how many thousands of tons of CO2 emission reduction we expect. So I think there is nothing hidden in what we say our level of production, our level of emissions, our energy transition projects, what we have in inventory, what we take in terms of forward hedges everything is more or less defined. And as Alex said, the guiding, the guiding principle for us is really to be covered until 2030. I mean obviously, we are currently discussing what could be post 2030, but it's really to be covered by 2030. Alexandre Blum: Yes, we can follow up with the Investor Relations if there are certain questions that you think we could answer better. Overall, we don't think until 2030, you will have a big change in regulation or we consider ETS will still apply the benchmark, the allowance will progressively reduce. This is why we need to have this stock and forward, and this is why we need also to do the energy transition project. But we don't foresee by 2030 a big change. Is that clear Matthew? Matthew Yates: Yes, yes, we can follow up offline. Operator: The next question is coming from Thomas Wrigglesworth from Morgan Stanley. Please go ahead. Thomas Wrigglesworth: I did have a question on the carbon credits, but I -- I think we're kind of getting there. I mean, it just looks like a very big number, right? Because ultimately, EUR 40 million of profit on selling carbon credits I mean, if I assume that you bought at [ EUR 30 ] and you sold at [ EUR 70, ] which kind of stacks up with the kind of communication you've made in the past, that's 1 million tonnes of CO2, which is equivalent to 1 million tonnes of soda ash exports when the Europe exports 2 million tonnes a year. So in soda ash export equivalent, you've sold half a year's worth of all the European exports. And that's, I think, why we're getting a bit stuck on the order of magnitude of the size of the credit sale. So any -- but I think what you're saying is that there's energy savings as well, not just soda ash production savings that are going on top of that. So anything to clarify that kind of thought process would be helpful. Second question is just clarification. So if I understood correctly, the -- previously, you've been thinking on the rare earth business that I think you said, and forgive me if my understanding is wrong, that you wouldn't do this project of itself, the economics didn't stack up to compete with China and you needed to have customers provide long-term offtake agreements to deliver to approve the project. Have you now got those long-term offtake agreements if that's what's changed between the first half and now such that you're now willing to commit the capital? Philippe Kehren: Okay. So first question on the order magnitude. So clearly, I mean, as Alex said, we will not have this type of impact every quarter. This represents, I would say, more or less to give you [indiscernible] a yearly impact, right? And I think the numbers that you mentioned are wave overestimated because if you look at the CO2 price that we have today on the market, you don't come with this type of quantities. Now that being said, I mean, we are the only sodas ash exporter in Europe, I think, today. So it's true that we are impacting significantly. If we decide to cut the exports from Europe to the Southeast Asia, it has a significant impact because we are the only ones to do it, right? So that's, I think, the element. I don't know if I missed anything, Alex? Alexandre Blum: No, no, Philippe you're right. It's the combination of ETP, again, we are releasing also some quantity from [indiscernible] project. Philippe Kehren: Production, you're right, that is one element of the equation that we take into account when we set our portfolio. And then the other important element is the progress that we make on the coal phaseout in Europe. Now on rear earth, just to avoid any misunderstanding, we don't say that we will invest today between EUR 50 million and EUR 100 million, what we're saying is that what we did this year, investing a few millions to start production of Nd-Pr, so the light rare earths of permanent magnets, we will do the same for the hedges. So we're talking about a few million of investment. It's nothing big. It's just to show, we don't have to do it. We can do it super fast, and we want to work with the customers to check that it works. Now if you ask me today, do you have offtake contracts to move to the real stuff, so the big investment of EUR 50 million to EUR 100 million. I say not yet. We are progressing. It's true that the current context is supporting this type of discussions, but we are not ready today to move to the big investment. The -- what has changed, I would say, over the past days and weeks is that it seems to move forward in the U.S. There is -- there are some potential mechanisms that are implemented with floor prices. And we could envisage to contribute to this mechanism. Even from La Rochelle, we know we can produce, so this is the only thing that has changed. But we are -- we continue to discuss to the -- with the different potential customers and with the policymakers, both in Europe and in North America. Thomas Wrigglesworth: Just a follow-up on that, Philippe. What do you think the hesitation? Is it that customers are trying to figure out if this is a 1-year problem or a 10-year problem you kind of need, let's say, a multiyear offtake agreement and they're trying to figure out, well, do I want to commit to your multiyear offtake and commit to this whereas on the other hand, we don't -- it's very difficult to understand any of this trade development and how it's going [ pan ] out and therefore, we don't know if rare is a 1-year problem or a 10-year problem, right, in terms of supply chains? Is that -- do you think that's what the customers are struggling with? Philippe Kehren: Well, it's true that when you have a problem and then it's sold, you have a tendency to think that you don't need any more to move into long-term agreements. But I think fundamentally, fundamentally, both in Europe and in North America. Customers, they want to derisk their sourcing. So they're just trying to figure out what is the best -- how is the best way to do it. And they're probably also waiting for some indications from the policies. Gara, we will take 2 more questions, please. Operator: Okay. The next question is coming from Mr. Udeshi from JPMorgan. Chetan Udeshi: The first one was a bit weird one. I recently -- or actually, it was this week, Element Solutions brought fluorocarbon gases company, ESC for 12x EBITDA. And I think you are the ones who are supplying to them the fluorine-based gases and chemicals used in the semiconductor market. I'm just curious if somebody is buying a distributor of your business for 12x EBITDA. Why would you not consider monetizing this business within Solvay? Doesn't seem most of us care about this business anyway. So what is stopping you from monetizing this business? And the second question is, in your Performance Chemicals business, what exactly happened in Q3? Because your EBITDA seems to have collapsed from EUR 100 million to EUR 60 million, I understand there was a EUR 20 million one-off, but even then, it seems like a big collapse even when the sales aren't really that different from Q2 to Q3. So can you help us understand what happened in that business? Philippe Kehren: Thank you very much, Chetan. I will probably let Alex comment on the evolution of the Performance Chemicals between Q2 and Q3, I think that's your question. On fluorine, very clearly, you noticed that we're in a process of really restructuring this business and making sure that we concentrate our resources, efforts, capital on what will make the future of this business. So this is why basically we stopped our production in France. We also stopped our production of HF and organic fluorine in Germany. And we will concentrate on the aluminum bracing business. And also, we'll continue to produce some fluorine gas as this is indeed still a good business today. Then, I mean, again, there is absolutely no -- nothing is excluded at this point, but we're really focused on making sure that we have a sound and profitable business, and then we'll see. Alex, I don't know if we -- if you wanted to take the bridge on Performance Chemicals? Alexandre Blum: Would love to. Yes. So nothing major in Q3, just to remind that what we've mentioned in the past, we have mentioned that in Q1, we have successfully added litigation with one company that helped us to get paid and invoice some royalties for the past. We had the termination close of the contract in Q2, and we think, in general, this segment is probably the one which has the less -- the more -- the variability from quarter, there was nothing really special in Q3. It's true that all business has to be a little bit soft. I mean, you see the tire market, what we said about Coatis and in term of fluorine, I mean we are taking measures to improve the profitability of the business, but you don't see it yet. So nothing major to signal, and we are taking measure to improve sequentially. Operator: The next question and the final question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Just one last, please. I was just wondering in the existing rare earth business, was the actual rare earth you're using in that? And how does that differ to the new ones that you'll be using with the new business if you develop that? Philippe Kehren: Well, today, on the auto catalysis business, on the electronics business and medical applications, we're not using the Nd-Pr and Dy-Tb. So the Neodymium, Praseodymium, dysprosium, terbium are really specific from the permanent magnet business. So we're not using them in our current businesses. It's more based on samarium and all this type of material that we're working. And on tandem as well. Geoffroy d'Oultremont: Thank you, Tristan. Thank you, Gaya, and thank you all for your participation today. So if you have any further questions, please feel free to reach out to the Investor Relations team. We have a few events planned in November and December. They are available in the financial calendar on our website. And we'll publish our Q4 and full year earnings on February 24. Thank you very much. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Good afternoon, and welcome to the IonQ Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to [ Hanley Donofrio ], Head of Investor Relations. Please go ahead. Unknown Executive: Good afternoon, everyone, and welcome to IonQ's Third Quarter 2025 Earnings Call. My name is Henley Donofrio, and I'm Head of Investor Relations here at IonQ. I'm pleased to be joined on today's call by Niccolo de Masi, IonQ's Chairman and Chief Executive Officer; Inder Singh, our Chief Financial Officer and Chief Operating Officer; Jordan Shapiro, our President of Quantum Networking, Sensing and Security; Chris Ballance, our President of Quantum Computing; and Dean Kassmann, our Executive Vice President of Global Engineering and Technology. By now, everyone should have access to the company's third quarter 2025 earnings press release issued this afternoon, which is available on the SEC's website and on the Investor Relations section of our website at investors.ionq.com. Please note that on today's call, management will refer to non-GAAP financial measures. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. You are directed to our press release for a reconciliation of adjusted EBITDA and adjusted EPS to the closest comparable GAAP measures. During the call, we will discuss our business outlook and make forward-looking statements, including those regarding our guidance for 2025. These comments are based on our predictions and expectations as of today and are not guarantees of future performance. Actual events or results could differ materially due to a number of risks and uncertainties. Therefore, you should not put undue reliance on those statements. We refer you to our recent SEC filings, including our annual report on Form 10-K for the year ended December 31, 2024, and our quarterly reports on Form 10-Q for the quarters ended March 31, 2025, June 30, 2025, and September 30, 2025, for a more detailed discussion of those risks and uncertainties. We undertake no obligation to revise any statements to reflect changes that occur after this call, except as required by law. Now I will turn it over to Niccolo de Masi, Chairman and CEO of IonQ. Niccolo de Masi: Thank you all for joining us. Q3 2025 will be remembered as a transformative quarter for IonQ, not only because we so significantly exceeded the high end of our revenue guidance, but because of our tremendous symphony of technical progress, talent attraction and successful expansion of our vision to lead globally in the business of quantum. I will leave my colleague, Inder, to provide details. However, as most listeners will have seen in our earnings press release a few minutes ago, IonQ delivered its largest quarterly revenue beat ever, delivering results 37% above the high end of our guidance. Putting this in perspective, we grew revenue year-on-year by 222%, a truly impressive number that demonstrates our commercial traction. Our company's growth trajectory is clear, and we have only just scratched the surface of the enormous opportunities we are pursuing. During the quarter, we announced that our #AQ 64 Tempo system was up and running 3 months ahead of schedule, fulfilling our technical goal for the year. We closed our acquisition of Oxford Ionics and raised $1 billion at a 25% premium to the previous day's closing price. We created IonQ Federal and appointed a leadership team consisting of senior security cleared personnel, including Executive Chairman, Robert Cardillo, former Director of the National Geospatial-Intelligence Agency for President Trump. We are truly honored that General Jay Raymond joined our Board of Directors. General Raymond is the only Four-Star General since 1947 to have served as a Four-Star in 2 services and was the founder of the Space Force at President Trump's direction in his first term. These leaders are emblematic of the incredible talent we are attracting across the organization, and their decision to join us is a testament to our commanding market position and bright future. I'm proud of our clear quantum advantage use cases so far this year. We demonstrated faster computational engineering work with Ansys in March and hybrid quantum AI applications in April. In June, in partnership with NVIDIA, Amazon and AstraZeneca, we demonstrated the world's first 20x quantum speed-up in computational drug development. Our Forte system has routinely demonstrated quantum advantage and in this case, performed nearly a month of classical computational work in just 36 hours. Our newest system, which we unveiled at our Analyst Day on September 12 is called Tempo. Public benchmarks show Tempo has a compute space 36 quadrillion times larger than the leading commercial superconducting system in the market. We are proud that Tempo is scheduled to ship in 2026 and has a computational space approximately 260 million times larger than our current fully commercialized Forte system. Following our expansion to networking in the second half of 2024 and the first half of 2025, we acquired the world-leading quantum sensing company, Vector Atomic. Vector Atomic has been a fantastic addition to our capabilities for golden dome like projects and vital commercial solutions such as next-generation GPS. Our new colleagues led by CEO, Dr. Jamil Abo-Shaeer, are a wonderful cultural fit and already have multiple Program of Record contracts with important U.S. government agencies. Quantum sensing is relevant to our networking, cybersecurity and computing product families, and we are confident it will accelerate growth for IonQ around the world. I'm pleased to report that we're proving out synergies as expected across many of our product families globally. IonQ has a truly unique ability to land and expand in quantum computing, quantum networking, quantum sensing and quantum cybersecurity. Our strategy is to expand our technical lead in each quantum product family and connect our products together to provide unique solutions to allied sovereigns and major multinationals alike. We are investing in our ecosystem's breadth and depth via partnerships that we believe will underpin long-term annuity-like customer relationships. As we have demonstrated and as I said in our Analyst Day, we are in it to win it, and we keep our commitments. We are continually on the lookout for talent and IP that will allow us to accelerate the progress we make on our technical road maps. Time matters, and we view ourselves as an increasingly indispensable partner in defense and economic security for the U.S. and NATO in the coming years. With over 1,100 patents pending and granted, we are proud of how our IP moat has expanded 30x since our first IPO. Our team has put in tremendous effort this quarter and year as we have deepened our commitments to both fundamental research and commercial leadership. After the quarter ended, we delivered three exciting milestones, strengthening our balance sheet by selling $2 billion of common stock at $93 per share, demonstrating the world record 2-qubit gate fidelity of 99.99% or four nines and closing our acquisition of Vector Atomic. Our 99.99% fidelity for 2-qubit gates is a particularly momentous and historic achievement. We are the first company in history that can proudly say that all of our key technical milestones have been achieved, and we are now focused on only engineering scaling to achieve full fault tolerance. With our well-established semiconductor fabrication approach, the course is clear for us to deliver each generation of our systems. You'll hear more on this from my colleague, Chris Ballance, in a couple of minutes. It is clear that IonQ has begun to enjoy compounding benefits from our scale and momentum advantages, entrenching our position as the dominant force in quantum and the only complete quantum platform solution. Before I close, allow me to clarify for stakeholders new and old, what true quantum computing actually is. While numerous companies, public and private, have added the word quantum to their corporate name for decades, we can confidently state that in almost every case beyond IonQ, this is just a branding attempt. Terms like quantum-inspired, quantum annealing or analog quantum simulators all represent toy machines compared to the real deal, which is universal fully entangled gate-based quantum computing. Our co-founder, Chris Monroe, kicked off the field of gate-based quantum computing with the demonstration of the world's first quantum gate in 1995. And our team has been at the forefront of quantum computing ever since. Only a universal quantum computer, like those we have shipped and continue to accelerate building at IonQ, offers actual commercial quantum advantage. Plenty of analog quantum simulators exist in one form or another. They are quite easy to build compared with a true entangled general-purpose gate model quantum computer. However, to fully simulate the complexity and range of possibilities enabled by 100 truly entangled qubits in our Tempo system would require billions of high-end GPUs and consume more power than all of the world's power stations combined. Indeed, as we showed at our Analyst Day in September, Tempo has 36 quadrillion times more computational space than our closest competitors' best machines. The volume of simulation-equivalent GPUs can be expected to become even more astronomical as we release our 256 qubit and 10,000 qubit systems in subsequent generations. Looking beyond that, as we laid out on June 9, IonQ is targeting 1,600 logical qubits in 2028 and 80,000 in 2030. As a point of comparison, a leading competitor's road map released 1 day after ours targets only 2,000 logical qubits by 2033. This is 5 years behind us and with an architecture that will cost 1 to 2 orders of magnitude more for equivalent compute power 5 years later. We showcased our industry-leading bill of materials for our 80,000 logical qubit machines on September 12. Global supply chain experts, A.T. Kearney, have validated our bill of materials for our 2 million qubit machines to be sub-$30 million in 2025 dollars. No other company will be able to come close to these unit economics. Anyone can say they're doing something quantum when they absolutely are not. For the avoidance of doubt, software running on simulators or any classical machines can always be branded with the word quantum. However, doing so, of course, does not mean true entanglement and quantum advantage is an operation. No one can come close to approaching what IonQ software running on our universal gate-based true entanglement-generating Tempo quantum computers can offer. The hardware needs to be quantum and the software needs to be quantum in order for the results to be quantum. We believe we're the clear leader in quantum computing, further differentiated by our capabilities in quantum networking, quantum sensing and quantum cybersecurity. This leadership enables IonQ to offer quantum computing far sooner and at a far lower cost than others. Our focus now is on translating our clear technical advantages and differentiated capabilities into value for shareholders. Quantum is now. As you have seen, Q3 was another strong pioneering and record-breaking quarter at IonQ. We look forward to Q4 and 2026 with confidence. I am delighted with how our leadership team is evolving. Inder Singh hit the ground running as COO and CFO, benefiting from his knowledge of the company gained in his prior role as our Lead Independent Director and Audit Committee Chair. Dr. Chris Ballance, Founder of Oxford Ionics has become IonQ's first President of Quantum Computing. Dr. Marco Pistoia, who until last quarter was Global Head of Quantum Computing at JPMorgan, has assumed the role of CEO of IonQ Italia as we continue to deepen our investments in EMEA. And Dean Acosta was appointed as Chief Corporate Affairs and Government Relations Officer, bringing more than 3 decades of experience in technology, defense and public service. I am delighted to introduce everyone now to Dr. Chris Ballance, President of Quantum Computing, to provide more detail on our quantum computing milestones this quarter. Chris Ballance: Thank you, Niccolo. Let me begin by saying it's a privilege to be part of IonQ at this critical inflection point. Since closing the Oxford Ionics acquisition, our priority has been swift and purposeful integration. We've already unified our world-class engineering teams and are now executing as a single focused entity to deliver on our technology road map. As outlined at our Analyst Day in September, the Oxford Ionics Electronic Qubit Control, EQC architecture is actively being integrated into the IonQ 256 qubit machine and will be demonstrated in 2026. In parallel, our scheduled system deliveries for Forte Enterprise and Tempo remain on track as planned. The beautiful thing about Electronic Qubit Control is that it fits seamlessly with classical computing workflows and our present electronic world. EQC uniquely underpins our ability to become the world's first mass market quantum computing company in history. As Niccolo highlighted, we're proud to have delivered a record-breaking algorithmic qubit score, AQ, of 64 on Tempo, our fifth-generation quantum computer, which expanded our computational space by approximately 260 million times. Hand-in-hand with that announcement, we're also very excited to have achieved a historic world record 99.99% 2-qubit gate performance this quarter. We're rapidly building on that performance to execute our road map out to 2 million physical qubits in 2030, making us the only company who has hit their qubit performance target, the full fault tolerance scale quantum compute platform. What's even more exciting is that we achieved this performance in a chip-based platform that can be scaled by the existing semiconductor industry supply chains, which enables our rapid scaling. With 99.99% 2-qubit gate performance, we realized fewer errors for operation and therefore, require fewer physical qubits to operate large-scale commercial systems. With these high-performing qubits, we also unlock more complex algorithms that simply will never be tackled by lower-performance systems. What drew me to IonQ is our comprehensive full stack approach. Our unique ability to network systems together is, in the long run, the key to true scalability in quantum computing. To expand on the progress we're making in our critical capability, I'll turn it over to Jordan Shapiro, President of Quantum Networking, Sensing and Security. Jordan Shapiro: Thank you, Chris. Just as our acquisition of Oxford Ionics has greatly accelerated the time line of our computing milestones, the integration of Vector Atomic has vastly expanded the potential and TAM of our networking, sensing and security product family. Uniting world-class sensing capabilities with our pioneering infrastructure for long-range quantum connectivity allows IonQ to bid on some of the most important cybersecurity infrastructure projects of the future. Indeed, we have more than $1 billion of proposals in progress that leverage the strength of our unique quantum platform offering. Vector Atomic's precision inertial sensors and clocks have demonstrated state-of-the-art performance on land, at sea, in the air and in space with equipment having been deployed on the U.S. Department of War's X-37B orbital test vehicle. We are now working to integrate this positioning, navigation and timing technology onto our own satellites and will soon fly more products from the IonQ portfolio, including quantum key distribution systems to pioneer global quantum secure communications networks. We are also making QKD, post-quantum cryptography and secure networking advancements on the ground. We are proud to be collaborating on the first citywide dedicated quantum network in Geneva, Switzerland, as part of a landmark public-private initiative, which includes CERN, Rolex, the Swiss government and academic institutions. The network will securely link institutions across the region and deploy IonQ's quantum key distribution and quantum detection systems, demonstrating our security capabilities in action while also leveraging hundreds of miles of existing fiber optic infrastructure. This is just another example of IonQ driving awareness of quantum's potential while enabling real-world quantum secure communications today. Now I'd like to hand the call over to Inder Singh, IonQ's CFO and COO. Inder Singh: Thank you to Niccolo and the entire team here. Let me just begin by saying that my first 2 months as CFO and COO have really been incredibly exciting. Of course, before this role, I was involved with IonQ on the Board, as Niccolo mentioned, but it's an entirely different experience being part of this amazing leadership team at a critical point in the industry as well as the platform that we have established. Niccolo's strategy of building the world's first quantum platform company is what we are now reporting on and executing towards. A year ago, we were proud to be speaking with you about our breakthroughs in quantum computing in which we still maintain a 5-plus year lead over others and have just announced our fifth-generation machine. To remind you, our competitors seem to still be working on their second-generation machine. Today, we're proud to be speaking with you as the world's first quantum platform company. And today, the results we're going to be sharing demonstrate execution of that strategy. We are the market's only full stack quantum platform company. On our financial results for the third quarter, I'm very pleased to say that we had a very strong quarter, as Niccolo mentioned. We achieved record revenues of $39.9 million, representing year-on-year growth of 222%. These revenues exceeded even the high end of our own guidance by 37%. We achieved this by continuing the leadership in quantum computing and rapidly expanding into quantum networking, quantum sensing and quantum cybersecurity. We have led and continue to lead in quantum computing with our record-breaking 99.99% fidelity and 64 algorithmic qubits. We have now added world-class quantum cybersecurity as well as the world's best quantum atomic clocks and the world's most advanced quantum sensing technologies. As a result, our commercial opportunities have also grown alongside the platform we have built, as Niccolo mentioned. We can now capture larger solutions-based contracts and continue our land and expand strategy. As Niccolo puts it, we are the 800-pound gorilla of quantum, able to address the opportunities that require a quantum solution. This lies at the heart of the work we announced with the U.S. Department of Energy in Q3 and the future solutions we can now develop in partnership with them. It also uniquely positions IonQ to pursue large-scale contract opportunities like the U.S. government's Golden Dome initiative. The capability we have, in our opinion, uniquely differentiates us in the quantum market with the ability to now pursue potentially 3-digit million dollar opportunities. I'm also pleased to report that our business is increasingly international. In the most recent quarter, our business was approximately 70% U.S. and 30% international, contrasted with a year ago when it was almost all U.S.-based. We expect to continue to expand our global footprint. And as we move ahead, we are looking at potential opportunities around the world, including in example, countries, Australia, Italy, the Nordics, South Korea, India, Japan and many others. In Q3, we had an adjusted EBITDA loss of $48.9 million. On this non-GAAP basis, our biggest spend continues to be on research and development, which lies at the heart of our solutions. This nearly doubled on a year-on-year basis, and we will continue to invest to maintain and expand our innovation leadership. These investments allow us to hire and retain the world's best quantum talent in IonQ, period. We are investing in engineering, in research, in production and in go-to-market. We believe we can both land and expand by embedding ourselves and our solutions with our customers as well as take on the obvious opportunity to address cross-sell opportunities of our products across our customer base. In Q3 2025, GAAP operating expenses were $208.7 million, including research and development spend of $66.3 million. Sales and marketing spend of $14.4 million and G&A of $82.5 million accounted for the rest. The GAAP spend includes nonoperational items such as acquisition-related costs as well as some noncash costs such as SBC, stock-based compensation. For the quarter, stock-based compensation accounted for $72.9 million, driven primarily by incentives to attract and retain the world-class talent we are putting together. The details for this are also available in our press release and will be available in our 10-Q will be filed -- which will be filed shortly. GAAP EPS in the quarter was a loss of $3.58. The biggest item in the GAAP EPS is related to the mark-to-market we are required to do each quarter. This is associated with the warrants outstanding. And for context, in Q3, this cost alone amounted to an EPS impact of minus $2.99. Again, for context, our stock price -- as our stock price rises, so do these noncash nonoperating warrant expenses. Other onetime expenses such as the previously mentioned acquisition costs accounted for the remainder. And if you adjust for the sort of nonoperating expenses, our adjusted EPS was a loss of $0.17. We believe this latter adjusted EPS number is more representative of the business' ongoing operating performance, and therefore, we have introduced this metric. Turning now to our balance sheet. Cash, cash equivalents and investments as of September 30, 2025, were $1.5 billion. In October, we closed an additional $2 billion capital raise which brings our pro forma cash balance to $3.5 billion as of October 14. With no debt on our balance sheet and this $3.5 billion solidifies IonQ as the most well-capitalized pure-play quantum provider in the world. This financial firepower provides us with the ability to continue to invest in our market-leading position, and we intend to keep doing that. Turning to my role as Chief Operating Officer. I'm also working very closely with Niccolo and the rest of the leadership team on ensuring that our company infrastructure and processes also scale as our unique quantum platform delivers for our customers. We are committed to operational excellence across the business. And just as an example, we are rapidly developing a unified procurement strategy to tighten lead times, bring us resiliency and generate cost benefits as we scale. With our investment in Oxford Ionics and starting in particular with our 256-qubit quantum chip that Chris talked about, we can now begin to leverage the existing semiconductor ecosystem and the silicon design capabilities. By doing this, we can benefit from established foundries and mature nodes at these foundries, which also provides us with supply chain resilience as well as lower cost infrastructure. Our quantum platform helps deliver the best price, the most miniaturization, the easiest deployability and the lowest energy requirements. In our view, this platform approach, combined with our world-class engineering deployment teams, enables us to deeply embed our solutions into the most critical workflows at our customers. We believe this approach creates a stickiness with our customers, which further deepens as we build quantum applications in partnership with them to solve their most difficult challenges. To net it all out for you, we are creating a quantum ecosystem, and we'll continue investing to grow our lead and deepen our competitive moat. Let me conclude my comments with our financial guidance for FY 2025. As I mentioned earlier, we achieved a record-breaking quarter in Q3. And as I said earlier also, we are investing in the business. So I'm happy to say that we now expect our Q4 revenues to be even stronger than Q3. This breaks the seasonality we have seen in this company in prior years. With that, I'm pleased to say that we are increasing our full year 2025 revenue guidance to a new range of $106 million to $110 million. We are also reaffirming our projections for EBITDA to be in the range of minus $206 million to minus $216 million, which has a midpoint consistent with what we said last quarter. As Niccolo began in his opening remarks, we are vertically integrated with decades of engineering breakthroughs behind us, and we believe decades more to come. With that, operator, you can please now open up for Q&A. Operator: [Operator Instructions] Our first question comes from Craig Ellis of B. Riley Securities. Inder Singh: Operator, maybe we can move to the next caller while Craig dials back in again. Operator: Our next question comes from Quinn Bolton of Needham & Co. Quinn Bolton: Congratulations on the nice results and the significant upside to guidance. I guess I wanted to start there with the revenue upside in the quarter. Inder and Niccolo, can you give us some sense how much of that came from the core quantum computing business? How much might have been spread across the security, sensing and networking business? Just trying to get a sense for how the business may be diversifying under your quantum platform strategy? Inder Singh: Yes. I wouldn't say sort of diversifying. I mean, thank you for your question, of course. I would say that we are now getting into the capability of selling solutions. That's really important. That lies at the heart of what the future of this company is. And that's largely with what Niccolo started putting in place earlier this year. So all of the products being under one roof allows us to be a one-stop shop with integrated solutions all the way from sensing to network security. I mean, think about quantum security and the relevance of something like that today when potentially encryption could be at risk a few years down the road. So what's resonating for us, to be honest, which is what you're seeing in the results is the cumulative effect of having the solutions around security, which are here and now, the solutions around recurring revenue streams and subscription-type revenues that we didn't have in the past, frankly, and we now enjoy in the platform. And also, to your point, building on the continuing momentum in quantum computing. I'm happy to say that quantum computing's momentum continues in the same way that it has for the last 4 years. So we have a very ambitious but also very focused and targeted and incisive team resourced effort to maintain our technological computing leadership. The point you should take away is every other company is talking about computing. They're talking about how many qubits, and we wish them well, of course. At the same time, we have our fifth-generation machine available now, our sixth-generation machine coming next year. So we're not standing still on that. The momentum continues, and we are now benefiting from sort of all of these things coming together in a platform company that no other company can match. And so I think the results that you're seeing reflect our ability to actually open more doors, talk about solutions instead of selling an individual product. Talk about selling security to protect networks today when every network is threatened by hackers. Virtually everything that is classical from a security standpoint, and you know this, is really not enough anymore. Jordan talked about our capabilities here. The sensing businesses that we have are super relevant because you've heard of GPS spoofing, no doubt. And you think about atomic clocks, PNT, position navigation timing, the ability for us to put that in place with incredible accuracy is something that we believe no other company can offer. So I think you're seeing the results of everything. But yes, to answer your question directly, we've got great momentum in our computing business. We're not stopping. We're going to have the most number of qubits next year and in 5 years from now. Quinn Bolton: Excellent. And then a follow-up question, just it looks like the DARPA QBI program should be getting close to announcing the Stage B selection. I think many investors view that as a potential point of validation for those companies selected. Just wondering if you could make general comments how are you feeling about that down selection process and your level of confidence going into that process. Dean Kassmann: Thanks, Quinn. This is Dean Kassmann. So the IonQ team, which was a performer under QBI as well as the Oxford team have both gotten immensely positive feedback from the DARPA team. And we can't say anything yet until the DARPA leadership announces kind of the performers that are moving to Stage B, but we're very happy with the technical work, and we've gotten very positive technical feedback. Niccolo de Masi: Okay. So we're going to try Craig Ellis. Operator: Our next question comes from Craig Ellis of B. Riley Securities. Craig Ellis: Yes, hopefully, things are working. Congratulations team on the execution. Niccolo, I wanted to start with a question for you. Very clear that you've established a strong platform. The question is, as you work with your government partners, as you work with your commercial customers, what application areas are you seeing being most popular presently? And what looks most descendant for people that are just starting to get engaged or maybe going on to the second or third round of work with your quantum capability as we look out to 2026? Niccolo de Masi: Yes. So I'm going to answer that probably more broadly than simply what the government is focused on because there's a lot of overlap between customers in the commercial space and, of course, the government space, right? We've talked about things like power grid optimization. We've talked about programs like Golden Dome, where we have a number of products, and as Inder rightly put it, solutions that are hugely relevant. There's obviously a stronger IonQ federal team, both on the Board and the management team, which includes people like Rick Muller, the former IARPA Director. So there's a fair amount that's obviously in the classified space given that we have a lot of classified personnel deliberately in the team and in the strategy. In the defense sector, if you will, you can imagine that everything from logistics to maintenance to AFRL, we have a contract with of size where it's quantum networking of two computers, and that's obviously been running for about a year's time. I think it's safe to say that there is more that we're able to offer in the quantum realm for more agencies than any other company on the planet. And we have a deliberate strategy for not just the U.S., but what's called the Five Eyes and of course, NATO beyond that. We're proud of the fact that we're making considerable inroads in our investments in Europe. And of course, we have our President of Quantum Computing in the U.K. I was the only Quantum CEO at the Chequers Technology Prosperity Deal last month, right, between President Trump and Prime Minister Starmer. So I think it is safe to take away from that, that we have fantastic momentum with, let's just say, the classified space and ministers of many friendly and allied nations. But I think that the applications we're working on have much broader application in the commercial sector, right? There's overlap for companies of scale in the commercial space with what the government is interested in. In fact, I'd say there's overlap anyone that has any scale, right? Nobody wants to get hacked, honestly, Craig, right? And things like quantum cybersecurity and QKD, they're hugely relevant today because people are getting hacked today. You've heard me say in the past, you can spot our quantum security customers because they're typically not in the news for data breaches. And nobody really wants to be in the news for data breaches, right? So we're an integral part of not just national security, but national economic security as we see it. And we're an integral part of where the Fortune 500 is planning out their road maps in the next few years, frankly, across our business. Craig Ellis: That's real helpful. And then the follow-up is for Inder. Inder, in your prepared remarks, I think you mentioned that there were multiple 3-digit millions deals that the company was working on. I think Jordan mentioned something that might be in the $1 billion range. Can you just talk about the timing with which the company might be able to realize those? Is that something that's possible later in 2025? Is it 2026 or longer term? Inder Singh: Thanks for the question. I think that you caught the gist of what I think we want to make sure that you all understand. A solution is measured in very different ways than a single product set. So what we are now able to do is deliver an integrated solution. To your point, how do these develop, how do they get announced. Clearly, we will be sharing with you more once we are ready to. And also, as we get into early 2026, we can start talking about guidance for '26. I'm not suggesting this to be put into guidance into your financial model for tomorrow, for sure, of course, right? You need to understand, though, that the nature of the game has changed. And I think gone are the days when it's sort of like butting heads to sell a single product and maybe our competitors are still doing that, and we wish them well. That's what makes an industry happen actually. We're not standing still. We're just putting together the platform that solves real-world solutions. And if you look at the DOE announcement that I referenced earlier, that's a great evidence point for you. If you think about the vision of what Golden Dome is trying to achieve, classical computing cannot address it. And the products that we've developed that are both terrestrial, that are space-based as well, the sensing, these components have come together with a strategy and reason. And we are now able to provide that, as Niccolo said, not only for one type of a customer and one type of a solution, such as Golden Dome, but also to other countries that have similar needs. So watch this space. I think 2 quarters into this role, I'm feeling great about where we are. The sort of performance that is flowing through the financials today gives me real confidence. The fact that, as I mentioned, we have more of our revenue that is of a repeatable nature now as well. That gives me near-term visibility. And then as these -- what you called it, 300 -- or 3-digit million opportunities emerge, develop, they take a few years, obviously, to execute. But at the same time, if you have a few of those layering on and ahead of you, and you're the only company positioned to strike now, then it's a terrific opportunity for us. But I don't want you to put that into your model just yet. Let us take you through there. Let us show you the evidence of that as we go forward. But we are looking at these very types of opportunities. Operator: Our next question comes from Troy Jensen of Cantor Fitzgerald. Troy Jensen: Congrats on the nice results. Chris or Niccolo, a question for you. I just want to make sure I understand the time line of the Oxford Ionics acquisition. Will the Oxford chip be in the sixth-generation computer that you're launching in '26? And can you tell us just the technical stats if you're going to have the 256-qubit count and 99.99% fidelity? Chris Ballance: Thank you. This is Chris Ballance. Yes, that's right. In the 2026 technology development road map, we have the 256-qubit device that's based on Electronic Qubit Control. And it's precisely in this Electronic Qubit Control architecture that we demonstrated in a technology prototype earlier on this quarter, the 99.99% 2-qubit gate fidelity. Troy Jensen: All right. Perfect. And then just maybe a quick one for Inder. Can you help us out at all on just kind of OpEx trends and which deals haven't closed? And I mean, obviously, it's up and to the right. I get it on the OpEx but -- also share count number would be helpful for us. Inder Singh: Yes. Look, I think that we feel very good about where we are with our products today and then now the solutions that we've been talking about. I would say that we are intending to continue to increase what you would want us to increase, which is R&D and innovation. That's number one. Number two, we're going to invest in our go-to-market. We have multiple opportunities to do that. There's the land and expand, and we've demonstrated that customer after customer after customer. We have long-term relationships, as you know, with AFRL and others who are using successive generations of our capabilities. And as I think about where we are in terms of R&D and SG&A, I think that we are also ensuring that we have the right supply chain in place, the right manufacturing capability in place, the right foundries for Chris' business in place because he's using existing foundries, which is amazing from a cost standpoint. We're ensuring that our IT infrastructure scales. So you will see us also investing in SG&A, but that's to make sure that those don't become bottlenecks to the incredible opportunity we have to actually create solutions for our customers. And one thing that I think shouldn't get lost, and I want to -- I know I said it and Niccolo has as well, we are also building applications. It's not just the solution itself or the infrastructure, but it's how you use it and what do you use it for. So you'll see those expenses be our investments. And I think we have the war chest that we need. We'll be prudent, of course, as you would expect us to be about how we invest and where we invest more versus less. But I've given you a flavor for where we need to drive innovation to maintain the competitive moat that we already have and maybe even deepen it. You asked about share count. No, I would say that directionally, share count by year-end is probably in the range of 350 million shares, plus or minus. And so I think that, that reflects the investments that we've made, of course, in people and in the technologies that we have. I hope that answers your question. Operator: Our next question comes from Richard Shannon of Craig-Hallum. Tyler Perry Anderson: This is Tyler Anderson on for Richard Shannon. Congrats on the quarter, the acquisitions and the 99.99%. I'm wondering, to what degree has the government shutdown impacted you for upcoming deals? Has this pushed anything out? And then could you double-click on what you're doing with Q-NEXT and whether or not the scope of your work has changed since you've made all of these acquisitions? Niccolo de Masi: Yes. So let me take the first one, and I'll pass it to my colleague, Jordan, on the Q-NEXT. Look, the good news is, as I said in my prepared remarks, we are increasingly part of the fabric of what matters to our nation's national security and national economic security. And I would say that's the case more broadly. I think there's strong support, obviously, in the United Kingdom for this company, given that we acquired, I would argue, the greatest quantum company that the U.K. has produced in history. And so the allied nations of the Western world are obviously determined to prevail in the quantum space race, if you will, that is playing out on a weekly, monthly, quarterly basis here. And so we haven't seen any impact bottom line from the government shutdown in the U.S. that has at least been material. We are highly confident that we'll be continued as a priority partner on both sides of the Atlantic. And we're highly confident, as you heard from Inder, that engagement in the systematic importance of IonQ continues to be up and to the right. Jordan, over to you on the Q-NEXT. Jordan Shapiro: Yes. I'll just comment first on the government side. We're tremendously confident for our current projects, we're funded and continue to work and invoice and get paid on all of our projects. Not to mention, you look at what's happening today, just yesterday, the National Security Space Association came out with a paper specifically talking about Golden Dome and how programs of record are going to need to incorporate better GPS. And so we are feeling very confident that our solutions on the quantum sensing side speak specifically to those government programs now and for the long-term future. With respect to Q-NEXT, we do not have a significant relationship with that company, but we are rapidly expanding the number of quantum networks that we are engaged in. And for example, the Geneva Quantum Network that we mentioned this afternoon is just the latest and greatest of quantum networks that we're able to provide. Tyler Perry Anderson: Jordan, if I may. So I'm sorry, I may have gotten muffled. I meant Q-NEXT the government lab from the announcement yesterday for the $625 million. Jordan Shapiro: Got you. Tyler, we'll follow up with you on that one perhaps offline. Inder Singh: Yes. Let's take that offline and go into detail question, if that's okay? Tyler Perry Anderson: Yes, that's -- absolutely. And so then has there been any shift in customer demographic since you guys have been going out and talking about your 256-qubit quantum computer? Inder Singh: There is incredible interest in customers in seeing the road map that we've laid out and our ability to then execute against it. What we're finding is what's resonating with them is that the BOM that we have, the bill of materials that we have in terms of delivering a lower cost solution, as I mentioned earlier, with greater compute power and lower energy consumption, that is the right level of thing -- of mix of things that customers are looking for in terms of TCO. My colleague, Chris can speak more specifically about the early indicators of 256 and then 10,000. And remember, our journey goes all the way up to 2 million qubits. Chris? Chris Ballance: Thanks, Inder. Yes, what I'd add on to that is with this Electronic Qubit Control platform, of which the 256-qubit product is the first, we can scale far more rapidly than other technologies because we're using existing foundries. So we really are using these existing semiconductor supply chains, and we're at nodes that are multiple generations old. Everyone else in the quantum space is having to build their own supply chains out of this. And this really is a differentiator that customers see, especially in how fast we can deliver on our long-term road map. Niccolo de Masi: Yes. So look, the only thing I'd add to that is you heard from Inder in his prepared remarks that obviously, we're growing nicely on both sides of the Atlantic now. So you can assume there's more global interest due to our scale and the fact that we are the largest quantum company in history by any measure at this point. As you heard from Inder and Chris, winning every computing revolution comes down to as much power at an effectively affordable, accessible price, as little energy requirement and space requirements as possible, right? And so everything you hear out of IonQ is about driving those metrics in the right direction, right? We want the most powerful machines at the most accessible price points with the lowest energy consumption and the smallest space consumption required. We also spend a lot of time on robustness, right? And one of the things we're proud at with IonQ across the board, from sensing, networking and computing is that we ship and we commercialize and we have a lot of equipment and customers in the field, right? So technology readiness levels are fantastically high relative to anything else you can find on planet Earth. And it's a feedback loop that benefits our ecosystem constantly, right? So you've heard me talk in the past about our ecosystem. And at the end of the day, the platform strategy for IonQ is about winning the quantum computing race, the quantum sensing, quantum networking and stitching that all together so that our ecosystem is unmatched. And our ecosystem is not just hardware and entangled hardware, as you heard me talk in my remarks, but it's the software and applications on top of that. And the more of it that we have in the field with customers, of course, the more feedback we get and the more embedding in critical workflows, as Inder mentioned, that occurs, right? So we're viewing this as a market share land-grab opportunity of customers choosing our ecosystem because not only we're winning today, and we've won for the last 5 or 10 years, but they see a clear path to us being the prevailing ecosystem, right? We're not just the 800-pound gorilla of quantum. We see ourselves as the NVIDIA of the quantum space. And I've said that before publicly. And all signs are there, if you look at what we have published between June 9 with our webinar, September 12 Analyst Day and of course, today's earnings call, that we are the technical leader in our space and also the commercializing commercial leader in the space. And we're very focused on the mass market commercialization of all things quantum and making the future happen sooner, if not today. Operator: Our next question comes from John McPeake of Rosenblatt Securities. Inder Singh: John, your microphone is muted. Why don't we come back to John, operator. Operator: [Operator Instructions] Our next question comes from David Williams of Benchmark. David Williams: Congrats on the solid execution here. Maybe first, just a point of clarification. Jordan, did you mention earlier that you all were working on your own satellite and putting some of the technology that you've acquired on that satellite? Is that -- did I hear that correctly? Jordan Shapiro: That's correct. David Williams: Okay. Excellent. And when do you expect that to be in service? Jordan Shapiro: We haven't put out specific time lines for the serviceability. But what I'll say is at this moment, you have flying, a quantum gravimeter and that is orbiting the Earth. So these technologies that we're talking about are near term for us. They are productized. They are space tested, and we are rapidly deploying technology as quickly as possible, making it available for our customers globally. David Williams: Okay. Fantastic. And maybe the next one for Dean or the doctor there. If you kind of think about what the Quantinuum announcement and the release of their Helios system, this is still quite a ways away from what you all have talked about, especially your road map, but there was some nice error correction or logical qubit ratios there. I'm just kind of curious how you see that and maybe any thoughts there that you might provide just on that -- the Helios system. Chris Ballance: Thanks. This is Chris Ballance. So what matters for application performance is effective error rate. So our physical qubits are now substantially higher performance than anyone else's logical qubits. So in the short term, for the near-term road map, you can take our physical qubit count as you look at other people's logical qubit counts. But what's also important is things like scalability, reliability, deployability, as Niccolo said. So our systems have been on the cloud for a very long time now, and we have a lot of battle-tested experiences of landing these systems in the field. And with our new Electronic Qubit Control technology, on which we've hit this record high qubit performance, we also end up using standard chip-based semiconductor fab, which allows us to make things more reliable at the same time as reducing the cost and taking things from having knobs that need to be tuned like in competitor systems, the things that are baked into a semiconductor chip, which allows us to mass manufacture these things while improving reliability. Jordan Shapiro: David, this is Jordan. Sorry, I misspoke earlier. I meant to say we have a quantum gyroscope testing, not a quantum gravimeter. Operator: Our next question comes from John McPeake of Rosenblatt Securities. John McPeake: So Niccolo, Inder and team, congratulations. This is kind of a longer-term question. Your road map has you surpassing the most powerful supercomputers on planet Earth by multiples within the next year or 2. And I'm just trying to get a sense qualitatively at least, what could that do to revenue growth at the company? And then I have a mundane near-term question after that. Dean Kassmann: This is Dean Kassmann. Just from a technical and capability perspective, that it generates a hockey stick, right? Our double exponential growth that we have in our scaling creates an absolute blossoming of applications and use cases that is basically unbound. And so that's the simplicity. I mean the capabilities that will be unlocked for entrepreneurs, for corporations for the promise of quantum is now. It's right around the corner. We have the road map to drive it and the technology that Chris talked about that underpins it, and we're executing on it. Chris Ballance: So I... John McPeake: Yes, go ahead. I'm sorry, go ahead. Chris Ballance: I was just going to add on to that, just how far past the best supercomputers these systems go. If we look at our 2026 256-qubit product, to match that in terms of raw horsepower, you need about 10 to the power of 20 H100 NVIDIA GPUs. And the power consumption for that will be about 1 billion terawatts, which is about 1 billion times planet Earth's total power generation capability. So these 2026 systems aren't just going to be more powerful than the world's largest supercomputers. They're going to be more powerful than the largest supercomputing humanity will ever build, even assuming hundreds or thousands of years of classical technology progress. Niccolo de Masi: Yes. The exciting thing is our bill of materials grows very, very modestly between where we are in '26 and where we are in 2030. So look, to answer your question on revenue growth, as Inder mentioned, I think at the full year results, we'll be talking about '26 guidance, and we'll give you maybe updates to the long-term model. But we're obviously on the precipice of history here, and we're very excited about that as a company because there are many of us that have worked at this for entire careers in the case of our founder, obviously, 30 years. But we are delivering on the vision, and we're doing it in a practical, robust, shippable, deliverable and frankly, affordable manner, which is what it takes for this to become a real revolution, the likes of which we've seen only in the 1980s and the early days of computing, what you saw in the 2010s with mobile applications. I mean, you're going to see a flourishing of applications, ideas. And as Dean rightly said, our application road map that we published on June 9 on our webinar on September 12, our Analyst Day is just some examples of the applications we're working on. There's going to be many more ideas that our developer partners and networks create, particularly around, I think, the quantum AI space. Sorry, you had a second question, John? John McPeak: That's helpful. Yes, the language in the Q on the year-over-year revenue growth mentioned the acquisition of Oxford Ionics as a cause. Is that just the lawyers saying you have to say that? Or is it substantive? Inder Singh: No, we are required to, and we do disclose the acquisitions as we have. I think that if you recall, John -- and by the way, John, congrats on your new role. Yes, thank you. I've known you for, what, 3 decades? John McPeake: Yes, I think so. Inder Singh: So the thing is that the acquisition of -- by IonQ of Oxford accelerated our road map by 2 years plus. And for us, this was getting our solutions to market faster, of course, but also leveraging the semiconductor ecosystem, and that should not be underestimated. The ability to actually leverage 128-nanometer type nodes, which are mature nodes, lower cost, available. So we're not fighting for capacity at TSMC, for example, allows us to get things done faster, scaled more quickly at lower cost. So yes, I mean, the disclosure is there for all the right reasons. The point is it's already integrated. This is our road map. And to be clear, as you're thinking about 2026 revenues, our fifth-generation machine is at the heart of our 2026 as we think about it. And the 256-qubit machine, as soon as that's ready to deploy in the market, we will do so as well. So we are doing this in a way where the transition from our organic sort of development of the quantum machine that we have been perfecting up to the fifth generation seamlessly moves to the 256. And yes, the amazing stats that Chris just went through and what the potential is to unlock protein folding, sources of other chronic diseases, battery chemistry, it's limitless. And we will make sure that we maintain our focus on the most important of those applications ourselves and then work with other partners to deliver the rest. That's the ecosystem comment that we were making earlier. Operator: This concludes the question-and-answer session. I would now like to turn the conference back over to Niccolo de Masi, Chairman and CEO, for closing remarks. Niccolo de Masi: As you heard, we are confident IonQ is head and shoulders the leading player in quantum computing, not only because of our existing Tempo systems, but our historic 99.99% fidelity and clear path to full fault tolerance, Electronic Qubit Control systems and record low unit economics. IonQ stands alone as the only quantum platform with the breadth and depth of integrated solutions across quantum computing, quantum networking, quantum sensing and quantum security. We are on a clear trajectory to deliver critical quantum cybersecurity infrastructure, ultra-precise quantum navigation and quantum timing solutions. The mass market commercialization of previously unimaginable quantum computing power will always be at the heart of our mission. Our relentless focus is on manufacturability and driving mass market adoption of our quantum ecosystem. Software is also an increasing focus for us as we expand beyond the hardware and aim to make our leading quantum solutions the most accessible and practical for customers worldwide. Real-world advantage via commercial applications, combined with urgent national security needs are catapulting IonQ's quantum solutions into the foreground with our nation and allies. We are the largest pure-play quantum company by any measure, revenue, patents, PhDs, balance sheet, market capitalization. As IonQ scales to 2 million physical qubits, we expect to ignite growth in new application ideas, use cases and software creativity that has not been seen since the dawn of personal computing in the 1980s and '90s or mobile computing in the 2010s. We are tremendously excited to be leading the Quantum Age. Thank you all for your time today, and have a great week. Operator: This conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Simon Pryce: Thanks very much, and good morning, everyone. Welcome to the RS Group Interim Results Call for the 6-month period ending 30th September 2025, and thank you all for joining us this morning. The presentation should take around 30 minutes, and then we'll have some time at the end for questions. But we'll try and make sure that we finish the call by no later than 10:00. I'm going to start by summarizing our pleasing first half performance. Kate will then run through our in-line financials and what's driving them, both at a group and a regional level. Then I'll conclude by sharing with you the good underlying progress that we're making as we make the business better at RS and position ourselves to accelerate growth, improve efficiency, and drive better operating leverage over time. But before we get into the details of this morning's presentation, we'd like to start our meetings, virtual or physical, at RS with a health and safety moment and a values highlight. So although we're virtual, please make sure you do take a safety moment to identify your nearest exit and safest evacuation route in the event of an emergency. For our values highlight, I would just like to call out and celebrate our new multi-year global partnership with SolarAid to support their mission to light up lives across rural Africa. As our new global charity partner, their and our purposes and values are completely aligned that is one team delivering brilliantly, doing the right thing and making every day better. We'll bring our people, our innovation, our technical expertise and our suppliers and partners together to help raise over GBP 1 million to partner with SolarAid to deliver clean, safe solar light and power to over 150,000 people living in rural communities without electricity. This is very much RS demonstrating our values in action and continuing to make amazing happen for a better world. So as you know, we're on a journey to create a better business here at RS, and I am really pleased with the progress that we have made in the first half. Against the background of a challenging geopolitical environment and uncertain markets, our data tells us that we're continuing to outperform. We're delivering financial outcomes that are in line with expectations. We're actively managing our business to reflect the trading environment we find ourselves in, but we're continuing to invest in the strategic and operational initiatives that are already beginning to deliver, which underpins our continued confidence in returning RS Group to growth and through focused investment and effective execution delivering on those medium-term financial targets and much improved value creation that we first talked about at our Capital Markets Day last September. So before Kate takes you through the financials, I think it's worth looking at what's going on in our markets, which remain uncertain, although I have to say a bit more stable. As we shared with you at our Capital Markets Day, high service industrial and MRO distribution markets are large, complex and multifaceted, and they are also generally fragmented as are the competitors who play in them. And it's for this reason that we have highlighted that the best way of thinking about our future direction of travel is to look at PMI data, and that our revenue growth is very closely correlated with trends in PMI data, typically lagged by between 3 and 6 months. And during the first half of the year, this remained true. As you can see from the chart on the left and in the red circle, PMI data, which is the gray bars, have been improving since the low point in our fiscal Q3 last year, but it still does remain below 50, suggesting modest contraction. And markets in the first half were probably a bit slower than we anticipated. But against this backdrop, our revenue, shown by the red line, has stabilized and indeed started to move in the right direction over the last couple of quarters, and we actually returned to marginal growth in Q2. As the chart of the regional PMI data on the right indicates, and as you'll hear from Kate in a minute, this was reflected in good growth in Americas and APAC, broadly offsetting a small decline in EMEA. Now whilst PMI data is a good indicator of the likely future direction of travel, we use other data sources to assess our relative performance, and probably the most relevant of these are web searches and supplier reported channel shares. We monitor Google traffic for relevant search terms, and these were down 6% in the first half versus our own group and indeed digital performance, which was only down 2%. And in the chart on the left, you can see that we've broken it down by product category across EMEA, where we have the most detailed data. And in all 4 of our major product categories, you can see that we are performing significantly better than the market. And on the right-hand side of the chart, on channel shares, supplier data continues to indicate that we're gaining share from other distributors across virtually all of our industrial product categories in Europe, and if anything, this has probably picked up a bit in the first half of this year, which is all indicative of our continued outperformance, which is enabled by our differentiated proposition. So with that market background, let me pass you over to Kate, who will take you through the numbers and the drivers behind them. Kate Ringrose: Thank you, Simon, and good morning, everyone. I'd like to echo what Simon has said, we've made considerable progress over the last couple of years. And although the market environment remains uncertain, RS Group is in a much better place today. There is plenty of evidence to support this in the first half. In Q2, we moved into growth for the group. We are actively demonstrating strong cost management, managing pricing and cash flow, alongside discipline in investment. Revenue decreased by 3% compared to last year on a reported basis. On a like-for-like, the decline is 1% after excluding impact of the weaker dollar and reduced trading days. EMEA performed relatively well in a weak industrial environment, and performance in the Americas and Asia Pacific was positive, and I will go through the revenue bridge on the next slide. Lower revenue and increased investment drove single-digit reductions in our adjusted profit and earnings measures, despite the benefit of a slightly higher gross margin. And cash flow conversion was very strong at 107%, with continued good working capital management and ROCE stable at 15%. In our unadjusted free cash flow, we also saw a GBP 10 million cash contribution following a successful legal challenge. We are increasing the interim dividend by 2% to 8.7p per share, in line with our progressive dividend policy and our expectation of low single-digit growth until cover grows back to historical levels. There are a few things to highlight on the progress we're making in our growth accelerators at the bottom right corner of this page. As Simon has illustrated, in current market conditions, the digital revenue decrease of 2% is indeed a resilient performance, supported by the investment in web conversion and a 9% growth in our e-procurement solution for higher value customers. This largely offset reduced revenue from typically lower value web-only customers, including the temporary impact of our U.S. digital platform upgrade. This growth in e-procurement was also reflected in a 7% increase in like-for-like service solutions revenue, alongside improved revenue and profit from RS Integrated Supply, following the strategic refocusing of that business under new leadership last year. And RS PRO grew sales by 4% with growth in all of our regions. We continue to develop our product offering and improve the marketing of our range, and RS PRO now accounts for 14% of Group revenues. So let us turn to look at revenue in a bit more detail. As I said, like-for-like revenue fell 1% compared with last year after excluding the impact of FX and working days, and in this chart, we also show the temporary impact on revenue of the U.S. digital platform upgrade. Most of that impact was in the first quarter, with steady recovery through Q2. And adding this back, like-for-like revenue would have been flat in the first half. We also saw a reduced average order frequency and a lower number of customers as demand fell in markets that were in contraction through the period, including some expected customer attrition in Distrelec as customers migrated to the RS proposition. However, this was offset by the benefit of active pricing management, including supplier pricing pass-through, and importantly, the increased revenue from our higher value corporate and managed key customer accounts. These factors resulted in a 3% increase in the average order value in the first half. At a product level, the more resilient categories of facilities and maintenance, mechanical and fluid power, PPE and site safety grew 3%. Automation and control and electrification was down 2%, but do show signs of recovery. Demand for semiconductors continues to be weak, with end markets remaining challenging. Turning to costs and cost management in the half year has been good, and I am really pleased with the discipline evidenced across the group. We have held costs flat half-on-half despite inflation and increased organic OpEx investment and the net impacts of inflation, a favorable FX impact on the weaker dollar, and a GBP 5 million increase in organic OpEx investment was largely offset by restructuring and integration benefits, including those in Distrelec, which was an additional GBP 9 million in the first half. We are on track to comfortably achieve our target of over GBP 15 million of benefits for the full year. Within our ongoing cost base, our efficiency and savings, which have also enabled us to absorb investments in people, capability and the migration of technology spend to the Software-as-a-Service model for solutions partners. This results in an ongoing cost base of GBP 482 million for the half, effectively flat on last year. Minor benefits relates to a GBP 3 million profit on the disposal of part of the Distrelec Nordic business to our existing export partners, and the cost to deliver the restructuring and integration savings in the half was GBP 4 million. Underlying operating margin, excluding the elevated organic investment OpEx, was flat through the effective management of pricing and costs. The net impact of lowering revenue and cost inflation reduced margin by 100 basis points. However, this was offset by restructuring and integration benefits alongside a reduced cost to deliver these. In addition, we have been delivering an increasing OpEx investment spend through the transition period, with the year-on-year increase reducing margin by 40 basis points, shown to the right of the chart. These investments will drive improved margins over time from our strengthened differentiated proposition and improved operating leverage. So moving on to the regions now and starting with EMEA, which delivered a resilient revenue and operating profit performance in weak economic conditions. PMIs were below 50 in our main markets for the period, indicating market contraction, and like-for-like revenue was down 2%, which includes the anticipated Distrelec customer attrition post the closure of the Distrelec DC, which in and of itself saved us over EUR 10 million per year. Now let's drill down by markets. Business confidence remained weak in the U.K., but we relatively outperformed. Our performance in France continued to be strong, and our targeted products and sales offering to more resilient industry verticals were successful, for example, those connected to process manufacturing such as food and beverage. The DACH market remains challenging, with volumes remaining weak in the manufacturing and automotive industry. Gross margin was slightly up with early benefits of pricing coming through. Operating costs increased by less than inflation through active cost management and strong synergy delivery. Largely reflected the reduction in revenue on a like-for-like operating profit was down 11% to GBP 86 million, and most of the increased organic OpEx investment resides in EMEA, which was the main factor in the operating margin decline to 10%. Moving to Americas, which on a like-for-like basis, grew by 1%. On a reported dollar basis, it was down 5%, which is largely a function of a weaker U.S. dollar. You can see the recovery in digital sales since May, which were impacted following the upgrade of our digital platform in Q1. And if we adjust Americas' like-for-like revenue for the temporary impact, H1 revenue would have been up around 5%. Growth rates accelerated through Q2 in the U.S. and Canada against a backdrop of resilient economic sentiment. Markets in Mexico remain more volatile, with persistent concerns over tariffs and their impact on the wider Mexican economy, and this has led to a number of larger customers deferring capital expenditure which was the significant factor in a decrease in like-for-like revenue in Mexico. Gross margin for the region was slightly up, with a strong performance in the U.S. against the tariff backdrop, more than offsetting increased cost of sales in Mexico due to unfavorable dollar to peso movement. Inflation and strategic investment in digital and pricing optimization were reflected in operating costs. And like-for-like operating profit was down 9%. Profit was down in Mexico, which reflected reduced revenue and gross margin. However, profit was slightly up in U.S. and Canada from improved revenue and gross margin. Let's move on to Asia Pacific. We have been seeing positive momentum here since the final quarter of last year, and revenue was up 4% on a like-for-like basis. We delivered growth in Australia and New Zealand, with last year's Trident acquisition performing ahead of expectations. We also delivered growth in Southeast Asia and Japan and Korea. Greater China was impacted by very weak performance in Hong Kong, reflecting significantly lower spend from a few large state-owned customers linked to government budgetary constraints. Gross margin benefited from favorable pricing and lower inventory provisions. And with costs broadly stable, we saw a strong increase in operating profit, reflecting improved operational leverage. All right. Let's move on to cash. This is where our continued focus has delivered strong cash conversion. Our adjusted free cash flow was broadly flat, with our working capital metrics stable. This resulted in cash flow conversion of 107%, well in excess of our target of over 80%, and this was largely a function of disciplined inventory management in response to revenue demand. Stable CapEx of GBP 25 million translated to 1.1x depreciation as we continue to invest in our physical and system infrastructure. And our well-funded pension obligations mean we don't anticipate any further additional company contributions for these schemes. Net debt decreased to GBP 333 million, continuing a downward trend over the last 12 months, and is now equivalent to 1x net-debt-to-EBITDA at the low end of our 1 to 2x range. Our cash-generative business model, strong balance sheet, and debt facility headroom provide us with plenty of capacity for continued investment and selective M&A. And there is no change to our capital allocation policy. Firstly, we prioritize organic investments in order to significantly improve our efficiency and our market position. Secondly, financially disciplined acquisitions in this global fragmented market can accelerate our strategy, especially small bolt-ons. And third, we believe in sharing cash generated with our shareholders through a progressive dividend policy. And if we cannot productively invest excess capital over a reasonable period of time, we will seek to return this to shareholders. Finally, from me, our full year outlook, which is pretty consistent with what we indicated at the start of the year. There are a few points of emphasis for the second half. We now expect our gross margin to be a bit above 43%, so higher than last year. Our organic investment to deliver our strategic initiatives in OpEx is still likely to be at the lower half of the guided range of GBP 35 million to GBP 45 million per annum. And depreciation and employee incentives are expected to be weighted to the second half. We have demonstrated our active cost management in relation to the market environment, and we will continue to do so. There are further guidance points, including trading days and ForEx, and a summary of our restructuring benefits to-date, which are included in Slide 29 of the presentation. I will now hand you back to Simon. Simon Pryce: Thanks, Kate. And I think you can tell, there is a huge amount going on at RS. But I do recognize that in challenging markets, it is difficult to see this in our financial performance. So over the next few slides, I am going to highlight a number of the areas where I see the changes and the strategic improvement investments that we are making already beginning to deliver. Because it's this that I'm pleased about and it's real evidence of the progress we're making in repositioning RS to drive better growth, improve efficiency, deliver better operating leverage, and much improved sustainable shareholder value over time. So just a quick reminder that we set out our ambitious strategy to improve RS at our Capital MarketS Day just over a year ago, and we continue to execute to that multi-year plan. Our aim is to deliver sustainable outcomes and to be first choice for all of our stakeholders, particularly our customers and suppliers. And we have detailed actions in each of the areas of our strategic wheel set out on this slide. Whilst it's still relatively early in our change journey, in the First half, we executed effectively, and we've set that out in a fair bit of detail in the RNS. But what I'd like to do here is just highlight a few areas where we're making real tangible progress, delivering increased resilience today, improving some of our key underlying operational metrics and supporting accelerated growth that are all early indicators of us beginning to realize some of the exciting RS opportunity. Core to delivering our strategy is, of course, our people, and we have significantly strengthened our leadership over the past 2 years and we continue to do so, while investing in training and upskilling across the group. Our people buy into this strategic journey that we are on with our engagement score well into the mid-70s, despite the challenging markets and the level of change going on within the group today. Our people are doing a fantastic job, and they remain the lifeblood of this business as they embrace and drive change to create greater agility and efficiency. But it's probably in customers where our biggest opportunity lies and where I'm most excited about the progress that we've made over the last 6 months. There is huge potential here through the more effective use of our unique data to target the right type of high potential value customers and to increase our share of wallet with them through delivering a tailored value proposition and a personalized experience, but with an optimized cost to serve. This requires consistent and ultimately connected customer data engagement and management platforms coordinated across the channels globally. We've now reconfigured, cleansed and uploaded and matched over 90% of our customer data across EMEA and APAC, with Americas to follow. And we are already starting to use this data to develop highly targeted and potential-based segmentation models, which will allow us to prioritize customer targeting with both human and digital marketing and to more effectively deploy our sales efforts next year, particularly in EMEA. We've also completed in the first half the development of our customer data platform, which we're now using to develop opportunity-based personalized experiences, both online and offline, to better attract, nurture and gain a larger share of customers' wallet. Our CRM system, which we completed the rollout of last year, has now recorded over 340,000 customer interactions. And to date, this has enabled our sales team to identify more than 50,000 new sales opportunities. And levering this richer data insight, we've seen materially higher win rates and bigger deal sizes, which is part of how we've achieved that 4% growth in revenue from our corporate customer segment in half 1 that Kate referred to earlier. This is all before we ultimately knit it all together and connect it to our enhanced digital commerce engine as we roll that out across the Group, all of which will accelerate customer and wallet capture through enhanced connected data platforms. I'm also pleased with the progress we're making to further strengthen our technical product offer. Our product management solution launched at the end of last year now has allowed us to more than triple our average new product introductions to over 30,000 a month in the first half of this year, and that's resulted in a nearly 30% increase in new product sales and great expansion of our curated product range. And initial Investment in more dynamic pricing has allowed us to process over 3x the normal number of pricing changes that we make in the Americas, which is part of how we've dealt so effectively with the impact of tariffs. But the real opportunity of dynamic pricing and the database margin optimization capability that comes with it is already supporting gross margin expansion in Americas, and we will be rolling this out across the group more widely over the next couple of years. And these investments are just examples of how we're better supporting both suppliers and customers and enhancing the value that we create for them. Kate shared with you a bit earlier the growth that upgrading our e-procurement solution is already delivering, and we continue to invest in our other digital procurement solutions for upgrade next year. Our investment in process and technology, as Kate alluded to, is also repositioning our integrated supply business, RSIS, which delivered strong growth in revenue and much improved profitability in the first half, which is all evidence that our solutions and services focus is driving much improved strategic engagement, and importantly, product pull-through and enhanced value. I'd also like to call out the investments that we've made in the first half to improve our digital experience, which is also contributing to our performance. Our investment in enhanced findability tools have driven a 2% improvement to more than 18% in our Add to Cart rate when a customer searches for product on our website. Our new basket and checkout functionality has resulted in a 5% improvement in basket to order conversion, which is now up to 41%. We've launched an upgraded version of our enhanced digital platform in North America in the first half, as you know, and we continue to tune that platform. Just an example of how much more effective it is, our website load times are now a third quicker compared to the old website. We also continue to tune our delivery promise solution that we launched last year. That's already resulting in fewer cancellations and returns, but is importantly now beginning to yield increasingly granular data, which will allow commercialization of artificial intelligence and machine learning optimized decisions, particularly in the areas of stock availability, inventory management and pricing. Kate's already talked about much of what we have achieved to enhance the efficiency of our physical, digital and process infrastructure across the group, and that is an ongoing initiative. But it's important to realize that we have now delivered sustainable restructuring and integration savings, totaling over GBP 47 million over the last 2 years, and that's more than we anticipated at the outset. We're also now well into the detailed plans that will deliver at least an additional 150 basis points of margin that we referred to as potential upside in our Capital Markets Day over a year ago. But it isn't just about cost reduction. As an example, our delivery to promise investment that I mentioned earlier is also allowing us to do things like optimize product flows through our distribution network. In the first half, we reduced the number of times we handled a product more than once from 52% to 40%, clearly reducing our cost to serve, and importantly, also reducing our carbon footprint. We see lots of opportunity to further optimize this with more data going forward. All of these efforts around improving our infrastructure is driving significant improvement in our future operating leverage. So notwithstanding a decent in-line financial performance despite the challenging, albeit, a bit more stable markets, I hope this presentation has highlighted for you the real reason why I'm pleased with the first half performance. The change in investment we're making is already delivering better revenue resilience and continued outperformance. It's delivering growth in our accelerators and areas of focus, such as our corporate customer segment, RS PRO and our solutions business. It's driving improvements in our gross margin, in part driven by our investments in new pricing technology and capability, and we're also exercising good cost control and improved efficiency. And always more importantly for me, it confirms that RS is uniquely positioned in fragmented markets with attractive through-cycle growth characteristics. We have an increasingly differentiated technical and digital product and service solutions offer, which positions us to continue to drive market share gains. We are improving the efficiency of our global infrastructure, which will drive operating leverage and significant margin expansion over time. And we can deliver value-creative growth through disciplined acquisitions. And although we've not made any in the first half, this was a result of value discipline, not a lack of opportunity, and we have a good pipeline going into the second half. Most importantly, it's further evidence to me that our medium-term financial targets to grow revenues at twice the market with mid-teens adjusted operating margins, over 80% cash conversion and over 20% return on invested capital are more than achievable, and this will all deliver exciting sustainable value creation for all of our stakeholders over time. That's the end of the formal presentation. Thank you for listening. And I'd now like to open the call up to any questions you might have. Operator: [Operator Instructions] Our first question comes from David Brockton from Deutsche Numis. David Brockton: Can I ask 3 quick ones, please? Firstly, on the U.S. I guess that's a region where you have a little bit more visibility, or at least historically have done. Can you just touch on what the book-to-bill looks like there? The second question relates to Germany. Clearly, that's still been a tough region for you. Can you maybe give any insight as to whether you're seeing any signs of improvement in that region? And then the final question relates to some of the improvements that you've touched on, the share gains as well, that you clearly set out. The one sort of lagging indicator or indicator that's still off a little bit looks like the net promoter score, which is down year-on-year. Can you maybe just give any insight into what you think is happening there, please? Simon Pryce: Thanks, David. Yes, U.S. book-to-bill rates stable to slightly positive in North America; in Mexico, stable-ish. I think what we are seeing in Mexico is a continued deferral of some quite big capital projects. So although the book-to-bill rate looks okay, we do see pretty consistent deferral. We haven't seen that capital investment spend loosen up yet, but generally pretty solid. In Germany, yes, it remains difficult. There is the hope that stimulus will eventually feed through both to industrial confidence and to investment. I mean the one thing about Germany is that lapping means the pace of decline is slowing. We have new leadership in Germany, and I'm very confident that we're positioned to recover or to benefit from recovery in Germany when it happens. But no major signs of that happening yet, but equally, Germany is a lot more stable than it was even 6 months ago. Then lastly, the NPS score that you referred to, David. The way we report NPS is on a rolling lagging basis -- 12-month basis. We did anticipate internally a decline in our NPS score, both in Europe and in North America, firstly with the launch of DTP, and secondly with the introduction of our new digital commercial -- commerce engine. I think, pleasingly, the monthly recovery in NPS has actually followed or slightly exceeded, if I am honest, our own expectations. So whilst the externally reported number still looks a bit weak, if you look at the movement that we can see internally month-on-month, we're on a very good trajectory on NPS. Operator: [Operator Instructions] Our next question comes from Michael Donnelly from Investec. Michael Donnelly: Just a couple from me, please, and they're both about RS PRO. Now that it's 14% of group, and we've seen great strength in the US, albeit from a low base, should we be thinking about a sustained mid-single-digit growth trajectory for that product in the medium term, or is it more likely to moderate to group growth at some point? And related to that, I think you've mentioned the potential in the past for RS to reach about 1/5 of group revenues. Could you comment on that potential, given the recent performance of the period? Simon Pryce: Thanks, Michael. So we have seen a good performance for RS PRO in the first half. Given the very low base we're starting from in America, I am not sure that we're celebrating victory there quite yet. There's a lot of work to do to build both recognition and understanding of the RS PRO brand to make sure we've got the right products stocked for our U.S. customer base and are actively selling and promoting the brand in the right way. I do think you should expect RS -- I mean it will be a little choppy, but I do expect, or I do think you should expect to continue to see RS PRO growth outperform the broader group growth over time. And with reference to sort of medium and long-term targets, I'm not sure we've gone out there with a formal position on where our RS PRO brand should get to. But if you look at world-class distributors, I think your comments about between 20% and 25% of revenue being about the right level for a private label products. I don't think we're necessarily disagreeing with that. It takes time to get there, and we're on a journey with RS PRO that's not yet finished. Operator: We currently have no further questions. And with that, this concludes today's call. We thank everyone for joining, and you may now disconnect your lines. Simon Pryce: Thanks, everybody.
Fabiana Oliver: Good morning, everyone. Let's begin the Lojas Renner S.A. Video Conference. First of all, for those who don't know me, my name is Fabiana Oliver. I joined the Renner team 3 weeks ago as Investor Relations Officer. With me today are Fabio Faccio, our CEO; and Daniel Santos, CFO. Before giving them the floor, I'd like to make some announcements. This video conference call is being recorded and translated simultaneously into English. We will show here the presentation in Portuguese. So for those following the call in English, the English version can be downloaded from the chat and from our IR website. Questions from journalists can be directed to our press office through the number (113) 165-9586. Before proceeding, let me advise you that forward-looking statements relative to the company's business perspectives, projections and operating and financial goals are based on beliefs and assumptions and on information currently available. They are not a guarantee of performance as they depend on circumstances that may or may not occur. During the Q&A, questions may be asked live. With that, I now turn the floor to Fabio. Fabio Faccio: Good morning. Welcome, Fabi, and thank you all for joining us today. We will share now our results for the third quarter of 2025, the development of our trajectory and our outlook for the future. The initiatives we implemented between 2022 and 2023 to evolve our fashion execution model, fulfillment and omni experience have been contributing to our results since [indiscernible]. The benefits captured also reflected in the higher net income, which increased from approximately BRL 900 million in the last 12 months in September 2023, which increased to BRL 1.4 billion this year, 49% increase while earnings per share grew 59%. In the same period, compound retail sales was 9.6% with a 2.2 percentage point increase in gross margin. Realize went from a negative result of BRL 100 million at the time to a positive BRL 390 million. Our EBITDA margin rose 7.9 percentage points and ROIC rose 4.6 percentage points. The specific performance of Q3 did not alter this trajectory. It mainly reflected the distinct climate dynamics compared to 2024. We had a normal autumn in 2025, which favored the sale of winter items in Q2, but on the other hand, limited their availability at the beginning of Q3. Back then, we decided not to increase the volume of orders for winter items based on our risk return assessment at the time considering possible excess inventory. However, temperatures remained cooler in Q3, which combined with our significant exposure to the South and [ Southeast Asians ] and a cooler start of the spring resulted in a loss of sales opportunities that we estimate between 2 to 3 percentage points. Retail sales in the period grew 4.2% with apparel growing 4.7%. Given the opposite seasonal dynamics between Q2 and Q3 compared to the previous year, on average for these 2 quarters, we grew 11.5% in retail and 12.5% in apparel, maintaining the pace of growth of the year even with this loss of opportunity. In the first 9 months, we grew 11.6% in retail and 12.8% in apparel with a gain in market share. In warm regions, growth in Q3 was well above average. The same happens when we look at the performance of nonseasonal items, which are independent on climate. They also stood out. And this shows how well our collections have been received. Retail gross margin continued its upward trajectory, reaching 55.1%, 56.2% in apparel, up 0.4 and 0.5 percentage points, respectively. This progress also reflects improvements in fashion execution and more accurate fulfillment. In this quarter, Q3 -- given the calendar of some unexpected expenses for the period and given the slower pace of sales, we did not have operational leverage. This does not change the annual dilution trajectory that we began in 2024 and which we are committed to consistently follow in 2025 and in the years to come. It is worth noting that in this cycle where the company finds itself now, our CapEx and OpEx expenses are no longer investments of a structural nature. The prospect of higher sales volumes and efficiency gains is the result of investments made in recent years. Now we start having some opportunities as well to reduce some expenses, and we have already begun work aimed at capturing these opportunities. Realize continued its evolution and contributing to the retail operation acting as a lever for customer loyalty, supported by a healthy portfolio and reduced delinquency, posting a 37% growth in its results. Our consolidated net income was BRL 279 million, an increase of 9% over the previous year and almost up 16% in earnings per share. We generated BRL 473 million in free cash flow. These results provided an ROIC of 14.4% in the last 12 months, an increase of 1.7 percentage points. Our digital channels already account for 17% of sales and their growth can drive the company's profitability. We now have fully integrated online and offline operations at the DC in Sao Paulo. With that, we gained a wider assortment of products and faster availability of items in e-commerce, which provides us with instant feedback on product performance, more agile decision-making, reduced stockouts and improved levels of service. The share of new inventory in the sales that take place over this channel increased by 8 percentage points in the first 9 months, which also contributed to a better gross margin. We have made progress in technology and then creating an increasingly good shopping experience in the stores in addition to continuing with our expansion plan for new cities. So far this year, we have opened 18 new stores, and we will meet our expectation of openings between 30 and 37 units in total for the year, including all of our brands. Our expansion plan is focused on markets that are not yet served. And this store profile is benefiting from SKU fulfillment model. Another point that makes us confident is that our new store models in all business units are proven to be performing above average. And the remodeling of units is also a focus of our investments. The evolution of the omnichannel journey, combined with the expansion of new stores and remodeling of existing ones are important levers for value creation for customers and shareholders. These initiatives have made our company more integrated and flexible to meet new consumer demands and different macroeconomic scenarios. Our net cash position of BRL 1.3 billion, combined with consistent operational generation of free cash flow gives us peace of mind to operate in adverse scenarios and flexibility to continue with strategic investments aimed at driving our growth, while we also create value for our shareholders. Even with a third quarter that was more challenging, the accumulated performance of the last 9 months gives us confidence in the path that we chose. We are not yet halfway through capturing the benefits. Our priority is to accelerate gains to achieve the potential -- the full potential of the model. I would like to thank all of you for your confidence, and I hand the floor over to Daniel. Daniel dos Santos: Thank you, Fabio. Good morning, everyone. In Q3, retail revenue grew 4.2% and 4.7% in apparel with sales impacted by atypical temperature dynamics, as Fabio already mentioned. However, when we look at Q2 and Q3 combined, apparel grew 12.5% year-on-year. And it is worth remembering that we had a strong basis for comparison in Q3 '24. Despite the negative volume, we saw an improvement in the conversion rate in our stores. Price adjustments to pass on inflation and a greater share of new items in the mix also contributed positively to sales. We will continue to carefully balance prices by monitoring the market and product performance, focusing on the positioning of our brands and customer perception. For the fourth quarter, we expect price adjustments close to inflation. Our digital channel posted 4% growth with a penetration of approximately 17% and achieved SG&A in Q3 similar to that of the physical store operation. We reached a new record number of active customers on our app and our app and website were the most visited among national fashion players, further consolidating our leadership among omni players in the sector. As for Q4, we will have a slight easier basis of comparison in preparing for Black Friday and especially Christmas. As regards to gross margin, we continue to advance even with inflated costs and high interest rates. We ended Q3 with a retail gross margin of 51.1%. Apparel gross margin of 56.2%, also 0.5 percentage point higher. This performance was made possible by efficient inventory management. And here, I highlight the reduction of old items older than 16 weeks, coupled with agility and flexibility in our fulfillment and fashion execution. Price adjustments in line with inflation and an improved mix of assortment and inventory each also contributed to the third quarter. These factors give us confidence that the gross margin for the fourth quarter will be slightly positive compared to 2024. As for expenses, operating expenses grew 7%, above revenue performance. This was a one-off event and selling expenses increased their share by 0.9 percentage points due to lower sales volumes and also to the following factors: increase in personnel expenses resulting from improvements in employee benefits. The transition of the voucher payment model, which led to a one-off increase in expenses. This initiative is important for appreciation and engagement of our teams in line with industry practices. It has brought a positive impact on team retention. And with that the headquarter of sales was higher than expected. But by October, the headcount had already been resized. This combined nonrecurring effect was approximately BRL 7 million in the quarter and impacted sales expenses growth by 1 percentage point. The other factor was higher occupancy expenses. Part of the new contracts and lease renewals were negotiated on a CTO model or total cost of occupancy, which is considered more economically advantageous for the company. With this change, rent, condominium fees and promotion funds are grouped together, forming the CTO, which is accounted for as occupancy expenses, SG&A post-IFRS and not as leasing, amortization and financial charges. This impacted the growth of selling expenses by 0.9 percentage points. However, it had a neutral effect on the company's net income. These one-off effects impacted the leverage for the period by 0.6 percentage points. General and administrative expenses increased by 4.5%, reflecting inflation in the period and higher expenses with personnel benefits, partially offset by lower expenses with restricted stock. Lastly, expenses related to the employee profit sharing program impacted net revenue by 0.2 percentage points. The comparison with the previous year, both for the quarter and the year-to-date was compromised given the nonlinear performance dynamics in 2024. Provisioning for the profit sharing program, or PPR, is based on the accumulated annual results and annual budget rather than based on the achievement of specific targets for a single quarter. In the year-to-date, total EBITDA and net income grew 27%. As mentioned, the PPR over net income for the year should represent around 9% to 13%. We stress our ambition to improve operational leverage in Q4 and in the years to come. We are confident that the investments made will allow us to achieve sales growth that exceeds expenses. And as already mentioned, we have begun working to reduce expenses. Realize delivered another quarter with significant improvements. The result of BRL 79.8 million reflected the continuous improvement in the credit profile of the portfolio. Our robust and accurate credit granting model, combined with a healthy portfolio positions Realize appropriately for the current credit cycle in Brazil. Our over 90 Stage 3 ex regulation closed at 14.7%, 1.3 percentage points lower than the previous year. And our short-term delinquency remains at low levels. As long as the macroeconomic environment remains uncertain, we will continue to offer credit cautiously, focused on less risky profiles, mainly through our private label, ensuring support for retail sales and maintaining the quality of the portfolio. The net effect of Resolution 4.966 was insignificant in the quarter, as we had already indicated in the second quarter earnings call, and this dynamic is likely to continue in Q4. For Q4, we expect Realize to continue its positive performance trajectory, albeit to a lesser extent than in previous periods due to the stronger basis for comparison given the sequential evolution throughout 2024. Total EBITDA grew 3% with EBITDA margin of 19.3%, down by 0.2 percentage points and reflects the challenge in retail operations, partially offset by better results from financial services. Net income increased by 9.4% and also reflects a lower effective tax rate and lower financial results. Earnings per share grew by 15.5%, benefiting from the execution of 85% of the share buyback plan. I'd like to highlight that this year, we have already distributed BRL 1.4 billion in the form of interest on capital and our share buyback program. As for ROIC, the 12-month accumulated ROIC increased by 1.7 percentage points, reaching 14.4%. Thank you very much. I now turn the floor to Fabi. Fabiana Oliver: [Operator Instructions] First question is from Luiz Guanais with BTG. Luiz Guanais: I would like to understand the space you see for price increase and ticket increase, and whether we should expect markdowns over the coming quarters. Fabio, you mentioned this Q3 dynamics where markdowns were smaller, also related to the temperature. What should we expect looking forward? And the second question, given the company's cash generation, which continues to be strong and the company's capital structure, how should we think about payout in the future, particularly with this discussion of a possible taxation on dividends in Brazil? Fabio Faccio: Thank you for the question, Guanais. I would say that when we look at opportunities to increase price in ticket, a part of that is replenishing the price according to inflation. And this has been viable. I think that our prices remain very competitive. And I think that there's still room for that. The competition is working in the same way, and this has been very well accepted and received by consumers because average inflation rate for the sector has been in line or slightly lower than the general inflation rate. When we look at some opportunities to increase ticket by assortment, we've seen that. I think that every now and then, we have explored that. There's an opportunity to explore more opportunities to increase the ticket by product assortment. Also related to that, regarding markdowns, we had a lower level of markdowns over the year with a very effective inventory management. In the third quarter, we even missed some sales opportunities. We could have sold 2 to 3 percentage points more, but on the other hand, we were able to have a higher gross margin. But that led us to a renewed streamlined inventory for the coming cycles. So I would say that both the gain in ticket and margin with a lower -- to a lower level of markdowns continues, and it continues to be an important point. As regards to payout, I think you've seen that the company has had an opportunity to grow with significant investments and with relevant payout, either the distribution of interest on capital, interest on equity or share buyback, which has increased the earnings per share for our shareholders. And I think that we have the right conditions given our robust cash generation to continue to grow, to invest and to continue to have a good level of payout. Daniel, can add to that. Daniel dos Santos: As regards the taxation on dividends, there are 2 points here. First, we have to wait for the final decision regarding taxation on dividends. This will still be defined. We are evaluating what could possibly change in the dividend distribution this year, considering responsible taxation. But it's something that we haven't come to a conclusion about that. Once we have a definitive response, we'll get back to you. But I stress what Fabio mentioned. This year, we have distributed BRL 1.4 billion either through share buyback or interest on equity. So the company continues to strongly distribute its results to our shareholders. And our commitment is that we will continue to do so in the coming periods. Fabiana Oliver: Next question from Bob Ford with Bank of America. Robert Ford: How should we see the benefits of CTO? Rentals are more variable than fixed in the stores and Realize is a pleasant surprise. How should we expect the cost of risk for Realize? Fabio Faccio: Regarding CTO, well, Bob, this is a more one-off effect in this quarter, perhaps in this year because what we had was some contracts were negotiated in the CTO format. And when we have the CTO model, it's more advantageous in terms of negotiation. However, instead of being considered amortization and interest, it is recorded as an operating expense. So this is something that kind of gets in the way of the comparison. I should tell you that we are actually assessing whether in the future, ideally, we should start bringing you information in the pre-IFRS model, which would allow for a clearer financial assessment. But this is a decision that was made, we will share with you. But this was kind of one-off. And as we feel that this generated an impact, we will explain more on that. And your second question was regarding Realize. What I can tell you is that this evolution we saw in Realize so far is the result of all the adjustments we made in terms of credit granting, the adjustment made regarding our credit granting models which have been shown to be effective. So we are able to offer credit with lower risk. And with that, we had an effective improvement in the positioning of our portfolio. What we believe is that Realize still has a potential and its role to drive the retail operation. And as we have a more appropriate credit moment, I think that we will be able to evolve more positively in our credit granting so that we'll be able to work either to expand the customer base or to foster an even greater ticket increase and greater shopping frequency, which is the big target of Realize to foster retail sales. Fabiana Oliver: Next question from Vinicius Strano with UBS. Vinicius Strano: I have 2 questions. First, I'd like to explore expenses a little more this quarter, there was a duplicate expense and also CTO. So I'd like to hear from you where do you see opportunities to have efficiency gains overall. I think that Daniel talked about work to reduce expenses during the presentation. So perhaps you could give us more color on that? And my second question, more regarding sales. You spoke about the impact of 2 to 3 percentage points given the climate. So could you explain how this performance gap happened in colder or warmer stores and how well received were the summer collections? Because that's when we have warm temperatures. Fabio Faccio: Thank you, Vinicius. Regarding expenses, Daniel mentioned it in our release that we had some one-off duplications and also the CTO, as we explained. But I think that your question is more about opportunities and opportunities happen in 2 aspects. We always say that we have an opportunity to grow sales more than expenses through dilution, and that results from investments made in the past. But these same investments allow for efficiency gains and productivity gains. And we've said this for a while. There's a learning curve involved. And this brings us opportunity to have productivity gains at the stores or at the DC. And in addition to that, we have a lot of investments in technology, AI, more knowledge. And we have seen and we have identified opportunities that go beyond these, both at the operational and administrative levels. And from now, we'll start working to capture those opportunities. And your question also touched on sales. When we spoke about the performance gap, we estimate we could have sold 2 to 3 percentage points more. I would not relate that only to the climate. It was a decision we made because we have this ability to respond to the climate. We have a very flexible model that gives us speed to adapt during the collection. And what happened was we made a decision to avoid overstock, and with the longer duration of cold temperatures, we lost more sales than we imagined in terms of sales opportunities. So if the performance of the year is good, Q3 performance was below our potential and below our expectation. It could have been 2 to 3 percentage points higher. And it was -- and it depended on our decision, we could have done better. And that's why we mentioned that we have adjusted some decision-making windows so that especially in the autumn/winter period, which is a narrower window, we could perform better in other situations. And as performance per location, we normally don't disclose this number. But what I can tell you is that in warmer regions, performance is much superior than the performance in those regions where cold temperatures remain for longer. And this shows that our collection is being well received. And this tends to lose more effect looking forward. As a reminder, when we speak about Q4, 80% of sales in Q4 are concentrated in November and December, mainly Black Friday, Christmas and the holiday season. Fabiana Oliver: Next question from Danni Eiger with XP. Danniela Eiger: I have kind of a follow-up question based on your comment, Fabio, of you having the ability to cope with climate adversities and the fact that you made a decision that ended up being the wrong decision because you lost sales. But to understand the future, of course, weather forecast can always change, but we still expect adverse climate conditions until December with more rain. But not just thinking about Q4, but next year, we'll never know whether winter will happen at the right time, at the usual time, if we can say that. I'd like to understand when we are going to start seeing these results of this more agile model because we still see this missing. I think that what you said makes a lot of sense. But the fact that you can react quickly. Well, we had a lot of months with cold weather and perhaps you could have made a different decision or perhaps take more risk regarding inventory. Perhaps you were too conservative. So could you help us understand how the strategy will be to try to have a less -- a story that is less dependent on the climate? It seems that the macroeconomic scenario is not an issue, but in a more challenging macroeconomic scenario, it would be good to know. And speaking about expenses, Daniel spoke about efficiency package. I'd like to understand how much you can reduce expenses. Looking at your expenses as a percentage of sales and comparing with your peers, it is quite robust. So in terms of agility and becoming lighter, what kind of adjustment can you make in addition to avoid the duplications? It would be good to have this kind of visibility given the uncertainty regarding future growth. So perhaps prepare the company for more challenging situations regardless of other factors. Fabio Faccio: Thank you for the question, Danni. I think that you're correct. But in my answer in the previous question regarding the climate, we don't control the climate, but we control the decisions we make. So we have the tool, we have tools. We have ways to produce quickly and to regulate inventory according to demand and the climate. And every day that goes by, we evolve in that regard. I think that, yes, you're correct, we were conservative. You're right, we were more conservative. That led to some sales opportunities being lost that we estimate at 2 to 3 percentage points. But still, if we look at the collection as a whole, Q2 plus Q3, we posted growth in Q2 plus Q3 of 11.5% in total sales. I haven't seen any other player growing more than that, combining the 2 quarters. So I think that your point is that it could have been better. We missed an opportunity in Q3. But if we were less conservative, we would have been even better. So perhaps the third quarter was slightly below some others. But if you sum the 2, put the 2 together, we were still very positive. There is an opportunity for us to do even better. And it's a decision, not the model. The model can respond to that. The model is ready. We discussed this a lot in-house. We narrowed windows to assess and make decision to be able to use the model even better because we have the model, and we expect to have a better performance regardless of any climate variation or macroeconomic scenario. Danniela Eiger: When did you change this window, Fabio, just so we can understand when we are going to see this kind of effective result. Fabio Faccio: In the end of the season, in the end of winter, that's when we improved our processes. And as regards to expenses, and you're also right, we have an expense base that we consider to be high. And that's why in addition to dilution of expenses, we see opportunities to cut down expenses, and Daniel can speak more about that. Daniel dos Santos: Well, Danni, in the case of expenses, first, let me stress our commitment of diluting expenses over time. So we acknowledge we know that we have a level of expense that regardless of the comparison with other players is higher than the level we operated in the past. It is our goal to sequentially reduce expenses. What we observe is that in addition to the ability to grow sales above expenses, which was not the case in the third quarter for the reasons we mentioned, we have the diagnostics of that. There are some specific areas where we can indeed reduce expenses. We have not sized that. So it's not something we can share with you yet in detail. But what we want to stress is that, yes, there are opportunity for efficiency gains, and we will be pursuing those opportunities. This is not a program that will come in the fourth quarter. It's not a quarter work. It's something that will happen over the fourth quarter and over 2026. Fabiana Oliver: Next question from Joseph with JPMorgan. Irma Sgarz: Actually, it's Irma from Goldman Sachs. Well, you've enabled my mic, so I'll ask the question. Going back to Danni's question about the moment, I would like to approach that from a different angle to understand if you're thinking about possible adjustments in building the collections and the assortment to maintain greater flexibility to meet climate requirements. Given all the improvements you've made in logistics and agility of processes, so that you could match the climate that is becoming less and less predictable. My second question is a follow-up to Guanais' question. In terms of capital allocation, whether potential acquisitions are still an opportunity or a possibility? And perhaps you would want to keep greater flexibility in the capital structure looking forward? Or is this water behind the bridge and you're going to focus on organic growth? Fabio Faccio: Thank you for the question, Irma. I think that as regards to collection adjustments, as you yourself mentioned, that's part of the business. One part of it is having a model that is prepared to make adjustments in quantities and production, and we are prepared for that. we evolved in our decision-making. Another point is assortment. And we mentioned that the performance of more perennial items that are not so seasonal was much superior than the other products. So we have been giving more space for these items. These items are becoming more and more important. They are responding well in different situations. So that was the most difficult part of the model to have the model actually, and we now have it. Now we have to improve decision-making points. And regarding assortment, we have more room for those items that make up the wardrobe. We can have response for winter time with more layers of apparel. We have been doing this in apparel. And more and more, we are prepared to better respond to climate variations. As for potential acquisitions, we have not worked on anything inorganic. We have a lot of organic growth to come from our investments. Our capital structure, as I mentioned, allows us to continue to make these investments in an environment which is still very uncertain and risky. So we prefer to have a more conservative structure at this point to have flexibility in the way in which we invest, in the way in which we operate and at the same time, distributing value to our shareholders. Daniel, do you want to add? Daniel dos Santos: When you talked about flexibility, it's a key topic, particularly at this moment and in a country, in an economic situation where we know there are always many challenges. Fabiana Oliver: Now next question from Joseph Giordano with JPMorgan. Joseph Giordano: Welcome Fabi. I have 2 points. The first, looking at assortment adjustment, I'd like to understand how you see the evolution of lead time decision, the moment that the decision is made to the product be on the shelves. I want to understand the lead time perhaps in winter time, this time is more elastic. And looking at capital allocation, we have dividends. We've talked about that already and accelerating expansions and remodeling. Could you give us more visibility in terms of where do you see the potential to accelerate, particularly at Renner and Youcom and how you see the performance of the refurbishments that you have been carrying out at the stores? Fabio Faccio: Thank you for the questions, Joseph. Regarding assortment, reactivity and decision points, I think that our lead time has been improving more and more. I would say that in winter time, lead time is always a little longer on average depending on the type of product but compared to spring and summer. And I have to consider that autumn was normal. We had an expectation to have a normal winter time, but winter was more -- was longer. Retrospectively, we should have made the decision to have a greater production. We could have done that even with an average lead time that is slightly longer than summer/spring. So now we are working on the decision points and also to shorten the winter lead times as well to make our responsiveness and flexibility even greater from the standpoint of capital allocation and store openings and store remodeling. Daniel dos Santos: I'll speak about the opening of stores, and then I will speak about capital allocation and investments. But we are quite pleased both with the new stores and with the new store models. The new stores have been performing well in a cohort that has been performing superiorly compared to the previous cohorts. And Renner that is opening stores in new cities with formats on average slightly smaller than the current average, we have to be accurate in fulfillment by SKU that allows us to have differentiated assortment per store, all of the stores benefit from that. But this store format is the one that is benefiting the most. So in the future, well, looking forward, the performance of these new stores will become even more important. They are performing above average, and we can expect that they will do even better. Regarding remodeling and refurbishment, it is important to say that we have new store models in all of our formats, Renner, Camicado and Youcom. For Renner, for example, if you're in São Paulo, if you want to visit the Morumbi store, which is our most modern one, in Camicado, we have the most updated models in Galleria Mall in Campinas and in Vitória Mall in Espirito Santo. And soon, we'll have more units running on that model. We are refurbishing and remodeling and opening some other stores. And for Youcom, in addition to being a new model, it is a bigger model. We have new stores. The first was in the beginning of the year in Barigui in the city of Curitiba. But recently, we opened or we reopened a refurbished store at Anália Franco Mall in Sao Paulo that doubled the size of the store with a new layout, a new model, bigger selling space with high sales per square meter. I mean that is an investment that makes us very pleased and confident. For Renner, I mentioned the Morumbi store, which is the most up-to-date store, but it is important to highlight that we've been testing this new model for over 2 years. We have a number of new stores with this new model. And we have been improving it actually, and it has been performing better and better. This is proven. We have a large number of stores running with this model, and we have made decisions -- we have decisions to make in each one of them. One important point is that we've been able to renovate the stores at a cost that is 30% lower than last year because we've had these tests and because we understand what really matters more the refurbishments in Renner and Camicado. So we invest less per square meter, and we have a performance of the stores that is better. And both things are very important to us. And Joe, as Fabio mentioned, we have models that have been tested into work. So in terms of capital allocation, investing in expansion and trying to accelerate expansion, both of Renner and Youcom as a priority. And then capital allocation for refurbishment and renovations and remodeling. These are the 2 big pillars of investments for the next 2 to 3 years. Fabiana Oliver: Next question from Ruben Couto with Santander. Ruben Couto: I would like to go back to the topic of sales growth. If you could speak about growth of digital GMV, which has seen a good acceleration this quarter. I understand that there is a base effect, but the gap of what online was growing more than brick-and-mortar stores was kind of closed in this quarter. Anything specific about this channel, the marketplace platform being very aggressive. Has this affected you in any way? And what can we expect for Q4, including Black Friday? Fabio Faccio: Thank you, Ruben. Here's what I can say. We have a share of digital sales, which is quite high, 70%. And what we see is that there has been greater commercial aggressiveness in digital costs. I think that some players are trying to grow more, even the marketplaces are competing more. And we chose to be not that aggressive in inorganic traffic, and that's why growth was not that relevant. It's a balance that we have for growth versus profitability. And I think that we can balance this equation quite well. We can grow the trend we see looking forward, and of course, this will depend on the quarter. But on average, we expect to see greater growth in digital sales than brick-and-mortar sales, but with profitability. This is what we are pursuing. We had slightly more [ timid ] growth in the quarter. This is one-off. And it is a reflection, I should say, of a reality that last year, we had more surplus of inventory and the digital channel has this [indiscernible] of being able to sell these products. And this year, as you mentioned, we missed some sales opportunity, and we didn't have any leftover of inventory, any surplus inventory. So in the digital channel, we didn't have a significant markdown volume this year as we had last year. Fabiana Oliver: Next question from Rodrigo Gastim with Itaú. Rodrigo Gastim: I have 2 points. Fabio, please tell us more about this evolution of the quarter. You mentioned a little bit the climate, and we heard a lot of industry feedback of a very hard September. I think it was the worst month of the quarter. Can you tell us about the evolution over the quarter? And now we have the whole of October already closed. Have you seen -- have you perceived any improvement regarding the climate? Or is October following the same pace of the third quarter? And second point, Daniel, about the phasing of retail expenses. My question is, to what extent this was really one-off? And to what extent this depended on an expectation of revenue that fell below expectation? In other words, when you look at Q4 and the setup of expenses you have for Q4 expenses, do you feel comfortable at this level that we will continue to see a dilution? How should we think about this in Q4? These are my 2 points. Fabio Faccio: Well, we normally don't speak about monthly results or results month by month. But what I have heard in the market in different industries, what I hear is that there was a strong slowdown in September. But to us, we did not have an impact concentrated on just one single month. I think it was kind of distributed for the quarter. Again, we could have sold more. And Daniel will answer the part on expenses, but sales growing more than expenses would help us with that. And we had and we have an opportunity to post even greater growth. So I would say that we had some better months, some worse months, but not the same impact that you heard in other industries and other sectors that I have heard about as well. And as for Q4, we don't envision any dramatic change up or down. What really matters for Q4 is that 80% of it has not happened yet. So it's kind of difficult to affirm, but we have a good expectation for the fourth quarter. We are well prepared with new inventories with a good campaign, excellent products that are being well received with a better performance in those regions where we have a more normalized effect. So I think it is way too early to say, but I think that we have a positive expectation for Q4. Let's see how it is going to play out. Talking about expenses, Daniel, over to you. Daniel dos Santos: While speaking about expenses, Gastim, since the beginning, we said that Q3 had 2 challenges. One was growth. We knew that we would post a lower growth. And secondly, some expenses that we knew about related to the calendar. Our sales came below our potential, below the expectation, as Fabio mentioned. And as for expenses on the expense side, we had some one-off events that made expenses be slightly above what we had originally designed. So this is kind of the story for the third quarter. Now that was explained. As for the fourth quarter, if we look at the pace of expense growth, Q4 will be the quarter with the lowest expense growth in the year. We believe that with a lower pace of expense increase, we will resume expenses dilution, which is our goal for the year. We've already had an expense dilution year-to-date and Q4 will contribute to that even more. And the idea is that we will continue to dilute the increase of expenses in the subsequent cycles and periods. Fabiana Oliver: Next question from Pedro Pinto with Bradesco. Pedro Pinto: And I'm sorry to go back to a point that has been mentioned by Danni and Irma. But I would like to understand what are those initiatives implemented for the coming cycles? You spoke about assortment with Irma. A little bit about the decision-making process in answering Danni's question. I'd like to understand how was the agnostic process related to that? What was wrong in this allocation? I mean, is there any element, any capability that the company still lacks or small adjustments that have been made? I mean, hypothetically, if Q3 were happening again, could you increase sales with a good margin and end the quarter with a balanced inventory? Because as Danni mentioned, temperatures are unpredictable and also winter has a longer lead time. So I just wanted to understand a little better about this diagnostic process and whether you have all the capabilities. And if this were to happen again, whether you could have a different outcome and a better balance if at all this happened again. So that's my first question. The second question is straightforward and easy in terms of people. The company went through a reorganization of the structures and BUs and Fabi was leading the Renner BU. And we didn't know who would lead the other brands. Have you defined these positions? Are there any other gaps related to personnel and people? Anything to share with us? I'd like to have an update on that [indiscernible]. Fabio Faccio: Thank you, Pedro. About the first question, I'll try to shine more light on this topic. We have the capabilities. When we talk about decision points and improving the adjustment of processes. That's the most difficult capability, and we have that capability. We don't need any more investments for that. We have to adjust the decision-making points. When we speak about the estimate that in the third quarter, we could have sold 1 to 3 percentage points more -- 2 to 3 percentage points more. And it's not imagining if we had a better scenario, but it's imagining if we have made the adjustments that we committed to making. But in our hands, I'm not counting on a better scenario or a worse scenario because there are the variations there. But considering the same scenario, operating the capabilities that we have, adjusting processes and everything we've said so far here, we estimate could have an impact of 2 to 3 percentage points, all equal conditions of temperature and pressure. As for people, I spoke about the new structure that we announced here both internally and externally to have everyone on the same page regarding the main changes that we were envisioning. So we had the Renner BU, which was the most important one. We had an important efficiency gain -- we had a productivity gain in the teams with the new organization, not just consolidating the Renner BU, but also removing some corporate issues and distributing them among the corporate divisions. This brought us greater dynamism. We announced the rationale for the other BUs because it is what makes sense to us. But I would say that we're not in a hurry to do that. Some time ago, we started looking for a person to fill that position or haven't chosen yet. There's no urgency in that. And we just mentioned that to explain the strategy, both internally and externally. The position is still open. You asked about other positions. Well, we always make some adjustments here and there, but most of them are well underway. And even in the restructuring as sometimes we get asked, you're bringing somebody from the market, and that gets more visibility, but we're actually filling 80% of our positions with internal succession, even Fabi's case, as you mentioned. Fabi Taccola from the Renner BU, that was an internal movement. And that triggered many other internal movements, and we've been successful in filling most of the positions with internal movements and also bringing new people to add more knowledge. Fabiana Oliver: Next question from Andrew Ruben with Morgan Stanley. Andrew Ruben: I think most have been answered, but maybe just to get an update on your Argentina business. Curious how you saw consumption trends throughout the quarter. And now that we start to look forward post the midterm elections, any view on how you expect that business to evolve and what you would need to see to reignite a store growth opportunity in the country? Fabio Faccio: Andrew, ask in Portuguese since we have interpreting. Andrew was asking about Argentina. And to us, Argentina continues to perform better than in previous years. Just the change in the law to operate in Argentina. We've been able to operate well. Every now and then in Q3, since Argentina is a colder place, it was not the best performance there. We performed better in warmer places, but it is performing better than the average of the cold cities. So Argentina is still posting a good performance. It is a future opportunity for us to expand, and right now, we maintain the 4 units in operation. We are not thinking about expanding in Argentina now because we want to understand the geopolitical stability of Argentina. It seems that the country is on a good path. The country seems to be recovering, and we are responding well as well. So it's a future -- an important future potential for us. We'll just have to wait and see how things will play out there so that we can invest more or just keep what we are investing currently. Fabiana Oliver: Our last question from João Soares with Citi. Joao Pedro Soares: Fabi, welcome. I had 2 quick questions, Fabio, to see whether the rationale makes sense, thinking about the gap of the stores in warmer cities. This 3, 4 percentage points, would it make sense to think as the performance gap among the stores? In other words, the average of the stores running at 6%, 7% same-store sales this quarter? And a second quick question. To what extent is the e-commerce margin improving now that you have 17% penetration? What is the EBITDA margin gap now and what it was a year ago so that we can try to understand this efficiency that you're gaining online? Fabio Faccio: Thank you, João. The gap we have in terms of opportunities missed that we understood we could have sold more in Q3 that accounts for 2 to 3 percentage points, not 3 to 4, okay? All right. But I did understand your rationale. In the warmer cities, we don't break down number per region, but we would say that the performance is significantly higher because we have a higher proportional concentration in cities with a hybrid or colder cities. And that's why we could have sold more regardless of the temperature. With this temperature -- I want to make this clear, with this temperature, we could have sold more. We have the capability to do that. And as for e-commerce margins, we've had gross margin gains, both in brick-and-mortar stores and online stores. We have a decision of where to buy. So what matters to us is the margin of e-commerce and physical stores has increased and total margin has increased as well. So when we look at the operations, we look at sales and cost. And I should say that the online cost today equals the offline cost practically. Of course, it varies month by month, but it's practically the same for online and offline. And we have an expectation that it will be slightly better. So if we understand that digital growth is important, and it is, and it tends to grow slightly more than brick-and-mortar stores because brick-and-mortar stores will grow too. That's why it's only marginally higher. It could be better in terms of the final margin in terms of sales and cost for the full operation. And if that is true, this will be a driver of growth for the company as well. Joao Pedro Soares: It is super clear, Fabio. And may I ask a follow-up question? Do you think you have corrected those issues in the end of Q3? Should we see October normalize thinking about the gaps? Have the opportunities been captured? Fabio Faccio: Well, I would say that we've touched on the processes. I think that the biggest opportunity for improvement is for autumn/winter because for spring and summer, the items are less diverse in terms of weight and the production cycle is much faster as well. And these adjustments have been made. And I would say that they are even more important in autumn/winter, but they're already happening, yes. Fabiana Oliver: With this, we are ending the Q&A session. For the questions we did not have time to answer here, ask the questions to our IR team. I turn the floor to Fabio for the final statements. Fabio Faccio: Well, again, I'd like to thank all of you for joining us. And I would like to invite you to our Investor Day on December 8. We have sent you a save the date. And in the coming days, we will be sending out the invites with more detail. Thank you very much. Fabiana Oliver: Thank you. Have a good rest of the day.
Operator: Ladies and gentlemen, welcome to the SES 9 Months and Third Quarter 2025 Results Conference Call. [Operator Instructions] Now I will hand over the conference to Christian Kern, Head of Investor Relations. Please go ahead. Christian Kern: Thank you, Gaya. Good morning, everyone, and thank you for joining us today. It is my pleasure to welcome you to SES Q3 2025 Results Call on behalf of our management team. Before proceeding with the management presentation, we would like to inform you that the financial information contained in this document has been prepared under International Financial Reporting Standards. As usual, this presentation may contain announcements that constitute forward-looking statements, which are no guarantees for future business performance and involve risks as well as uncertainties. Also, certain results may materially differ from those in these forward-looking statements due to several factors. We invite you to read the detailed disclaimer on Page 2 of the presentation, which is also available on our company web page. Today, I'm joined by our CEO, Adel Al-Saleh; and our CFO, Lisa Pataki, who will take you through the presentation followed by a Q&A session. Adel, without further ado, over to you. Adel Al-Saleh: Thank you, Christian. Good morning, everyone. I'd like to start on Page #4 with The New SES. Now fully consolidated with Intelsat after transaction closed on 17th of July 2025, it has been a very extremely and very busy and extremely difficult period for us, bringing the 2 companies together, creating a heavy weight in our industry. So first of all, let me briefly recap the rationale behind this transformational deal. We brought together 2 industry leaders beyond scale through a value-accretive acquisition with more than 60% of revenues in high-growth segments and a total net present value of EUR 2.4 billion in synergies. We have started executing on these synergies from day 1 of closing. In fact, this transformational combination was not just about bringing SES and Intelsat together. It was about redefining who we are as a company. We have created a new SES, a global multi-orbit connectivity powerhouse and a true space solutions company, empowering businesses and governments worldwide with integrated purpose-built satellite network and connectivity solutions. We have brought together a powerful mix of talented people, market-leading engineering capabilities, network infrastructure, spectrum, innovation and global relationships. We're expanding beyond satellite connectivity and exploring adjacent capabilities to grow and compete more effectively in space based on our network, such as hosted payloads, space situational awareness and direct-to-device services. All of this is focused on shareholder value creation and returns. For our customers, we have created a more capable and forward-looking space solutions company, one that combines a compelling value proposition backed by strong underlying capabilities and a continued commitment to innovation focused on solving our customers' challenges. For our shareholders, we are driving value creation and shareholder returns through our focus on profitable growth in combination with disciplined capital management and allocation. Let's move to Page #5. With the combination of SES and Intelsat, we have significantly strengthened our portfolio. Our 4 verticals, how we manage the business, if you will, are now media, government, aviation and fixed and maritime. With the combination, we have created an undisputed leader in satellite-based communication solutions. Let's start with media. Media is our largest and most cash-generative segment, now operating at even greater scale, delivering nearly 11,000 channels to 2.3 billion viewers worldwide. We're securing long-term renewals well into the next decade. And despite industry headwinds, our strategy is clear: defend and optimize high-value neighborhoods by leveraging our industry-leading reach while expanding into new segments like sports and events, free-to-air and free-to-view. In our network segments, government, aviation and fixed and Maritime, capacity and resources are precious, and we're purposely allocated to the right opportunities as we scale for the future. With our expanded scale and capabilities, we're well positioned in our new growth segments, particularly government and aviation. In government, we're supporting over 60 global government organizations, including European governments, U.S. government, NATO allies and Five Eye nations. We will continue to focus on growing and expanding on both sides of the Atlantic, especially as the geopolitical environment drives increases in global government budgets by capturing sovereign demand and expanding into new space-based solutions. We're not only offering government capacity, but truly space partner, allowing governments to diversify and expand their space architecture. In aviation, where we have gained substantial scale through the acquisition, we now provide in-flight connectivity to 30 leading commercial airlines, supporting around 3,000 tails. Powered by our multi-orbit electronically steered antenna technology known as ESA, we offer global coverage, multi-orbit, low latency and flexible business models that enable airlines to meet their ever-rising bandwidth demand, especially with the rapid rollout of in-flight Wi-Fi. Our strategy here is simple: accelerate growth by scaling our multi-orbit, multi-band solutions to stay ahead of this fast-growing market. And as our MEO network grows, we will make it available at scale to our airline clients across the world, providing truly unique multi-orbit multi-band flexibility. In maritime, SES is also well positioned, serving 5 of the 6 major cruise lines and leveraging our scale up in commercial shipping. We are the leading provider of connectivity at sea, keeping passengers and cruise connected informed and competitive in the fast-moving world. We're confident in our maritime platforms, which position us well despite facing pressures from some partners moving to LEO solutions. Our strategy is to focus, defend and rationalize, supported by selective investments. Last but not least, our fixed business remains very tough and highly competitive. We're serving important customers with 8 out of the world's 10 mobile network -- sorry, with 8 of the world's top 10 mobile network operators as well as major energy companies and drive digital inclusion across the world. Our strategy here is to rationalize and focus on green zones, where we have the right to win. We pursue higher yield opportunities, streamline operations and leverage digitization to improve efficiency and performance. Let's go to Page #6. Here, we show you the combined assets supporting our new business. We're now a multi-orbit space solutions provider at scale. We operate a powerful fleet of around 120 state-of-the-art GEO and MEO satellites in a multi-orbit multiband network supported by over 150 teleports well spread across the globe and an extensive ground network with over 600,000 kilometers of fiber, covering 99% of the world's populated regions. In combination with strategic access to LEO capabilities, this unmatched scale and flexibility position us well to meet our customers' most demanding connectivity needs with unified solutions and accelerate profitable growth. Let's move to Page #8. Discussing our 9-month business highlights and financial performance. The third quarter 2025 was the first quarter of the combined company with Intelsat contributing roughly 10 weeks to the stand-alone business performance. Therefore, the following financial performance is shown on a reported basis with Intelsat fully consolidated from 17th of July 2025. In the 9 months of 2025, we showed a solid financial performance with revenue of around EUR 1.75 billion, up 19.8% year-on-year with growth in all verticals. Adjusted EBITDA for the 9 months was EUR 849 million, with 11% growth year-on-year and a margin of 48.6%. In the first 9 months of the year, we secured EUR 1.4 billion of renewals. and new customer contracts with the majority coming from our growth segments, supporting our gross backlog of EUR 7.1 billion, which has been impacted by the weaker U.S. dollar and intercompany eliminations. We have just combined 2 companies with multiple platforms. We have been working on various scope changes, intercompany eliminations and some different accounting conversions. So this has been a rather complex reporting quarter. In terms of like-for-like underlying trends, revenue was down minus 1.8% year-on-year and adjusted EBITDA declined around minus 10% year-on-year. These year-on-year trends can be mainly attributed to a few key business factors. Number one, in aviation, we're working through the backlog of ESA antenna implementations, which come with equipment revenue diluting profitability before enabling higher-margin service revenue. There are also some timing differences between onboarding new customers, new planes and decommissioning some of the airline customers. In government, we have seen timing impacts, mainly due to the U.S. budget delays at the start of the year, contract rationalization by the U.S. Department of Government Efficiency and postponement of large contracts in part due to the U.S. government shutdown. These deals remain highly accretive and underpin our confidence in the future growth. In media, we continue to see expected structural decline with SD channel switch-offs and the drag from the Brazilian customer bankruptcy. This combined business is now over EUR 1 billion in revenue and remains highly cash generative. Going forward, we see the underlying decline unchanged in the mid-single digits while having signed renewals well into the next decade. Fixed remains our most challenged business in a highly competitive environment. We face difficult market conditions and are focused on securing value-accretive deals supported by disciplined capacity allocation. And finally, just a reminder of the third-party capacity utilization after the failure of IS-33e as well as intercompany eliminations that we had to adjust. Turning to Page #9. Let's talk about our notable wins that support our growing segments. We're a trusted partner to customers worldwide in over 130 countries as evidenced by our strong customer base. In our high cash-generative media segment, we continue to see momentum driven by the strength of our managed services offerings and the global reach of our network. As media evolves, satellite broadcasting remains the most cost-efficient and reliable way to reach global audiences. SES continues to be a trusted partner to leading media companies such as Warner Bros. Discovery, having signed this year a long-term capacity agreement to deliver high-quality content to millions of TV users on 19.2 degree East, our most valued TV neighborhood in Europe. In Q3, we renewed a business with major media customer in the Americas, including a multi-transponder. We also had a long-term extension with a major U.S. program and have broadened our agreement with a long-time customer, Dish Mexico. In addition, we expanded our partnership with Telekom Srbija, adding 2 additional transponders and extending our capacity agreements through 2032. We also renewed a multiyear multimillion euro agreement with Arqiva for satellite capacity and our prime video neighborhood at 28.2 degrees East. Under this agreement, SES will enable Arqiva to deliver a wide range of television channels as well as radio services to audiences in the U.K. and the Republic of Ireland. In Africa, we continue to build momentum with long-term renewals with our customers in East Africa specifically. We also extended important direct-to-home contracts in Asia and secured 2 new blue-chip broadcasters on our key orbital location for C-band distribution across Asia Pacific. Many of our large customers are now talking to us about extending our partnership well into the next decade. More to come on this in the future as we renew these contracts and are able to talk about them. Let me now shift to our government business. We continue to see strong and growing demand for our resilient secure communication solutions from government customers around the world. Together, we built a government solution business of scale on both sides of the Atlantic, being true space partner to over 60 government organizations, including European and U.S. agencies. We're well positioned to tackle the sovereign capabilities governments now demand with multi-orbit networks, with space and defense budget increasing both in the U.S. and amongst NATO allies as we view the government vertical as one of the strongest growth levers over the next few years. In Q3, the French Navy aircraft carrier, Charles de Gaulle, utilized SES' O3b mPOWER SatCom service during the Clemenceau 25 mission. This high throughput, low-latency MEO connectivity supported all operational needs on board, enabled seamless collaboration with mission partners and ensured uninterrupted availability for mission-critical applications. Our IRIS2 program is also progressing well ahead of the 1W1 early next year. In the U.S., as mentioned, we're experiencing timing delays in some contract awards due to the continuing resolution and subsequent government shutdown. Despite this, our business is growing, and we remain well positioned for long-term growth. Notably, in Q3, the U.S. Space Force awarded 5 companies, including SES, positions on a 5-year $4 billion contract under the Protected Tactical Satellite Communications Global program, known as PTHG. SES is now competing for a prime contractor position going forward. This initiative focuses on the design and demonstration of resilient satellite architectures with the potential for future delivery orders. The goal is to provide anti-jam secure communications for tactical military operations by leveraging both commercial innovation and defense expertise. Also in Q3, SES Space & Defense joined the Defense Innovation Unit's Hybrid Space Architecture Network initiative with our secure integrated multi-orbit networking platform known as SIMON. This program is building a secure, integrated multi-orbit network that connects commercial and government systems to deliver assured, low-latency, multipath communications across a scalable and resilient multi-domain architecture. These strategic wins highlight our commitment to innovation and growth in the government sector. With regards to aviation, this segment continues to be a growth engine for the company. Over the last 3 months, we have won 200 new tails from various airlines. We're winning new airline customers around the world who are choosing SES because of our clear differentiators. These include our ESA solution, which uniquely enables access to GEO and LEO orbits, delivering broad coverage, low latency and unmatched resilience. We also offer multi-band flexibility across both Ku and Ka bands and solutions tailored for both narrow-body and wide-body aircraft. Our flexible commercial models further strengthen our value proposition. All of this is underpinned by ongoing investments in our global network, enhancing the passenger experience down to the seat level and expanding our footprint globally to meet rising demand. While competition from LEO-only providers remains very strong, the market is large and diverse enough to support multiplayers offering solutions tailored to the specific needs of airlines. In Q3, our ESA multi-orbit solution was selected by new airline customers across Latin America and Asia Pacific, spanning both narrow-body and wide-body fleets. Today, it is flying on over 300 aircraft and has received consistently positive feedback from customers and analysts. In total, 16 airlines have committed to deploy our ESA across 1,000 aircraft globally, underscoring the growing momentum behind our offering. We also continue to make great progress with our open orbit solutions, including wins with Thai Airways, Turkish Airlines and Uzbekistan Airways earlier this year. Our maritime business remains solid, fueled by strong demand from both customers such as MSC, Princess and Virgin. Our leadership in ocean ships and gate segment is powered by our end-to-end multi-orbit connectivity anchored by our managed MEO network that enhances the onboard passenger experience. In Q3, we secured renewals from multiple major cruise lines, reinforcing the critical role of our solution play in this market. Today, we serve 5 of the 6 leading cruise lines at sea. Additionally, SES completed the largest cruise ship transition of the year, helping a major customer migrate from GEO to SES Cruise mPOWERED service. With SES Cruise mPOWERED, we're redefining the onboard experience. Our real-time network optimization dynamically synchronizes space and ground systems across multiple orbits, enabling the cruise operators to deliver consistent, high-quality connectivity at all times. Further to the cruises, SES is supporting over 14,000 vessels on the Flex Maritime global network exclusively through our major solution partners, serving commercial shipping, oil and gas and fishing vessels. While our fixed segment continues to face competitive pressures from NGSO players, we remain focused on offering differentiated solutions to our clients. We're doing this by leveraging the strength of our multi-orbit GEO, MEO, LEO offerings, along with robust cell backhaul and trunking services. These capabilities are supported by our extensive ground infrastructure, which enables us to deliver reliable connectivity across these diverse geographies. We're serving 8 of the world's top 10 mobile network operators and a multiple of energy companies across the world. For example, we support Orange across Africa with services in Mali and Burkina Faso and most recently expanding into Liberia. And additionally, in Q3, we secured business with major mobile network operators in the Americas and expanded our digital inclusion services in Brazil with Telebras. This further strengthens our position in that region. As you can see, we are creating stronger, more agile, more competitive SES, one built on lead across orbits, across markets and across technologies. Let's turn to Page #10. This page highlights our synergy progress and integration efforts. I'm pleased to report that the integration is progressing well. In the first 90 days, we have successfully established our new organization from the leadership team through every level of the company. We have also implemented our new operating model, which defines how we manage the business on a day-to-day basis and ensures alignment across the combined organization. I'm proud to share that we have launched our new SES brand, a new purpose that capture the essence of who we are, space to make a difference and a new tagline, Solve, Empower, Soar. Our synergy delivery plan is strong, and we're crystallizing synergies more rapidly. What we have communicated is that we expect to deliver synergies with a total net present value of EUR 2.4 billion, representing an annual run rate of approximately EUR 370 million, with 70% of these efficiencies expected to be executed within 3 years. We're moving fast and delivering ahead of plan. We're moving fast and delivering ahead of our plan on our synergy commitments as we began identifying and capturing synergy opportunities across multiple areas. Our annual run rate of OpEx synergies of EUR 210 million are being fast tracked. We have already executed key labor and nonlabor synergies, including overlapping contracts, office footprint consolidation, third-party capacity optimization, procurement savings, IT consolidations and license optimization with longing IT systems such as ERP and CRMs are all progressing to plan. We're approaching this process with the utmost care and respect, ensuring we support our people while aligning our workforce to the needs of the new organization. On the CapEx side, we're fast tracking the annual run rate of EUR 160 million savings through smarter asset use, non-replacement of certain satellites and the rationalization of networks and ground infrastructure. These efficiencies will flow through in 2026 and 2027, reflecting our determination to deliver what we promised. We're executing with discipline and precision. And with our financial year 2025 results, we plan to share further details on our synergy progress. With this, I'd like to hand over to our CFO, Lisa, who will share with you more details of our financial performance. Elisabeth Pataki: Thank you, Adel. Good morning, everyone. Before I begin my remarks on the financial performance of the combined company, I would like to inform you that in the Q3 results press release available on our company website, you will also find supplementary financial information with like-for-like revenue per vertical and adjusted EBITDA at the group level as if the Intelsat transaction had consolidated from the 1st of January 2024. This additional disclosure should help you better understand the underlying performance of the combined business and complements your financial modeling going forward. As usual, our Investor Relations team is available to help you with any questions that may arise after this earnings call. Now let's turn to Page 12 for our financial highlights. I will start with our financial performance for Q3 and 9 months, which is shown throughout this presentation on a reported basis with Intelsat fully consolidated from 17th of July 2025. This is equal to about 10 weeks of Intelsat performance, which we did not have in the prior comparative period. Revenue for SES was EUR 769 million in Q3 2025 and EUR 1.747 billion for the first 9 months of 2025, showing growth of 19.8% compared to the same period last year at constant foreign exchange rates. On a like-for-like basis, 9 months revenue was down 1.8% year-over-year, with strong growth in aviation and government outpacing lower revenues in fixed in which we are navigating a challenging competitive environment and media, which declined as expected due to structural headwinds and the effects of our Brazilian customer bankruptcy. On a year-to-date 9-month basis, our revenue was negatively impacted by EUR 52 million, of which EUR 17 million were attributable to the weaker U.S. dollar and the remainder to intercompany eliminations and alignment to IFRS accounting rules. Q3 2025 adjusted EBITDA was EUR 328 million and EUR 849 million for the first 9 months of 2025, showing growth of 11% year-over-year, driven by volume with margins of 42.7% for Q3 and 48.6% for 9 months. In the first 9 months, our adjusted EBITDA was negatively impacted by EUR 10 million attributable to the weaker U.S. dollar. On a like-for-like basis, 9 months adjusted EBITDA was down 10.2% year-over-year, with near-term margin headwinds driven by profitability diluting equipment sales from the electronically steered antenna, ESA installations in our aviation business in combination with some timing differences between onboarding and decommissioning airline customers. The Intelsat IS-33e anomaly, which occurred in October 2024, which required higher third-party capacity; and finally, mix and timing impacts on government revenue. In addition, as Adel mentioned, we have introduced more discipline to pass on tactical opportunities that are outside of our green zones and not margin accretive to our business. Moving now to Page 13. I would like to discuss in more detail the top line financial performance of our vertical segments. Media's 9-month revenue was EUR 686 million and accounted for close to 40% of group revenue. Total revenue remained stable year-over-year as inorganic growth effectively offset anticipated segment contraction in the media business. On a like-for-like basis, Media was down low teens year-over-year, driven by structural declines with capacity optimization in mature markets, standard definition channel switch-offs and the full Q2 and Q3 impact of a Brazilian customer bankruptcy. Media continues to operate as a highly accretive cash-generating business for SES. Year-to-date, we have signed EUR 440 million in long-term renewals spanning well into the next decade and new business reiterating customer confidence. Year-to-date, the media business gross backlog stands at EUR 3.3 billion. SES' media business serves close to 2.3 billion viewers worldwide, ensuring sustained reach and future revenue visibility, underpinning the cash-generative nature of this business. While the world's TV viewing trends are changing and are in structural decline, we expect the curve to flatten as free-to-air, free-to-view and sports and events become more prominent and remote regions continue receiving TV access most efficiently via satellite. Now moving to Page 14. Our Networks business comprises around 60% of total group revenues for the first 9 months of 2025. Networks revenue increased 36% year-over-year, driven by growth in government and aviation. The same trend is also valid on a like-for-like basis with growth in networks driven by the same 2 segments. Government in the first 9 months of 2025 has seen strong demand and growth in both the U.S. and global markets with revenues of EUR 491 million for the first 9 months of 2025, a 33% growth year-over-year. On a like-for-like basis, government is also growing double digits despite the timing impacts that Adel mentioned. Growth was driven by demand of European and global governments, completion of project milestones in the period and managed services in the U.S. We expect this vertical to drive continued growth as we see increased demand for our secure multi-orbit resilient and sovereign solutions. Amid the ongoing geopolitical shifts and rising global tensions, we are seeing governments prioritizing sovereign capabilities and robust communications infrastructure, particularly in Europe, where defense spending is increasing. SES is well positioned to meet these needs with our proven multi-orbit solutions and growing track record of trusted partnerships of serving the European and U.S. governments as well as allied governments. Our Aviation business continues to be a strong growth business for the company, now at a bigger scale, thanks to the Intelsat acquisition, supporting over 3,000 aircraft tails. The first 9 months revenue stood at EUR 223 million, showing 112% growth year-over-year with continued momentum in securing global airline customers. On a like-for-like basis, this segment has seen a double-digit growth year-over-year, thanks to increased commercial traction around our multi-orbit ESA antennas. This strong commercial momentum and these new installs are a key driver for future revenue growth and showcase our strong value proposition in a competitive market. The Fixed & Maritime business achieved EUR 339 million in the first 9 months, showing 13% growth year-over-year. On a like-for-like basis, revenue was declining year-over-year due to the competitive headwinds, primarily in our fixed data business, in combination with our rationalization and prioritization of capacity to our growth segment. We continue to hold our footing in our maritime business, where demand for MEO capacity remains high. Finally, Networks combined gross backlog stood at EUR 3.8 billion, having secured close to EUR 1 billion of new business and renewals this quarter with a strong aviation and government pipeline. Our strong growth backlog and robust pipeline support our forecast and future growth momentum, reflecting the market's demand for our strategy and multi-orbit solutions as being essential to meeting evolving connectivity needs. Now let's turn to Page 15 to share with you a more detailed view of our capital allocation priorities and our debt maturity profile as of the 30th of September 2025. Our combined like-for-like adjusted net debt to adjusted EBITDA ratio stood at 3.7x after closing the Intelsat transaction. This includes cash and cash equivalents of EUR 965 million, excluding EUR 266 million of restricted cash related to the SES-led consortium's involvement in the IRIS2 program. We remain firmly committed to deleveraging and meeting our near-term debt obligations. Our debt maturity profile is well distributed. The current debt portfolio carries a weighted average cost of 3.9% with 84% of SES debt at fixed interest rates. Furthermore, the weighted average maturity of our debt facilities stands at approximately 5 years, providing a solid foundation for financial flexibility and long-term planning. In terms of capital allocation priorities, our objective is to pay down debt to at least 3.0x adjusted net leverage. With existing liquidity and our undrawn committed facilities, SES is well positioned to meet near-term obligations, including the debt falling due in Q4 2025. We continue to make solid progress in our insurance settlement discussions related to the first mPOWER satellites. To date, we have successfully collected approximately USD 87 million. We will provide further updates as settlement negotiations progress. We continue to invest in innovation with discipline to drive sustainable growth with a focus on new space technologies and transforming our approach to capital deployment. This shift aims to reduce reliance on large-scale CapEx cycles. Capital expenditures in the first 9 months totaled EUR 335 million, primarily reflecting milestone achievements in the mPOWER satellite program. With respect to shareholder returns, SES continues to be sector leading. We paid the interim 2025 dividend of EUR 0.25 per A share and EUR 0.10 per B share on the 16th of October. Subject to shareholder approval, this is expected to be followed by a final FY '25 dividend of at least EUR 0.25 per A share and EUR 0.10 per B share to be paid to shareholders in April 2026. Once the company meets its net leverage target, at least a majority of future exceptional cash flows of the combined company will be prioritized for shareholder returns. SES remains focused on improving its financial metrics. Our priority is deleveraging while selectively investing in growth where returns are clear and accretive. Capital allocation remains disciplined. Slide 16 outlines our disciplined financial management strategy, underscoring our commitment to driving long-term value for shareholders. We are focused on the seamless integration of Intelsat, implementing best-in-class processes, policies and combining enterprise resource planning systems while maintaining operational excellence. As part of the acquisition, we are implementing SEC compliance measures to align with regulatory requirements supporting the combined entities' governance framework. We continue to exercise prudent capital deployment with strict capital discipline, aligning investments with our strategic priorities and applying strong business case rigor. Finally, cash flow remains a central focus of our value creation strategy. We are actively implementing initiatives to enhance cash generation across the business from disciplined capital allocation to optimizing working capital. Cost control and optimization remain top priorities, managing discretionary spend, leveraging automation and driving synergies. We are committed to a strong balance sheet and healthy cash flows, supported by targeted working capital initiatives and disciplined investments to drive sustainable growth. Lastly, I would like to thank all of our teams at SES for their hard work and precision through a complex integration. With this, I'd like to hand it back to Adel for his closing remarks. Adel Al-Saleh: Thank you, Lisa. On Page 18, I'd like to set out our company's full year 2025 outlook on a reported basis with Intelsat fully consolidated from 17th of July 2025. Based on our solid first 9 months results and at an assumed average euro versus U.S. dollar exchange of $1.12 for the full year 2025, we expect the following: revenue to be in the range of EUR 2.6 billion to EUR 2.7 billion, adjusted EBITDA to be in the range of EUR 1.17 billion to EUR 1.21 billion. Capital expenditures to be in the range of EUR 600 million to EUR 700 million. This is a -- this is reduced from our previous communicated 2025 CapEx guidance of around EUR 1 billion for the combined company on a full 12-month basis, and it's comparable to around EUR 800 million to EUR 900 million on a reported basis. Also in light of FCC's recent press release with regards to the C-band process, it's worth adding that we're now with our combined asset base even better positioned to continue working collaboratively with the commission and our customers throughout the upper C-band process. The draft notice of proposed rulemaking, also known as NPRM, will see comments on a range of options, including auctioning up to 180 megahertz of the upper spectrum and is scheduled to vote at the next open commission meeting on 20th of November. The One Big Beautiful Bill requires the FCC to complete a system of competitive bidding for at least 100 megahertz in the upper C-band no later than July 2025. I would like to conclude our presentation today with Page #19, highlighting some of the key takeaways. This year, 2025 is very much about laying the foundation for the new company. It's also a period of transformation and transition of the 2 companies with quite different systems and scopes coming together. 2025 is all about getting the basics right. Next year, integration activities will continue as we tackle enterprise systems and processes, focus on optimizing our structure, driving operational efficiency and excellence and of course, delivering the synergies. Our near-term priorities are clear: integrate the new SES, execute synergies, delever, focus on innovation and multi-orbit solutions, operational excellence and disciplined capital allocation. Our key management objective remains to drive profitable growth. To achieve this goal, we're rationalizing our portfolio and allocating capacity and resources in a disciplined manner into businesses that are aligned with SES' strategy and provide us with the best returns. We are on an exciting journey building a leader in space. As we move forward together, we'll provide greater clarity and insight into the combined potential of the new SES with our full year 2025 results. With this, we're now ready to take your questions. Operator, please open up the floor. Operator: [Operator Instructions] The first question comes from Paul Sidney from Berenberg. Paul Sidney: I had 2 questions, please. Firstly, just following up on the Q3 EBITDA headwind remarks that you made during the presentation. Could you expand on how profitability expectations for the second half of this year have changed since the Q2 results compared to previous stand-alone expectations of SES and Intelsat and maybe try and quantify these headwinds for us, please? And then secondly, looking beyond 2025 with reference to the new '25 guidance, are the medium-term targets for the combined revenue growth and EBITDA growth for the targets, are they still relevant, i.e., is SES just resetting to a lower 2025 starting point, but when the synergies come through, we can expect those growth rates sent to -- still be very much relevant for the business? Elisabeth Pataki: All right. Yes. Thanks, Paul, for the question. So let me first start off then with talking a little bit more about Q3 EBITDA and then also what to expect going into Q4. So if we think about what the combined company looks like, we had always expected that the Intelsat combination would have a lower EBITDA performance in the second half. And that's really attributed to some of the things that we had already known. So the first is in the aviation business, the electronically steered antennas, they're effectively at cost. We're installing a significant number of those antennas we started in Q3. So you can almost expect that we didn't have that at this time last year. They're all being installed in Q3, and then that ramp is even going to occur even further in Q4. So those are at cost. And then when you start to see those aircraft go into service, that's when you're going to see more meaningful EBITDA performance out of the aviation group, which you can expect then into 2026. But in terms of aviation and how to think about that, you are going to see the headwinds going into Q4. The second thing is on the Intelsat side, the IS-33 satellite failure did occur at this exact same time last year. So while the company did a great job retaining almost 90% of their customers, they did so through the use of third-party capacity. So you're seeing a lot of that headwind occur throughout the second half as well. And then just to kind of follow up on what Adel had mentioned with respect to our government. The U.S. government is a very good profitable customer for us. But with timing delays, we are seeing certain awards and renewals push out into 2026. We may see a little bit of pickup in Q4 with the U.S. government, but it really depends a little bit about when the government shutdown resolve itself. So those are kind of the major things to think about in terms of Q3, Q4. On the exchange rate topic, we're kind of planning with an exchange rate of $1.16 when you think about the fourth quarter. Obviously, we've had quite a bit of headwind with the weakened U.S. dollar. The other thing, I think, just kind of when we look at how we're putting these 2 companies together, we do have U.S. GAAP to IFRS conversions. That has started to filter through some of the results. I do want to make sure that you're all cautioned that the guidance that we've given and the results to date do not include the effects of purchase price accounting. So we'll be going through those -- that activity throughout the fourth quarter. We hope to have the majority of those impacts included in the results for the full year. We've got intercompany eliminations. We did report on that in the F-4 filings. They're more or less holding constant with what we had expected. But that just gives you a little bit of a flavor on Q3. On your second question related to the medium-term targets, I'll start off and then Adel can fill in. We're in the middle right now of going through our planning cycle. We're about -- gosh, we're almost 4 months into this acquisition. We've spent a lot of our initial time focused on synergies, and that's been related to a lot of headcount actions that we've had to take. We've been combining the 2 plants. We have been converting accounting standards. So we're putting those plans together right now, and we're looking forward to communicating as early as we can at the start of 2026 on the updated midterm guidance. Adel Al-Saleh: Thank you, Lisa. Just a little bit more on beyond 2025. There's nothing today that would change our perspective on this business going forward. The portfolio is well balanced. We have growth businesses. We have some businesses that do have structural decline, but generate a lot of cash, and we have a business that is facing quite significant competition. But all of that is known to us. This is -- none of it is new, right? We all knew that. We understood it. Our portfolio was very similar in a stand-alone basis. So there is nothing on a go-forward basis that would be different from our earlier assumptions on how the profile -- growth profile of the business should be. I hope that answers Paul your questions. Paul Sidney: Yes, obviously, it does. So we're looking at the longer we look forward, shape of how the business progresses hasn't changed, but clearly some headwinds that we brought into 2025. Is that a good summary? Adel Al-Saleh: That's a good summar. Elisabeth Pataki: Yes, that's a good summary. Operator: The next question comes from Terence Tsui from Morgan Stanley. Terence Tsui: I just wanted to explore the previous topic in a bit more detail just around the financial performance. So when I look at the guidance published today, it implies a pro forma EBITDA, i.e., if SES owned Intelsat since the start of 2025 of around EUR 1.5 billion of 2025 compared to EBITDA of EUR 1.8 billion delivered in 2024. Is the deterioration of EUR 300 million all due to these near-term headwinds that you just mentioned in your previous answer? Or is there something else going on? And then I just wanted to ask briefly around IRIS2. A quick update on that topic would be great, especially as we're nearing the 1-year anniversary. Are you happy with the process so far? And given the geopolitical tensions, do you see any scope for adjustments to the existing agreement? Elisabeth Pataki: Yes, sure. Thanks for the question. So I'll start off with the guidance and then your second question on IRIS2, Adel has a lot more of what's happening there. So on the guidance side, on a like-for-like basis, you're right that at the upper end of that guide would be EUR 1.5 billion on a like-for-like basis for adjusted EBITDA. That is down from the prior year. If we look at what the stand-alone guidance was, the guidance that legacy Intelsat had given out into the market did indicate that there would be close to a double-digit decline in EBITDA. So we're starting from that basis. We did discuss the headwinds, so I don't want to repeat those. On the government side, it is largely timing. The one thing I would just add to the commentary that we gave in the last answer is related to the fixed data business. So that business is more challenged than what we had expected. But as we did say in our prepared remarks, we are really critiquing that business. We're prioritizing where we're going to take deals, and we're starting to incorporate a lot more rigor into the bid process that we have here at the new SES. Adel Al-Saleh: And the same dynamics apply, right, so to the full year guidance. So there's nothing else new in there besides what we shared with you, right? So it just works itself through to the end of the year. Also intercompany eliminations and exchange rate changes and all those things are things that some of them we knew very, very well, and they're within the boundaries kind of where we thought they would be. So that's all in terms of that, Terence. And then on IRIS2, look, the program is in full swing. I actually spent a day yesterday at the Commission -- European Commission, met with the Commissioner of Defense, Space & Defense, and there were a forum that talks about European Commission's determination to build European sovereignty and capabilities. And IRIS2 is right at the core of that. because there is huge commitment behind it. We're working through all of the engineering activities that are required to get us now to one to make the final decision, how do we proceed? Are we able to meet the specifications, the timing, the budgets and all that stuff as planned, right? So that's progressing very, very well. And the commitment from Europe remains very, very strong to make sure that, that program continues going forward. So that's -- I think that's the update. Is that -- Terence, is that helpful? Operator: The next question comes from Ben Rickett from New Street Research. Ben Rickett: I have 2, please. Firstly, so leverage is obviously a bit higher than you'd initially expected following the transaction close. I just wanted to check, are you still committed to staying investment grade? And what sort of options could you look at if you didn't delever naturally as quickly as you had expected? And then second question, just around the C-band process. And specifically, I was interested in what tax rate you're expecting to pay on any incentive proceeds from the C-band and the extent to which you can use the tax losses? Elisabeth Pataki: All right. Yes. So on the leverage, so we're very committed to delevering. That is our -- one of our primary pillars of our financial policy. So we're very committed to that. Again, as we're kind of turning through the process of putting together our 2026 plan, which we will share at the beginning of next year, I'll be able to give more concrete guidance on how we're thinking about the debt maturity profile and deleveraging. Right now, if all things are unchanged, we will pay back what's due in Q4 of 2025 with existing cash. So let's table more of that discussion until we get through the 2026 planning cycle. With respect to the C-band process, Adel, do you want to give an update on that? Adel Al-Saleh: Yes. And just to add on that one, clearly, as a company and as always, we've always had other measures that we always look at, right, and make sure that we have backup to the backup. We're a space company. So we're used to having backup to the backup to the backup. Those things we don't talk -- we don't disclose them publicly, but we're very confident of where we are, right? So as Lisa said, right, there's good confidence in our liquidity and what we'll be able to do going forward. And it's a priority. Delevering is a priority for us for sure. Look, on C-band, look, good news, right? I mean, overall, we're working hard with our clients, number one, make sure that we have solutions for our clients as we progress through the clearings. And clearly, the ambition of FCC is very, very clear. Now regarding what the tax rate, I'm going to let the IR team get with you then just individually and walk through it. But you got to keep in mind, we have a lot of knows, tax knows and a lot of tax assets that we have in this company that is hugely valuable for us as a company. But let's not speculate and talk about them here publicly. We can follow up with any analysts that would like to get a better understanding of what the tax rate may look like. Ben Rickett: Okay. And just -- sorry, just to follow up on the first question. So I mean, you're not necessarily committed to remaining investment grade. Elisabeth Pataki: We're committed to delevering, and we're committed to -- our objective is to remain consistent with the financial policy that we have laid out. But again, we have to work through the process of going through our 2026 plan. We are -- there's a lot of initiatives that we also have on the table that we're actively working. So for example, working capital management, thinking through rationalization of our existing CapEx profile, so that we can funnel the money that we have allocated over to lower cost new space initiatives that we think are going to help propel our growth going into the future. So it's really hard to give you a concrete answer on anything with respect to how we're trying to concretely get to numbers in 2026 at this point in time, but that's just to give you a little bit of flavor of what we're doing. Adel Al-Saleh: Yes. And Lisa, just to add to that, Ben. I mean, I know you want just a black and white answer. So the fact that we're focused on delevering, that tells you a lot. There are many other factors that we don't control of what the credit agencies do. So very hard for us to say how do we get there, right? But we are exactly on the same plan we were before. We got to get to the 3.0 and below, and that's what we're working towards, right? And we -- as Lisa explained it and I explained it, there are multiple levers that we have in the company in addition to operational rigor and operational cash generation that this company is known for. Operator: The next question comes from Roshan Ranjit from Deutsche Bank. Roshan Ranjit: I've got 3 questions, please, and I think broadly touching on the earlier topics. Adel, you mentioned the ESA revenues, and I appreciate that whilst they are lumpy, we have seen a slowdown in the, I guess, aviation growth rate this quarter on a like-for-like basis versus Q2. Now this is in the context of, I guess, capacity ramping up on mPOWER 7 and 8. So are you seeing new contracts coming through as that capacity is ramping up? And I guess, 9 and 10 has been launched. How should we expect the ramp-up of that capacity and I guess, contracts coming through in the coming quarters? Secondly, and I guess, more on the margin side, the third-party capacity being used because of IS-33. When can we expect that third-party capacity to be moved on to essentially on net? When will that all wash out? And just quickly on the CapEx, you saw a material reduction in the '25 outlook. Is that coming from savings? Or is that a timing effect and we should expect kind of that delta to be spread out over the next couple of years? Adel Al-Saleh: Roshan, just the last question was about CapEx, right? Why is the CapEx reduced, right? Roshan Ranjit: Exactly. If it's a push out or if it's the driver of the synergies. Adel Al-Saleh: Yes, very good. Look, let me start, and then Lisa will complement as we go forward. Look, first of all, on a like-for-like basis, our aero business is growing double digit. So it has not slowed down, right? And it's significant double-digit growth. And actually, we will see that ramp in revenue driven by the equipment continue in the fourth quarter. And as Lisa explained, I mean, this is all leading to then services revenue that is going to be accelerating going forward. And this was in our press release. So in our press release, you see that the third quarter like-for-like growth in aviation is 36.3% growth year-on-year, right? So it has not slowed down. It's accelerated actually this year. Now that will slow down in the beginning of the year despite the fact we do have 1,000 tails orders to transition to the terminals, but they are spread, right? In aviation, it's a quite delicate planning process, right, to getting planes out of service and making sure we do them in the maintenance windows, et cetera. But it will be spread more than what it is concentrated this year because the ramp-up really happened in third quarter. There was a little bit in the beginning of first half of the year. Fourth quarter, as Lisa said, is a major ramp-up, especially with American with them really eager to get to their Wi-Fi offerings in the beginning of next year. Now remember, your question related to 9 and 10 coming into service, today, it's very limited usage of MEO in the aero business. In the future, we expect to be a game changer when we put MEO in air. I mean there's a little bit of MEO usage in one of the Middle East, Asia Pacific airlines. We will be announcing that quite soon. They're going live very, very quickly, and they love it. It's a game changer. It's no big difference between a LEO or MEO on an airplane. And by the way, they're using standard antennas, right? So not even an optimized antenna for MEO, which our goal is to have an optimized antenna that is easy to install, that's cheaper than what we have today on airlines as our MEO capabilities ramp. Now on the 9 and 10 capacity, which benefits government benefits our maritime business, that is expected to go into use by beginning of 2026. Those 2 satellites have been launched. They're making their way to their orbits. There is some in orbit testing that needs to be done, et cetera. So beginning of 2026, that's where the capacity comes on board. And then we have 3 other satellites that we'll be launching in 2026 to get us to 3x of the capacity we have, right? And that capacity comes on to service in 2027. So that's all progressing. And look, we -- when we have all these healthy satellites up, we will have a lot of other options to consider how do we configure that constellation because we will have a lot more flexibility to be able to drive that mPOWER constellation, which continues to be oversubscribed today. Look, on that third-party capacity for IS-33e. So first of all, the Intelsat team did a great job securing customers, right? Because those customers have long-term contracts and long longevity in our business. It was important to secure them despite the fact that your cost dramatically goes up. We are working through figuring out how much of that capacity we can move over to on fleet. Our problem, of course, is it's not like we have dramatically excess capacity everywhere, right? That's our biggest challenge, right? We're quite highly utilized, including our GEO satellites. So we're working through that. And that's the thing that's going to be tough. I mean, Lisa talked about this discipline because we're going to be rationalizing what's the best return for our shareholders in using that capacity. And it means trade-ups. It's not easy as we have the -- if we had capacity, we have moved that already, right? Everything that we could have moved will move. Now it's about rationalizing what's the better return for the company, when do we do it, how do we not lose trust with our customers as we transition some of that capacity. But that's all going to happen during -- it's happening. And during 2026, as other contracts come to an end, we'll be able to rationalize it. I have no doubt we will manage that throughout 2026, beginning of 2027. And look, then the final question on reduction of 2025 CapEx. Look, this is the benefit. A big part of it is the benefit of this integrated company. Now for example, we decided we're not going to go for some of the satellite replacements. We're able to move some of the satellites to pick up some of the loads in areas where it was highly utilized. So the result of that is not just delays of CapEx, it's actually rationalizing. There were some delays, but it's not material if you look at the overall CapEx envelope. And part of it was not only saying, well, there is an overlap. Part of it was our decision to say, we're not going to do that. It doesn't have the return that we would like to do. Our teams would like to do it, but we said, look, let's rationalize the business case and came back to the conclusion that is not a good capital deployment approach for us. So that's how it kind of come together for now. Hopefully, we answered your question. Lisa, anything to add to that? Elisabeth Pataki: No. Maybe the only thing just to add is we're continuing to look at the CapEx. We've already taken decisions to stop some things. So I think we're in a good shape with where we're at with our integration process. Roshan Ranjit: That's great. And sorry, I should have clarified. When I said slowdown, I meant slowdown versus the growth rate in Q2. So as you said, 36% growth aviation in Q3 like-for-like. But my point was it was a slight slowdown versus the 45% in Q2 despite the ESA terminals installs. Adel Al-Saleh: So, very good comment. I mean, look, part of it also is we mentioned it is we did lose some airlines, right? So we're winning and we're losing and the balance is still quite good in our favor, right? So that is just part of the offboarding and onboarding timing differences and all that. That's why you see those dynamics change a little bit, but still quite healthy growth, right, if you look at it. Operator: The next question comes from Nick Dempsey from Barclays. Nick Dempsey: I've got 3 left. So first of all, just on that -- coming back to that midterm guidance point, will you give us numerical midterm guidance for revenue and adjusted EBITDA growth in February at your full year '24 results? The first question. Second question, am I right in calculating that at the midpoint of your adjusted EBITDA guidance, you will be -- you're roughly on track to be at about 4.0x net debt EBITDA at the end of this year, including leases and including only 50% of the hybrids and perpetuals the way you're showing it today? And the third question, inside that combined constant FX growth of minus 19.5% for fixed and maritime, did you see cruise revenues showing positive year-on-year growth? You've got more capacity coming through from mPOWER there's a demand in cruise. So did cruise grow within that implying the rest was down quite a lot? Elisabeth Pataki: Yes. So I'll take the first question on the midterm guidance. So at the start of next year, we'll certainly give quantitative guidance for 2026. And I think it's very fair to assume that we'll give ranges of the updated midterm at that point. In terms of the net leverage and how we see that towards the end of the year, again, a lot of it depends on still working through a little bit of the planning, but also from a cash flow perspective, there's things that we can do. So it's hard for me to speculate right now for you where we're going to land on net leverage by the end of this particular year. But again, we're doing everything that we can to control cash going out the door, accelerate cash payments coming in, all the working capital things that you would expect. Adel Al-Saleh: And paying down debt, right? We're going to be paying down significant amount in fourth quarter. So it's too early, Nick, to look at it. Look, let me take the last question and then see if we can -- if we have answered it. So look, cruise continues to be quite stable for us. I mean there's some noise in the numbers in cruise because you remember, we had periodic in the revenue both in 2023 and 2024. So the compares are -- 2024 and 2025, I have to say, right? So compares are a little bit different. But on a stable basis, if you look at our ships and what we have and who we serve, that is quite stable. I mean there was a big transition for a very large customer that just came across, right, and put a bunch of stuff. We have new vessels that we're winning. When you look at the build profile of the vessels, we continue to win much more than our fair share of the new vessels. So it just proves you that customers want to have multi-orbit on the ships, right? They have LEO capable solutions. Starlink is a very, very strong competitor there. But our value proposition continues to resonate with these guys, right? And they continue to extend contracts with us. As I said, 2 major cruise lines just extended contracts with us just last quarter going forward. So it remains a very stable business. Look, the problem we have, Nick, and I've talked about this multiple times, if I can give more gigabytes to our crew guys, they will consume it. They will consume, right? So we're eagerly waiting for 2026. And when we get the additional capacity, we're looking at can we optimize the network even further to be able to get to because it's not lack of demand. It is really our optimization of where the capacity is being used. And as I said, we have a big government customer base across the world that want a lot of that capacity and have booked a lot of that MEO capacity. And it's a tricky dribble for us, right? How do you optimize it without losing customer confidence and trust because we are a trusted partner. when we provide a solution to our customers, they can count on us, right? So it's not so easy for us to just move stuff around. But yes, it remains quite stable and the growth is going to come when we give them more capacity. Is that okay, Nick? Did that answer your question? Operator: The next question comes from Aleksander Peterc from Bernstein. Aleksander Peterc: I have a few. The first one will be on the actual momentum when I look at your year-on-year margin evolution in EBITDA for the pro forma entity. I see a 3% decline in Q1, Q2 and then that deepens to 7% in Q3. And at guidance midpoint, your implied Q4 is down 10.5 percentage points on the margin front. So I'd just like to understand if I understand correctly that you're going to be at roughly 38% EBITDA margin in the fourth quarter. And I'd like to understand if this is the worst point of the year and then momentum will improve from here? I mean why should we assume that this negative trend should stop now? And I think it would be helpful if you could quantify those one-off in the current quarter, the things that you outlined on Slide 12, all of those negative elements, how much are they contributing to this margin erosion? And I have a couple of follow-ups as well. Adel Al-Saleh: Lisa, do you want me to start and then you... Elisabeth Pataki: Yes, yes. Go for it. Adel Al-Saleh: Look, so you are right, Aleksander, you're absolutely right. I mean the headwinds that we talked about, I'm not going to repeat them, right? These are the headwinds that are contributing to that margin impact. They are not forever headwinds, right? So for example, our -- the content of the equipment, there's a large portion -- large content of the revenue is the equipment this year. By the way, not only in aviation, we also have equipment sales that a lot of our customers, big customers are buying the equipment that they need in order to turn up and light up some of the capacity that they bought for us that are already paying for it, but they need the equipment in order to do it. So that is -- it happens to us as it's a forecast for the future profitable revenue basically, right? If you have a lot of equipment, it means that you are getting new customers on board and they are going to be using. And that accelerates in the year, right? So it started ramping up in the first half of the year. It's accelerating in second quarter, third quarter. And fourth quarter will be high volume of that equipment, especially in aviation, plus some of the eliminations that we talked about, et cetera that have an impact. And IS-33e, you have the full impact of IS-33e in the fourth quarter, if you look at it year-on-year, right, when we've had to go and get the third capacity. So that in 2026 is not going to have the same profile. It will come down. That equipment sales will come down. And by the way, again, it's not that we're avoiding equipment sales. We actually like those equipment sales because we're very particular and very disciplined. We don't do equipment sales for the sake of equipment sales. We're doing equipment sales to turn on the volume on very high profitable capacity solutions that the customers are looking for. So that's the -- now I can't -- maybe, Lisa, you can comment. I can't make the math on the call on how many points it is and where do we end up with the margin overall. But you can see -- maybe, Lisa, you can add something to it or... Elisabeth Pataki: Yes. So I think there's a bit of a mix effect happening in the fourth quarter. So if you look on a like-for-like basis, which luckily the fourth quarter is going to be, you're going to have a lot of revenue growth that's coming from 0 to low-margin activities, primarily in aviation, which we just talked about. So the ESA installations, the kits are probably -- if you want to quantify that, it's probably 30% more installs coming in the fourth quarter than what we saw in the third quarter. And then on the government side, a lot of our higher-margin business is pushing out to the right. And that's just mainly due to timing effects that we're seeing on the U.S. side, and that's being supplemented by revenue that's more on the NATO and the European side. We do have some contracts that have a bit of lumpiness as they're percent complete type contracts, and we're seeing some of those material and subcontractors coming into the fourth quarter at very, very low margins. So that's what's driving the revenue growth from Q3 into Q4 because you will see that there's a bit of growth on a pro forma basis. And then on the EBITDA, again, it is largely being driven by the mix effect on the government side and on the ESA terminals. And you can -- if you want to quantify the ESA, you can think about that EUR 6 million to EUR 10 million. Aleksander Peterc: Okay. That's very helpful. So on the basis of what you just said, will we see, therefore, next year, a headwind from lower equipment sales because they're so high in the current year. And if my math is right, you have -- you're flat for revenue year-on-year in the fourth quarter at the midpoint of your guidance. So -- but this includes a lot of equipment sales. So as we go into 2026, you're going to see probably a headwind from that. So will we actually be able to grow next year like-for-like on ops? Adel Al-Saleh: So Alex, you're asking us to build a forecast for next year already, right? Look, we will give full guidance for 2026 and even beyond when we sit down with all of you guys in February, right? But I'd say one thing, right? So clearly, the equipment profile will change, right, both for aviation, but also for the government. It's not means 0 equipment. It will be other contracts we're signing that we're competing for that will drive early revenue driven by equipment and some of them have better margin than others, followed by a high-margin revenue business when we get to the solution and turn on the capacity and deliver the services. But as I said earlier, nothing has changed to date that would change our view of the company going forward. Nothing has changed, right? So therefore, we are prioritizing growth, right? But with a disciplined approach into revenue growth, we're prioritizing profitable growth going forward. And we continue to see the business that way, right? We haven't changed our view on this business despite some of these adjustments that we have to make in 2025 based on what you heard. That's as much as I can say right now without giving you more forward-looking forecast, which will come in February 2026. I apologize, Alex, I can't be more precise, but hopefully, you understand where we are. Aleksander Peterc: Can I just have a quick follow-up on the band. Are you striving towards a higher than 100 megahertz transaction there because that will be obviously your strong interest given that there's no CDRs on anything above 100 megahertz. Can we go to 180? Adel Al-Saleh: Excellent. And now I remember conversations we had with you guys the year before where we talked about 100 and how the CDR plays out. And you -- Alex, you're absolutely right, the CDRs only applies to the first 100 megahertz. Look, it's very clear the FCC wants to do more, right? It's clear, right? I mean you've seen the releases, press releases and we're in the middle of it. I do expect -- all the cards tell you that it will be more than 100 megahertz, but it's very hard to predict. By the way, you don't have to wait that long anymore because it's -- the ruling should come out on the 20th of November, right? So it's about 10 days from now, right, a little bit more 2 weeks from now, right, and so on. So that is really good news for us, right? And for our investors at the end of the day, right? So that's where it is, and we'll see where -- and like I said, given the scale that this company has and the usage we have of the C-band, we are really well positioned, right? And not only well positioned with the FCC and the commission and help them accomplish what they're trying to do, but also with our customers because we have a much bigger scaled network that we can think of solutions that keep the customers and not lose them as we clear that C-band going forward. And that's really good news, Alex, for us. So I will leave it at that, right? And then we'll see the news coming in and we'll all then reflect when we talk to you guys in February. Christian Kern: Operator, we've got time for one final question, which is in the line there. Operator: Yes. The final question comes from Stéphane Beyazian from ODDO BHF. Stéphane Beyazian: I've got 3 follow-ups, if that's possible. Just on the spectrum clearance on which you spent some time recently. Can you tell us a little more on the difficulties, how long that could take? And what could be the associated cost? I understand it's pretty early, but that'd be interesting to have your views on that. Second follow-up on IRIS2. I was just wondering if you think the final plans will be very much in line with the initial plan. I'm talking about the total cost of the project and the capacity, which looks relatively small in total, in my opinion, when it was announced. And finally, just a follow-up on the airline contracts. I was just wondering if there is anything you can share on the economics of the contract from an airline point of view, how your pricing is comparing, for instance, to Starlink? Is the pricing flat per aircraft or quite volume-based? Anything could be interesting there on the economics. Adel Al-Saleh: Very good. Thank you, Stéphane. Look, I don't want to get ahead of myself here on the clearing, right, and how long it will take. You can use the proxy of the prior clearance that we had, right, and so on. But it's not years and years, right? I mean -- and we've recommended a certain approach to FCC that I'm not able to share until FCC decides to publish it themselves where it could be accelerated, right, and moved quite fast. But this is FCC's decision, right? I mean they, at the end, will set the pace on where we do. We know the technical requirements and what it takes to do it. And the more you do, the longer it takes, right, which is not such a bad news. In terms of cost, to be very clear, we expect full cost reimbursement, right? There is no cost that we will have to cover without FCC covering the cost. And of course, we also expect that the rules will be very similar to the prior clearance, i.e., how the financials were set up for the clearance. Look, on the IRIS2, as I said, Stéphane, we're right in the middle of it, right? And we have a budget that we shared with the market in terms of what our investment is going to be. We have not changed it, and that is our ceiling. We're not thinking of going beyond that. The question we're all trying to solve for is, do we still get the return that we require in order to make this an accretive project. And that's what we're working, and it's too early to speculate whether or not. It does not meet our requirements, financial requirements, we will make the right decision for our company and for our shareholders. And our customer knows that, right? They know the importance. And this is a private-public partnership. So everybody understands in clarity what is expected. We know what the customer wants. They know what we need to do in order to be able to deliver. So we need to have a little bit of patience as we get through it. But you got to keep in mind, I mean, we announced -- Stéphane, I didn't major on it this time because I want to major on this discussion in February. We announced our ambitions for the next-generation meeting. I announced it in the Paris show, and we call it meoSphere, which is the next generation of our MEO capabilities that we desperately need as we go forward. IRIS is absolutely part of that. It's the foundation of that meoSphere. It's not another project, right? It's the beginning of the meoSphere, if you will, the core elements of meoSphere as we scale it and we grow it. So for us, we have a very clear plan as a company, how we're going to do meoSphere going forward. And the objective is to make IRIS a component of that, a foundation of it, but it has to meet certain criteria for us to make it work. So that's what we're working on. And by the way, it's important and significant in the future. It's not a rounding error. I'm not talking about the capital investment required. I'm talking about the revenue upside. We want to bring a massive MEO network into airlines. It changes the game of the airlines. The governments desperately want us to keep scaling that MEO network. We want to bring much more capacity into the government business. So it is a significant opportunity for us as we go forward. But we must do it right, in order to have the right capital returns. And look, on the airlines, and we can take it offline. Look, one of the biggest differentiators we have as a business is our flexible business models. We can do it per plane. We can do it per seat. We can do it for usage and the customers love that. That is a differentiator. And we have a very strict guidance on how we do the mechanics and how does the business case work, et cetera. But it's very flexible for the customer adoption. So customers -- some customers want to pay for investment upfront. Others want to recoup it over time, right? And et cetera. So each business model is adapted to what the customer needs are and as they adopt the Wi-Fi solution on the plane, which, as I said, makes it differentiating from our competition. Stéphane Beyazian: Interesting. And if I can just follow -- can you hear me? Christian Kern: Yes, we can, Stéphane. Stéphane Beyazian: Yes. And just to follow up on that, in general, in the recent contract, the aircraft prefer pricing per seat, per usage or per aircraft in general. Adel Al-Saleh: It varies, Stéphane. It's interestingly, it varies. Customers who have experience with Wi-Fi and have enough capital capability to do it, they want to pay a lot of things upfront. Customers who are experimenting and rolling out for the first time, they want to see it based on passenger usage. And for us, it works, right? I mean both -- all of these variations, they work for us and so on. So it really is different, and it's not one dominating versus the other. Operator: There are no more questions at this time, sorry. So I hand the conference back to Christian Kern for any closing remarks. Christian Kern: Thank you so much, Gaya, and really thank you to everyone joining this call. I hope you found these answers helpful and to assess the Q3, 9-month results. Any follow-up questions, please contact Investor Relations at any time. We're here to help. Thank you so much, and have a good day. Adel Al-Saleh: Thank you, everybody. Operator: Thanks for participating in today's call. You may now disconnect.
Toshiyuki Miyakawa: Now we are starting KDDI's earnings release event for the second quarter of fiscal year ending March 2026. Later, we will have a Q&A session as well. Thank you very much for taking part despite your tight schedule. I'll be serving as moderator. I am Miyakawa from IR Department. This event is being live streamed with simultaneous interpretation between English and Japanese. And also, this event can be viewed on an on-demand basis on the website of our IR department. Let me introduce our participants. Representative Director, President and CEO, Matsuda; Representative Director, Executive Vice President, Executive Director of Business Solutions sector, Kuwahara; Director, Senior Managing Executive Officer, CFO, Saishoji; Director, Senior Managing Executive Officer, Executive Director, Personal Business Sector, Takezawa; Managing Executive Officer, CSO and CDO, Katsuki; Executive Officer -- Executive Director, Corporate Management Division, Aketa. We have 3 types of documents regarding earnings posted on our IR site. And also, please refer to our disclaimer regarding the content of the presentation as well as the targets such as number of contracts that may be referred to in the Q&A. Matsuda, President, will give a summary of presentation. And then after that, we will have Q&A. President, Matsuda, please. Hiromichi Matsuda: Let me start my presentation, earnings results for the first half financial for fiscal year ending March 2026. I would like to explain the following 4 points today. First, I will discuss consolidated financial results. These are the highlights of consolidated results. We increased both revenue and profit. We are making progress toward achieving the EPS target as planned. Operating revenue was JPY 2,963.2 billion, a 3.8% increase year-on-year, 46.8% of the full year forecast. Operating income was JPY 577.2 billion, up 0.7%, progress rate of 49%. Net income or profit for the period was JPY 377.7 billion, up 7.6%, with progress rate of 50.5%. Second quarter year-over-year growth was strong with operating revenue up 4.1%, operating income up 2.9%, net income up 18.6%. As a topic, I would like to explain the Q-on-Q situation of the performance in Q2. During Q2, we saw the effects of our price revisions become apparent and achieved a solid growth. Quarterly operating revenue increased 6.3% Q-on-Q. Quarterly operating profit increased by 11.8%. Our profit during the quarter grew by 20.7%. Next, I would like to explain the factors behind the changes in consolidated operating income. Each business grew, offsetting the impact of prior year sales promotional expenses. Mobile in the Personal Service segment increased JPY 11.1 billion year-over-year and income from Finance and Energy business and Lawson equity method profits combined increased by JPY 12.7 billion. DX increased by JPY 3.9 billion. Technological structural reforms up by JPY 9.6 billion. And the impact of prior year sales promotion expenses, negative JPY 31.2 billion was overcome, and we're expecting to see accelerated growth. These are the key points of consolidated operating profit in the second half to achieve full year targets. The mobile business is to accelerate growth with our target of value enhancement through service revisions with second half year-on-year growth exceeding approximately JPY 19 billion over JPY 30 billion growth for the full year. Combining DX Finance, Energy and Lawson equity method, profits are being aimed for an addition of approximately JPY 30 billion. Finance, which is key, will shift to a strategy with greater focus on loan-to-deposit ratio, while DX will be placed on a growth trajectory through initiatives, including a turnaround of BPO business. And positive impact of technological reforms approximately JPY 13 billion, second half increase up JPY 55 billion to achieve full year target. The negative impact from prior year sales promotions will end in the first half. Next, mobile structural transformation. This is about virtual cycle created by Power to Connect. And amid rising prices, we aim to create a virtuous cycle of growth, providing new value to earn revenue, returning that value to stakeholders and reinvesting it for the next era. We're able to create value because of the past investment, and that cycle is starting to kick in, I feel. This virtuous cycle growing together with our partner will be continuously implemented. In this cycle, I would like to talk about our mobile business. Our mobile business is undergoing structural reforms focused on lifetime value as is in the diagram. Our focus is to make sure that each brand of ours meets such customer needs, so that they will continue to use our offering over the long term. For UQ mobile customers, we would like them to see the value and the attractions of au as a brand, and we are recommending migrating to au. Now we will review plans and sales approaches that would induce short-term churns by customers who are only after incentives and benefits. In the process of structural reforms, some customers who have not used our service for long may choose to cancel their subscriptions. We are aware of that, but we would like to focus on the long term to drive ARPU growth through value creation and reduction in churns by encouraging longer contracts, so that we can have a leaner business foundation. The announcement of capability to offer connected experience and communication quality form the foundation of value creation. According to OpenSignal's user experience analysis, following February global #1 ranking, we achieved #1 in Japan for the third consecutive time last month. So based on this best network that we offer in the industry, we are enhancing our capability to offer a connected experience, and we are supplementing it with au Starlink Direct, which began data communication business in August. Many customers are already using this service. So we would like to expand this value based on connected experience. au 5G Lane. Even in crowded areas, you can have a sense of security being able to connect smoothly. And for au unlimited data overseas, this is free of charge for 15 days, and it has contributed to a rising awareness that you don't need a WiFi router overseas. We have an investment in Lawson. So we would like to pursue initiatives to enhance engagement by proposing savings and a sense of security in daily life. Ponta Pass and Earthquake Preparedness Support together with Aioi Dowa will provide service within the year that deposits JPY 30,000 into au PAY balance or bank account of customers. This is all part of the price plan. The effects of structural reforms are beginning to materialize. The initiatives we have explained so far have borne through, leading to growth in mobile ARPU, which contributes to LTV and churn rates are showing an improving trend. On the left, mobile ARPU has steadily increased this quarter, reaching JPY 4,460 in Q2, accelerating growth with year-on-year increase of JPY 140 and smartphone churn rate improved Q-on-Q. Year-on-year increase also narrowed from 0.17 points in Q1 to 0.12 points in Q2. Now as part of further effect, one of our indicators is switching between brands. So brand switching not from au to UQ Mobile, but brand switching from UQ Mobile to au saw a positive reversal finally in September. This continues into October. So this is as a result of our transformation, making our main brand au more attractive and steadily changing the plans and sales approaches. And on the right-hand side, for UQ Mobile, there are initiatives to extend the contracts. As a testimony to that, there have been improvements in home set discounts and handset bundle rates. So these are the kinds of initiatives we are implementing deeply. Through such structural transformation, focus on LTV, mobile revenue on a Personal Service segment basis has significantly surpassed last year's year-on-year growth in the first half, reaching a positive JPY 12.5 billion, accelerating growth. And in the second half, we expect further improvements in churn rates and ARPU growth driven by progress in structural transformation, brand mix and expanding contribution from service revisions and the impact of service revisions and mobile is expected to exceed initial forecast. Next, I will explain the initiatives to achieve the full year target. And we aim for JPY 55 billion increase in profit is our target. And as in the focal area, we aim for JPY 30 billion scale increase in profit. The focal area, the Energy and Lawson are progressing well. On the other hand, Finance and DX are recognized as challenges due to changes in the business environment since the beginning of the fiscal year. I will explain the initiatives for these 2 later. First, Finance. We are now in the world with interest rates, so the competition is intensifying over deposit. Instead of depending on the housing loan, we will shift our strategy mindful of loan-to-deposit ratio. And individuals deposit balance has grown by 1.3x. But in order to strengthen deposit procurement power, we will be working on initiatives such as bank securities alliance. As for credit card membership, the expansion is urgently needed, especially for Gold Card, 1.72 million membership is what we would like to achieve. As for the business segment performance, in the first half, operating income was plus 3.4% year-on-year. It's a somewhat slow result. Mobile, IoT and data center did well. On the other hand, BPO business and SI-related business had a temporary profit decrease factors. So compared to the initial projection at the beginning of the year, we are behind the projection. However, we could identify -- we have a clear outlook for resolving those one-off factors, so we have addressed the risks. And one of the businesses is BPO business or Altius Link. Now since the first half, we are working on initiatives to defend the share of existing service and expanding services using AI. And in September, we could turn the tide and deliver increase in revenue and profit. And as a result of activated sales, new orders increased by 2.8x year-on-year and the number of ongoing projects increased by 2x year-on-year. And also, we are proceeding with integration of internal systems as part of our efforts to improve efficiency, and we are seeing results. And by maintaining the momentum, we would like to deliver a turnaround in the second half of the year. Also, in the second half as the driver for growth. So mobile and IoT are going to deliver a double-digit growth year-on-year. And in addition, Facility Solutions, Starlink drones, such new services are going to make a contribution to growth gradually. Next, I will explain the initiative for the next stage of growth. Six months have passed since the launch of the new management structure, and the construction of our future business foundation is progressing, including the execution of fee revisions. Considering this progress, we will discuss the new key themes we are focusing on for the next midterm management strategy starting next year. On the left, theme one, in the area of AI. In addition to transforming infrastructure, including telecommunications into a next-generation model, we will further expand our value-added and growth areas by leveraging digital data and AI. On the right-hand side, another thing, another key point. Moving forward, centering on the communication, we are now in the phase of delivering growth. So together with growth, return-based capital allocation is what we would like to do while being mindful of capital efficiency. For that, being mindful of the credit rating, we will use leverage, and we would like to maximize the investment capital, and growth investment will be made in a disciplined manner, and we would like to make investment in areas where we can expect high returns in medium to long term. Conversely, for areas that do not meet the criteria, we will consider a review of business portfolio, including withdrawal. In conjunction with these ideas, we intend to implement flexible share buybacks alongside our commitment to stable dividend increases. By deepening our strength of sustainable growth in the AI era and pursuing quality with an awareness of capital efficiency, we aim to enhance corporate value. Regarding the enhancement of network. In Opensignal, our ranking is #1. So in addition to SSI, we are creating communication an area where we overlap millimeter wave on Sub6. And as for data center, this is the case of Telehouse. So Telehouse-accumulated know-how both in Japan and overseas will be applied. As we do so to prepare for AI age, we are expanding data centers. And in London, we will be constructing sixth data center in London, spending total project cost of JPY 60 billion. So real-time processing such as inference AI could be supported with a power supply of about 57 megawatts at this London DC to come. As for domestic AI data center, Telehouse know-how will be utilized and AI data center in Japan proceeded quickly and Osaka Sakai Data Center will go into operation in January 2026. So by providing sovereign AI development environment, in addition to training functions, we would like to build a distributed computing platform in various locations to meet the expanding demand for inference. This is consumer services based upon the strategic tie-up with Google Cloud. So now there are issues that contents are used without consent. So this service provides a peace of mind to content providers and also the accurate information can be provided to customers. So since our announcement, we've received inquiries from many content providers. And as the key strength of KDDI, we are advancing initiatives to create new value by combining real world and digital. And with Lawson, we are working to continue our initiatives to generate value by utilizing technology. We will work to address societal challenges in Japan by utilizing the site here in Takanawa. And based upon the explanation in the next phase, we will be moving on to the second round and the third round of the value generation cycle. So we will have a 6G to follow 5G. So high-quality network and high value-added services need to be created. For that, we will conduct disciplined, efficient investment, and we will strengthen partnership. And here is the summary at the end. Being mindful of our lifetime value for mobile, now the structural reform is progressing. And then on a full year basis, we have outlook for increasing profit by more than JPY 30 million. For Finance and DX, we have identified challenges. And in the second half, we will be executing a strategy. So consolidated performance and mobile business is progressing in line with our projection at the beginning of fiscal year. And as management, we are growing more confident about delivering results. So the interim dividend is going to be JPY 40, which is half of JPY 80 full year dividend, which we announced at the beginning of fiscal year. And today, I talked about initiatives for the next stage of growth. But for the next medium-term plan, we will be proceeding with infrastructure advancement and partnership for service deployment. And in the age of AI, we will be aiming to generate corporate value and sustainable growth. Thank you for your continued support, and thank you for your attention. Toshiyuki Miyakawa: Mr. Matsuda, the President, thank you very much. At this moment, we would like to start the Q&A. [Operator Instructions]. Kazuki Tokunaga: My name is Tokunaga from Daiwa Securities. I have 2 questions. My first question is this. In October and the second half, I would like your comment on the mobile business' competitive environment. NTT is saying that competition is very severe, and they said they had to increase promotional expenses. SoftBank is saying that they are acquiring customers with a focus on quality. It seems that they're taking different approaches and views. Given that, how have you competed in October? And net increases in IDs are slowing in terms of growth. So in the second half, how are you going to compete? So may I have your comment on the competitive landscape? Hiromichi Matsuda: Thank you for your question. As I said in my presentation, we are now robustly promoting structural reform transformation. So ARPU growth and reduction in churn and a positive migration from one brand to the other and increase in bundle rates, I think we're seeing the results -- positive results in these aspects. So I think we're having the necessary pieces fall into the right places. IDs perhaps may not be all that robust, but we were anticipating that. So we're trying to increase our health structurally speaking. We want our operation to be mean and lean. That's what we've been doing for the past 6 months. So in that regard, well, it depends on how you look at the competitive landscape. But landscape in terms of promotional expenses, not that we're having a head-on competition with our peers who are pouring promotional expenses. Rather, we would like to compete on the basis of product capabilities. We want to convey the attractions of our products to our customers to compete in the market, and that will be our approach in the second half as well. Kazuki Tokunaga: All right. It seems that churn rate is improving. And so will that continue in the second half? Hiromichi Matsuda: Well, there are some seasonal changes that will all appear, but we want customers to use our service over the long term. That will be our focus. So reduction in churn rate and ARPU growth, those are what we would like to pursue robustly. Kazuki Tokunaga: So my second question is about the idea behind the midterm plan. I think you talked about capital allocation in one of the pages in the presentation. So a detailed question. Number one, as you review your business portfolio, are you going to look at ROIC? What KPIs are you going to use as criteria for judgment? And you talk about flexible buyback or shareholder return. Given your makeup, it may be difficult for you to move flexibly. So if you could please comment on these aspects. Hiromichi Matsuda: Thank you for the question. So capital efficiency, what are the indicators? We are discussing that as we speak. Internally, we need to have a discipline set. And by so doing, we will be able to encourage investment for growth in the future. So if you could wait until we come to a conclusion as to which indicators we're going to use for that. That is one message I would like to convey. Second, being flexible. At this moment, we would like to do what we're doing right now. And upon doing so, we would like to be flexible in deciding on a share buyback. It may depend on the definition. Nanae Saishoji: Thank you. Flexible share buyback, that is something that we have used as a phrase, not that our stance has changed this fiscal year. Already, JPY 350 billion buyback and JPY 50 billion purchase, altogether, JPY 400 billion of buyback has already been conducted. And in the second half, we are increasingly confident to meet the EPS target for interim dividend. We are quite confident that we will be able to reach the level that we have said. And for this fiscal year, at this moment, we're not thinking of having any additional buybacks. And for the next year onward, as is noted in the presentation, but based on the growth strategy in the midterm plan, we will conduct share buybacks flexibly. It depends on the trends regarding major shareholders. And the balance between investment and shareholder return, we would like to remain flexible. Toshiyuki Miyakawa: The next question, Section B, Row 2, the person in the back. Daisaku Masuno: Masuno from Nomura Securities. So thank you very much for your clear explanation based upon profit. And first question, the second half profit plan. As for mobile, in the first half, 110% increase; and second quarter, JPY 19 billion increase; first quarter, JPY 11 billion increase. So it's an acceleration. But au revision of price and UQ price revision back in November given that we believe you could deliver bigger. So you put the word over. So I think there is upside. So on the other hand, your focal areas, Finance, Energy, Lawson, DX, all combined, JPY 16.6 billion increase in profit first half; and second half, JPY 30 billion increase. So JPY 13 billion increase is needed. So is it possible for you to achieve this? So where you see growth, so the fee revision and IoT data center, the new business and cost reduction, with all those elements, can you deliver results? Or do you need turnaround to be achieved? So how do you view the probability of achievement of second half target? Hiromichi Matsuda: Thank you for your question. In the second half, JPY 55 billion increase in profit, we are looking at the composition. So JPY 30 billion is what we would like to create in focal areas. So Finance and Energy included. So Finance, Energy and these business segments. So as mentioned, in the first half, we have identified to address challenges. So those businesses have hit a turning point. So we would like to grow those businesses. And with that, we would like to deliver JPY 30 billion. And in addition to that, mobile segment, JPY 19 billion and above. So that's the area where we would like to generate profit. So if anything. So this slide, rather than complementing with this, but we would like to grow each business. Since these are focal areas, we would like to grow these businesses. Daisaku Masuno: My second question is regarding medium-term plan. Regarding capital, basically, the balance sheet optimization and then share buyback and the EPS ambition. So balance sheet and P&L, the balance would be good balance to be aimed for, I believe. And what I do not understand is big theme one, the added value and the growing area, what do you mean by them? So going through your presentation, I do not have clear idea. So what specifically are you thinking about? Could you elaborate? Hiromichi Matsuda: Thank you for the question. So as of today, for the next medium-term plan, what I would like to do is deliver our message. So on the right-hand side, capital allocation concept, that's what we would like to adopt. And on the left-hand side, so we have deployed social infrastructure, including telecommunication infrastructure. So moving forward, data center, AI and such infrastructure. So not only infrastructure, but we would like to go beyond that, and we would like to deliver the added value as well. This goes for data centers in Japan as well as overseas. So it's a transformation to the infrastructure. That's the wording we use, but we do have the resolution determination and the responsibility regarding the infrastructure. So we would like to apply that mindset to the AI, but please wait for the announcement of medium-term plan for details. Daisaku Masuno: I do understand the infrastructure, but when it comes to the added value and growing areas, so you are announcing more details when you announced the medium-term plan? Hiromichi Matsuda: Yes. Toshiyuki Miyakawa: Next, Section A, Row 2, I see a hand. Please go ahead. Satoru Kikuchi: My name is Kikuchi from SMBC Nikko Securities. Mobile income increase is really good news, I feel. With increase in income from mobile, you will be able to do a lot more things. So I look forward to seeing such new activities. In the past, you said that you will focus on ARPU over the number of IDs. I think that was around 3 years ago when you said that. But if the number of IDs decline, you think that momentum is important. Mobility needs to be increased. You had to change what you were saying in 6 months' time, which was disappointing. This time, you used the term transformation. And so I believe that you need to change the KPIs. Otherwise, you will have to start saying something different. If momentum is sluggish, you will have to change your approach. So churn rate is a very important factor, and it was very difficult for us to assess what was going on because of the churn rate. So what is it that you are going after? Lifetime value as a term, it's easy to understand. But would that become an indicator? What is the definition? So with these indicators, this is what you're trying to do. If you could clarify that. President Matsuda, what is it that you are looking to achieve? So that's my first question. Hiromichi Matsuda: Thank you for your question. So increase in income in the mobile business, we are becoming increasingly confident about that. Because of increasing income there, we will be able to make more investment for growth in other areas. And we're talking about structural reform or transformation. We would like to track what is being substantively changed. So KPIs and set KPIs will have to be watched and monitored. We have made service revisions. Because we have had price revisions, we've had to send message to customers through DM and electronically. And those customers who have not used our service for long, because they were notified, decided to cancel. But how many customers are not using data? What is the ratio? We have been able to monitor that. And how much data is being used by a certain customer over how many months, we're able to grasp the specifics. Because some customers are utilizing data, they're willing to use our service over the longer term, we found. And so we're looking at such detailed KPIs as we continue with our structural reform. Satoru Kikuchi: If there is a sharp reduction in the number of users, then that could affect you. It's very important. So even if the number of IDs go down, you won't change your approach? Hiromichi Matsuda: We have no intention of changing our concept or idea. It's not 1 or 0. It's not that we're not going to pursue the number of IDs. Of course, for future growth, the number of IDs is still important. We want to capture good excellent customers. So those customers who are willing to cancel within a short period of time, that's not the kind of customers we're after. We would like to increase the number of IDs by capturing customers who are here with us for the long term. Satoru Kikuchi: My second question, well, you've been talking about growth, investment for growth. But the next medium-term plan is going to be formulated in 6 months' time. And so by that time, the number of IDs could further go down. I don't think you can just restrict your discussion in telecom business alone. But according to SoftBank, Crystal Intelligence is being aggressively marketed according to their President. NTT is increasing the number of data centers by spending JPY 1 trillion or so. There may be pros and cons with respect to such approaches, but especially your business segment this time, in the current medium-term business plan, it seems that you were not able to successfully strengthen your business segment. So above and beyond building data centers under the current plan, perhaps you could have done more to reinforce the business segment, Mr. Matsuda. And under the current medium-term plan, that's the case. And for the next plan as well, you should look to strengthen the business segment. And there could be various directions. It could be IT services, data centers, solutions, AI. There are various aspects, and you will consider that for the next medium-term plan. But don't you need to identify important areas to start taking measures under the current plan? So Mr. Matsuda, which direction are you heading? If you could just give us a hint or show a direction as to which direction you're heading or trying to head? Hiromichi Matsuda: Well, the Personal Service segment, it is still a large foundation for business. But in terms of growth, we have to tackle the business segment. We've had double-digit growth. And in the next medium-term business plan, we have no doubt that it will continue to be our growth driver. So given that, what are we going to do in which area? That's what we have to clarify in the next medium-term plan. As I said earlier, based on the telecom infrastructure that we have, offer value-added in telecom business as well as in other businesses, convey that to the customer and service the customers, so that we can earn compensation. So connectivity or telecom and data centers where AI is being utilized, I think these are pieces that are indispensable to each other. And I don't mean to single out AI business on a stand-alone basis. AI is something that can be incorporated into our existing business as well. So we believe that part of our business will transform into one that will embrace AI. And I think AI will accelerate in some areas, but in terms of growth and so forth, how can we incorporate AI to enhance security and what positive impact could it have. That is what we're calculating. And we would like to, of course, increase the odds so that we can be successful in the next medium-term business plan. Toshiyuki Miyakawa: Next person, Section C, Row 3, the person in front. Yusuke Okumura: Okumura from Okasan Securities. In the first half, looking at the profit and also, I have a question about your thinking about the second half. Page 7. Operating income increase is shown in this table from the beginning of the year, roaming and the stakeholder return, and they seem to be contributing to the increase in profit, but the stakeholder benefit sharing and roaming in the second half, do you foresee some special factors regarding them? Hiromichi Matsuda: So what you said is others portion. Yusuke Okumura: Yes. Hiromichi Matsuda: In others, so from our viewpoint, MVNO and Rakuten roaming decrease in revenue and stakeholder return benefit sharing. And for this stakeholder portion, it's something that will continue from this year. So what is the portion for this year? We are not specifying it, but it's a portion that's continuing into next year. And as for our technology partners, already some number is incorporated in that sense. So it's a sharing of benefit with the shops and also the personnel expense. Yusuke Okumura: As for the roaming and stakeholder portion, it's decrease in the profit a bit above JPY 30 billion. Is my understanding wrong? Hiromichi Matsuda: Not that big. The amount is not that big. So the profit decrease -- so regarding roaming, that's about JPY 1.9 billion. And Rakuten roaming revenue, I think income decrease will gradually shrink. Yusuke Okumura: Okay. Understand. Excuse me. So in order to deliver continuously value to customers, stakeholder benefit sharing cost, annually, JPY 20 billion to JPY 30 billion is what we anticipate on a full year basis. And in the first half, in that sense, the amount is not so big. It has not incurred so much. And others section has various other elements. So for example, positive elements are included as well. So in the second quarter, we had positive elements contributing. Then on that basis, in the second half, the profit increase and decrease, Page 19 shows the plan for the second half. But what kind of changes were there compared to the beginning of your projection? In the focus areas, JPY 10 billion or so of downward revision was made. Is it the right understanding? If so, the Finance, Energy, Lawson business segment, what kind of change happened? And the full year profit plan has been retained. So the others is in balance with the decrease in profit. So roaming and stakeholder benefit sharing cost. So I would like to know the changes in the elements, positives and negatives. Nanae Saishoji: Regarding that, from the initial guidance, the absolute amount has not been changed. So while we anticipate several factors, we anticipate we have not much changed. This is your view. Yusuke Okumura: Excuse me. I might be wrong. Toshiyuki Miyakawa: Thank you very much. The time to close is fast approaching. We will be taking one last question. So Section C, Row 1, please. Tetsuro Tsusaka: Tsusaka from Morgan Stanley. Share price, of course, is determined by the market. That's fine. You are performing very well, and NTT, who's not performing very well, share price valuation, market assessment, there's not much of a difference between you, KDDI and NTT, despite the difference in performance. According to market, price hikes cannot happen every year. You made a price revision this time, you're looking at the situation, looking at the customer reaction. Value enhancement, of course, can continue, but it seems that you've already done the price revisions. So in the next step, what is going to be your focus for growth? I don't think the stock market has yet to understand that. For the next phase of growth, you have included a number of slides, but they are rather abstract. So telecom network quality being very good, but that's taken for granted. I'm sure you're focusing on that. But from the user's perspective, 99.9%, 99.8%, they won't perceive the difference between the two. So in that regard, what you have included in the slides is rather taken for granted. You are not going deeper enough in terms of your strategy, it seems. So there's lack of catalyst. I just can't see what we can be excited about. Well, all of that can be explained by the next medium-term business plan, you may say, and that's fine, but peers of yours are putting out a lot of different messages about that. I think you need to assume the same attitude perhaps. So if you could share your thinking as to what you're going to do for the next phase of growth. I have only that question. Hiromichi Matsuda: Well, thank you for your question. As you pointed out, we made a price revision. We launched a price revision. And I think it will have a tangible absolute effect this year and next year, and we will have a greater source of investment for the future as a result. And on the right-hand side of one of the slides, capital allocation, I talked about the medium-term business plan and specifics are on the left-hand side, what's going to be the catalyst for the next phase of growth? That was your question. Not that I'm asking you to wait for the next medium-term business plan to come out, but we're in tumultuous age with the emergence of AI. And we have a picture for the future, but we're focusing on increasing the odds, if you will, increasing the likelihood of achieving that vision. And you're saying that we should give sneak peeks, and I note that. We would like to prepare for that for the next phase. Thank you. Toshiyuki Miyakawa: Now it's time to close. So with that, we would like to close the second quarter earnings briefing for the year ending March 2026. Thank you very much for your attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Thank you for standing by. Welcome to Ligand Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Melanie Herman. Please go ahead. Melanie Herman: Good morning, everyone, and welcome to Ligand's Third Quarter 2025 Earnings Call. During the call today, we will review the financial results we released earlier today and provide commentary on our partner pipeline and business development activity, followed by a question-and-answer session. Before we get started, I would like to point out that we will be discussing non-GAAP results, which excludes certain items such as stock-based compensation, amortization of intangible assets, amortization or impairment of financial assets, losses from derivative assets and gain from the sale of the Pelthos business, amongst others. I encourage you to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP measures, which can be found in today's release available on our website. We believe these adjusted measures provide valuable insight into our core operating performance, both historically and moving forward. Our earnings release and a link to today's webcast can be found in the Investor Relations section of our website at ligand.com. With me on the call today are CEO, Todd Davis; Chief Financial Officer, Tavo Espinoza; and Vice President of Strategic Planning and Investment Analytics, Lauren Hay. This call is being recorded, and the audio portion will be archived in the Investors section of our website. On today's call, we will make forward-looking statements regarding our financial results and other matters related to the company's business. Please refer to the safe harbor statement related to these forward-looking statements, which are subject to risks and uncertainties. We remind you that actual events or results may differ materially from those projected or discussed and that all forward-looking statements are based upon current available information. Ligand assumes no obligation to update these statements. To better understand the risks and uncertainties that could cause actual results to differ, we refer you to the documents that Ligand files with the Securities and Exchange Commission, or SEC, that can be found on Ligand's website at ligand.com or on the SEC's website at sec.gov. With that, I will now turn the call over to Todd. Todd Davis: Thank you, Melanie, and good morning, everyone. Thank you for joining us today to discuss another exciting quarter for Ligand. This quarter was pivotal. Not only did we deliver another quarter of exceptional financial results, we also successfully completed a convertible debt financing, providing us with additional flexibility to pursue strategic opportunities that support our growth initiatives. We are raising our full year guidance for the second time this year. This increase in guidance is a result of the strength of our commercial royalty portfolio, which has continued to outperform our expectations due to products like Merck's Ohtuvayre and CAPVAXIVE as well as Travere's FILSPARI. Additionally, I'm proud of our deal team's ability to create superior risk-adjusted returns through transactions such as strategic merger of Pelthos with Channel Therapeutics that has driven substantial value creation for our shareholders. When we restructured Ligand in 2022 with the spinout of our antibody operations, we set a new strategic direction for Ligand, one grounded in focus and discipline. Since then, we've stayed true to that plan, scaling our deal team to accelerate growth in the late-stage pipeline and build a diversified portfolio of high-margin royalties designed to deliver superior returns. The strategy has played out exactly as envisioned, and I couldn't be more pleased with the progress we've made over the past few years. Royalty revenue grew 47% over the same quarter last year, and adjusted EPS increased 68%, reflecting strong performance across our portfolio. Key drivers contributing to the 47% growth in our royalty portfolio include the commercial launch of ZELSUVMI, strong launch of Merck's Ohtuvayre and CAPVAXIVE, growth of Recordati's QARZIBA and the continued ramp-up of FILSPARI. We ended the quarter with a strong balance sheet, including approximately $1 billion in deployable capital, factoring in our undrawn credit facility, which will allow us to take advantage of our robust business development pipeline. There's been strong uptake of ZELSUVMI in the early launch phase, and we look forward to the continued momentum. The launch of ZELSUVMI is an exciting milestone for patients with molluscum, who now have an at-home treatment option for this burdensome skin infection. We encourage our investors to listen in on the Pelthos earnings call, which will occur on November 13. We expect a robust update on the launch performance. Our deal team has been busy this quarter, committing $35 million to Orchestra Bio for royalty interest in their AVIM therapy and Virtue SAB. Ligand has also invested an additional $5 million to help catalyze their equity private placement, which successfully completed a total raise of $111 million, including participation by AVIM partner, Medtronic. We also committed $11 million to Arecor in exchange for royalty rights to AT220 and milestone and technology access fees for AT292, Sanofi's efdoralprin alfa program. We are pleased to report that just 1 month after our investment, Sanofi announced positive Phase II results from its trial, demonstrating all primary and key secondary endpoints were met in adults with alpha-1 antitrypsin deficiency emphysema, a rare disease. Since restructuring in 2022, we've been executing on our current strategy and have seen significant growth across the core revenue as well as adjusted EPS. I'd like to point out that in 2024, there were 4 FDA approvals of assets in our pipeline: Merck's CAPVAXIVE, Merck's Ohtuvayre, Pelthos' ZELSUVMI and the full approval of Travere's FILSPARI. With these 4 products all in early stages of their launch, with the potential for both indication expansion as well as geographic expansion, we expect this growth to continue in the coming years. I would like to look ahead now to 2029 and discuss our 5-year royalty receipts outlook, which we first presented at our Investor Day in December of 2024. We believe our long-term royalty growth is on pace to meet or exceed the 22% compound annual growth rate we outlined at that time. The existing portfolio alone supports a royalty receipts CAGR of 18%. Future investments should add at least 4% to this with potential upside on top of the current outlook. The strength of our existing portfolio is evident across both our commercial and development stage programs. However, we believe that what truly differentiates Ligand as a royalty aggregator is the expertise of our deal team in sourcing and executing high-quality investment opportunities and the ability to drive superior returns with our operating capabilities and our special situations initiatives. It is through the strength of this team that growth across the future investment segment of this chart has the potential to surpass expectations. Turning to the next slide. I'll highlight a few positive developments since our long-term outlook was presented last December, each of which has the potential to meaningfully enhance our long-term royalty projections. First, Ohtuvayre is tracking well ahead of the initial forecast and continues to be the strongest launch in COPD history. Q3 sales grew 32% sequentially and consensus forecasts now project $2 billion in sales by 2029, up from $1.2 billion previously. As a 3% royalty holder, Ligand stands to benefit materially from this upside. Second, FILSPARI continues to perform well commercially in IgA nephropathy with Q3 sales growing 26% over the prior quarter. Additionally, there is potential upside if approved in FSGS. If approved, the FSGS indication could significantly expand FILSPARI's market opportunity, potentially north of $1 billion in FSGS alone according to sell-side analysts. Turning to one of our development stage programs. Let's look at Palvella's QTORIN rapamycin programs. We'll hear updates on their Phase II program in cutaneous venous malformations in the fourth quarter and their Phase III program in microcystic lymphatic malformations in the first quarter of 2026. Analysts expect peak sales from these 2 indications could be $1 billion. In 2025, we continue to execute our strategy of partnering with life sciences companies to provide innovative, nondilutive capital solutions. Since the beginning of the year, we've closed 5 new investments, including the final Ohtuvayre inventor monetization, Castle Creek, Orchestra BioMed, the merger of Pelthos Therapeutics with Channel Therapeutics and our most recent investment in Arecor. These transactions reflect the unique flexibility of our investment strategy and are well diversified across our investment tactics, including royalty monetization, project financing and special situations. Our investment to fund Castle Creek's Phase III clinical study of DeFi in patients with dystrophic epidermolysis bullosa is an exciting opportunity to advance an orphan drug designated gene-modified cell therapy for a serious unmet clinical need. This collaboration reflects our commitment to invest in groundbreaking derisked treatments that have the potential to transform patients' lives, and it also strengthens our late-stage portfolio. Our partnership with Orchestra Biomed also expands our pipeline of development stage partnerships with potential royalties on 2 late-stage partnered cardiology programs. Orchestra's AVIM therapy partnered with Medtronic and Virtue SAB has received FDA breakthrough device designations and the products target high-risk patient populations with hypertension and arterial disease, 2 significant global health challenges. Next slide, we have seen record-setting origination activity this year, reviewing more than 130 investment opportunities through the first 3 quarters of the year. We remain disciplined in our approach, prioritizing investments that offer compelling return potential and strategic alignment while deprioritizing those that do not meet our long-term objectives. At present, we have approximately 32 active investment opportunities under review, representing a mix of accretive and pre-approval transactions. I'd like to take this opportunity to remind everyone of our upcoming Investor Day, which will be held on December 9 in New York at the Harvard Club. The registration link can be found on our website. We'll be evaluating consensus updates and commercial progress as well as clinical progress of our assets in our Pharm team to share a refreshed view of this long-term outlook with you at that time, and we hope you can join us. I'll turn it over now to Lauren for a portfolio update. Lauren Hay: Thank you, Todd. Turning to a portfolio review, I'd like to provide some important updates on Ligand's key portfolio assets. I will go into more details on Merck's Ohtuvayre, Travere's FILSPARI and Palvella's QTORIN rapamycin program on the subsequent slides, but I'd like to briefly discuss updates on 2 of our key pipeline assets, Sanofi's TZIELD and Agenus' BOT/BAL. In October, the FDA nominated TZIELD as 1 of 9 products selected for the prestigious new Commissioners National Priority voucher. These vouchers are designed to recognize and reward products with significant potential to address a major national priority, such as meeting a large unmet medical need, reducing downstream health care utilization or addressing a public health crisis. This overlaps perfectly with Ligand's mission, delivering high clinical value to patients impacted by serious disease. The new commissioners voucher program aims to shorten the standard 10- to 12-month FDA review time line to just 1 to 2 months, which is remarkable. While we have heard concerns surrounding volatility at FDA, to date, we have not seen any impact in terms of delays or other issues related to our key portfolio assets. In addition, we have seen a new willingness by the agency to accelerate time lines and provide incentives that spur real innovation. We believe this new FDA orientation is forward-thinking and very good for patients. As a result of receiving the commissioner's voucher, the supplemental BLA for TZIELD in individuals 8 years and older who have been recently diagnosed with Stage III type 1 diabetes was accepted in October and will be reviewed expeditiously, which is welcome news for patients and their families. We are excited about TZIELD's recent recognition and the potential for a significantly expanded indication in the near term. We congratulate our partner, Sanofi, on this exceptional accomplishment. Additionally, our partner, Agenus, plans to initiate a streamlined 2-arm Phase III trial of BOT in patients with refractory non-liver metastatic microsatellite stable colorectal cancer in the fourth quarter of 2025. The Phase II data are highly encouraging, demonstrating deep and durable responses in this difficult-to-treat population, underscoring the meaningful benefit observed in patients who have failed standard therapies. Next, turning to Travere's FILSPARI. In August, the REMS liver monitoring requirement was relaxed from monthly to quarterly for IgAN patients during the first year of treatment. FILSPARI is becoming firmly entrenched as a foundational treatment for people living with IgAN and the approval of these streamlined monitoring requirements reflects the strong safety profile of FILSPARI, simplifying treatment initiation for patients. In Japan, our partner, Renalys Pharma completed primary endpoint data collection in its Phase III IgAN trial, and top line results are expected in the fourth quarter of this year. In October, Chugai Pharmaceuticals announced plans to acquire Renalys. Chugai is recognized for its rare disease and nephrology expertise, and we believe they have the ability to accelerate access to FILSPARI for patients. In FILSPARI's second indication, FSGS, the FDA has assigned a PDUFA date of January 13, 2026, and has informed Travere that an advisory committee meeting is no longer required. If approved, FILSPARI would be the first and only FDA-approved treatment option for FSGS, and Travere believes the FSGS commercial opportunity could be an even larger one with more rapid uptake as it compared to IgAN. Moving on, on October 7, Merck closed its acquisition of the Ohtuvayre marketer, Verona Pharma for $10 billion. Our 3% Ohtuvayre royalty will now be assumed by the new marketer, Merck, who has significant geographic reach to expand the Ohtuvayre footprint globally as well as robust clinical development infrastructure to accelerate development of Ot2vir in indications such as non-cystic fibrosis bronchiectasis. Moving on, we're very pleased with the commercial performance and clinical and regulatory updates provided by Merck on CAPVAXIVE at this quarter. Merck expects that CAPVAXIVE will achieve majority market share in the adult setting in the pneumococcal vaccine category. Merck reported third quarter sales of $244 million, representing a significant increase over the prior quarter as well as a beat to analyst consensus. CAPVAXIVE was approved to prevent pneumococcal disease in Japan in August. And additionally, the FDA accepted Merck's SBLA for CAPVAXIVE in children and adolescents at an increased risk of pneumococcal disease with a PDUFA date of June 18, 2026. Next slide, Palvella completed full enrollment ahead of schedule in their Phase III trial in microcystic lymphatic malformations in June with results anticipated in the first quarter of 2026. Additionally, Phase II trials in cutaneous venous malformations are expected in December of this year. Palvella recently announced a third QTORIN rapamycin indication in clinically significant angiokeratomas. Palvella plans to meet with the FDA in the first half of 2026 to discuss this Phase II trial design. I'd also like to briefly discuss the commercial opportunity specific to QTORIN rapamycin for the treatment of microcystic lymphatic malformations. Phase III results are expected in the first quarter of next year, and this promising product has the potential to be the first and only FDA-approved treatment with strong prescriber interest. The therapy targets a concentrated population of over 30,000 diagnosed patients primarily treated at 400 vascular anomaly centers, enabling a lean sales force strategy. Validated orphan pricing models and high unmet clinical needs suggest significant revenue potential in MLM. With QTORIN rapamycin, Palvella is building a compelling pipeline in a product, which could represent a sizable royalty opportunity for Ligand. This franchise strategy outlines a phased approach targeting rare dermatological conditions, starting with microcystic lymphatic malformations, followed by cutaneous venous malformations and clinically significant angiokeratomas. Palvella's longer-term plans include expanding to potential future indications, which Palvella believes could potentially grow the addressable patients by a factor of 10x. This represents a significant opportunity for market growth and our 8% to 9.8% royalty extends across any and all approved QTORIN rapamycin indications. With that, I will turn the call over to Tavo. Octavio Espinoza: Thank you, Lauren. Before getting into the broader overview, I want to start with the deconsolidation of Pelthos since it provides important context for this quarter's results. The spinout became effective on July 1. And from that date, Pelthos has been deconsolidated from Ligand's financials. Historical operating costs through June 30 remain on Ligand's books, but beginning July 1, Pelthos' expenses are now reflected under the newly merged Pelthos Channel Therapeutics entity, operating independently as a publicly traded company under the ticker symbol PTHS with its own Board and management team. Similar to our equity interest in Viking and Palvella Therapeutics, we hold an equity stake in Pelthos, approximately 50% of its outstanding shares. These are carried on our balance sheet as a long-term investment and remain restricted until the 6-month lockup period expires on December 31, 2025. The current estimated fair value of our holdings in Pelthos is about $180 million as of yesterday's close. On July 1, we recognized a $53 million gain related to the Pelthos transaction, reflecting the difference between the $62 million fair value of the consideration received and the $9 million of net assets sold. As noted on our Q2 call, this gain included value associated with the ZELSUVMI out-license, which we've now quantified at $24.5 million and retained in adjusted earnings. While the out-license itself is a onetime event, out-licensing is core to our business strategy and the Pelthos equity we received represents tangible value. For that reason, we included it in core revenue and adjusted EPS. The remaining $28.6 million of the gain, along with the historical incubation costs have been excluded from non-GAAP results to maintain comparability with recurring operations. In addition to the gain on Pelthos, we recorded a $76 million unrealized gain tied to the increase in Pelthos' share value from $62 million at issuance on July 1 to $138 million at quarter end. This appreciation underscores both market confidence in Pelthos and the strategic value of the transaction to Ligand. I'll walk through the financial implications of the Pelthos transaction in more detail on the next few slides. Moving now into the quarter's financial highlights. This was an exceptional quarter for Ligand, marked by record financial performance, driven by the continued strength in several assets in our royalty portfolio and the recognition of the aforementioned ZELSUVMI out-license component following the spinout and merger of the Pelthos business. We also capitalized on favorable conditions in the convertible debt markets in August, securing a 5-year $460 million convertible note, which further strengthens our balance sheet. Total revenue and other income for Q3 2025 on a GAAP basis came in at $115.5 million, up from $51.8 million in the same quarter last year. Of that, $53.1 million was tied to the Pelthos transaction, including $24.5 million from the ZELSUVMI out-license and a $28.6 million gain on the sale of the business to Channel Therapeutics. As discussed earlier, we're including the $24.5 million representing the estimated stand-alone value of the ZELSUVMI out-license as core revenue. The $28.6 million gain on sale of the business has been excluded. Therefore, on an adjusted basis, core revenue for Q3 2025 grew 68% year-over-year to $86.9 million. Other financial highlights to note. Royalty revenue rose 47% year-over-year to $46.6 million, reflecting strong launch trajectory and outperformance across several recently approved products in our portfolio. Adjusted EPS grew 68% from the same period last year to $3.09. Given this strong financial performance, we're raising full year 2025 guidance. We now expect core revenue of $225 million to $235 million and adjusted earnings per share of $7.40 to $7.65 per share. We closed the quarter with $665 million in cash and investments. That brings total deployable capital to approximately $1 billion, a strong position that continues to fuel a very active business development pipeline. The funnel remains robust. At this point, we're not limited by dollars, we're limited by human capital, and we're planning to expand our business development and investment teams to meet the opportunity ahead. In August, we executed on a $460 million convertible debt transaction. We were very pleased with the pricing terms and secured a 75 basis point coupon rate and a 32.5% conversion premium. We also structured the transaction to be net share settlement to further reduce dilution. In conjunction with the notes, we executed an up 100% call spread, which will result in no dilution to our stock up to a price of $294 per share. The net proceeds not only bolster our balance sheet, but are accretive to earnings and allow us to take advantage of our robust business development pipeline. Moving on to the next slide. Let me expand on our capital deployment capacity. We continue to generate robust annual operating cash flow now exceeding $150 million on an annualized basis, and our current investment pace ranges between $150 million to $250. Against this backdrop, our decision to pursue a convertible debt financing was strategic, driven in large part by favorable conditions in the convertible debt markets. As of September 30, 2025, we held $665 million in cash and short-term investments and maintained access to a $200 million credit facility, bringing our total financial capacity to roughly $1 billion, inclusive of our holdings in Pelthos. We own approximately 50% of Pelthos' outstanding shares carried on our balance sheet as a long-term investment with an estimated fair value of $138 million at quarter end, which we view as another potential liquidity lever. Looking ahead, given the robustness of our business development funnel and the ongoing expansion of our business development function, we may look to incrementally increase our capital deployment pace. We believe our bolstered balance sheet positions us well to pursue high-quality opportunities that align with our strategic and financial objectives. Moving on to the next slide. Key drivers of royalty revenue growth this quarter include strong performance from Travere FILSPARI, Merck and Verona's Ohtuvayre, Merck's CAPVAXIVE and Recordati's QARZIBA. Expanding briefly on a few of these, starting with FILSPARI, Travere reported third quarter sales of $90.9 million, a 26% sequential and 155% year-over-year increase. They also received 731 new patient start forms during the quarter, showing continued adoption among both new and repeat prescribers. That momentum underscores the expanding use of FILSPARI in IgA nephropathy. As a reminder, Ligand earns a 9% royalty on sales, translating to nearly $9 million in royalty revenue this quarter, including our internal estimate of $7 million from sales generated by CSL Vifor in Europe. We're pleased to share that FILSPARI has now become our largest royalty-generating asset on an annualized run rate basis. Turning to Ohtuvayre. We continue to see strong commercial momentum. Verona reported $136 million of Ohtuvayre sales, a 32% sequential increase over the prior quarter. Ohtuvayre sales have beaten consensus in every quarter of 2025, and we anticipate a strong launch trajectory to continue. We are excited to see potential acceleration with this program now benefiting from Merck's broader commercial organization. Merck's CAPVAXIVE also grew significantly this quarter, reinforcing Merck's competitiveness in the pneumococcal vaccine space. CAPVAXIVE generated $244 million in sales, an 89% sequential increase and a 46% increase over consensus. On Captisol, we recorded $10.7 million in material sales this quarter compared to $6.3 million in the third quarter of 2024. The increase was driven primarily by the timing of customer orders. We recorded $58.2 million in contract revenue this quarter, up significantly from the $13.8 million in the prior year period. This includes the previously mentioned $28.6 million gain on the sale of the Pelthos business and the $24.5 million ZELSUVMI out-license. Turning to operating expenses. For Q3 2025, G&A expenses were $28.4 million, up from $24.5 million in the prior year quarter, primarily due to recognition of transaction costs related to the Pelthos transaction. R&D expenses rose $21 million from $5.7 million in the prior year period, driven by a $17.8 million one-time charge tied to our investment in Orchestra BioMed. This funding supports late-stage partnered cardiology programs and is accounted for as an R&D funding arrangement fully expensed in the period of investment. Other income for the quarter totaled $86.2 million compared to other expense of $9.5 million in Q3 2024. This year-over-year swing was primarily driven by unrealized gains from the increase in value of our equity holdings in Pelthos and Palvella and higher interest income, reflecting the impact of our strengthened cash position following the convertible note transaction. GAAP net income for Q3 2025 was $117.3 million or $5.68 per share compared to GAAP net loss of $7.2 million or $0.39 per share in Q3 2024. On a non-GAAP basis, adjusted net income was $63.8 million or $3.09 per share, up from $35.3 million or $1.84 per share in the prior year period. The 68% increase in adjusted EPS was primarily driven by the $14.9 million increase in royalty revenue and the $24.5 million ZELSUVMI out-license component. Turning to guidance. As mentioned, we are raising total core revenue forecast to a range of $225 million to $235 million, and adjusted earnings per share is now expected to be between $7.40 and $7.65, a roughly 30% increase over last year's EPS of $5.74. With that context, here's how our revised full year 2025 guidance is shaping up. Royalty revenue is now expected to be between $147 million and $157 million, up from the prior range of $140 million to $150 million. Captisol sales are expected to come in at $40 million. Contract revenue, which is where we capture the value of the sell ZELSUVMI out-license component has increased to $38 million, up from $25 million to $35 million. Again, to reiterate, total core revenue is now expected to be in the range of $225 million to $235 million, up from $200 million to $225 million, and we're raising core adjusted EPS to $7.40 to $7.65 compared to the previous range of $6.70 to $7. These updates reflect not only the impact of the Pelthos transaction, but also strong underlying growth and increased visibility into our royalty streams, particularly from FILSPARI, Ohtuvayre, QARZIBA and CAPVAXIVE. That concludes my remarks. I'll now turn the call back over to Todd for closing comments. Todd Davis: Thank you, Tavo. We are very pleased with the strong launch momentum across multiple products, including CAPVAXIVE, Ohtuvayre, FILSPARI and ZELSUVMI and believe there are significant opportunities for both indication expansion as well as geographic expansion for these products, which represent further upside for Ligand. We believe that Merck's global reach will accelerate Ohtuvayre's rollout and their plans to invest in the ensifentrine pipeline programs will maximize its potential. Additionally, we're encouraged by the great progress the Pelthos team is making in ZELSUVMI and look forward to watching the continued launch momentum in the coming months. With a solid base of royalty-generating assets and late-stage pipeline, we are well positioned to deliver sustained compounding growth and long-term value for shareholders. Additionally, our strong origination capabilities, our investment team and our robust investment process is driving meaningful portfolio growth. Our deal team's ability to identify, access and execute high-quality investments sets Ligand apart. Thank you, everyone, for joining us for today's earnings call. I will now pass it back to the operator and open it up for questions. Operator: [Operator Instructions] And your first question comes from the line of Trevor Allred with Oppenheimer. Trevor Allred: I've got a few. First, we've seen both Pelthos and Palvella generate enormous value over the past year. Is there anything you can share on the available opportunities and special situations? Todd Davis: Thank you, Trevor. This is Todd. And I think the opportunity set there is quite robust. Just to kind of frame this, the special opportunities is when one of the kind of the value components is missing, and we need to be more active in the investment in terms of adding team members, restructuring and things of this nature. When we look at any investment, we're looking at kind of those 3 components, company's financial strength or access to capital. And if that's all they need, then we're usually looking at a royalty investment, a royalty monetization or simply providing capital. The other thing is strong management teams. We really need strong counterparties because we want to have as much operating leverage as possible. So we're partnering with people that have the clinical development capabilities and infrastructure, sales and marketing capabilities and infrastructure, manufacturing capabilities and infrastructure. When those -- when that portion of the component breaks down, then we have to get more involved than just providing capital, and we'll bring other complementary management into the mix. And those are restructurings. So there are many opportunities like that out there. And the last component is just general financial strength aside from our financing because we need companies that have strong access to capital, and we have to exist in this ecosystem and equity is a very important component of what we do. Royalty capital needs to be a portion of the company's capital structure, but certainly can't rely solely on it or even predominantly on it. So when these situations arise, if they just need capital, it's usually not a special situation. The Novan situation where we picked up ZELSUVMI and the nitric oxide platform is a good example. There, you had a very good technical team, which we still work with today. We brought them into a subsidiary at Ligand, and they have what we believe was a great asset. And so we brought that into the subsidiary as well, restructured it and eventually we reset the marketing plan for ZELSUVMI once we got that approved and then relaunched the new company in the form of Pelthos. That's a situation where the company's access to capital had broken down, and they needed a more sales and marketing-oriented management team. So that's where we will get involved in these special situations. There are a lot of those out there. We're typically doing those in cooperation with the counterparties, though, where they know those components are missing. And the one other consideration on those is that they are quite consuming. They take a deal team. It takes a lot of attention. And so you really have to go after deep value and significant returns, which we believe we will achieve in the Pelthos situation and in others like that, that we've taken on. But there's -- let me put it this way, there's way more of those to do than we can do, and that's why we are adding a little bit to our management and deal team, including the operating components that we have, which help us manage through these situations. Trevor Allred: Got it. That's helpful. And then my second question is a bit of a 2-parter. Can you comment on how the number of investment opportunities have shifted over the past year? Are you seeing accelerating capital demands? And then can you also comment on how your new cash balance changes either the scope or the size of how you're approaching deal making, if at all? Todd Davis: Sure. Yes. So taking the latter first, I think that our diversification strategy right now has us pegged at about, as we've been saying, we don't want to put any more than $50 million into a binary risk situation. and we're seeking out things that have significant evidence of safety and efficacy and on a relative basis are derisked. But still, we are buying risk, and we don't want to put more than $50 million right now into a potential binary risk situation. That said, we view diversification by asset. So in multiple asset situations, we can size up the deals very significantly. And we also, as you know, we will use equity as a tool here. And this makes us a very good partner. I think the Orchestra example, which Paul led for us is a good one. We got what we think is a very good royalty investment in 2 great product development programs there. But we were also able to facilitate or catalyze, if you will, a broader equity round and get the company into a much greater position overall of financial strength. so that we are, in fact, coexisting with significant amounts of equity in that situation at this point. And we believe the company has a great management team and has now much, much better access to capital in the long term as well. So we can be very good partners because we are able to support companies kind of throughout their capital structure. Getting to the overall kind of deal types and demand, I would just say that royalty capital, for lack of a better term, is really 5% or less of the market. And I would say on the development side, significantly less. And that's where capital is most needed. So I think there's a huge opportunity there. There's way more to do than we can do. So the deal flow does move around a little bit, mostly in style, not in amount. as the capital markets change. For example, when an IPO market opens up, a lot of the late-stage private companies want to get public. So they're more inclined to do that so they can provide liquidity for their equity investors. But still, even in those cases with very strong companies and strong equity syndicates, as was the case with Castle Creek, they want and there is a rationale for having royalty capital be a component of your total capital structure. Operator: [Operator Instructions] Your next question comes from the line of Matt Hewitt with Craig-Hallum. Unknown Analyst: Congrats on the quarter. This is [indiscernible] on for Matt Hewitt. So last week, the FDA announced it wants to speed up the process of personalized gene therapy. How should we think about the Castle Creek investment and general opportunities in gene therapies going forward? Todd Davis: Yes. I think that's one of the points that Lauren was making earlier in the call here is that there are some concerns around some volatility and changes at the FDA. But we're focused, as we've said many times, on high-value assets targeted towards severe clinical need that can be really impactful. And that's kind of the FDA's core reorientation strategy as well. So we think there's great overlap between just our investment strategy in general, investing in products that will make the most amount of difference for patients and what the FDA is orienting around in that regard. And so I can't say that it will have a specific impact on any individual asset or company, although we know that TZIELD has already benefited from that. But there clearly is an effort to be more pragmatic in severe diseases where there -- certainly where there are currently no treatments, but also where there's marginally adequate types of treatments available. And I think that, that's a sensible strategy, and they're talking about shortening the review time lines from 12 months to a couple to a few months, and that's very positive for us. As you know, our general strategy also is to invest in assets that are within at least 3 or 4 years of a potential approval. And we sometimes will invested in Phase II. That's where we originally invested at Palvella. And in those situations, we rely heavily on third-party data. For example, off-label use of rapamycin in some of the conditions that Palvella is currently exploiting had existed prior to that investment. So there's real-world evidence of efficacy and safety, even though it was, for us, an earlier-stage asset. So we view that as derisked, but it still had the full time line to march through. Now on top of being able to take advantage of those types of repurposed and derisked assets, we also potentially, in general, can be looking at shorter time lines for approval and review. Operator: And the next question comes from the line of Jayed Momin with Stifel. Jayed Momin: This is Jayed on for Annabel. Congrats on the strong quarter. I have 2 questions. One, is there any additional color you can provide for the ZELSUVMI launch? I know you talked about it a bit, but is there -- what do you expect going forward over the next couple of quarters? And then my second question is if there's any other details you could provide for the Arecor transaction, specifically for AT292 that's being developed by Sanofi. What does the royalty rate look like? Any details there would be helpful. Todd Davis: Sure. I'll cover the ZELSUVMI launch, and you'll be disappointed with the additional information I can't share because I can't share much more. And then I'll have Lauren discuss AT292 and our arrangements there. In terms of the ZELSUVMI launch, they're reporting, I think, on the 13th, where you will get a lot more information. We just followed a general script data. And I can tell you from our perspective, that's encouraging. That's something that analysts and everybody else has access to as well. But they haven't changed their guidance yet going forward. I think that -- the general guidance they've offered at this point, which is sensible early in a launch because launches are very hard is peak sales of $175 million. And in general, I think that's conservative. The management team there is appropriately conservative at this point in the launch. But there will be a lot more specifics available for that on the 13th when they have their earnings call. And with that, I'll hand it off to Lauren just to discuss the Arecor and AT292. Lauren Hay: Great. Thanks, Todd. So sure, thanks for the question. On AT292 or efdoralprin alfa, we're really excited about that asset. We view it as being highly differentiated versus the standard of care. This is a treatment that is designed for patients with alpha-1 antitrypsin deficiency. It was licensed to Inhibrx and then acquired by Sanofi in 2024 for $1.7 billion. So clearly, they have a lot of conviction around the asset as well. What's differentiated about it is that we're seeing a potential movement from plasma-derived to recombinant treatments and also a much more convenient dosing regimen for patients. And then as Todd mentioned in his remarks, we were really encouraged to see the Phase II potentially pivotal data released by Sanofi, which was very positive just last month. So we're really encouraged by the progress of this asset in the very short time since we've closed this transaction. And then with regards to the royalty exposure here, these are actually technology access fees, and that's what we're able to disclose in terms of what we will receive on this asset. So thanks for the question. Operator: And the next question comes from the line of Sahil Dhingra with RBC. Sahil Dhingra: This is Sahil for Doug. My first question is related to the competition. Have you seen any changes in the competitive landscape for royalty assets as it relates to either on the market products or products that are in clinical stage? And then I have a follow-up. Todd Davis: Sure. Yes. Just not yet. I think there will be people interested in this space because it makes so much sense. I think that this is a very, very logical place for royalty capital to focus on, and I thought that for a long time. But there was a lot of inertia around the initial funds because they were funded mostly by large debt allocators like pension funds that were following debt metrics and wanted debt levels of risk. So you really couldn't go into the development side. So I think that will change over time. Our view is that there will be competition. We haven't seen any yet, frankly. We haven't been competitive in very many deals at all. Most of the folks that do development stage clinical investing are much, much larger than we are. That's one component of it. And then the other component is that in excess of $12 billion of royalty capital that is available, the very significant majority of that is focused on commercial stage assets as opposed to development stage assets. Sahil Dhingra: That is helpful. And then my follow-up question is related to the recent approval of Lasix ONYU, the product where you have royalties. How do you see that product versus the existing products in the market, specifically FUROSCIX that is marketed by scPharma, which was recently acquired by another company, MannKind. And we also saw a recent approval of a nasal spray in the same category. So could you speak to what are your thoughts on the product and peak sales potential for that product? Lauren Hay: Sure. Thanks for the question. So yes, we were really encouraged to see the full approval for our partner SQ Innovation. And I think the existing product kind of has validated the potential for moving the treatment from the inpatient setting to the outpatient setting. And there's a lot of kind of macro momentum around trying to get patients out of the hospital more quickly kind of across the health care spectrum. And so we're really encouraged to see patients have another treatment option, and we believe that it's differentiated in several ways, including the size of the device and just sort of the convenience for patients and the commercial rollout strategy. So we'll look forward to seeing more. At this point, there's no information regarding guidance or anything like that, but we view this product as a very positive introduction into the marketplace. Operator: Thank you. And this does conclude our question-and-answer session. I would like to thank our speakers for today's presentation, and thank you all for joining us. This concludes today's conference call. You may now disconnect.
Operator: Good afternoon, and welcome to the Qnity Business Update Conference and Webcast Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I will now turn the call over to Nahla Azmy, Vice President of Investor Relations. You may begin. Nahla Azmy: Thank you. Good afternoon, and thank you for joining Qnity's business update call and a review of our estimated third quarter 2025 results. This morning, DuPont reported its third quarter performance, including the Electronics co-segment results, which do not include our full allocation of corporate costs or pro forma adjustments. Qnity's earnings are not yet final, and our remarks today are based on estimated pro forma results and carved financials. We anticipate releasing our full earnings results mid-November when we file our Form 10-Q, including posting additional supplemental information to the IR section of the Qnity Electronics website. I would like to bring your attention to Slide 2 in our presentation, which notes that we will be discussing forward-looking statements. These statements represent our best view of predictions and expectations for the future, but numerous risks and uncertainties may cause actual results to differ from those provided. Additionally, we will be discussing certain non-GAAP financial measures. The reconciliation of these non-GAAP financial measures to the closest GAAP measure can be found in the appendix of the presentation. As for the agenda, we will start with formal remarks by Qnity's Chief Executive Officer, Jon Kemp; and Chief Financial Officer, Matt Harbaugh. We will then follow with a Q&A session. Now it's my pleasure to turn this over to Jon Kemp. Jon? Jon Kemp: Thanks, Nahla. Good afternoon, everyone. Thanks for joining us. It's an honor to speak with you today for the first time as CEO of Qnity following our spin on November 1. This moment marks more than the launch of a new company, it's the beginning of a bold chapter. I want to take a moment to thank DuPont, our Board of Directors and the Qnity team whose dedication, vision and hard work made the spin and successful launch of our new company possible. Over the past few weeks, Matt and I met with many of you. Thank you for the opportunity to share Qnity's compelling story and for your insights and support, as we crossed the finish line for the spin. While the company is new, it's built on more than 50 years of technology and innovation leadership and our deep and lasting customer relationships continue to be one of our greatest strengths. Over the past few months, I've had countless conversations with customers around the globe from chip fabricators to leading OEMs. And what's clear is that Qnity is seen as a trusted partner with the scale and technical depth and breadth to enable their next-generation technologies. We've worked hard to earn their trust and their confidence, and it's a testament to the impact our teams are making. It reflects the depth of our commitment to delivering the latest technology innovations at an exceptional level of quality, coupled with both speed and reliability. Let's turn to Slide 4. As you can see, we've had a big week. As planned on November 1, we completed the spin and launched Qnity as an independent pure-play electronics company focused on solutions for the semiconductor value chain. On November 3, we started regular way trading on the New York Stock Exchange under the stock ticker Q, and we joined the ranks of the S&P 500. When we spoke to you at Investor Day in September, we told you about our strategic path and operating model to achieve above-market growth and strong profitability. The third quarter results we're sharing today are solid evidence of our ability to stay focused and continue to execute during transformational change while also delivering for our customers and driving consistent financial performance for shareholders. We've delivered 6 consecutive quarters of sustained strong organic growth. We're continuing to build momentum and invest in the fastest-growing, highest margin areas with a robust innovation pipeline, a true competitive advantage. And we're making meaningful progress shaping a culture that keeps us focused on what truly matters: our customers, innovation, speed and our people, empowering us to deliver with purpose and agility at a pace our customers require. With that foundation, let's dive into our third quarter performance, where the results speak to the power of our execution and the value we are creating. We had solid third quarter results driven by AI-related customer demand from advanced nodes, advanced packaging and thermal management. On a year-over-year basis, net sales were up 11% at about $1.3 billion, with organic growth up 10%. Our results include spin-related timing adjustments on orders contributing to a 3% lift in the quarter. Our estimated adjusted pro forma operating EBITDA was up 6% in the quarter year-over-year, which equates to an estimated 29% margin. These preliminary results reflect the strength of our portfolio and the continuing wins in leading-edge innovation we're delivering to customers, making us their partner of choice with a broad range of offerings and deep application engineering expertise that enable true end-to-end solutions. Based on the strength of our third quarter results, we're raising our 2025 full year net sales guidance to $4.7 billion. We're also reaffirming our estimated adjusted pro forma operating EBITDA of approximately $1.4 billion and margin of roughly 30%. Before I turn things over to Matt, let me cover a few macro trends we're seeing broadly across the industry. The semiconductor market recovery continues to be fueled by the adoption of leading-edge technologies for AI applications, including advanced logic, high-bandwidth memory, advanced packaging and thermal solutions. We believe customer utilization rates have improved slightly since last quarter, averaging in the high 70% range, led by advanced logic in the high 70s and DRAM in the mid-80s. More recent customer feedback suggests slow improvement in mature logic, although still in the mid-70s. And while NAND commentary has improved, overall utilization has remained steady, also in the mid-70s. MSI wafer start data remains a good indicator for Qnity's demand, given that about 90% of our portfolio is made up of consumable products that are used with every unit produced. We expect MSI to grow mid-single digits this year. We continue to outperform wafer starts driven by our leadership position in next-generation technologies, such as CMP pads, cleans and slurries; advanced packaging with metallization and substrates; and thermal applications at the chip, package and device level. With strong company performance and improving semiconductor demand signals, let me turn the call over to Matt to share a more detailed look at our third quarter preliminary results. Matthew Harbaugh: Thanks, Jon. Today's preliminary results reflect anticipated recurring stand-alone public company costs, carve-related items and management adjustments similar to prior quarters disclosed in our Form 10 and the accompanying supplemental information. These reconciliations and bridges will provide a clear view of our underlying performance and the impact of our ongoing transition to a stand-alone public company. In the third quarter, we delivered net sales of $1.3 billion, up 11% year-over-year with 10% organic growth and 1% benefit from currency. The major drivers fueling this growth were advanced nodes, advanced packaging and thermal management, including AI-driven applications. In addition, order timing contributed approximately $40 million in net sales from the fourth quarter into the third quarter in advance of our IT systems transition prior to the spin. Sales in the Americas and Asia were very strong for the quarter in both segments. China net sales in the third quarter were 31% and flat versus third quarter 2024, in line with normalizing trends. Preliminary adjusted pro forma operating EBITDA for the quarter is estimated to be approximately $370 million, up approximately 6% year-over-year, including a 2% currency headwind. EBITDA margin was approximately 29%. While volume growth was strong, margin expansion was tempered by net sales mix where interconnect solutions grew faster than semiconductor technologies, but at lower average margins in the mid-20s as a percentage of net sales. Additionally, we made selective growth investments to improve both R&D and supply chain capabilities. Let's shift to our business segments on Slide 6. The Semiconductor Technologies segment posted $692 million in net sales with volume growth of 9% and estimated adjusted pro forma EBITDA margin in the mid-30s. This was led by end market demand strength, as we benefited from content gains in advanced nodes, share gains and improved customer utilization rates, as Jon mentioned earlier. Our Interconnect Solutions segment delivered higher-than-expected net sales of $583 million with volume growth of 15% and estimated adjusted pro forma EBITDA margin in the mid-20s. This growth was led by strength from AI-driven technology ramps, including advanced packaging, high layer count PCBs and thermal solutions for data centers in addition to growth from other industrial end markets such as aerospace, defense and automotive. While the broader semiconductor market is still recovering, we saw accelerated growth across several parts of our Interconnect segment, highlighting the strength of our portfolio diversification across the entirety of the semi and advanced electronics value chain. As we look ahead, our fundamentals remain strong. 2/3 of our portfolio is directly tied to semiconductors, including chip fabrication, advanced packaging and thermal management. About half of our net sales are driven by chip fabrication, where we are already a key player, especially in areas like CMP pads, cleans and slurries as well as lithography materials. These areas are critical enablers of AI, high-performance computing and advanced connectivity, and they will continue to fuel our growth. To ensure our results are transparent and comparable, we will provide detailed reconciliations between our results from the third quarter as a business segment within DuPont, bridging to our pro forma adjusted operating EBITDA for Qnity at the time of our 10-Q filing in a few weeks. Now let's turn to the fourth quarter and our full year guidance. While our third quarter net sales were exceptionally strong, it's important to remember that approximately $40 million of the third quarter strength was accelerated due to IT-related order timing ahead of the spin. Considering this a timing effect, our organic growth rate for the third quarter was closer to 7%. Moving forward to Slide 7. On a full year 2025 basis, we are guiding to approximately 9% net sales growth. This outlook reflects our confidence in continued electronics market recovery and our strong execution, but also incorporates a prudent normalization, as the temporary third quarter timing shift will not repeat. As Jon highlighted earlier, today, we are updating our full year guidance to $4.7 billion in net sales and reaffirming the estimated $1.4 billion in adjusted pro forma operating EBITDA, representing 9% top line growth, consistent with above-market growth and an estimated 10% EBITDA growth year-over-year. Adjusted EBITDA margin as a percentage of net sales outlook remains at approximately 30% with continued momentum expected from strong top line growth, mix improvements and productivity initiatives. As I wrap up, I'll leave you with this: As an independent company, Qnity is well positioned for growth. We have a resilient business model, a strong balance sheet and a clear strategy for value creation. With that, let me turn it back over to Jon for his final thoughts before we begin the Q&A. Jon Kemp: Thank you, Matt. We're proud of the strong third quarter results we've delivered, thanks to the dedication of our teams and the clarity of our strategy. Over the past few months, I've had many energizing conversations, and I want to take a moment to share why I'm so confident in Qnity's future. With our leading-edge technology, deep customer relationships and our global network that provides local-for-local flexibility, we're well positioned to build on this momentum to support our customers' ongoing growth. Leveraging decades of innovation and leadership, you can see on Slide 8, we sit at the heart of the semiconductor value chain. Our portfolio allows us to play a critical role across nearly every stage, including chip fabrication, advanced packaging, PCB builds and assembly and display solutions. We've built trusted relationships with leading global companies that represent nearly 80% of the market. Our top 10 customers have partnered with us for an average of 35 years and 7 of the 10 rely on solutions from both segments, underscoring our reputation as a partner of choice. Turning to Slide 9. Another key strategic advantage underlying our performance is our local-for-local approach. Our manufacturing and R&D facilities are located close to customers, enhancing customer intimacy, strengthening supply chain resiliency and increasing agility to ensure consistent, stable supply. With this footprint and local engagement model, we offer the best of both worlds, close customer collaboration backed by capabilities at scale. As I wrap up on Slide 10, let me highlight our key priorities moving forward. We'll execute Qnity's strategy to drive continued growth by investing in innovation and partnering with customers. We also plan to further optimize our footprint for both cost and complexity, and we will deploy capital to high-value opportunities. With a foundation built on decades of experience, Qnity's strategic vision and performance will continue to build value for our shareholders, customers and our team. We look forward to updating you on our progress and engaging with you in the weeks ahead. Operator, we're ready to take questions. Operator: [Operator Instructions] And we'll take our first question from Jim Schneider with Goldman Sachs. James Schneider: I was wondering if you could maybe comment on the sort of high-performance compute and AI segment of your business? Maybe quantify what that was in the quarter? And then if you were to take that in isolation, how fast do you expect that segment to grow or that business to grow over, say, the next 3 years structurally? Jon Kemp: Yes, Jim, thanks. Obviously, a lot of the growth that we're seeing is coming from the AI high-performance segment. As you think about it, it's one of the several segments in our portfolio. It's worth -- as we talked about at our Investor Day, it's about 15% of the total portfolio. It's obviously growing nicely this year, really through a combination of offerings across both segments within our portfolio, including advanced nodes across both logic and memory as well as advanced packaging capabilities and high layer count printed circuit board. So really nice diversity of applications going there. I think, as I said before, it's 15% of the portfolio today. It is growing nicely. We talked -- the data centers and advanced packaging, we talked about at Investor Day that growing at the high single digits. I think we're a little bit above that this year, but we expect that to continue to be a strong growth driver through the remainder of this year and into next year going forward. James Schneider: And then maybe if you could help us in terms of framing the business and the seasonality you typically see into a normal Q1. You've given us enough data points in Q4, but I'm just kind of curious how you think about the seasonality specifically in Q1? Normally, what you expect this year? And then maybe any additional help on seasonality as we model out 2026. Jon Kemp: Yes. Thanks, Jim. If you go back and you look at kind of the history of the business, there's not a ton of seasonality to it. There's a little bit of seasonality where you start kind of from a low point in the year in Q1 and then you increase sequentially into Q2 and then you have kind of a modest peak in Q3 and then you kind of drop sequentially a bit in fourth quarter and then into the first quarter and it starts again. But these are not huge fluctuations. It's really driven a little bit more by the Interconnect segment because there's not much seasonality at all in the semiconductor segment. Matthew Harbaugh: And I just want to echo -- this is Matt. I want to echo what I said in my prepared remarks. As you're thinking about the quarterly flow, I want you to think about the $40 million that came into the third quarter that would have come into the fourth quarter on a natural basis. Operator: And we'll take our next question from Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Congrats on a strong quarter as a public company. I guess, first of all, it sounds like your growth was about 7% year-on-year in Q3 ex the onetime event, but your EBITDA growth was in the 6% range year-on-year. Maybe you can just kind of highlight how that EBITDA growth should ultimately get to maybe a higher level than sales growth? I think you were guiding maybe to 6% to 7% sales growth longer term and 7% to 9% EBITDA growth. So should we see a little bit more operating leverage come into the model in future periods? Matthew Harbaugh: Well, thanks for your comments around a strong quarter. The way we think about it is we did have higher sales in Interconnect Solutions. Therefore, the margins there are in the mid-20 range, EBITDA that is. And semiconductor was a bit under that. So we had a mix shift that was going on. You'll see in the release the last page, we outlined what the currency effect was on the quarter from a top line perspective. I encourage you to keep that in mind as well. And then we did make some strategic investments in the business during the quarter to set ourselves up well for future quarters and years. Jon Kemp: The only thing I would add there, thanks Matt, is -- the only thing I would add there is, we remain confident that as we drive additional volume growth, we'll continue to see the operating leverage that we talked about at the Investor Day. I would also just mention third quarter last year was an exceptionally strong quarter. It was actually our best margin quarter going all the way back to mid-2021. Matthew Harbaugh: No, I was just going to make a final comment. I know you didn't really ask about the full year. But I just want to highlight, if you look at our financial estimates that we reaffirmed, we still see good strong underlying profitability in that roughly 30% range EBITDA. Arun Viswanathan: Perfect. And just one follow-up would be on the investment side, you mentioned some organic investments and very strong growth in that 15% AI and advanced HPC area. Do you kind of feel like the capacity there you have is sufficient? Or how do you plan to address kind of future capacity needs if that area continues to grow above expectations? Jon Kemp: Yes. Thanks for that. We've been continuously investing in our portfolio, both from an R&D point of view as well from a capital point of view. Over the last -- most of our capital investments, just to size it for you, R&D is kind of the 7% of net sales and CapEx is kind of 6% of net sales. So in aggregate, kind of that 13% of net sales reinvestment in the business. Over the last 3 or 4 years, we've added capacity to every single one of our semiconductor businesses, planning for kind of the electronics market recovery and coming out of some of the challenges that the whole industry faced during the pandemic. So from a capacity point of view, we're in really good position to be able to support the continued electronics market recovery, and that's contemplated kind of within our guidance range on reinvestment. And then we're really focused on partnering with our customers on exciting node migrations and node transitions over the next couple of years. We typically are working on node transitions that are 2 to 3 years out from now, while we're scaling up the node transitions that we want from investments that were taking place in 2023 and early 2024. Operator: And we will take our next question from Melissa Weathers of Deutsche Bank. Melissa Weathers: Congrats on the official spin-out. I'm sure it's a ton of work. So I guess, I wanted to touch on the cyclical side of things. I really appreciate the utilization numbers that you gave across the different semis end markets. So given those utilization levels, can you give us a preliminary, I don't know, sneak peek? Or I guess, what are your assumptions going into 2026 in terms of revenue growth, wafer starts? Do you think that those utilizations will increase? Just any like sneak peek on 2026 would be helpful. Jon Kemp: Yes. Thanks, Melissa. I appreciate that. As I mentioned in my prepared remarks, we're seeing wafer starts in the mid-single digits for this year, although we've kind of characterized it as being in the early stages of the recovery with most of the strength really coming from advanced logic and DRAM. I think there's still a bit of uncertainty around forecast for next year and the pace of the recovery around both mature logic as well as NAND. As I talked about, we were encouraged by some of the improving utilization rates, particularly in improved -- in mature logic. And we're optimistic that we'll see kind of a return to higher growth rates there, as we move into next year. But I think it's a little bit too soon to call exactly what that's going to look like in terms of quantifying it. What I would say is that as the market recovers, we're -- 35% of our portfolio is exposed to advanced nodes. And that's really what's driving the growth. As we get stronger recovery into the other parts of the market, we'll continue to support the market outperformance above the wafer starts. Melissa Weathers: Got it. And then for my follow-up, I wanted to ask on the advanced nodes side of things. I think in your deck, you called out node transitions at these advanced nodes. And so in the context of like 2-nanometer gate-all-around nodes that are ramping late this year and then all throughout next year, can you help us size the content opportunity that you guys are seeing? I think you also got maybe some share gains on that side of the business. So any way to help us think about like gate-all-around that transistor shift in the foundry logic space as we move into 2026? Jon Kemp: Yes. So obviously, we're really excited by the investments and the pace of the logic transitions -- logic and memory transitions. We're well positioned kind of across both logic and memory for future migrations, whether that's in the logic space with 2A or -- with 2-nanometer or 18A transitions or things that are happening on the DRAM side as well. We're excited by that. We've been continuously making investments with our customers, particularly in kind of on the front end of the fab in places like our CMP portfolio with pads, cleans and slurries as well as in the advanced packaging part of the portfolio with the metallization substrates and thermal materials. And we're excited as we've already -- we've seen the benefit of some of those ramps this year that's really allowed us to perform at the levels that we reported. And then as we continue to see more wafer starts start to come into those advanced nodes, that will create even more opportunities for us, especially in CMP. When you go to gate-all-around, the process complexity continues to drive an increased sensitivity to the smoothness of the surface of the wafers as you're trying to manage the architecture of the device that results in more CMP steps and more opportunities for kind of our leading portfolio of CMP solutions. On the memory side, similar opportunities for CMP, but then also the high-bandwidth memory transitions that creates opportunities for advanced packaging, where we're going to see continued opportunities and growth for metallization substrates and thermal, which is kind of where we've seen the most benefit from the share gains this year. Operator: And we'll take our next question from Bhavesh Lodaya with BMO. Bhavesh Lodaya: Congrats to the full team here. So as a stand-alone company, I presume it's now easier for you to review your business mix and operations here, makes big nimble changes. You mentioned footprint optimization. Could you share early thoughts on what that could look like? Does it also include potentially divesting some platforms, reinvesting in something else, like changing your mix? Any color there? Jon Kemp: Yes. So I'll maybe start in reverse order. I'll talk a little bit about how we think about the portfolio and then let Matt talk a little bit about things on the cost side of the house. When we look at our -- when we think about our portfolio, we're really happy with our portfolio. It's continuing to perform very nicely. I think we've talked about before, we continue to be very interested in pursuing opportunities for inorganic growth and some targeted areas like thermal management, advanced packaging, areas where there would be attractive strategic adjacencies with adding additional technologies to our portfolio. We've got a nice set of strategic and financial criteria that we use to evaluate that. And we're really focused on establishing a steady, consistent cadence of performance. And then as we get into next year, we'll look at what opportunities might be available and how we continue to build out the complementary strength into the portfolio. As you think about how we've been managing the portfolio over time, we always evaluate our portfolio based on from an ROIC point of view and based on the potential returns. And you've seen us do a handful of product line trimming over time, and we'll continue to use that same logic to evaluate the portfolio and make adjustments as necessary. Matt? Matthew Harbaugh: Yes. Thank you, Jon. I think the easiest way for me to answer your question is kind of to do a walk down the P&L. Obviously, you know our viewpoint on net sales. We've talked about that a lot of late. So let's talk about our cost of goods sold. Our team has done an excellent job in taking cost out over time, and we expect that to continue. So we'll see some improvement there. And we'll continue to operate the company and focus on operational excellence and flexibility. Where our opportunities are probably greater would be in the SG&A category, and we're going to look at our footprint and see how it aligns with where the business is going to unfold in the coming years. We have a big effort to reduce our complexity in IT systems, and we're also looking at legal entities and warehouses as well. So a number of opportunities there. As Jon said earlier on the call, we're going to look to optimize our R&D spend, but keep it at that 7% level. So that should give you some color around how we think about it. We haven't quantified the cost takeout, but we certainly know that, that's a real important area to focus on in the coming weeks, months and years. Bhavesh Lodaya: Appreciate that. And then as a follow-up, Interconnect Solutions continues to grow at double digits here. Can you touch on how advanced packaging and thermal solutions is growing within that? And if possible, any early look into 2026 growth rates? Jon Kemp: Yes. So obviously, the strength of the Interconnect segment is being driven by advanced packaging and thermal. I would say we saw growth accelerate off of the first half of the year in both of those areas nicely, as we saw additional opportunities to scale up some of the wins and some incremental capacity become available. We saw some of those growth rates accelerate into the third quarter. As we get additional capacity available for these different technologies, we would expect to be well positioned to continue to participate in the growth as we see more wafer starts and more volumes come to these technologies. Operator: And we will take our next question from John Roberts with Mizuho Securities. John Ezekiel Roberts: Your trend line growth targets are for semiconductors to grow faster than the Interconnect segment. How do we think about that being flipped here in the recent results? Jon Kemp: Yes, it's a great question. So typically, I would -- the Interconnect segment has had a lot of opportunity to grow because of the significant increases in advanced packaging and thermal, while the mature node part of the semiconductor business has struggled a bit, and that's created kind of an abnormal flip of growth rates where the Interconnect business has seen accelerated growth, whereas we've still demonstrated strong growth from the semiconductor portfolio. But as we start to see broader recovery across the semiconductor market, I think it creates opportunities for us to see further growth from the full complement of technologies and customers in the portfolio as opposed to kind of what we're seeing today, which is mostly driven by the advanced nodes. John Ezekiel Roberts: And then how will we get additional financials like the full balance sheet, full income statement? I'm not sure what your requirements are to file here. Matthew Harbaugh: Yes. As Nahla mentioned in the prepared remarks, we will be filing in a couple of weeks, and we'll give you as much color as we can give you. So stay tuned. Operator: And we will take our next question from Chris Parkinson with Wolfe Research. Christopher Parkinson: Jon, even before the actual spin was announced, there were what many would classify as a bunch of false starts in terms of the recovery and kind of different ways to think about lagging edge memory, especially for the HBM, obviously ripping to the upside. I mean, as it appears things are turning fairly convincingly, including a lot of customer commentary last week, what -- is there anything you could point to that feels different in terms of the sustainability of the said recovery and how we should be thinking about building a little bit more confidence for '26 and perhaps even '27? Like what's different now versus 6, 12, 18 months ago? Anything specific that jumps to you? Jon Kemp: Yes, Chris, maybe 2 things that I would point to. First of all, I think the industry is comfortable that inventory positions are cleared and that we're in a really healthy place from an inventory point of view. And that's -- I think that digestion took longer than anyone expected, but I think we're in a really good spot right now. And then the other thing I would say is this is the first that we've talked about it for a while, but I think this is the first time I've made comments where mature logic utilization rates have actually started to trend in the positive direction. So we've already started to see those utilization rates kind of trend up a little bit. Clearly, there's room for a lot more improvement from where we're at today, but it's the first time that we started to see those utilization rates start to tick up across the customer base. So those are kind of the 2 things that I would point to that give me more confidence. And then I would just say that a lot of the rest of it depends on some of the macro factors in the broader economy because a lot of those chips, as you know, are going to automotive and other applications in the broader industrial economy. Christopher Parkinson: Got it. And just as a quick follow-up, you've had a lot -- I'm sure you're exhausted. You've had a lot of conversations with both the buy and the sell side over the last several months. What are the 1 or 2 most consistent areas of feedback that you're receiving? Is it about just, hey, just deliver results? Is it something on capital allocation, M&A, more focus on products and explaining those and getting kind of the idea of content and process steps across to The Street? Just what would be the 1 or 2 things that really stuck out to you basically saying like I need to do this as an independent company's CEO? Jon Kemp: Yes. Thanks, Chris. I think -- again, I'd say there's probably 2 things. First of all, the conversations that we've had over the last several weeks have been terrific. I've really enjoyed the opportunity to get to know many of you, many of the folks in the investor community. It's been a real pleasure to be able to tell the Qnity story. I think the 2 pieces of feedback that we've heard pretty consistently is the importance of just focusing on steady, consistent results kind of set the guidance and then beat the guidance and that's certainly where we're focused as a management team is consistently delivering on the results to drive -- continue to drive the customer partnerships and deliver for our customers, maintain that business continuity. That's one of the things that I'm most pleased about. Even during all of the extra efforts around the spin process that we continue to deliver all of the customer orders and capitalize on opportunities for technology-driven growth, and we continue to have really nice win rates in the innovation portfolio. So job #1 is really kind of steady, consistent results and performance. I think the other thing that we've heard is a little bit, as people are starting to become more familiar with the portfolio, is really the way in which the 2 segments really kind of naturally fit together that I think has surprised a lot of people as they've gotten to understand. I think the semi segment was really well understood. There seems to be a lot of solid understanding around what that segment is all about. I think as people have gotten to understand the Interconnect segment and the benefit of advanced packaging and thermal solutions, the overlap across the customer base and the convergence of the technology road maps, I think the power of that integrated solutions and portfolio has really surprised a lot of people. And we've received a lot of questions around kind of how we're leveraging technologies broadly across the market to continue to drive new growth opportunities. Operator: And we will take our final question from Alex Yefremov with KeyBanc Capital Markets. Aleksey Yefremov: Congrats. I wanted to ask you about advanced packaging. We talked about node transitions in semis. Is there a similar dynamic where your customers are adopting new technologies where you can gain content and accelerate growth even more perhaps over the next 12 to 18 months? Jon Kemp: Yes. Alex, I think a lot of the growth is -- we're going to see continued investment in growth from the existing technologies that we see today internally. CoWos or CoWos-like packaging on the logic side and then the migrations from whether it's HBM3 to 3E to HBM4, you'll see those migrations continue to proliferate over the next 12 to 18 months as we bring on more capacity into those kind of known architectures. And then I think there's other incremental opportunities that we're pretty excited about in things like where we're working with customers on opportunities like hybrid bonding or even potentially panel-level packaging. Probably a little premature to call when the timing of that would be, but we're certainly excited to continue to work with customers on their technology road maps with some of these more emerging packaging technologies. Aleksey Yefremov: And then I think you gave explanation why sales grew faster than EBITDA this quarter. Is this the type of picture we should expect for the next few quarters or should it revert to sort of more typical EBITDA growth faster than sales over the next quarter or 2? Jon Kemp: I think this is a little bit of an aberration. The currency dynamic and some of -- the mix dynamic and currency dynamic, the 3 factors that Matt alluded to earlier, I think, are a fairly unique situation. I wouldn't expect those to be structurally ongoing. So I think we see kind of a reversion to our usual typical cadence of performance that we talked about at Investor Day here going forward. Operator: And we have reached our allotted time for questions. This concludes the call and webcast. You may disconnect your line at this time, and have a wonderful day.
Operator: Good morning, ladies and gentlemen. Welcome to AXIA Energia's Third Quarter 2025 Earnings Call. Joining us today are the following members of our executive team: Mr. Ivan de Souza Monteiro, CEO of AXIA Energia; Mr. Eduardo Haiama, Executive VP of Finance and Investor Relations; Mr. Antonio Varejao de Godoy, Executive VP of Operations at Security; Ms. Camila Araujo, VP of Governance, Risk, Compliance and Sustainability; Mr. Elio Wolff, VP of Strategy and Business Development; Mr. Italo Freitas, Vice President of Commercialization and Energy Solutions; Mr. Juliano Dantas, VP of Innovation, P&D -- R&D, Digital and IT; Mr. Marcelo de Siqueira Freitas, Executive VP of Legal Affairs; Mr. Renato Carreira, VP of People and Services; Mr. Robson Pinheiro De Campos, VP of Expansion Engineering; and Mr. Rodrigo Limp, Executive VP of Regulation, Institutional and Markets. We would like to inform you that this call is being recorded, and it will be made available on the company's IR website, along with the presentation being shared today, both in Portuguese and English. [Operator Instructions] Before we proceed, we would like to clarify that any statements that may be made during this conference call as to the company's business outlook, projections, operational and financial goals are based on beliefs and assumptions of AXIA Energia's executive management's as well as information currently available. Forward-looking statements are not guarantees of performance as they involve risks and uncertainties and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions and other operational factors may affect the results expressed in such forward-looking statements. I'll now turn the call over to Mr. Ivan Monteiro, CEO of AXIA Energia. Please go ahead, Mr. Monteiro. Ivan de Souza Monteiro: Good morning, everyone. Welcome to our earnings call for the third quarter. Ever since the beginning, we aimed at building an efficient company, transparent company with predictable results aimed at serving its customers. The highlights for the quarter are an indication of this goal, record compensation for shareholders, additional BRL 4.3 billion adding up to those BRL 5 billion we had announced previously. This was only made possible through the derisking process ever since the capitalization process. We have greater generation margin along the lines of building a company focused on customers, teams in place with robust processes in place that will allow us both financially and commercially capture the benefits of this higher margin, continuous management of our portfolio. And we are divesting in EMAE and Eletronuclear after the Candiota thermal power plant and again, in the gas thermal plants, adding up to the sale of our stake in Santa Cruz. Eletronuclear is an indication of divesting our presence in nuclear power plants that started out with an agreement with the government, and we were not obligated to keep on investing in Angra 3. The acquisition of Tijoa adds up to several asset disentanglement operations we've been putting in place in the past 2 years. We are proud of this growth on investments, record highs between BRL 2.5 billion and BRL 3 billion. We are reaching a record reaching BRL 10 billion this year, focused on operational efficiency and an active participation of auctions. Just like we've seen in the last or the latest auction, we were awarded 4 lots. I would like to thank you very much for attending, and I'll turn it over to our CFO. Eduardo Haiama: Good morning. On to Slide 7, please. Let me point out the financial highlights. First, with the revenue, there was a decrease both regulatory as was the capital, but 3 highlights. #1, in transmission, there was an increase in revenue. After the tariff review of '24, '25, there was a major impact. We no longer have that as of this quarter. But in generation, just like Ivan mentioned, this has also impacted revenue in generation as well as that one-off effect by extending the Tucurui contract last year. As to the EBITDA impact, these impacts are smaller. On the regulatory side, there was a small or a slight decrease of our EBITDA. That was the divestment of the thermal power plants. They were offset by our PMSO reduction and also because of the increase of the revenue from transmission. On to Slide 8, net income. Now let's address that from the company point of view. The reported net income was a lot smaller than Q3 of last year, driven by the provision we had for the nuclear contract. And in the previous year, given the tariff review that posted a positive impact in transmission revenue. But when we look the numbers adjusted by these effects, we would have had a 68% decrease due to the effect of the sale of other assets that would impact the total number. On to Slide 10, energy trading. This is our portfolio as is today. We are operating in every region. This is the available energy and energy that has been traded in each of these markets, either through quotas or through the captive market through ACL. This will impact the energy we have available for the free market. On to Slide 11. That's the energy balance. We have boosted the hiring for '26 and '27. But let me point out that we are increasing, just like Ivan put it at the beginning, the increase in the number of customers. We are transforming the company to put even more focus on the end users. On to Slide 12, that's the contribution of our results. For the second quarter in a row, we've been having good results in commercialization. Just like we said in Q1. So we had low results here. Weak results would impact the results for the following year. And in Q4, you can see on the chart on your right, this is the amount of available energy to be traded in the free contracted or contracting environment. And we expect to have yet another strong quarter. On to Slide 14, capital allocation. The highlight is the signing of selling Eletronuclear, we will be receiving BRL 535 million for our stake. But there's more. We'll be releasing the guarantees that we had to take over and transfer that to Eletronuclear and the guarantees will be granted by J&F. And our debentures that we were committed to investor to invest in Angra 1 that would amount to BRL 2.4 billion. On to Slide 15 now. On top of Eletronuclear, we also signed our stake. We signed the sale of our stake in EMEA. The completion of the last thermal power plant we had, which was in Santa Cruz. And we also acquired 50.1% stake in Tres Irmaos, Tijoa Energia for BRL 247 million. On to Slide 16. This is the role the auction plays out. We were awarded the week before. So you can see the highlight on the table. That's the amount of the investment of BRL 1.6 billion and another BRL 140 million of RAP. Ever since we were privatized, when we add up all the investments already realized and yet to be realized, we have BRL 17.4 billion worth of investments with an increase of BRL 2.4 billion in the transmission revenue stream yet again indicating our competitiveness in this industry. On to Slide 17 now. When we combine everything that has happened ever since the last earnings call in which we announced BRL 4 billion dividend payment, signing of Eletronuclear sales, selling EMAE and the acquisition of Tijoa and our participation in the transmission auction and this announcement of a dividend payout of BRL 4.3 billion, everything is part of our capital allocation strategy. And this is how it plays out. On Slide 18, consistent deliveries, everything we've done to simplify the structure and bring risks down and it's an indication of the price resilience we are projecting for 2026, advances in energy trading. And of course, we are improving our long-term pricing model that is more comforting in a sense when you look at the financial status of the company in the mid and long runs. By doing so, we've approved additional dividend payout of BRL 4.3 billion to be paid out in December this year, adding up to BRL 8.3 billion in the fiscal year of 2025. By doing so, dividends, including what have been already paid out will be reaching BRL 4.01 for both PNA and PNB shares and BRL 3.65 for the ordinary or common stock and golden share. Finally, on Slide 19, let me address the ESG agenda. I would like to point out our partnership with Google Cloud to develop our weather forecasting system by using AI. We'll be expanding our capacity to predict extreme events and strengthen operational and energy resilience. We are taking good care of the water resources. We have just started works to protect the source of the Sao Francisco River, BRL 51 million investment in the Canastra Mountain chain reinforcing water conservation and environmental safety in one of the most iconic areas of our country. And I would be remiss if I failed to mention that we sold our last thermal power plant back in October. The company is now 100% generating clean and renewable energy. We stand out and we are leading the energy transition to accelerating the Net Zero 2030 goal. That concludes my part of the presentation. Thank you. Operator: We'll now have the Q&A session for investors and analysts. [Operator Instructions] Mr. Andre Sampaio from Santander asks the first question. Andre Sampaio: I have 2 questions actually. The first one is related to the price resilience for 2026. Can you elaborate the reasons behind that comfort that you feel? What could be the roadblocks for prices next year? And the second question is more from a more strategic point of view. You've been reducing risks, thermal power plants. I believe you have addressed most of those problems you had in the turnaround process since the privatization. Can you elaborate on what the next steps should be? There's the trading portion we're all familiar with. Is there anything else? Are you considering going back to the new market as a second step in that derisk process or derisking process? Ivan de Souza Monteiro: Thank you, Andre. As to the resilience, I'll turn it over to Rodrigo Limp. Rodrigo Nascimento: Well, thank you for your question. Despite greater volatility in shorter months, we've been monitoring that throughout the year. However, for 2026, prices are usually around 240, a little over that. As to rainfall, we have a wet season that has started already, but somewhat delayed. And now in November, we've received some rain in important basins. But based on the price model we have today closer to the operator -- operators that are risk averse, well, changing or the change of our matrix, a more flexible matrix and especially during peak times, that will bring average prices more resilient. Maybe 1 or 2 weeks on the short-term prices may come down. Those variations tend not to be as relevant for 2026. Ivan de Souza Monteiro: Thank you, Limp. Well, as to your second question, Andre, that process started from the capitalization. But day 1, after that capitalization, we had to deal with legacy contracts from the period in which it was a government-owned company. We had to wait for them to expire and then bring in new contracts. The best example, you mentioned it was the compulsory loans. The legal partner did fantastic work. We adopted a more active approach. We discussed that with the Board, and we're looking for solutions. We did not want to postpone anything or resort to the legal system. We wanted to address the problem. And we were very fortunate. This number is under BRL 12 billion, and we are heading in the same direction. This is something that we can manage. It's well known, and we are in a downward trend. Well, what we can expect down the road, the company will be completely focused on growing its business. We'll be paying close attention to the next auctions, just like we did in the transmission auction. You can expect active participation of AXIA Energia in the coming auctions. I hope I have answered your question. As to governance, of course, that will be discussed with the Board of Directors. Operator: Mr. Bruno Amorim from Goldman Sachs asks the next question. Bruno Amorim: Congratulations on the results. I have 2 questions actually as to capital allocation. My question is, is the company focus will be on looking for dividends to compensate shareholders through reinforcements and improvements? Or is there anything else that the company is considering for capital allocation for the near future? The second question is actually a request. I would like to know what the methodology was adopted for the dividend's payout. The way I understand it, your methodology tries to use net debt and EBITDA. As you gain confidence, you're getting close to that goal, you pay out dividends. My question is, to what extent that leverage includes as a factor to reduce net debt? Why am I asking this question? One of the reasons you gave us to pay out this dividend was the sale of some assets. So I want to understand the rationale behind it. When you announce the dividend, are you considering the assets that are available for sale will be sold? Or as they are sold, you can trigger more dividends to pay out? Ivan de Souza Monteiro: Thank you for your question. Well, not necessarily. We do not take into account assets that haven't been traded yet. That isn't the rationale -- that's not the rationale of the methodology. As to capital allocation, you're right. As the company starts -- well, we always had the impression we're lagging behind. Now we're more familiar with the risks that are inherent to the company and preparing the company to live with that risk more proactively with more alternatives, financially, operational solutions. Bottom line is that once we know that what the cash flow will be in the future, you have more room to allocate capital. I would like to give the floor to Elio. I want to hear his thoughts as to those M&A operations and our auction participation. And then Haiama can talk about the methodology a little bit more. Elio de Meirelles Wolff: Thank you for your question. Yes, in the recent past in terms of investment allocation and capital allocation rather for investment, we've been focusing on transmission. That's true. Our #1 focus is reinforcements and improvements. And the second point is transmission auctions. They've been very profitable. We've been involved more and more often. And the next one will be on -- in March next year. But the agenda will be including other topics. We have the capacity auction, again, in March 2026, we consider being there with some hydroelectric power plants, and the second half of the year, the auction for batteries. So our focus is to provide options for investments as we see an opportunity to allocate capital for this option, either through an auction or elsewhere, we've been increasing that direction. We want to simplify, but the agenda remains robust in '25, '26. There are some assets that can be used elsewhere, and we'll be pursuing those goals to generate even more value. Eduardo Haiama: Well, Bruno, let me explain how we make those simulations to understand how much capital we do have to allocate throughout time. M&A operations, for example, that haven't been finalized or they're only in paper. We're still considering it. These things are not included. We have to be conservative, be it when we spend or when you believe you're going to have that receivable. It works in both ends. Just like the energy price. Looking ahead on a midterm horizon, you include contracts that are actually signed. But everything that hasn't been signed, we will adopt conservative prices because that's how the methodology was put together so that the company can be robust all the time to face the volatility we see in the marketplace. So this is written in stone to us. We include several factors, just like we mentioned in the presentation, ever since the signing of the sale of Eletronuclear, Brazilian prices for 2026 as well as the acquisition of our stake in Tijoa, we can have better control of the cash flow of a company in which we have a stake in. Well, everything is put together so that we can feel comfortable to run a company like ours in that kind of environment. Operator: Maria Carolina Carneiro from Banco Safra asks the next question. Maria Carolina Carneiro: Let me go back to the question about capital allocation. You mentioned your participation in the auction on Friday. Can you give us more color as to the strategy of the auctions. It's not that common in Brazil. When we compare to other assets you've been developing, is there any synergy? Is there a possibility of anticipating some of these lots? We would like to better understand how attractive this lot is. What's your take on this opportunity? You've just mentioned that you may be part of the capacity reserve auction. Can you elaborate on that ordinance that will regulate this? Can you help us understand what assets can be regarded as competitive, if you can, please. Ivan de Souza Monteiro: Thank you, Carol. One of the great advantages of predictability of our cash flow in the future is, of course, to be able to participate in those auctions to capture all the synergies of existing assets and the assets will be built. We are awarded that and a better relationship with our top customers or suppliers. We can provide greater predictability as to what we will need and when suppliers, of course, can schedule their production accordingly. Let's now address the strategy of the previous auction and the position of the company for future auctions and our opinion about the ordinance or the RFP. Thank you for your question, Carol. The approach for transmission auctions is similar. We assess all opportunities, and we are very careful to make sure we're generating value to the group. This is key, and it was not all that different in this time around, in this auction. Not only in those lots that we were not awarded, we were still competitive. we were awarded 6, 6A, 7A and 7B. They are somewhat different, as you said. They have more equipment, less construction will be needed, and they are very competitive as a product. Let me try to give you more color. We look at the auction with a very positive outlook. The positive result brings us more than 2-digit return. We like to strive for mid to low teens, around 15% in a nutshell. Now in March 2026, we have similar products. We'll be learning from the previous auctions to come up with the best possible strategy. For the capacity auction on the other hand, we do not give any detail of the ones we are going to be taking part in. We have a very comprehensive portfolio, almost 6 gigawatt capacity. It's not what will qualify the auction, but 6 gigawatts can be implemented. That's our goal. Part of it will be implemented in March. That's our goal for that auction. This is how far I can mention. And now on to products. The '31 product is a very good alternative and additional option to sell excess capacity for our hydroelectric power plant. Yes, piggyback on Eduardo's comments, that public consultation would include just one product. Now we have the 2031 product, yet another opportunity to get a kick start on our projects. The granting power has realized that HPPs have become very important to provide flexibility to the system overall. Operator: Mr. Antonio Junqueira from BTG is up next. Antonio Junqueira: Questions about regulation and about the company. We've had the ordinance for the capacity auction and a new provisional measure. Considering the draft as is, what are the possible impacts you foresee in the next 3 to 5 years, marginal expansion costs, are the right incentives in place, if you were to come up with public policies, what changes would you make, especially in the 1034 ordinance? Ivan de Souza Monteiro: Well, thank you for your question. I'll hand it over to Elio. Elio de Meirelles Wolff: Well, that answer could last hours, but I'll try to be as brief as possible. In sum, that provision measure, our take on it is very positive. It will address the needs and it's heading in the right direction. The industry has many substantial distortions that impacted expansion, and it ended up generating several problems we're faced with now, energy reductions, among others. So that draft bill approved in Congress tries to address some problems with a positive approach, something that is very important, trying to reduce subsidies, limiting high production models. High production has a way different concept. Consumers wanted to resort to that self-production model to try to have more predictability. Today, the model is used not to pay taxes. There are some positive limitations, and this is something that the industry has to do to organize expansion, and that is price policies. So in that sense, that provision measure provides important guidelines. They're not only self-applicable. There has to be a methodology that has to be regulation, but it's heading towards that price policy that is more aligned with the actual needs of the system, such as the expansion of a need will be regulating, flexibility, availability concepts. Conceptually speaking, they are positive. But of course, they'll demand some fine-tuning. There was something else that we have been discussing for quite some time in the industry. It was mature enough, which was the complete opening of the market. I believe that this addresses these topics, especially sustainability of distributors and paying attention to consumers, both that won't migrate. It will be opening up by providing more flexibility, competitiveness, not only to come up with an account for the captive consumers and the time line. We believe it's appropriate to meet the needs of the system. There are a few items that will be more controversial that were included in that provisional measure. And I mean distributed generation. There was a proposal to charge the distributed production and during a plenary session in Congress that was removed from the draft bill. That distributed is not used with the price tagged to it, unlike decentralized projects. Today, after the approvals of those discounts that have been approved, you have that price indication so that we can have the green light for some projects. We believe there should be some modeling in place that can provide more rationality behind the expansion. And one of the most discussed topics in the industry is to the reimbursement of curtailment that will impact many generators today, for both wind and solar generators. A solution was tried, was attempted at least. The government will have the prerogative to increase 2/3 of the provisional measure, 1/3 for the commission and one -- well, they're not conflicting in nature, those 2 texts, those 2 drafts, but there are some contradictions. But again, this is a very important topic. The executive branch will come up with a solution to strike the proper balance, trying to what should be considered risks for the generator and what's not that could be carried over or transferred over to consumers. So the Congress tried to wear those lenses so that we don't want to allocate costs to consumers that could be better managed by the generators themselves. As to GD, do you believe that the break will happen only when we run into a serious problem, when you have that, can we do that without the regulation? Well, the text of the provisional measure chose not to charge for projects that are for distributed generation. You have to take into account the investments and you also have the CDE discussion that will, one way or another, impose limits for distributed generation. They want to strike a balance in the expansion. That was the goal. Operator: Mr. Gustavo Faria from Bank of America asks the next question. Gustavo Faria: I have 2. One is more operational, and the other one is more straightforward. My operational question is about the modulation gain from hydroelectric power plants. What is the trading market for that modulation hedging for other sources? Some traders say they have little liquidity for future markets as to the modulation. And the benefit is only for the past prices. My question is about what's your take on the liquidity? Do you believe there will be a spread for hydric? Can you give us some color as to what the price would be for future contracts, not only on the spot market? And my second question is about the recurrence of dividends payments. You've announced in Q2, Q3. My question is about the frequency of the coming quarters. Can we expect quarterly dividends payout? I think it would be better for the market to -- if we could have that understanding. Ivan de Souza Monteiro: I'll hand it over to Italo. He will talk about the modulation. Italo de Carvalho Freitas Filho: Thank you, Ivan. Limp, I think, can field the questions as to the current status of the modulating system. And then I can address the trading issue and the product we have in the market today. Rodrigo Nascimento: Well, modulation, just a while ago, maybe a year or 2 ago, it was not something noticeable. We've included a slide today to explain that so that we can actually quantify each one of these sources. Hydroelectric, for example, it's the source that can supply those times in which prices are higher. It will have that modulation benefit. In the last quarter, it was about BRL 14 to BRL 15. We expect it will grow not substantially. It will grow as the price reflects the need of the system or up until the expansion will prevent again the need for those very clear-cut ramps in place. Again, it's a benefit that is captured by sources, those that are regulated and those that are not end up being exposed. As to the liquidity of the modulation product and trading, I'll get back. Italo de Carvalho Freitas Filho: Well, thank you, Limp, for that explanation. This is an energy-only market as they call it. It only impacts energy. And within that energy, we have a modular characteristic in our system in the case of hydroelectric power plants. Well, we don't see any discussion of an actual modulation product in the market, especially if you were to modulate wind or solar, for example. Again, it's not a product with liquidity, a product that you can put on a shelf and actually sell it. Well, in the future, there may be that option or the possibility of having such a product. But some rules, some issues will have to be addressed in the regulation so that we can actually have a modulation as a product in a market like that of Brazil. Haiamawill talk about the frequency of dividends payments. Eduardo Haiama: Thank you, Gustavo. Well, recurrence, every quarter, we'll be updating the methodology. That's the recurrence we can guarantee. Based on the events, these events can be what we've seen this past quarter, selling Eletronuclear, selling EMEA, the acquisition of Tijoa, the transmission auctions and so on and so forth and the price outlook for 2026. If by chance, significant sales occur, we'll be signing midterm, long-term contracts that will be included in that calculation. That's the only thing I can say to you now. Paying dividends every quarter, that will depend on the model itself. The discipline is what we're going to keep on abiding by so that we can have a company with a financial health that will allow us to execute only what we believe will generate value at the right time. So we have to make that very clear before we make any decision. Operator: Isabella Pacheco from Bank of America. Isabella Pacheco: There are 2 questions. What's the leverage ratio you can reach by the end of 2026? The second, what's the minimum cash position that are -- that is comfortable to you? Are there any policies associated to that? Ivan de Souza Monteiro: Let me make sure I understand your question. You're looking at 2026 as if it were a hindrance to announce new dividends, new capital allocation. Our methodology does not take into account the short term. We look at the 5-year horizon, and we are confident in doing so because our company generates a lot of cash. If you're not allocating, our leverage will plummet. Having said that, when we look at 2026, our leverage won't be that different to the one we're having in 2025. And why? On top of the investments we're making this year, some will disappear just like T&E [indiscernible]. For next year, we'll be investing in that auction we were awarded back in 2024. Investment peak in '26, we'll be ending that cycle in 2027. The global investment won't change all that much. If the level we have until July remains the same, we expect very similar dynamics as of 2027. As capital allocation that we have today comes down, we'll be beginning to substantially deleveraging the company. That's why we do not take the short term into account. As far as liquidity goes, we have made movements to reduce risks on one hand. And of course, the liquidity we had to have earlier this year and in the previous year, this need is no longer all that important given these events that has happened in recent times. Of course, we cannot bring the cash to 0. It's a very large corporation even considering the fixed income market growing exponentially. We have -- we do not have a number as the minimum cash we have. We are BRL 20-odd billion. I would never go below BRL 10 billion, maybe BRL 20 billion, BRL 30 billion would be necessary, taking into account everything we've done so far. Operator: Raul Cavendish from XP asks the following question. Raul Cavendish: I have 3 questions. #1 is about the Tijoa acquisition you are considering being part of the capacity reserve. This could be one of the value levers that you might resort to. But I would like to know if there are others, a deleverage asset, there may be some value generation, maybe some recap, but there are other levers in Tijoa. That's my first question. The second question is about dividends, given the BRL 1.087 billion and the BRL 4.3 billion announcement for this quarter, is it the level you expect till year's end? But if you approve, if there is approval of the BRL 1.087 billion, is there any possibility of an additional dividend payout before the year's end? And my third question is about storage. You talked about it already. But I believe that provisional measure provides a more comprehensive discussion, and it's under the radar of ANEEL as to how that technology is to be implemented through regulatory routes. My question is, what's the company's take because there are many different types of applications in the system, right? I would like to understand what's the company's strategic position. Is it through auctions only? Are there any alternatives, focusing more on transmission. I would like to better understand what the company is thinking about. It's an opportunity and a risk structurally speaking, if we expand on the limitation of the modulation gains. Ivan de Souza Monteiro: Thank you, Raul. The first and the third question will be addressed by Elio and dividends will be addressed by Haiama. Elio de Meirelles Wolff: Thank you for your question. I think you've explained it -- you put it very well. Tijoa, the acquisition has been a very appropriate and advantageous decision, 50% of the plant, it's a quota-based plant. When you look back in 2024, BRL 136 million is they have, they are debt free in itself is a beneficial acquisition for AXIA. And there's more. You would have to resort to arbitration. We put an end to that arbitration. So you end that discussion. And the main driver in that sense is the possibility to expand. You have 3 additional machines. There's room there. Construction has been concluded. Again, it's an advantageous decision. For the auction in March, we will not be able to take part in that given the auction regulations. It's a 100% quota-based plant. We believe that expansion makes sense to the country, to the company. We expect to put that in practice in the future. As to the batteries, your third question, we have a very substantial battery pipeline. We've been considering several alternatives in that sense. But the way the Brazilian system has been conceived, you cannot capture the value of that intraday. We believe it should be very interesting, very attractive. As a solution, batteries are important to the system. They will come. We see that happen in many other markets in a more mature stage. It's only at a very early stage in Brazil. And the short-term opportunity, of course, is the battery auction, but the regulations or the rules haven't been published yet. And at the same time, we would like to see opportunities to maximize value through the intraday operation. It hasn't been created yet. That would be great for the market, not only through actions, but rather effective market solution for batteries. Ivan de Souza Monteiro: Thank you, Elio. Well, the last payment did not take into account the taxation. But I would like to turn it over to Haiama. Eduardo Haiama: Thank you, Raul. As to dividends, of course, we have been monitoring whether there will be taxation on dividends or not. What I can say to you is that any decision the company makes will take into account a look at our methodology. If there's room, if it makes sense, if we believe that economically to our shareholders, it makes sense to pay additional dividends before using, but the methodology for capital allocation will determine whether there is that payment or not. Operator: Rafael Dias from Banco do Brasil ask the next question. Rafael Bezerra Dias: What's the expected EBITDA margin and maintenance CapEx for the lots that you have just been awarded in the latest auction? Is the same for traditional assets, transmissions, substations? Do you expect any efficiency on the annual CapEx for these assets? Ivan de Souza Monteiro: Turn it over to Elio. Elio de Meirelles Wolff: That was a very objective question. As far as margins are concerned, they are higher, higher ROI. Well, it's clear that the competitiveness we brought to this product, just like we've said in the past, it's a trustworthy relationship, the commitment of our suppliers, they will provide us with that capacity to invest. We implemented that CapEx optimization when compared to the original CapEx from ANEEL. The numbers I've seen around as to the appreciation, what that discount would be, they are somewhat conservative as to what we got. We see that possibility to optimize. We'll keep on looking for partnerships with suppliers so that we can have even more competitiveness in the auctions. Operator: Debora Borges from Banco Safra. Debora Borges: I have 2 questions. The first one is about Eletronuclear. It needs urgent investments. Are you going to make any investments there? And the second question about price dynamics. We still see prices below average. Can you talk on that price dynamic? How can the company address that issue? Ivan de Souza Monteiro: Thank you, Debora. We are still partners of Eletronuclear, and we keep tracking that management, and we are aware of the company needs. I cannot tell you right now as to we are going to be making additional investments in that. As to price dynamics, you have to be careful when you compare ourselves to our -- to the competition. Well, we are 100% hydroelectric and part of it is contracted out. Our competitors have midterm, long-term contracts, contracts that have been signed way before, and they may have included some higher prices in there. But when you look at the hydroelectric product, I believe our prices are higher. There are many products out there with wind, solar, when everyone was still developing those sources. But at the end of the day, they'll have to purchase energy, and we do not have to incur in those purchases. So our trading margin generation will be probably higher and on a growing trend because the price dynamics, the way we see it, it's trending upwards. Operator: Gustavo Pimenta from BTG Pactual. Gustavo Pimenta: The TPI stake in Tijoa connected to other creditors. What are the conclusion -- what are the necessary requirements for the conclusion of the transaction? Ivan de Souza Monteiro: Elio will field that question. Elio de Meirelles Wolff: Well, of course, Gustavo, any divestment will depend on approval. It's only natural. That's the way it is. It's a condition to finalize that sale. It has to go through the regulatory agencies to ANEEL. We are pending those approvals. We don't expect any roadblocks along the way. As far as the timing, everything is going on according to plan. Maybe in 2 to 3 months, we'll be able to finalize that deal. It's a natural time frame. Operator: This concludes the Q&A session. I'd like to turn the conference over to Mr. Ivan Monteiro for his closing remarks. Ivan de Souza Monteiro: Thank you all for attending. If you have additional questions, our IR team is available to answer any questions. Thank you. Have a great day. Operator: This concludes AXIA Energia's earnings call. Thank you. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Max Westmeyer: Thank you very much. And welcome to all of you to our Q3 2025 results presentation. Today's call is hosted by our CEO, Nikolai Setzer; and our CFO, Roland Welzbacher. Both the press release and the presentation of today's call are available for download on our Investor Relations website. And I'd like to remind everyone that this conference call is for investors and analysts only. So if you do not belong to either of these groups, please disconnect now. Following the presentation, we will conduct a Q&A session for sell-side analysts. [Operator Instructions] And before handing over, I want to briefly highlight some extraordinary effects that impacted our Q3 figures. As you're already used to it from the former AUMOVIO reporting, the signing of the sale of our original Equipment Solutions business within ContiTech has resulted in some accounting technicalities. Here, too, IFRS 5 applies and the assets and liabilities attributable to OESL were reclassified to assets and liabilities held for sale. Furthermore, the sale has resulted in a write-down of the assets, which reduced the basis for depreciation. The depreciation of the new book values of the OESL assets has stopped. Without the signing, there would have been no impairment trigger and the depreciation would have been roughly EUR 6.5 million higher in Q3. With this upfront, let me now hand you over to Niko. Nikolai Setzer: Thanks, Max. Very welcome to the call of an, again, eventful third quarter. Our quarters have been in the last time, always eventful, but this time with 2 major events and 2 major milestones, as already mentioned. On the one hand, the AUMOVIO spin-off with a fantastic ring the bell event on September 18. So this was very impressive going forward for sure. And you could see already that it started quite well as well in terms of market cap. So just in that day, EUR 700 million in market cap was additionally created and success story continues. I should say, as of today or better yesterday, it's in the meantime, greater than EUR 2 billion -- EUR 2.4 billion roughly or 15% in 7 weeks. And if you look the underlying indices they are definitely not 15% up. So we clearly outperformed. With that measure, the market, not just that this measure has been greatly but looking as well how it was executed, speed and precision from announcement, August, we started last year, December decision and September 18, then the listing with the final transaction, I should say. So that shows how focused and determined the Conti team was and is once we decide on strategic realignment and all hands on deck, and I'm really grateful that the team has achieved this on time and on budget, I should say, in particular, or even more because the OESL sale has been signed basically in parallel. So it was August 27 when the signing took place with the industrial holding company regions, which is, and that's why we were pursuing the strategic move from our point of view, clear better strategic owner for that asset to develop its value accretive going forward and -- on the one hand, on the other hand, we see for ContiTech, this is a clear strategic move to focus even more on the industry business, on industry customers, getting now to an 80% industry business. And therefore, our strategy, which we announced 3 plus 1 champions, 3 sectors plus the one, the one is OESL. We see us following suit with those 2, focusing now on the last 2, which are within the group. And just to finalize this one, expected closing is until first quarter 2026. And then OESL is done. And at the same time, we fully focus then on the ContiTech independence. So with those strategic milestones coming now to our performance and it's a good operational performance. But first of all, those strategic moves have had as well strong impacts, in particular on the Near base. You see on the special effects on the right side that combined both had an impact of greater than EUR 1 billion, EUR 1.1 billion negative impact. Roland will give more details in his part. However, I want to highlight right now already, those have been all noncash effect of one-offs means as we did it as well in previous years, we -- our dividend policy allows for adjusting such events means they would be out of the dividend base, which we will then look into for next year's dividend. Secondly, leverage ratio. So now on a pro forma base means we have excluded out of the 12 months EBITDA, the automotive deconsolidation effect, EUR 680 million, so very substantial, which is getting us right now to 2.2%. So we said we believe to be at around 2-ish. This is now September until year-end. We are working further to -- with our cash as well to deleverage. So we are on target, and we have expected such a ratio. So from the more strategic part now to the operational part, you see organic growth, 2.6%, which is a decent growth given that the last quarters have been more shy, very strongly driven by tires, tires 3.7%, which you would see on the next chart, why I mentioned it already because that tells you immediately that the growth was very much driven or all driven by tires. ContiTech still slightly improving, but slightly negative organically with 0.6% and responsible clearly, replacement tire business and there, the regions, North America and APAC and PAT helped as well overall good operational performance. And you could see that channel mix, regional mix, our measures all contributed to a strong price/mix on the sales part. And you see that the negative impacts, which we had still lower volumes in line with the year-to-date, so at a minus 1 percentage points roughly. Strong exchange rate effects with drop-throughs and the tariff effects, they have been almost completely offset by all the mitigation measures which we took in place, which we started more or less at the beginning of the year and which are now unfolding. So the adjusted EBIT margin is with a strong comp of last year, basically close to be stable. On ContiTech, as mentioned before, slight sales down. However, earnings are significantly up. That is a proof that our measures or safeguarding measures, which we have initiated, they clearly pay off. And the environment -- in an environment which is still weak on the industry as well as on the OE side. However, we can admit that the third quarter already shown some signs, in particular, September of improvement. So industry business, our business areas have been in at least a positive territory with regard to growth, whereas OE is still down. I already mentioned, OESL results in a stop of depreciation, EUR 6.5 million. Already now I can mention ContiTech would be as well up in terms of earnings even without that effect. And we have excluded it, which you see in the middle from the group result where it has only a minor effect. Looking on the adjusted free cash flow, here, a slight operational improvement, EUR 157 million to EUR 169 million, so EUR 12 million. But you have to consider that last year, we had the one-off payment from Vitesco EUR 125 million. If you adjust for that, you see that operationally, we are going in the right direction. And this holds as well true for the adjusted EBIT of the group, which you see on the upper there, if you deduct the EUR 125 million, you see that our EBIT has improved there as well based on the 2 stronger sectors -- 2 strong factors. And looking on the group operational holding costs, you see like-for-like that we are trending. If you do the math, you see that we are trending as well downwards on those costs, and we have elaborated on that. This is expected, and we are further working in order to get further to the pure play of tires, now combined with ContiTech to lower holding costs, which are in line with our businesses. So looking into the figures. All in all, you see a challenging quarter, but with the strong September ending, so the second half of September was on the stronger upper side, it helped with solid performances. On tires, you see 3.6%, which I already mentioned. Again, sales in replacement PAT up, whereas the OE part and in parts as well truck tire was down, still is overall with the strong price/mix in organic sales growth. And the result, you see on the right side, 14.6% to 14.3%, flattish, again, strong comp last year. It was a strong quarter with the EUR 508 million, only slightly down with the EUR 501 million based on our mitigation measures, which took place. ContiTech, again, 0.6% industry up, OE down, both trending as well the OE side trending a bit better in the year-to-date trend. So that is a positive. And you see on the right side, even if you deduct from the EUR 97 million, the EUR 6.5 million Max mentioned, gets you to EUR 91 million, you see we are up from EUR 44 million to EUR 61 million. So in a difficult environment with organic sales slightly down, particularly the industry business contributed and the safeguarding measures we managed quite well on the ContiTech side to mitigate the impact. And with that, I hand over to Roland. Roland Welzbacher: Yes. Thank you, Niko, and a warm welcome also from my side. My pleasure today to join my first earnings call as a speaker, not just for Q&A as last time. Before we start looking at the entire Q3 figures, let me start with a brief look at the Q3 developments in our key markets and regions based on the latest available information. So due to some delay in the data on imports, you will see some retroactive changes in the database moving forward. On this page, you see the market dynamics in which we operate with our passenger and light truck tires business. Light vehicle production overall improved, but we're coming from a very low level, so rather easy comps year-over-year. The strong performance of the Chinese market continues, also driven by government subsidies and exports and Europe, while being slightly positive, flagging compared with the other market dynamics due to weaker demand and declining vehicle exports, while North America seems to normalize a little bit in a still difficult macroeconomic environment. Now over to the tires market. PLT replacement sell-in was slightly down in Europe and North America. However, you have to consider the solid comparison base Q3 '24 and looking at the single quarters, it can be clearly seen that the impact of imports to Europe that were partly driven by the anticipation of potential antidumping measures by the European Commission is normalizing. On Chart 7, coming now to the trends for our truck tires business. As far as commercial vehicle production is concerned, there are still only slight signs of recovery in Europe, even though we're coming from a very low level already in Q3 '24. The North American volume trend is even worsening sequentially. Truck tire replacement business continues to show modest positive momentum. In EMEA, demand remained muted due to ongoing economic uncertainty, while in North America, it's been lately fueled by pre-tariff import activity. However, this trend is already slowing down. And how these market dynamics translate now into the performance of the Tires Group sector, you can see on the next Slide #8. Tires is significantly impacted by the highly volatile environment. Once more, we had to deal with substantial headwinds from FX and tariffs. Overall, as Niko said, volumes slightly declined on the same level as in the first half, mainly due to the continuing weak PLT OE market and softer truck tires replacement demand for local manufacturers business. However, demand for our tires in PLT replacement was healthy in North America and APAC during Q3. The sell-in for the winter tire season was also comparatively strong with a promising order book also from a mix perspective. And despite all challenges, we managed to perform in line with the market or even slightly better in our key regions. The strong price/mix of plus 4.8%, predominantly driven by product, channel and country mix more than compensated for the negative impact from FX and lower volumes in the top line. We benefited from regional trends, positive effects in sales channels and the continuing trend towards premium and ultra-high performance tires in our product portfolio. In terms of profitability, price/mix helped us to almost completely compensate for lower volumes, the drop-through on FX and the mid-double-digit million euro cross burden still from tariffs. Raw material costs provided a slight tailwind versus prior year in Q3 with more positive effects now expected in Q4. And while we're talking about tariffs, the timing for the tariff reimbursements from the U.S. government and whether we still receive it in '25 or in '26 is still unclear. However, this will not have any impact on our ability to reach our cash flow guidance for the full year. This brings us to Chart #9. So we shed some more light on our regional performance. Let's take a look at the trends and drivers in Americas, EMEA and APAC. Starting with the Americas. We achieved strong organic sales growth of plus 5.1%. While we faced a slightly negative volume effect due to a very weak truck tires OE market, robust performance in both PLT and truck tires replacement volumes helped us to offset this. Favorable price/mix largely compensated for FX and volume effects, whereby mix was also strongly influenced by channel mix effect. Moving on to EMEA. Here we saw an organic growth of plus 2.7%. The negative volume effects were mainly driven by weak PLT OE and truck tire replacement business. Truck OE, however, that's the difference to the Americas recovered strongly, and the PLT replacement business was supported by a healthy start into the winter business. In addition to that, sequentially improved price/mix fully compensated for FX and volume headwinds. Finally, on the right side, APAC. On the sales side, we delivered plus 3.2% organic growth. Our PLT business showed solid growth in both channels, OE and replacement. On the truck side, however, Q3 was impacted by the closure of the APAC truck tires business in Modipuram, India. Price/mix performance was largely flat sequentially. So all in all, we demonstrated healthy organic growth across all regions despite the challenging market conditions. This brings us now to Chart 10 over to ContiTech. Despite continuing weak volumes in the automotive and industry sectors, there are slight signs of improvement as evidenced by sequentially increasing volumes in our industry business and the automotive business showed a slightly positive development in September too. FX effects on sales were again negative, though with limited drop-through to earnings for ContiTech. Other than tires, raw material impact overall was still slightly negative in Q3 due to some offsetting effects caused by some ContiTech-specific materials. However, the negative effects of lower volumes and exchange rate losses were more than offset by price/mix, the safeguarding measures we implemented, such as our measures to compensate for the impact of tariffs and by positive effects related to our transformation, resulting in adjusted EBIT significantly above the prior year level. Those are onetime effects associated with the planned separation between AUMOVIO and ContiTech and Technical as we stopped depreciation in OESL, which increased the adjusted EBIT, as Niko said, from a pro forma 6.1% to 6.6%. Excluding OESL, the ContiTech margin in Q3 would have been at 8.5% with sales amounting to EUR 1 billion. With that healthy underlying performance and an expected sequential improvement in Q4, mainly because of a seasonally stronger industrial business as well as continuous cost-saving measures, we're confident to achieve the lower end of the guidance corridor for ContiTech. With that, let's talk about cash flow on Page 11. The Q3 free cash flow generation operationally slightly improved compared to Q3 2024. For prior year, however, you need to consider that Q3 '24 was positively affected by a one-off effect from the reimbursement from Vitesco that Niko already touched upon earlier. The other changes in the operating free cash flow mainly relate to changes in employee benefits and some other changes in other assets and liabilities. Capital expenditures increased compared to the previous year, mainly due to our continued investment in respective intension -- extension projects such as our plant in Rayong, Thailand, ongoing construction of our new tire distribution center in Texas, for example, as well as a more balanced quarterly phasing of our CapEx spend compared to the last year. So much to the operational part. Let's move on to Slide 12. I would like to briefly address the more technical implications concerning our balance sheet resulting from the spin-off of AUMOVIO. The left side shows how our net debt has developed over the last few quarters. You can see the influence of the spin-off in Q3 '25. All figures up to June 30, '25 are presented as reported for the entire group as it existed back then. That means for continuing and discontinued operations. The figures as of September 30, '25 refer only to continuing operations. EBITDA for the pro forma leverage ratio was adjusted for the deconsolidation effect resulting from the spin-off. As expected, we came in at around 2x leverage, which is a level that we will now continuously drive downwards in the upcoming quarters. On the right side, you can see how the total equity as well as the net debt was particularly affected by the cash contribution to AUMOVIO. At the same time, the total assets were reduced by the disposal of the associated net assets. All in all, this led to an improvement of the equity ratio from 14.6% as per the end of June to 22.2% as per the end of September, just as we already expected in H1. All KPI targets mentioned on our CMD do, of course, remain valid. That means we will continue to operationally strengthen our balance sheet. With that being said, let's move on to our market outlook on Page 13. After a very negative picture of light vehicle production expectations, especially in Europe and North America, S&P Global has raised their expectations for financial year '25. However, we see in this forecast certain risk related to supply chain disruptions, such as the situation around Nexperia, for example, so we remain cautious. The latest S&P Global figures on commercial vehicle production show that the situation has further deteriorated. Although the negative trend in Europe is gradually reversing, it is still far from sufficient to achieve growth for the year as a whole and the outlook for North America has also deteriorated significantly once again. Our assumptions regarding the passenger car tire replacement markets did not change materially, while we increased the outlook for the commercial vehicle replacement business on the back of a healthy year-to-date performance. And for the Eurozone, we slightly increased our assumptions for overall industrial production following the latest developments in this area. However, this is a very broad picture of industrial activities for the Eurozone. Unfortunately, we have not yet seen that positive momentum in the important areas for the ContiTech Industrial business. Let's now turn to our guidance. As already announced in our prerelease in October, we are confirming the guidance for sales, EBIT and cash flow. However, some changes had been made because of the impact of Continental's transformation, the noncash one-offs are affecting our earnings before tax, which leads to a distortion of our regular tax rate since we, of course, still have to pay taxes in the countries where we are doing business. This is leading to an expectation of a low triple-digit percentage tax rate for the full year. Without the spin-off, without the transformation, there would have been no adjustment for the tax rate, meaning it would have still been at around 27%. In addition, we have also adjusted the value for expected special effects from EUR 350 million to EUR 1.5 billion for the same reasons, meaning this adjustment is solely attributable to the transformation-related special effects that we have already explained. Please keep in mind, we are mainly giving you the guidance for special effects and tax rate, so we can model a net income. Our dividend policy does, however, as mentioned in the introduction by Niko and previously done in the past, allow us to exclude those noncash one-offs for the basis of our dividend proposal in 2026. In other words, the changes in the guidance will presumably not impact the dividend this year. Furthermore, we've also adjusted our CapEx guidance from 6% to 6.5%, mainly due to the ongoing plant expansion in Asia. With this, we come to the end of our presentation. I would like to hand over the rest of the time to you now. Operator, could you please open the line for the Q&A? Operator: [Operator Instructions] And the first question is from Akshat Kacker, JPMorgan. Akshat Kacker: Akshat from JPMorgan. I have 3 questions, please. The first one on the market outlook for the passenger car replacement business. I see that you've talked about a slight decline in demand in the second half of the year versus the first half. And when we think about the inventory situation, I think something that has been very well flagged is the high inventories of [indiscernible] tires in Europe and the U.S. So how do you assess the current inventory levels in these markets? And are you cautious on sell-in volumes when we head into this year? That's the first question. The second question is on the winter tire market, which I think mainly underpins the very strong price mix that you've had in the quarter. And it's a more structural question on the evolution of this market, given that we have had 2 very strong sell-in seasons in 2024 and '25. How do you expect this market to evolve going forward, please, given the discussions we've always had on a structural declining winter tire market due to all-season tires, but also global warming? The last question is on the cost actions that you have talked about and the fixed cost measures that you have taken in response to tariffs. Are there any structural cost savings that you can carry into 2026? Or are most of these measures onetime in nature, please? Roland Welzbacher: Let's start with the market outlook on the PLT side, and I would like to refer to your comment on the inventories level. So overall, I think the inventories, specifically in Europe on the [indiscernible] side were driven by imports and the imports, again, were driven by the expectation with regard to antidumping measures. Whether they come not and to what extent and when is still unclear. So if it would not come, then stocks obviously would normalize pretty fast, I guess. It had a dampening effect on the sell-in. Whether this now continues into the first half of '26 remains to be seen. In U.S., of course, we also have seen raised imports, but the dynamic was due to the tariffs. There was a lot of preload on the inventory side with regard to the tariffs. This is now also normalizing to some extent. It also takes time. It also muted to some extent the demand. But overall, in general, for volumes in Q4, as Niko pointed out in the beginning, we are rather on the cautious side. So we expect a slight decrease, flattish at this. Nikolai Setzer: With the winter tire market, this is, as you pointed out, a strategic question. So, so far, we've seen in the last years, still a solid business there. I mean, in those markets where still there is the winter tire regulations. So we assume that this will drag for a certain time, and this will still support the tire business strongly as well as our position strongly. On the other hand, we see as well that those which are changing due to climate situations, they are going into our season business. And on the all-season side, we are well positioned. So it's a one-for-one change to that. How this will play out remains to be seen. Still, what we said on the Capital Markets say that overall tires is not a strong growth business, but in the area of 1% CAGR. So you should see a switch, but moves then strongly over time from the winter side will move towards season and then as well to summer. On the fixed cost measures, you asked what is structural. On the tire side, we have announced the restructuring measures in Malaysia, [indiscernible] truck tire in Modipuram, India. I mean they are -- all those actions are getting as well into next year and helping on ContiTech, we have announced as well as several plant closures and structural measures. So there is a certain amount of those which are executed this year, which are in execution, which will bring positive fixed cost savings then for the next year. However, with the one or the other part, like the truck tire, Modipuram, there's obviously as well business, not from high enough quality in terms of value creation. That's why we are pursuing this, but there's a certain kind of business which is as well then phasing out, which you have to keep in mind. Operator: And the next question is from Christoph Laskawi, Deutsche Bank. Christoph Laskawi: The first one, please, on essentially competitive situation in tires. And one of your main competitors talked about portfolio repositioning to rebalance volume and market share. Do you see any increasing commercial or competitive pressure in Q3, Q4 right now or so far, no major impact? And then the second question, just if you could provide -- I know it's quite early, but the main building blocks that we should think about on volume price mix, potentially FX and cost for tires and ContiTech into '26. And then remind us of the onetime cash effects that you had in '25 and what to expect in '26, please? Nikolai Setzer: Yes. First of all, as you know, we don't comment competitors. So no comment from our side to that. At the end of your question, you referred to market situations. I think Roland already mentioned how we currently see the markets. Right now, we should say from the trending point, similar to where we have been in the 9 months. That's what Roland has as well referred to. So we are minus 1% in volume so far. So we managed quite well the balances between our cost situation, the market and the different dynamics. And we assume for the fourth quarter that this is unchanged. Obviously, we're always striving to be better. That's why Roland mentioned as well and to be flattish at best. We had a stronger second half last year, so higher comps overall. So this is the market dynamics in which we are operating right now. Going to the second part for the fourth quarter, the other important metrics. FX, assuming that it continues on the FX rate, then right now, FX should be the same because it was relatively stable last year. In Q2 this year, it changed. So it should be relatively stable for the fourth. And then looking even into the first quarter, you should see similar effects as then second quarter, really the exchange rate on the globe versus the euro have changed overall. Cost situation, we have seen on the indices and the spot prices since the second quarter into the third quarter already that they were downwards. We had only limited effects in the third quarter based on inventory and consumption. We assume that this gets a larger effect in Q4, still being certain shy due to how we currently see the inventories and the markets and the different parts and then would drag as well into 2026. On the price mix or I should call it quality business -- the quality of our business because it depends on sales channel mix, where we've been relatively rich in the third quarter. As mentioned, North America, larger tires, larger mix. That is pure math. Similar to Asia Pacific, we see that certain trends should persist. However, as mentioned, we had a really strong quality of our business in the third quarter. Certain parts will continue for sure. How it all plays out remains to be seen. We have seen the question on the winter tire business, strong order book so far. Sell-in was good. Now we are hoping November, December to see as well a strong sellout. So winter weather in Germany right now is not so winterish. So we hope that we see some snowflakes and some predictions, then obviously, this helps as well the quality and the price mix to be more supportive in the fourth quarter. Roland Welzbacher: Yes, I can take the free cash flow question. So going back 2024, we forecasted that total expected onetime effects for '25 are expected to be in a high triple-digit million euro area, more or less evenly split between restructuring, separation costs and taxes. So restructuring cash outs are mostly borne by AUMOVIO. Spin-off cash outs have been specified in the prospectus, EUR 279 million, thereof over EUR 200 million will ultimately be borne by AUMOVIO. Tax cash outs will mostly be covered by Continental. This should lead to one-offs on the Continental side amounting to roughly 1/3 of the originally anticipated volume. Christoph Laskawi: And for '26 that should be gone, right? Roland Welzbacher: Well, from the -- let's say, from the first 2 steps of the transformation that is AUMOVIO and OESL, we do not expect any big effects for '26. Max Westmeyer: On the tax side, we announced that we are looking into plant measures as well, which is also dragging into 2026. So there will be some one-offs associated to that, special effects also will be there, but it's minor compared to what you've historically seen, yes. Operator: The next question is from Horst Schneider, Bank of America. Horst Schneider: The first one that I have relates to ContiTech and the disposals. So on OESL, you have, of course, not quantified the purchase price, but what effects can we expect basically on debt when the OESL disposal gets executed? And in that context as well, do you expect closure of that this year or it's more in January, if I remember right? And in that context, maybe also you can give an update on the disposal process of the remainder of ContiTech. So when that is really kicking off and when you expect basically closure of that? And in that context, again, when we think about net debt to EBITDA and your long-term guidance, 1x, but I think that is more for 2029. How should we think about net debt to EBITDA when the ContiTech disposal gets executed because that determines then, of course, the potential special dividend. So when this decision is made, do you want to be exactly at 1x net debt to EBITDA or you can be also above because you just want to trend towards end of the decade towards 1? That would be the other question. Roland Welzbacher: All right. So let me take the first one. We agreed not to announce any details of the transaction with the buyer of OESL. So I cannot be too specific, but all the debt associated with the business will transfer to the buyer. This is mainly expected for the pensions. Nikolai Setzer: Pensions [indiscernible] items. Roland Welzbacher: Exactly. And then [indiscernible], I think you mentioned that already early in Q1 2026 to be expected for OESL and then for the entire sales process for ContiTech, we more or less stay on track what we already announced. So we are in the final stages of preparation that should be finalized before Christmas, and then we're basically ready to approach the market, and we want to complete the transaction in the second half of '26. So there is no news because we're still on track. And long term, with regard to capital allocation and net debt-EBITDA ratios, we always said midterm, that is '27 to '29, we want to get to a leverage ratio of 1 or below, whereas we have certainly some flexibility with regard to the timing. Nikolai Setzer: So when we will -- that depends on the market conditions, how is our business situation at that point of time. And obviously, what does the preferences overall to be evaluated. Horst Schneider: Okay. Just a quick follow-up. This ContiTech disposal, basically, the remainder can be initiated already before the OESL transaction is completed or it only starts when OESL is completed? Nikolai Setzer: No, it starts already. As Roland mentioned, we are in the preparation. We are going into the market already in parallel than in the first quarter in 2026. And OESL is itself carved out as its own business. The one is independent from the other. Operator: And the next question is from Monica Bosio with Intesa Sanpaolo. Monica Bosio: The first one is a flavor between the passenger car tires and the truck tires. I know that the company does not split between the 2 areas, but can you give us a flavor on the -- of the underlying margins in trucks? And can you imagine that the margins in trucks could be in the mid-single-digit zone or maybe better? Any color on this would be really appreciated. My second question is more on the strategic side. As you mentioned that the tariff impact for 2026 is still not very visible. But more in general, in the long, medium term, what could be your strategic response to tariffs? And the very last is on the margins for the fourth quarter for the truck tires. So on back of the favorable winter tire season and on the back of the sound results achieved in the third quarter, should we expect margins for the full year closer to the upper part of the [indiscernible] range because at this moment, the consensus is not accounting this. Just to check from you. Nikolai Setzer: I will take the first one. So we are not splitting the margins between PAT and truck tire. But in general, each businesses which we have has to create value, so at least create or give the returns on the cost of capital. This must be -- this is true for truck tire as well for PAT. You saw us in India getting out of a certain business where this was not the case. [indiscernible] we've seen the same. So we act once we are getting into it and truck tire has as well a different cost of capital. It's a different business model. It's different cost base. That's why you cannot compare it. But again, we don't publish the different margins. However, as we have a strong position in Europe and Americas, you can believe that we have -- we are creating as well value over there. Otherwise, we wouldn't be in that business supporting and further investing into it. Strategic response to tariffs. First of all, our strategic response were mitigation measures as much as we could. Obviously, we explore our EMEA and Americas manufacturing sites or the North American manufacturing sites, which we have to the MAX. We are doing debottlenecking measures and so on. For further more long term, we have to wait until really the dust settles. So we have right now a certain tariff, which is in place. We have to see how the dynamics as well on the cost side will go further out. And then as typically, we take further measures with regards to our sourcing and where we produce those tariffs. Keep in mind that building a tire plant is a very strategic long-term decision. We have to be sure that the environment and the framework and the market is in line for a longer period of time to justify such a decision. Roland Welzbacher: And with regard to your third question, Monica, I expect that you're asking about the guidance, right? So that was my understanding. So we feel totally comfortable with the current guidance in place for ContiTech 6% to 7% and Antares 12.5% to 14%. So right now, we're remaining cautious for Q4. We're slightly optimistic, but we remain cautious. There's no need to change this. We just confirmed it, and we want to stay with this. Operator: The next question is from Harry Martin, Bernstein. Harry Martin: The first one that I have is on the CapEx increase. It sounds like this is for capacity increase in tires primarily. So can I just ask about the motivation here? Is this effectively shifting capacity out of higher cost locations or an attempt to win more volume share in total? The second question, I have a few really on ContiTech. The first one, just on the Q3 performance. Is the industrial business now back to double-digit margins in Q3? And how far away from the midterm target, the industrial business specifically now? And then finally, on the industrial separation process. Now that you've been working through that for a few more months, can I ask what you found out about potential dissynergies between the separation? What proportion of the group's purchasing volume of rubber or some shared raw materials go to the tire business versus the industrial business? And what is your current thinking about how the segment margins may be impacted by that dissynergy on the separation? Roland Welzbacher: I can take the first one, Harry, on the CapEx side. But what we've seen this year and what was the course for the slight increase in the ratio is, first of all, our investments into 2 regions, that is Americas and Asia for the tires business. So we're continuing to invest in our [indiscernible] plant in China. And in the second phase of expansion for our Thailand plant in [indiscernible]. This was basically driving the ratio up. There's a little bit of a phasing element, as I already said in the beginning. So the motivation is explicitly not what you said, shift to best costs or it is more expansion into the 2 regions where we want to get stronger. Nikolai Setzer: Yes. Looking forward the industrial margins, so we don't publish the full industrial margins. Keep in mind that ContiTech without the OESL still includes the Surface Solutions parts, which has as well automotive business. For that, we published that we reached in the third quarter, 8.5%. Looking for 2024, we have shown this on the Capital Markets, we have been at 8.0%. So we improved by 0.5 percentage point, and this mainly comes from the industrial business now. With 80% industrial business, you can do the math and somehow see that this business is in a better shape than before. However, we are not where we are targeting to be. The 11% to 13% is the midterm target for this parameter, including SSL. And the market itself is not where it should be. It's still a weak market environment. When I mentioned that September has shown some positive signs, it's still on a low base and the minus 0.6% organic growth was as well versus last year, already reduced sales. So we are still in a trough, which shows that slowly, but surely, we see some light of better trends, let's put it that way. Disysenergies rubber, what we can say, so we are not there yet. So we have now separated our purchasing. We built up our purchasing on the ContiTech side. But with the very small part only of same rubber materials from the same suppliers, this is really a minor part. We don't assume any larger dissynergies from the material side. We even believe on the material side, we should have opportunities by having a ContiTech purchasing team, which fully focuses on a very, very complex purchasing part with a high variety of materials and the tire side with a lower complexity, however, higher volume, those 2 parts, and that's why we are doing as well the independence. That's why we are convinced that both parties are better off in the separation. We clearly believe that we can eliminate the synergies and even create momentum and better purchasing conditions for the individual companies. Operator: The next question is from Thomas Besson, Kepler Cheuvreux. Thomas Besson: It's Thomas at Kepler Cheuvreux. I have 3 questions as well, please. First, could you tell us whether you've decided yet what you intend to disclose in the future for the car business as we get closer to the target of having Continental [indiscernible] business. I've noticed you're giving us revenues and organic growth for 3 regions, but you're not giving profitability, you're not giving passenger or truck tires. What's the plan there, please? Second question, when I look at Q2 '24 versus Q2 '25, Q3 '24 versus Q3 '25, I'm a bit surprised by the margin evolution. There was a strong decline in Q2, a much greater resilience in Q3 with relatively similar volumes, worse effect and a delta in price/mix that's not sufficient to explain the substantially greater resilience in Q3. Could you explain what I'm missing, please? And thirdly, just to be fully clear on the base for the dividend you're going to give -- propose to shareholders for 2025. Could you tell us what is the clean net income base over 9 months on which you're going to base your reflection, please? Roland Welzbacher: Yes, I can take the first one, the tires reporting structure. I think we wanted to already point out in which direction we want to report in the future by providing now a regional sales split. So we believe this is the best way of creating transparency into the tires business by splitting it by region, not by product segment. At some point in time next year, probably between signing and closing, we will have to change our reporting and provide more details also by region than in the tires business still to be decided what the right moment in time will be, but we cannot do that before that because otherwise, that would trigger then probably backward split and we get into problems with the auditors. Nikolai Setzer: So with the sequential improvement on the tire side, Q2, Q3. I mean, in Q2, we have mentioned that we had all the negative effects already started. We had the tariffs, which have been higher at the beginning, where you've seen now as well the lower base and then certain reimbursements which were coming then within the third quarter, all our mitigation measures, which we implied due to the tariffs only unfolded in the third quarter, as I mentioned. On the material side, we mentioned before, there was a certain tailwind has been small, but there was sequentially, there was an improvement. And overall, the third quarter volume, so it's as well at a minus 1% versus prior year, but the third quarter volumes are a bit higher than in the second quarter. So those are all the reasons, the positives, which were the negatives in the second quarter were reversing then in the third quarter. That's the reason why our margin is substantially better than we have been there. Roland Welzbacher: And then the last one basis for dividend and clean net income. I mean you've seen our net income, it's minus EUR 756 million negative. If you now would adjust this for the special effects, we also showed on one of the first charts in our presentation, already EUR 1.1 billion is due to the OTI recycling driven by the spin-off of AUMOVIO and then the second portion EUR 680 million, sorry, EUR 680 million. Nikolai Setzer: And the other part is the U.S.A. Roland Welzbacher: And EUR 454 million is then driven by OESL. And this together would already most likely bring us to positive territory. So we did not do the math because it's a technical question, but it's certainly not negative. Max Westmeyer: And there's the fourth quarter to come? Nikolai Setzer: Sure. Yes. You should get us at a reasonable net income, let's put it that way. Operator: And the next question is from Ross MacDonald with Citi. Ross MacDonald: My first question is just coming back to tires. And you mentioned the second half of September, in particular, was accelerating. Can you maybe give some commentary around whether that trend has continued into the fourth quarter? And obviously, we're tracking at the sort of midpoint of the tire margin range. So just keen to understand if you feel like we're tracking in the upper half now for the full year guidance on the tires margin. My second question also again on tires. Given the weakness that we see in truck original equipment, could you potentially update on factory load or factory capacity utilization rates, please? And maybe comment on how big a benefit to group margins it would be if we see, let's say, the truck cycle at a normal level? And then my final question is coming back to Christoph's comment on the U.S. market. Obviously, Michelin have reduced their exposure to ATD. Could you comment on your exposure to ATD? I understand you sell to ATD. So just curious in the third quarter, if there was any additional potentially one-off volume benefits as you took additional share with ATD, it'd be very interesting in understanding the volume dynamics in the U.S. there. Roland Welzbacher: Ross, thank you very much. So let me take the first one on Q4 trends in general. We already commented a little bit on it. So raw mat slightly up versus Q3, maybe mid-double-digit million euro amount. FX more or less in line with Q3. Volume also in line, potentially even flattish year-over-year, as we said, price/mix slightly below Q3 because the quality of business in Q3 was really very good, rather towards Q2 this year. And then fixed costs slightly worse than Q3. That's more or less the comment, our expectations going into Q4. We don't want to be more specific at this point in time with regard to the guidance for tires. Nikolai Setzer: Yes. And there's the Q4 to come. So obviously, many things can happen on the sales channel and so on with regard to the sales quality of our business. Let's see how that ends, and we referred already to the winter, which is not a winter yet so much. On the truck tire plant utilization, the OE part, we are largely exposed to replacement to the aftermarket than to the OE part. So obviously, lower OE affects our plant utilization, which is a bit lower at that point of time. However, we can replace it with -- in a certain part with the replacement business. We have as well some factories where we share PLT with truck tires. So we manage this quite well going through, which means on the other side, if truck obviously comes back, that helps to how much remains to be seen difficult to quantify. Roland Welzbacher: Yes. And on individual customers, sorry, we don't want to comment on individual customers. Obviously, ATD is an important customer for us and will remain an important customer for us, but that's all we can say on this one. Nikolai Setzer: As in other markets, and we have a substantial share overall in the U.S. market means we have several -- many customers where we are balancing our businesses carefully in order to balance as well as risks and opportunities. Ross MacDonald: That's helpful. Maybe if I could phrase that final question just slightly differently then. Obviously, versus some of your peers, you're clearly gaining share, let's say, in the U.S. market. Is that a trend you expect to continue? And would that trend be at a similar level to the third quarter? Obviously, just removing the individual wholesaler names, but just keen to understand the momentum on market share gains in the U.S. that you expect into '26. Nikolai Setzer: So we don't comment on gaining share, that's not the important part anyhow. So looking on how our business continues, we are confident and also Roland said that we continue as well on North America and the Asian PLT replacement business, where we have clearly seen positive momentum in the third quarter, and we assume this going on. What our position is afterwards in the market, that is the result of what we are doing and not vice versa. Operator: And the next question is from Michael Punzet, DZ Bank. Michael Punzet: I have 2 questions. Maybe first one on your statements in the pre-close call. Can you maybe explain the difference between the statements in the pre-close call and the final margin development for both divisions, especially since this must be result related to the development in September? And the second one is on the special items. Can you give us any kind of guidance what we should expect for special items related to the transformation process besides the stopped depreciation on OESL? Nikolai Setzer: So the first part, I will do. So what was the difference? I already referred at the beginning, the second half of September was very strong. We came out of the July, August, which were kind of muted. First half of September took over momentum. And then in particular, at the end, we have seen the markets much better. This -- in terms of volume, there was more volume coming in. There was more favorable quality of business, so price mix. So clearly, in the different regions, which are contributing as well to the better results, we have seen unexpectedly better ones. We had -- we came out at lower cost -- lower fixed cost as we have predicted the tariff relief, which was then in September then published where we had to do the math back. So what have we paid before, how much, how do we reconcile and book for it this effect has been larger. And then we had as well transitional service agreements with AUMOVIO, which came in positive on the cost side on the IT license allocation. So you see it was a month ending with many positives, which has resulted in a more positive result than we have foreseen it in the pre-close call. So good news came relatively late. Roland Welzbacher: Yes. That leads us to the second one. So special items of the transformation, let me refer back to Chart 4 of the presentation where we tried to list all of the effects in Q3. We already touched upon the most important one. So the impairment impact, EUR 455 million and the EUR 680 million coming from the auto spin. And then there is some other carve-out related project costs for ContiTech as well as auto and also some tax-related special effects coming from the carve-out and from the spin-off. And then the only thing left is then the restructuring, EUR 22 million in Q3, EUR 111 million in total for year-to-date. There is more or less all the special effects, which we explained on Page 4. Michael Punzet: So that means there will not be any major part or the major additional special items in Q4 related to the transformation? Roland Welzbacher: Well, that could well be that there is a little bit still in terms of FX change related and there probably some [indiscernible] related project costs still coming in Q4, but it's not as big as you've seen here in Q3. Q3 was the major impact of everything to do with the spin-off and the large portion of the current preparation for OESL and also for ContiTech. Operator: And the next question is from Michael Aspinall, Jefferies. Michael Aspinall: Michael from Jefferies. Just one, you might not comment, but it's being discussed a lot, so I thought I asked directly. Wondering if you can give us any thoughts as to the value of ContiTech. Nikolai Setzer: Yes, your assumption is right. We get value, we believe in the strong value of ContiTech, which is then underpinned by strong interest in this asset, which we believe is a great one. A valuation asset, we will not comment yet. This will come then later in the process. Sorry for that. Roland Welzbacher: We're getting basically calls every week from potential buyers saying when are we going to start the process, and we want to be part of it. So we believe it's going to be an attractive purchase price, but of course, we don't want to be specific. Operator: And the last question is from Horst Schneider, Bank of America. Horst Schneider: Maybe we get it done in 30 seconds. I'm glad that I can ask a follow-up. Briefly on price/mix because that seems to come down again, normalize in Q4. Ronald, I think you said also at the Munich Auto Show that going forward, you would expect that 3% to 4%. So the 3% is a minimum number we can assume going forward, not for Q4, it more refers maybe '26 and thereafter. And on cost savings specifically in ContiTech, can you maybe quantify to what extent cost savings have driven the ContiTech results year-to-date? And what specifically, not just on cost savings, but in general, any statement on ContiTech Q4? Because I think Q4 is always the strongest quarter usually for ContiTech also in terms of margin. Is that going to be the case also this year? Nikolai Setzer: So I do it very fast. I start with the back in Q4. I mean, if you do the math, Q4 must be stronger than the year-to-date must be the best quarter. Otherwise, to get into the margin corridor. We said as well before, it will be for ContiTech more at the lower part depending on how the Q4 will end. So yes, and most of the improvement versus prior year was clearly from the cost side. If you take this as a comparison, a bit we worked obviously as well on the quality of our business, repositioning and more focus on the higher quality business, let's put it that way, but really a large portion of that is coming from our safeguarding measures. as obviously, the sales part has not contributed a lot. To the price/mix part, I mean, how Q4 will end remains to be seen. It depends on all sales channel mixes and so on, which we assume rather stable, and we already referred to that Q3 was on a high level. Everything was coming in, larger markets, larger customers with larger tires contributed, which is great. Going forward, as mentioned at the Capital Market Day, historically, a mix in the range of 2% to 3%, 2%, 2.5% has been shown. Looking at the trends in the market, EV, the new car park and the new cars which are registered with larger higher tires suggest that such a trend should extrapolate for the future. And then it all depends the additional one, how we perform in the different markets. Our main growth markets are the Americas as well as Asia Pacific. Truck tire might come back, which adds then to that on top. Max Westmeyer: And with that, we have come to the end of the time. So thank you, everyone, for participating today. As always, we, the Conti IR team are happily available if you have any remaining questions. And with that, we would like to conclude for today. Thank you very much, and goodbye.
Operator: Welcome to Camurus' Q3 Report 2025. [Operator Instructions] Now I will hand the word over to CEO, Fred Tiberg, please go ahead. Fredrik Tiberg: Thank you so much, Einer, and hello, everyone. Welcome to our third quarter earnings call. It's a beautiful autumn day here in Lund, Sweden, where we are sending this from. I will assume that you have read our forward-looking statements going forward here. So the agenda for the call today is as follows: we start with third quarter highlights, move on to financial and commercial performance reviews, followed by an update on R&D and then we'll finish off with the key takeaways and Q&A. With me on the call today is Anders Vadsholt, Chief Financial Officer; and Richard Jameson, Chief Commercial Officer. During the quarter, Camurus delivered strong profitability, continued progress on pipeline programs and prepared for the launch of our next commercial product. Starting then here with some highlights on the financial side. Our quarterly revenues increased by 18% year-on-year, 25% at constant exchange rates to SEK 575 million driven by higher Brixadi royalties. Profitability remains strong. We're growing 48% to SEK 245 million, increasing our cash position to SEK 3.5 billion. We maintained our profit guidance. However, due to the headwinds we have had, we have lowered our full year revenue guidance. The commercial performance in the quarter was mixed, you can say. Buvidal sales in Europe slowed down temporarily, primarily due to ongoing funding issues. While Brixadi reported double-digit sales growth quarter-to-quarter. In parallel, we prepared for the launch of Oczyesa in the European markets. This has been progressing very well. On the R&D side, marketing approvals for Oczyesa was received in the U.K., and we also updated the NDA draft for the Oclaiz submission. This is pending completion of an inspection of the contract manufacturer. We were also granted 2 new orphan drug designations of CAM2029 in autosomal dominant polycystic kidney disease. And in addition, the treatment was completed in the Phase Ib trial of our monthly semaglutide formulation, CAM2056. So all in all, the third quarter has presented both challenges but also very important successful developments and progress. And with this, I leave the word over to Anders to review the financial performance of the quarter more in detail. Anders Vadsholt: Thank you, Fredrik. It's a pleasure to provide the first financial update after joining Camurus in July. I'm generally pleased with the financial performance in the third quarter. Camurus reported SEK 567 million in revenue for the quarter, reflecting an 8% increase compared to the same period last year. Year-to-date, the reported revenue is SEK 1.8 billion, representing a 37% growth from previous years. Product sales reached SEK 455 million, an increase of 8% compared to the same period last year, but a decline of 3% compared to previous quarter. We have experienced stable end market growth throughout the year, but the distribution model has caused some deviations in the timing of revenue recognition. Brixadi sales in the U.S. generated SEK 111 million in royalty income for the quarter, up 91% compared to the same period last year and a 25% increase from the previous quarter. The company's profit before tax was SEK 245 million, representing a 43% profit margin in the quarter and a 48% increase in profit compared to the same period last year. The profit margin year-to-date is 45%. The profit after tax for the quarter was SEK 193 million, representing an earnings per share after dilution of SEK 3.19. Moving to the P&L. The company's gross margin was 93.1% for the quarter. Total operating expenditures were SEK 298 million, 2% reduction compared to the same period last year. The main components were increased our investment in marketing and distribution by 27% to SEK 142 million to support market penetration, expanding Buvidal into new markets and building our U.S. operation. Recruitment of the U.S. sales force has been aligned with the new time lines for the launch of Oclaiz. Administrative expenses increased by 49% to support company growth and development, mainly in the U.S., reaching SEK 40 million compared to the same period last year. And then R&D investments were SEK 109 million, a reduction of 33% compared to the same period last year. This is mainly due to the completion of ACROINNOVA trials and the absence of trial -- clinical trial milestone payments in the SORENTO and POSITANO programs during the quarter. Looking at the cash flow for the quarter. Camurus increased its cash position by SEK 167 million, mainly driven by the operational activities, adding SEK 221 million and proceeds from the employee stock option program, adding SEK 43 million. Working capital investments decreased cash by SEK 97 million, resulting in a net cash position of SEK 3.5 billion, which is an increase of 28% compared to last year. Moving to the update of the 2025 financial guidance. Despite positive development in Brixadi and Buvidal, revenue do not live up to our previous expectations and guidance for the full year is primarily due to Brixadi U.S. revenues below the previous projections and there's uncertainty about the timing of a sales milestone. In addition, we have seen continued delays in allocation of committed governmental funding for the treatment in the U.K. But importantly, our profitability has continued to develop positively with good financial discipline across the organization and our planned U.S. expansion has been aligned with the updated approval timeline for Oclaiz. As a consequence, our restated full year 2025 outlook is as follows: our revenue guidance is lowered to SEK 2.3 billion to SEK 2.6 billion, and the profit before tax is unchanged in the range of SEK 0.9 billion to SEK 1.2 billion. So nevertheless, Camurus ended the third quarter with a healthy financial position, promising outlook for continued growth, profitability and pipeline progress. With that, I would like to hand over to Richard. Richard Jameson: Thank you, Anders. I'll start with the Camurus market. So net sales for Buvidal in the quarter were SEK 455 million, up 8% year-on-year or 15% at constant exchange rate. Versus Q2, sales were down 3% primarily due to the lower-than-expected orders in the U.K., which also led us to reduce inventory levels. In contrast, underlying in-market sales grew 3% versus Q2 and are 21% year-to-date driven by maintained growth in Australia, Norway, France and Spain, as we continue to execute on our plans while we saw a flattening of growth in the U.K. and Germany due to 2 main factors. In the U.K., there are ongoing delays in allocated funding reaching community clinics. However, growth began to accelerate in the criminal justice setting as allocated NHSE funding for long-acting injectable buprenorphine treatment in prisons has become available. In Germany, resistance to uptake remains due to the ongoing remuneration of physicians based on daily visits. Year-to-date in-market growth is positive, around 20% across markets with the exception of Finland, where growth was single digit due to the high penetration we have there. There continues to be high demand from patients and physicians for long-acting injectable buprenorphine and we continue to support this through active programs that build awareness of the benefits the product brings to patients and wider society. This in turn is increasing demand for wider accessibility and is expected to deliver renewed growth in 2026. So on the next slide, I'll share more detail of our ongoing strategy for improving patient access. We are continuing to grow the real-world evidence base and develop economic models that demonstrate the improved outcomes and the value long-acting buprenorphine brings over daily treatments. The economic models, of which there are some publications on the left-hand side of the slide, clearly demonstrate the positive value of treatment with LAIB, typically showing a more than 3x return for governments. These data and models are a critical part of our initiatives to improve access through a government affairs program that is engaging a wide group of policy stakeholders who will benefit from improved access to these innovative treatment options. As a result of these programs, we're seeing growing demand in criminal justice settings and the need for the community -- continuity of care on release, alongside support to address funding in community settings. This has already resulted in some success, including allocation and distribution of funding from the criminal justice setting in the U.K. that I mentioned earlier, and regional funding expansion in France. We also understand good progress is being made on alternative remuneration models in Germany that would address this key hurdle for Buvidal. The success of this activity is critical to expand the use of Buvidal in these markets in 2026. Now moving across to the U.S., Brixadi had a strong quarter, as you've already heard, with royalties growing 25% versus previous quarter and 91% year-on-year. Brixadi continues to outgrow the market and has reached an approximately 30% share of the long-acting buprenorphine segment, which in itself is growing 25% year-on-year and for the first time, reached annualized sales of USD 1 billion. In the U.S., Brixadi represents a significant opportunity for future growth through penetration of the sublingual buprenorphine market with an estimated 1.8 million patients in treatment and with further potential in the criminal justice setting. Brixadi has a clear and differentiated profile and Braeburn are successfully navigating the challenges in the OUD treatment market. So overall, we remain optimistic about the prospects for Brixadi in the U.S. and the potential for significant growth in the coming years. And on this, I'll hand back to Fredrik. Fredrik Tiberg: Thank you, Richard. So let's move over to a quick pipeline update. So starting with the progress of the Octreotide depot programs for acromegaly, gastroenteropancreatic neuroendocrine tumors, GEP-NET and polycystic liver disease, PLD. So as you know and have heard before, we have a large clinical program for CAM2029, which represents a major investment and a future potential for Camurus. In acromegaly, we have successfully completed the ACROINNOVA program delivering positive results from 2 pivotal Phase III trials as well as long-term extension study. In GEP-NET, we advanced the SORENTO trial towards the improved important readout of the primary efficacy results in 2026. Finally, we received complete -- we recently completed the POSITANO study in PLD, also that with positive results for the primary end point. I will start here with an update of the SORENTO study in GEP-NET. This was recently discussed at a well-attended scientific symposium at the North America Neuroendocrine Tumor Society meeting in Austin, Texas where it rendered significant attention among the participating physicians and other health care providers. The topic of the symposium was dose optimization of somatostatin receptor ligands, which is the efficacy driving hypothesis behind the SORENTO trial. So Chair of the symposium was Dr. Jennifer Chan, President of NANETS and presenter was Simron Singh, University of Toronto, who is the President elect of NANETS, actually now the President of NANETS, both are SORENTO study investigators and steering committee members. The conclusion of this discussion was that there is very high hopes and good prospects for SORENTO and CAM2029, of course, providing positive outcomes. Patient recruitment in SORENTO started already in Q4 2021, which means that the first enrolled patients have now been in treatment for about 4 years, in many cases, without disease progression. The study was fully recruited at the end of 2023, as all patients have been assessed for about 2 years or longer. So far, the experiences from the trial are generally very positive in terms of patient feedback and the projections for completing the randomized efficacy part of the trial has been extended based on the lower than predicted rates of progression-free survival events during the past few months. We recently completed a new analysis of the accrual rates in the study and based on the trends, we have updated the projections for reaching the 194 events for the study to mid or second half of 2026. From a CAM2029 and study outcomes perspective, the adjustments should be positive while also extending the time to primary results. To put this in perspective, I would like to highlight the study design and patient population that is part of the SORENTO trial. So compared to previous studies of tumor progression, SORENTO is a randomized active control study with the primary objective to assess the superiority in progression-free survival for treatment with CAM2029 versus standard of care with first-generation somatostatin receptor ligands. It is indeed the largest ever study of SRL performed in patients with neuroendocrine tumors and majority, and this is an important point of the patients, SORENTO has advanced grade 2 or grade 3 neuroendocrine tumors at baseline compared to no or the minor portion of patients in the earlier tumor controlled trials, PROMID and CLARINET. The progression-free survival for the blinded population in SORENTO should be viewed in the context of the study population, which makes us optimistic about the study prospects. Moving over to PLD. During the quarter, we continued analyzing data from the POSITANO trial in preparation for an end of Phase II meeting with the FDA planned for early next year. Furthermore, CAM2029 was granted orphan drug designation for autosomal dominant polycystic kidney disease, ADPKD, both in the U.S. and EU during the period, pointing to the high unmet medical need in this indication. Importantly, this can also expand the future orphan drug exclusivity to PLD arising from ADPKD. So that is significant progress in itself. Finishing off with the acromegaly indication, Oczyesa has now been granted market authorization for the treatment of acromegaly in both EU and the U.K. For the U.S., the NDA has been updated during the quarter and is ready for resubmission as soon as we have received green light from an inspection at the contract manufacturer. Please remind you said that there was nothing in the CRL from the FDA that was related to the product itself or its clinical or safety data. Based on our plans for resubmission, we expect a new PDUFA date and a potential U.S. launch of Oclaiz in the first half of 2026, which will, of course, be an important event for us. In parallel, we are preparing for launches of Oczyesa in Europe, the first monthly subcutaneous octreotide medication in the market, enabling convenient self-administration for patients and enhanced octreotide plasma exposure. The European launch has been has now been initiated in the Wave 1 countries with an estimated 3,000 to 5,000 acromegaly patients currently treated with first-generation long-acting somatostatin receptor ligands. The response to the Oczyesa profile from physicians and patients has so far been very encouraging with a positive view both on this and clinical data and market research that we have performed in the area show a high willingness to switch to Oczyesa from current somatostatin receptor ligands. In addition to this, we have also had positive initial feedback from payers. So as you may have seen from the announcement earlier this week on Monday, Oczyesa has now been launched in Germany as the first country in Europe and globally. And our medical affairs and sales team are now out in the field. Germany represents a substantial opportunity with about 2,000 patients currently in treatment with first-generation somatostatin receptor ligands and with an annual sales potential of over EUR 50 million. A recently performed physician survey suggests that about 30% to 60% of these patients are initially considered suitable for switching to Oczyesa. Obviously, GEP-NET represents a much larger opportunity, however, acromegaly is, of course, a great starting point here. Alongside the advances of the CAM2029 program, we have also completed treatment of the last patient in the Phase Ib study where monthly semaglutide formulation, CAM2056 based on our FluidCrystal technology. We now expect to provide top line results this month. We'll focus on tolerability and of course, importantly, efficacy indicators such as body weight and HbA1c. In addition, we progressed our strategic partnership with Eli Lilly for the development and commercialization of long-acting incretins in the cardiometabolic area, including GLP-1, GIP dual agonists and GLP-1, GIP glucagon triple agonist. And we are naturally very excited about progressing this collaboration. So with this, I think it's time to finish off with some key takeaways of the quarter. In summary, we had a good quarter as you have heard, not without challenges. However, we did significant advances and progressed and expanded our business, delivering strong profitability and cash flow, stable Buvidal sales in Europe and Australia. I think our team are doing an excellent job also with regards to the future development in the market. Notably, Brixadi had another good quarter in the U.S., outflowing the rest of the market. In addition, for Oczyesa in acromegaly, we received the U.K. approval and prepared the launch in Germany. And also, as I mentioned recently here, we advanced our promising long-acting incretin pipeline. With this final note, I think it's time now to move over to Q&A. So please Einer, take over the call. Operator: The first question is from Viktor Sundberg from Nordea. Viktor Sundberg: So I had a question first on Buvidal. I just wondered if you could provide any more details when you expect funding to be released to clinics and when the market could turn around in the U.K. I mean just trying to get a feel for if this could spill over into Q4 as well or into early 2026 or how we should model this impact? Fredrik Tiberg: Yes. I will leave that over to Richard. Richard Jameson: Yes. I mean funding is coming in drips and drabs. There are some areas that are having funding now, others less so. So I can't guess what the government would do, but we hopefully will see some advances in Q4 and then moving into 2026 as well on that. I mean, it is growing the U.K. market. We are getting more patients. It's just slower than we anticipated. Viktor Sundberg: And also I had a question as you have launched Oczyesa now in Germany. Could you comment maybe how it's priced versus the other injectable depot formulations on the market? Fredrik Tiberg: Yes. I think you could estimate that is priced at the high end of the SANDOSTATIN reference products. So just -- so I think it's official price now. Anders Vadsholt: It's just under EUR 3,000. Fredrik Tiberg: Yes, just under EUR 3,000 per dose. Next. Unknown Analyst: Can you hear me? Fredrik Tiberg: Yes, we hear you. Unknown Analyst: A couple of questions on my end. The first one is for Buvidal in Europe. How many net patient additions were there in Q3? And are there any additional markets that recently came into play, for example, think of Portugal that can support the future growth while the issue in U.K. and Germany persists. Fredrik Tiberg: Yes, certainly. I mean we reported a number of patients, 67,000. But Richard, maybe you can comment on the growth in the additional markets, Spain and... Richard Jameson: Yes. I mean everyone making contribution, we grew 2,000 patients between quarters this time. Portugal, yes, is really to come on. It's early days in that market. So we'll wait to see that. But yes, they will provide an opportunity for us as we move forward to grow the numbers of patients in treatment. Fredrik Tiberg: And we're seeing positive trends also in Spain where we are seeing big potential. And of course, we have further countries, including the Northern European part. Maybe this should also be put into the context of the dynamics of other movements in the Nordic markets and elsewhere, but it looks -- there is good growth potential. Unknown Analyst: Okay. Got it. And then maybe another one on Brixadi in the U.S. At last update, I think it was on Q4 last year. The numbers showed roughly 25% market share for Brixadi in the LAI market. Now it stands at 30%. Is this the market share of new patients switching from sublingual buprenorphine to LAI. Fredrik Tiberg: I think -- I mean the main components, and we have talked about that for quite some time is that most patients are coming from sublingual buprenorphine, of course. And depending on the relative growth in that segment, this will, of course, impact the market share between different products. So I would say the majority of the share is coming straight from sublingual. Unknown Analyst: Okay. I mean, the reason why I'm asking this is last week Indivior reported a 75% market share. So I was just wondering on which metric you base this 30% market share. Fredrik Tiberg: So we have done -- used several different metrics, we should say, or different data sources and all of them converge into 30%. And that includes both public sources and also other sources that we have access to. Operator: The next question is from Richard Ramanius from Redeye. Richard Ramanius: I have two questions on the guidance for this quarter. So I'll just read both questions straightaway. In your Q3 report, you guided for around SEK 650 million R&D costs in 2025. And also this was dropped in the Q3 report, so is this because the expected costs will be lower this year. Is this because you overestimated costs because some costs will be postponed into 2026? And my second question is you lowered the guidance, should we say, implicitly from Braeburn since you don't expect the milestone, which I assume is revenue-based. Is that because of stronger U.S. competition or other market dynamics or both? Anders Vadsholt: Yes. So shortly, so we're not pushing costs ahead of us. Of course, there will be something that are a bit delayed, but there's also been a number of savings in the R&D department. We're doing a tech transfer and so on. So it is cost reductions and then some of the costs will come into 2026. So it's a mixed situation here. But it will be lower for the year. Fredrik Tiberg: Can you repeat? I missed the second question, sorry if we're not answering that. Richard Ramanius: Sure no problem. Implicitly, you guided for lower revenue for Braeburn since you do not longer assume the milestone payment, which I assume, is related to revenues. Is that because of strong U.S. competition or just because of market dynamics? Fredrik Tiberg: I think it's mainly market dynamics. It's been -- I mean, we were expecting -- we had, of course, very high expectations on the year, and those have come gradually down. But I think the good news is that we have seen a very good recovery here, especially now also consistent recovery. So -- but this -- in total, this has led to the milestone being at risk, which of course, it was not in the early phase of our assessment. Operator: The next question is from Shan Hama from Jefferies. I think actually, it's Romy O'connor. it's not Shan. So Shan, if you can queue up again. Romy O'Connor: I have one question. I was wondering if you could provide more color on your manufacturing expansion efforts in the U.S. I know you're planning further investments to deploy U.S. operations for acromegaly. I'm just wondering what your thinking is for GEP-NET next year and what your sales force will look like there? Fredrik Tiberg: Yes. I mean in terms of manufacturing, we have talked about that last quarter. All of those processes are advancing. Obviously, we have our current sources that we need to secure future supplies, especially then when GEP-NET comes up. So that's an important part of the further development of GEP-NET, and that is progressing perfectly according to plans. So that's, yes, positive. Romy O'Connor: And then just maybe one more quickly. I was just wondering if you could share a bit on your future outlook for the Australian market with Buvidal because now you've reached 80% share, I think, of the LAIB market? Do you think this is reaching a plateau? Or do you see future growth here? Fredrik Tiberg: Richard? Richard Jameson: Yes. I mean Australia continues to grow well. We have about 30% share of the total market now, as you said, above 80% of the long-acting segment. We still see that demand in Australia. We still see it growing. There's a lot of people still on sublingual that are interested in moving across. And of course, methadone is a large segment as well, and we're seeing increasing numbers moving across methadone because the advantages long-acting brings. So we anticipate continued growth in Australia. Operator: Now we have Shan Hama from Jefferies. Shan Hama: Just two questions from me. I'll take them one at a time. So on the SORENTO readout. Obviously, you know this has been pushed to sort of late 2026. It makes sense that this is because of the time to approve that. But are there any concerns that the control arm maybe outperforming such as, for example, when evobrutinib's Phase III study read out and Aubagio surprisingly outperformed. Fredrik Tiberg: Well, I mean, you can never come with guarantees on these things. So -- but in terms of -- obviously, we are using the literature reference data. We are trying to compensate for populations and population characteristics and so forth. There is nothing new that has happened in terms of the standard of care changing -- in terms of treatment changes and so forth. So I think we should -- this should not be the case, but you can never be sure, 100%. But I think our view is on this is and that's also our physicians input is that there has not been any material changes into the treatment regimen for the standard of care. So it's about trying to understand the different data sources. And I think we have a good indication. Shan Hama: Understood. And then just for my second question, could you just tell us what Braeburn communicated with respect to the criminal justice channel and the dynamics that will occur during 3Q on both state and federal side? And then what would it look like for 4Q? Fredrik Tiberg: Well, I mean, that leaves me with -- I'm sorry that because of the competitive situation, but also because of our contractual situation, I'm not able to go into any details on this note at this moment, Shan. I would, of course, want to, but I cannot fill you in on this. Operator: The next question is from Georg Tigalonov-Bjerke from ABG. Georg Tigalonov-Bjerke: I have a couple. So first, I was wondering whether you or Braeburn has seen any price pressure for Buvidal or Brixadi lately? And secondly, your competitor, Indivior, for example, at their Q3 reporting last week, they highlighted that Sublocade has a unique offering in the long-acting category in terms of rapid induction, i.e., a second monthly dose injection after 1 week. So of course, Indivior has a history of quite aggressive marketing. So I'm curious if you are able to comment whether or not you think this is an actual significant distinguishing factor versus Brixadi seeing as Brixadi allows for weekly initiation with the weekly dosed injections. Fredrik Tiberg: Well, to the first question about price, I don't think we have heard about any price pressure in the U.S. I mean it's -- obviously, the whole system has -- price is an important -- increasingly important component. But I haven't heard of anything specific there or anything that is concerning to us. When it comes to the rapid initiation with Indivior's product, I don't prefer to kind of make judgments versus a colleague in the market here. I think it probably has some advantages for them. I think we have a very good treatment regimen as it is. We have the transfer doses from sublingual, which is the most important market for us. We have the weekly start. So we have all of this under control. We have -- it was conducted a big study in emergency centers in the U.S. with over 2,000 patients using the weekly starts as a very successful measure to taking over patients from in hospital treatment to outpatient treatment. So -- and plus it's used very regularly in the system. Do you have any further to say that, Richard? Richard Jameson: Yes. To add to that, I mean, some of the feedback from some of the core research we've seen from various groups is that patients like to start with weekly because they want to understand how it feels to be like on a long-acting before they commit fully to a monthly treatment. So I think the patient preference is for a month -- for a weekly initiation and our experience in Europe shows that. Fredrik Tiberg: I think most -- and most importantly, of course, we still see that we have -- I mean, it appears that we're -- our partner is doing a good job in the U.S. We are progressing CAM2020 -- sorry it's 38. We're progressing Brixadi nicely in the U.S. based on our competitive profile. And I think that holds a lot of advantages compared to other products in the market. Operator: And the next question is from Suzanna Queckbörner from Handelsbanken. Suzanna Queckbörner: Suzanna Queckbö here, Handelsbanken. I have another question on Buvidal. So you have your target for 2027 of reaching 100,000 patients. With the last few quarters of 2,000 patients net addition, we need to substantially accelerate to reach that going forward. Perhaps you could comment on how you think about that? And then also, is that possible in the markets that you currently have? Or will you need to make -- I mean address the regions where we've had budget constraints differently. Fredrik Tiberg: Yes. First, I mean, we still retain our vision for 2027 also in regards to 100,000 patients. Obviously, there are challenges and opportunities. Maybe, Richard, do you want to go into your thinking around this? Richard Jameson: Yes. I mean it's not necessarily a linear approach as we create successful arguments to increase access, where you can see acceleration there. And we've got a number of processes that are ongoing in discussions with various groups that could still bear fruit to that. And our ambition is to achieve it. And I think we have to remember that we still have relatively low penetration in this market at about 10% of patients. So there's still plenty of opportunity to grow the business, and we can if we can resolve the funding issues and the hurdles we faced, which we're on track to do. Fredrik Tiberg: And I think adding to that, I mean, obviously, we have great teams working in various different everything from government affairs to direct contacts with the medics and so forth. And we generally have a very positive feel. But as Richard says, it will not be a linear curve up to the goal, and it will be a lot of hard work, but we retain our vision, and we are working hard to achieve it. Suzanna Queckbörner: Very good. And then a follow-up on the Eli Lilly deal. In the initial press release, you didn't mention anything regarding amylin, but there was opportunity to expand. Can you maybe just give us a little bit more on what progresses have been made recently and how you think about other incretins? Fredrik Tiberg: I can't give you any update because it's outside my remit, so to speak. But yes, I mean, obviously, they have an option to amylin and usually, an option has a timely limitation coupled to it. So that's one of the components of our collaboration, which I think you can very nicely say that right now, it's progressing very well. But I can't give you any details on that beyond those 2 comments. Operator: The next one is from Dan Akschuti from Pareto Securities. Dan Akschuti: Just one more question. That is regarding 2056 as well. If you can share just some more details that you -- what you're expecting from the data readout this month and what you will be able to share in terms of detail of the data? Will it be just a press release with some top line or will you share a lot of graphs and details on PKPD, et cetera? Fredrik Tiberg: Yes. First of all, I think it's important to know the study design. So basically, design is one part which is a randomized part versus semaglutide. So the monthly versus the weekly. And then there is a second part of the study, which is basically a dose escalation part. So we're going from low to high concentrations of very high concentrations. So obviously, we will report comparative data focusing on the -- obviously, tolerability profile is important, weight and PD readouts in terms of HbA1c and so forth. So the traditional measures. It will most likely be provided in a press release form with some data points, key data points and then later on, we'll likely follow up with more detailed information about the product results. But -- so I think that's the order of that. But what is unique with this study is, of course, that we have an active comparator. I think it's not that usually that if you go into a Phase Ib study with an active comparative. So it will be an interesting readout from the study with, I think, clear potential to demonstrate something of relevance. That's how far I can... Operator: We have a follow-up from Shan Hama from Jefferies as well. Shan Hama: Just one more for me very quickly. Can we expect CAM2056 to be press released this month then? And could you just speak to how detailed that release will be? I know it's only Phase I, but any sort of color would help? Fredrik Tiberg: Yes. I mean, absolutely, our intention is, according to the current time lines and so forth, our intention is to be able to press release it this month. And the data, I mean, we will -- I think you can anticipate about the same level of detail as you see from other pharmaceutical companies working in the space for a Phase Ib trial or early Phase II trial. So I think that you should expect that level of detail approximately. Operator: There are no more questions at this time. So I hand the word back to you, Fredrik, Anders and Richard for closing comments. Fredrik Tiberg: Okay. Thank you so much. And I just want to say, of course, thank you very much for joining into this call. It's a pleasure to have interest from you all and engaging questions. And I look forward to meeting you all on the road or at our next call in Q4 -- the Q4 report. And with that said, thank you again, and we can close the call.
Rune Sandager: Hello, everyone, and welcome to GN's conference call in relation to our Q3 report announced this morning. Participating in today's call is Group CEO, Peter Karlstromer; Group CFO, Soren Jelert; and myself, Rune Sandager, Head of Investor Relations. The presentation is expected to last about 20 minutes, after which we'll turn to the Q&A session. The presentation is already uploaded on gn.com. And with that, I'm happy to hand over to Peter for some opening remarks. Peter Karlstromer: Thank you, Rune, and thanks to all of you for joining us today. Let me start with the group highlights on Slide 4. In Q3, we delivered a solid quarter with 1% organic revenue growth, driven by market share gains and strong performance across our divisions. Our execution led to a healthy margin and cash flow development, allowing us to reconfirm our guidance for the year. In Hearing, the rollout of ReSound Vivia is continuing progressing very well. Vivia's strong differentiation and our solid commercial execution led to broad-based market share gains and 7% organic growth. Overall, we are very pleased with the positive feedback received in our 2 recent launches of Vivia and Enzo, and we are confident that they will successfully support our future growth ambitions. In Enterprise, Q3 marked the fourth consecutive quarter of positive sell-out growth across North America and APAC, driven by market-leading innovation and strong channel execution. In Europe, we are successfully defending our market-leading position, while our top line is impacted by the ongoing market uncertainty. In total, enterprise organic revenue growth in the quarter was negative 4%, while the sell-out growth was somewhat stronger. We delivered healthy gross margins despite headwinds from the current tariff environment, thanks to successful supply chain and pricing action we have taken. In the quarter, we also announced a partnership with Hadly concerning large meeting room experiences and introduced a range of new products in FalCom. In gaming, we continue to gain market share and deliver 3% organic growth in the gaming equipment market challenged by tariffs and lower consumer sentiment. In the quarter, we executed well on our tariff mitigation plan, further diversifying our manufacturing footprint and rolling out price increases to limit the net impact from tariffs. We're also excited and proud to have launched Arctis Nova Elite, the world's first premium wireless gaming headset with a high-resolution sound. In summary, we are pleased with our execution and results in a relatively challenging market environment and are ready to benefit from markets as they grow stronger. And with that, I'm happy to hand over to Soren for group numbers in the quarter. Soren Jelert: Thank you, Peter. As Peter mentioned, our third quarter was a solid quarter and an important step towards our strategic ambitions. In summary, our group organic revenue growth ended at 1%, excluding the wind down, driven by a continued strong performance in Hearing with a 7% growth, offset by a negative 4% growth in Enterprise due to the global market uncertainty in EMEA. Gaming continued to perform well in a challenged market, achieving a 3% organic growth and taking share. Reflecting the development in the revenue, the EBITA margin came in at 11%, mainly due to negative operating leverage. Our cash flow was solid in the quarter, coming in at DKK 410 million, excluding M&A, reflecting our earnings profile as well as a positive impact from working capital. Now let's move to the financial details on Slide 6. Despite direct impact from tariff in 2 out of 3 divisions, our gross margin remained strong at 54.4%, being only 0.4 percentage points below last year. As mentioned by Peter, this can be attributed to our effective price mitigating initiatives, strong pricing discipline, positive business mix and group-wide synergies. Reported EBITA margin ended at 11%, which was 2 percentage points below last year, reflecting the development in the revenue as well as provision release in gaming in Q3 of last year. Moving to the cash flow. Our strong earnings profile, combined with our favorable development in our working capital resulted in a positive cash flow of DKK 410 million in the quarter. Driven by the solid cash flow, our net bearing interest debt decreased to DKK 9.4 billion, which equals a leverage of 4.0x. As we communicated already as part of Q2, we have now formally signed our new loan facilities, which means that we have extended our debt maturities while at the same time, negotiated lower interest rates, which should start to kick in from Q4. With that, I'll hand you back the word to Peter for some financial highlights on Hearing. Peter Karlstromer: Thank you, Soren. Let me start with our Hearing division. In Q3, our strong momentum of ReSound Vivia continued to drive growth through broad-based market share gains. As a result, we grew organically by 7% in the quarter, which was on top of a high comparison base of 10% in Q3 last year. Our gross margin came in somewhat lower than last year, primarily reflecting negative country and business mix as well as our disposal of Dansk HøreCenter. Sales and marketing costs decreased by 6% compared to last year, driven by prudent cost management, while we continue to invest in key initiatives supporting the strong momentum of Vivia. Due to the gross margin development, offset by positive operating leverage, our divisional profit margin ended at 34.2%, which is similar to Q3 of last year. Let's move to next slide for some more details on the geographical performance. As mentioned, ReSound Vivia was the primary driver of our ability to gain market share across markets again in the quarter. In North America, we delivered solid organic growth in the independent segment and VA, thanks to the strong reception of ReSound Vivia VIA. We experienced some challenges though with Jabra Enhance that is negatively affected by the low consumer sentiment. We also had a headwind at a major U.S. retailer due to changes in the competitive environment. In summary, our organic revenue growth was flat in North America in the quarter. In Europe, we continue to take shares in key countries like Germany, France and U.K. that led to a very strong double-digit growth in Europe. In the rest of the world, strong momentum in ANZ and our distributor channel led to strong organic revenue growth for the region as a whole. Overall, we are pleased with the hearing performance in the quarter and continue to make progress towards another strong year. With this, let's move to the Enterprise division. In Enterprise, the positive sellout trend in North America and APAC continued in Q3, while EMEA remains challenged by the uncertain macro environment. In addition, we continue to experience inventory reductions in North America. In total, the enterprise organic revenue growth was negative 4% in the quarter. In Q3, the impact from FalCOm was limited, but we are happy to share that FalCOm has signed significant orders we plan delivery in Q4. The enterprise gross margin remained strong and increased by 0.6 percentage points compared to last year despite challenged market and U.S. tariffs. Overall, the actions we have taken in our supply chain and with pricing work well and as intended. Sales and distribution costs decreased slightly in the quarter, reflecting good cost control, but also targeted market investments in preparation for the important Q4. In total, the divisional profit margin ended at 34% for the quarter. Let's go to the next slide. It is encouraging that now experienced positive sell-out growth for 4 consecutive quarters across North America and APAC. This has been driven by strong commercial execution and our market-leading product portfolio. Whereas the sell-in and sell-out was fairly balanced in APAC, we did experience quite a difference between sell-in and sellout in North America due to continued channel inventory reductions. In Europe, both sell-in and sell-out continues to be challenged due to the weak macro environment and uncertainty of the trade environment, making several companies hold back investments. However, we do observe some improving trends in key markets like Germany and U.K., while we also see that the political instability in France has made this market to turn down. While there are some opposing forces at play, we believe the market continues a gradual recovery and return to growth. With the current dynamics and with the revenue contribution from FalCom, our base case assessment is that the total enterprise business will continue to improve its growth pattern into the fourth quarter. Let's move to the next slide. We continue to believe in the long-term attractiveness of the enterprise market, driven by hybrid work and the ongoing upgrade of collaboration tools to create a seamless and high-quality experience allowing hundreds of millions of people to communicate in a natural, undisrupted and clear way. In this slide, we are very excited about our coming headset platform launch, which has been in the development for several years. We intend to significantly improve the headset experience for our millions of daily users across multiple dimensions. We aspire to take the appreciated Jabra experience to new levels in terms of performance, looks and comfort. The early customer feedback on the NDA is very positive. We will launch a complete range of new headsets over the next 12 to 18 months. The first 2 products will be available to selected customers during Q4 and the general availability will be at the beginning of next year. We will share more details on these upcoming products and launch when we're coming closer to the launch event. And with that, let's turn to the next slide for some comments on gaming. In Q3, the gaming market continued to be challenged by the tariff environment and weak consumer sentiment. Despite these challenges, SteelSeries delivered an organic growth of 3%, thanks to continued appreciation of its product and good execution. With a successful wind down of our Elite and Torque product lines, overall revenue growth for the division was negative 16%. Our gross margin ended at 31% in the quarter. We had a negative effect of tariffs, partly offset by pricing increases. Q3 last year, we had a provision release that impacted our numbers by around 6 percentage points. If you exclude this, the gross margins was essentially flat in the quarter. Sales and distribution costs decreased 33% in the quarter, driven by the structural savings from the wind down and the general and prudent cost management and our group-wide cost program. All in all, the division profit came out at 9%, excluding the consumer wind down, reflecting the gross margin development, but partly offset by positive operating leverage. Let's go to the next slide. In September, SteelSeries reinforced its position as an innovation leader with the launch of Arctis Nova Elite, the world's first high-resolution wireless gaming headset, delivering stellar sound that many testers describe as an order file gaming experience. The headset is by far SteelSeries most advanced headset to date, offering a wide range of new features, including [ OMNIA ] play for improved connectivity across platforms, AI noise reduction and improved integration with the SteelSeries app for real-time audio control. As evidenced by the highlights to the right, feedback has so far been exceptionally positive, which is great to see. I think these reviews certainly speaks for themselves. And with that, I would like to hand it back to Soren for some comments on our guidance. Soren Jelert: Thank you, Peter. We are today reconfirming our guidance for the year, so we'll keep this short. We continue to expect an organic revenue growth, excluding the wind-down effect between minus 2% and plus 2% for '25. In addition, we are reconfirming our EBITA margin guidance of 11% to 13% as well as our cash flow, excluding M&A of around DKK 800 million. With the execution we've seen in the first 9 months of the year, we continue to believe that the midpoint of the guidance being the most realistic scenario. That concludes our update on the business, and I'm happy to hand you back to Rune. Rune Sandager: And with that, I'd like to hand over to the operator for the Q&A. [Operator Instructions] Operator: [Operator Instructions] First question is from Andjela Bozinovic of BNP. Andjela Bozinovic: I'll have one on Hearing and one on Enterprise. First on Hearing, you delivered another quarter of very strong growth despite the market weakness. Can you talk about your market share in the quarter and especially with U.S. independents and any other regions that you would want to highlight? And specifically, could you comment on the share in Costco? And how do you think about this channel going into year-end? And how did Hearing perform excluding Costco? And finally, on Enterprise, can you maybe break down performance by region, the same way you did for U.S. -- sorry, for EMEA? And specifically, what are you seeing there? It's been 4 quarters of positive sellout in other regions, but EMEA is still lagging. Do you expect this to change in Q4? And what are you seeing on the ground in the region? Peter Karlstromer: Thanks a lot for your question. Let me take them in the order you asked them here. So if we take first hearing and market shares, we did well, as I mentioned in the opening here in the U.S. independents. I don't like to comment on exact market share numbers and so -- but this was certainly a growth contributor for us. If we look on other markets and so, we had a very good European performance, and we saw some outperformance in Germany, France and U.K. And there, we also -- I think it's fair to assume we, in a healthy way, gained market shares. So these were really the larger key markets supporting there. And then if we look more on the APAC market, I would say several markets did well, but in particular, ANZ. And then we have a lot of distributor-led markets there, a bit smaller markets, but this channel and our execution there generate a very healthy growth. So those are probably the highlights I'm able to share. You did ask about Costco. I think the situation is, of course, similar as we talked about before. We are doing very well in our relationship with Costco. We feel that the partnership is in a good level. But of course, then taking the decision to go from 3 to 4 manufacturing partners is certainly having a bit of a headwind on our business. We estimate that headwind to be around 2% of growth for our Hearing division, just to help you to understand the magnitude there. Then if I move to Enterprise performance per region, I mean, the way we see it first is that the sell-out growth in the U.S. and APAC continue now is 4 quarters. We see that as very positive. I think it essentially means that these 2 regions have turned into growth and our business there is also performing well in terms of market share levels. If we look on APAC a bit more in detail, I think where we are doing in particular well has actually been in India recently, our own business. But I would say, generally, the APAC business have developed in a healthy way. And then in Europe, it's been difficult here in Europe because some markets actually have started to turn more constructive and some markets have almost been a little bit of a setback. The positive development in the last quarter has been Germany performing a bit better. We were quite worried about Germany in the beginning of the year. I think that certainly has improved quite a lot. And that's very important because it's, of course, a large market, and we also have very healthy market shares there. The market that turned a bit opposite, as I mentioned, is France, where probably related to the overall uncertainty around the political environment has made this market turn a bit more to the negative side. So all in all, I do still think if you add this up together, we do see a gradual improvement of the market and we do believe that will continue into Q4. We -- I cannot guide more on Q4 than what's implicit in what Soren said. But when we look into next year, it's certainly our ambition to be able to drive growth in our Enterprise division. Operator: The next question we have is from Carsten Lonborg Madsen of Danske Bank. Carsten Madsen: First, a question to Soren your free cash flow. So year-to-date, we had DKK 368 million despite generating DKK 410 million this quarter. So a very solid quarter, of course, but also with a relatively high impact from a release of working capital. So into Q4, could you provide a little bit of building blocks where you can one more time release working capital or whether it's simply just the margins coming up in that quarter that should support the last DKK 400 million in free cash flow we need in order to get going. And then, I guess, in terms of Jabrahanc.com now again looking at a quarter where it seems like Jabra Enhance doesn't really matter a lot. So what's the patience with this? And/or could you -- are there any other options you could exploit in order to get some growth or some value contribution out of Jabraenhance.com? Soren Jelert: Carsten, thank you for the questions. I think on the cash flow, you are absolutely correct in catching it up, so to speak, year-to-date. And I think in many ways, this is the profile we have also seen and expected in GN. Normally, we have the second half of the year as the positive cash contributor for us. And actually, with now for this quarter in isolation, quarter 3 of DKK 410 million, of course, that was important, and it was nice to see that was also driven by working capital improvements. Coming into the fourth quarter, it is also a fact that we have a higher earnings quarter. We have also a higher top line, but also a higher earnings profile. And that's normally also what supports our endeavor to deliver the free cash flow of DKK 800 million for the full year. So in many ways, I think what we have now laid out increases the likelihood of the DKK 800 million and is by no means different in nature of prioritization compared to historic numbers. Peter Karlstromer: And if I comment on Jabra Enhance, just taking a step back to build on what we said before, we've always seen this as a long-term business build. And for many, many quarters, we consistently executed towards a breakeven late this year or early next year. I think we just need to recognize this has been actually a difficult year for Jabra Enhance where the business instead of growing has been having a decline, and it was a decline here in the quarter also. And we recognize that this is, of course, both a headwind for the growth, but as well as for the profitability. So to your question, we are certainly working on all levers here. We do like to see the businesses to perform stronger. We're taking a lot of initiatives to do that. What is driving though the softness is likely more the macro environment and the weak consumer sentiment, but we're certainly taking all initiatives to return it back to growth. I think we have indicated in the past also that this is a business we could see ourselves passing on to another owner over time. But we do like to do that, of course, at the right point in time when we think we can do this to a fair value. But we're essentially assessing all alternatives here to both improve the business and make sure we from a value creation point of view is making the right decisions. Operator: The next question we have is from Veronika Dubajova of Citigroup. Veronika Dubajova: I will keep it to 2, please. My first one is just on hearing and how you're thinking about the competitive environment and the sustainability of your growth rate as we kind of move into next year, if you can sort of maybe talk about the pulls and pushes that you see there. Obviously, Vivia has been a tremendous success, but we do start to annualize that out early in 2026. So if you can maybe talk through some of the opportunities that you see above and beyond that. And then my second question is on Enterprise, and thank you for all the color. I guess, Peter, do you think first quarter is when the sell-in and the sellout in North America can start to converge? Or is there much more inventory left in the channel, if you can talk to that? Peter Karlstromer: Thanks, Veronika. And thanks for the positives on Vivia. And we are, of course, very proud of Vivia and the underlying capabilities here. We do think it's a very complete hearing aid performing very well in the market. And as we can see in the quarter, there's certainly still a lot of positive momentum around Vivia, and we do believe that will continue for several more quarters. We are already now, of course, working on the next launch after Vivia. We will make a launch also next year. We have not communicated the exact timing of that. And then, of course, as we always try to do, have an incremental innovation along the way. So I do believe we should be able to have a good year in hearing also 2026. We will, of course, come back and communicate around that with our '26 guidance. But certainly recognizing to keep up the great momentum, we need to continue to launch appreciated products and need to continue with a good execution in the market. So that's what -- where we have all our focus. Then if I comment on the enterprise and the U.S. sell-out and sell-in, it's, of course, nothing we can fully predict or certainly not control. But given the inventory levels we have now in the North America channel, we do believe that we're coming to some level of end of this channel inventory reductions in North America. So I think that is a fair assumption. If we look more globally, we have similar and stable inventory levels in Europe as we've been having over the past few quarters as well as in APAC. There can be periods that we have been through now where there are some changes. So this has been a bit more than normal. But I do think that what we see now in the U.S. is most likely coming to some type of end here soon. Operator: The next question we have is from Martin Parkhoi of SEB. Martin Parkhoi: Martin Parkhoi from SEB. Just also going back to hearing because I just want to discuss the gross margin. And you, of course, say that the strong growth driven by ReSound Vivia, but you also under the explanation for the declining gross margin, talk about changed business mix. So can you elaborate a little bit of what kind of changed business mix you've seen? It is -- it looks like low-price sales to some channels in Europe given the growth you also have that market. That was one question. And then the second question, just on Telkom visibility. Peter, you basically say you also say at Q2 that you have orders in the book to deliver nice sales in Q4. [indiscernible] was '25 just as one-off year? Peter Karlstromer: Thanks, Martin. Starting with the gross margin on Hearing, yes, it's a combination essentially of the revenue mix and the revenue mix having a different gross margin for us. And normally, that balances out. We've now been in a period where we certainly have been growing more in countries and channel types that have a bit of a lower gross margin. I think this is more an effect of market dynamics rather than any changes in priorities for us. We still strive to have a very kind of well-balanced and broad growth composition. So we certainly believe this will balance over time. The other thing I would highlight also is that the softness we've seen in Jabra Enhance is also having a negative impact on the gross margin. So I think it's really the totality of this. What we have not done is to take in, what should we say, a different stance on pricing and certainly neither to, what should we say, in a deliberate way taking very large orders to very low margins. It is really more an evolution and the consequence of the market growth we are operating in essentially. Then on FalCom, you were a little bit breaking up when you asked the question, but let me try to answer it. And if I don't get it right, please follow up on it. And for Q4, as we mentioned in the report today, we have already secured orders for -- that will help us to have a very healthy Q4, I would say, in the magnitude of the same level as we had in Q2. And it's actually several orders, but it's a larger order. It's actually not the same customer that ordered from us creating the large order in Q2, which I think is also positive. So we continue to make, I would say, very healthy progress here of FalCom. I think you asked about '26. We will, of course, come back and give a bit of a more precise commentary on that when we give our guidance for '26. But I can say, generally, the pipeline build in FalCom is healthy, and it's a portfolio of opportunity we're working. And in totality, I believe the pipeline should be able to be there to continue a good kind of revenue base for FalCOm into '26 as well. Operator: The next question we have is from Niels Granholm-Leth of DNB Carnegie. Niels Granholm-Leth: On tariffs, you talked about a 1% effect for the full year, half of it being temporary. So what are the prospects of GN neutralizing the effect of tariffs through pricing initiatives in '26? My second question would be on warranty provisions. So -- and that's related, obviously, to the wind down of consumer. So that's DKK 50 million this year. Should we assume any warranty provisions for next year? Or will it be completed as we turn the year? Peter Karlstromer: Thanks, Niels. Let me start with the tariff one and then pass it on to Soren for the provisions. Yes, we can confirm that this year, we have an impact of tariffs on the group margin around 1%. And we communicated before that we have cost of more temporary nature like movement of supply chain and similar of around 0.5%. So the residual is at 0.5 percentage point. Most of that residual is sitting in the Gaming division, where it's been difficult for us to fully compensate with price increases, the tariff impact. And there also are essentially, the price increases we are making are having an elasticity, which makes it a little bit more challenging to fully use that lever to get into balance. So I don't have a precise answer, if I'm being honest. We are still evaluating exactly what we can do with pricing to mitigate the tariff and how we can do that best. But what I would add, in addition to this, we have several other levers for gaming we're working on to improve the profitability, more related to supply chain, inventory management and other aspects in how we're operating. And then I would also say that over time, as we're launching new products into the gaming segment, the life cycle of the products here is more like 12 to 18 months or similar. We will, of course, try to launch new products to price levels so we can get into balance with the margin. So if we use on the total set of levers, we remain very committed here to restore a healthy margin for the Gaming division. Soren Jelert: And Niels, well remembered on the impacts of the wind down on the consumer, where we also back then said that we would have some run-off costs this year as part of the warranty. And we are expecting that, that goes towards 0 next year as we are at the end of the warranty period. So that should confirm that. Operator: The next question we have is from Martinien Rula from Jefferies. Martinien Rula: I hope that you can hear me okay. It's Martin from Jefferies. I would ask 2, if that's okay for you, and I'll start with the first one and give you some time to answer it. If I remember correctly, one of your main competitor in enterprise and gaming said during their last set of results that they were -- they saw actually some slowdown in volumes in gaming at the beginning of the calendar Q3 due to the pricing initiatives they also took to offset tariffs. And I was wondering, given you passed, if I remember correctly, 10% price hikes in both divisions earlier this year, I was wondering if you could also elaborate a bit on whether you've seen or not actually volume softening in both enterprise and gaming. Peter Karlstromer: Yes. I think you described it very well. And I know that several of our competitors have, of course, also made price increases and some of them have made comments like this. Our experience, and I alluded a little bit to the answer of the previous question here is that on the enterprise side, we have actually managed to do this well. We have made price increases. We have seen some kind of volume impact of it, but way less than the price increases. So overall, as a lever, this has been working well and I think been working well also for our peers in the industry. I think for the gaming products, which are more consumer products, it has been a little bit more difficult for 2 reasons. I mean, one is that the consumers are, of course, a bit challenged in the U.S. The consumer sentiment is not in the strongest levels. So when things getting more expensive, I think it's a high risk that they buy less. And the other thing that's been a bit difficult is that several of the retailers have been very reluctant also to support price increases essentially because they're worried about the same thing. So net-net, the price increases have been a bit more challenging in the gaming side than on the enterprise side. With that said, we have successfully increased prices. We have increased prices with a bit more than 10%. So I do think it has worked okay for us, but it has not worked in a way that it's fully mitigating the impact of tariffs, as I mentioned here on the previous question. So we are trying to find our ways. And we also have taken a stance that we did some changes, and we're evaluating that. And then when we have the full result of that, we will, of course, determine our pricing strategy going forward. But as I also mentioned here on the previous question, what we believe might be the best way to handle this is to make sure that for future products we introduce, we introduce them to both a price and margin that support the kind of margin profile that we like to see. Martinien Rula: That's perfect. And one quick question just from a pure modeling perspective, it has been 2 quarters that we've had massive differences between the DKK 150 million you expected per quarter in terms of net financials. If I remember correctly, in Q3, we were talking about a bit more than DKK 200 million in terms of net financials. So I was wondering if you could just give us a hint at how should we think about financials going into Q4, whether we should expect any kind of the one-offs that we've seen in Q3 and Q2 or not? Soren Jelert: Yes. I think thank you for the question. And you are right that the financial items, of course, have been reported out here. And overall, our estimate for the year is around DKK 650 million for this year. And you're also right that in this quarter alone, there were some one-offs as a consequence of us signing the loans. We stand firm on that already from quarter 4, we'll see an improvement in the financial items, and we're also standing firm on that the impacts of financial items for next year in totality is around the DKK 450 million with what we see now and with the currency developments we know today. So I think in totality, I think we are at the same opinion as we were last quarter. Now we've signed the loans, and that was a consequence of this year reversal on some of these costs associated with the own loans. Operator: The next question we have is from Susannah Ludwig of Bernstein. Susannah Ludwig: I have 2, please, both on hearing. I guess, first, I just wanted to follow up on the question related to the very strong growth in Europe versus the market. Just wondering if you've had any recent large contract wins among maybe some larger retailers that are leading to the outperformance versus the market. It was sort of very steady, I guess, between Q3 and Q2. And then second, one of your peers has recently talked about adopting more of a multi-price, multi-brand approach to gain sort of share in the market, particularly at lower price points. And I was wondering if you could talk about how you see this potentially changing the competitive landscape for GN, particularly given your channel mix. Peter Karlstromer: Thank you. No. As we said before, we can confirm that the growth was indeed very healthy in Europe. I mean, I don't like to comment on individual customers. We are normally not doing that. But I can say it was a combination of larger and what should we say, a broad base of smaller customers across these markets. I think the way you should think about this more is that in some of the European markets, I think we've been going from relatively low market shares. And I think we now with a strong platform and a series of strong platforms have been able to significantly grow our market shares in some of these markets. So we think that is very encouraging for us and something we're very pleased to see. So I think it's really the combination of channel types, and it's not like one big deal explained in the totality or anything like that. It is more broad-based. Then to the second question, just to make sure I understand it right, I think it's correct, of course, that there are different kind of price points in the market. And we, and I'm sure also our peers are really trying to see how we can operate there both with different brands and different offerings. That's certainly how we think about it as well. What I would add to this also is that it's very important for us also to -- depending on channel type, ask ourselves how can we how should I say, cost efficiently cover this opportunity in terms of sales model. We work in a direct sales. We have like a distributor-led markets and also for some of the larger key accounts, it's, of course, also different models to work where we can operate with a somewhat different cost to serve. So it's really the combination of offerings and how we go to market that I think is the key to success to do this in a good way basically. Operator: The next question we have is from Julien Ouaddour of Bank of America. Julien Ouaddour: I have a couple in Enterprise. And the first one is a follow-up to Veronika's question on the inventory. I mean when we look at North America, there's been 4 consecutive quarters with positive sellouts. And I think you said in your answer that you're getting close to the end of the inventory reduction. As per your slide, you're more exposed to Europe, where sell-out is still negative. So do we need to see several quarters of positive sell-outs before Europe can also potentially return to growth? That's the first question. The second one is so still on Enterprise, more on the replacement cycle. Based on your internal data, I mean, could you tell us how the replacement cycle has evolved in recent years? And given your -- I mean, you expect to launch a pretty good platform in the coming months, do you think you can shorten this replacement cycle? So any thought about how it can evolve in the -- like in the coming years, where it is today and where it can evolve, that would be super helpful. Peter Karlstromer: Thanks a lot. Now first on the inventories, just to reiterate what I said before, we do believe that the North American inventory reduction will come to some level of stabilization and then given the inventory levels we have at this point in time. Will we see the same thing in Europe? I think the honest question is that we don't fully know. And also, as I said before, I think it's a very important principle when you work like in a 2-tier system is that you either cannot or allowed to control the inventory levels. That is, of course, decisions of the distributors. What I can say, though, is that the inventory levels have been stable for a longer period of time. So that's good. It's not like they've been working up to a very excessive level or so. And I also believe that to manage inventories is, of course, a little bit more difficult in Europe, given that there are so many countries. So you need likely to have a bit of a higher inventory level on Europe if you're looking across than what's possible in North America. So inventory levels today are higher in Europe than they are in North America, but that's probably quite normal and probably something you see across categories. So I wish we could be more precise. But again, over time, this will always balance out. What we're really focused on is, of course, to work well with the channels and then essentially also help them and support them. So there's a healthy sell-out growth, which will always be the lead indicator from what we can sell in. Then to the replacement cycles, they've been relatively stable over the last few years, around 3 years for headsets. And what essentially is driving someone to replace a headset is either it breaks down, which they rarely do. They're built with very good quality or it is because people are changing jobs. Often people get a new headset at the new workplace. And the last one is that people change because there is something better in the market they like to have. So you upgrade more from a functionality point of view. The latter one is, of course, what we hope to influence with the evolve launch we have here in front of us. So that's really what we like to see. And that's also why we believe it will support growth essentially. We do think there will be a healthy reason to upgrade with these type of new products basically. Operator: The last question we have is from Martin Brenoe with Nordea. Martin Brenoe: I have 2 questions left from this. First of all, with the upcoming product launch in Enterprise, you say that you already have some early customer feedback. Can you maybe elaborate a little bit on the size of the population, so to speak, in this test and whether you believe that the encouraging feedback on the product is actually something that will be able to translate into sales? That's the first question. And then secondly, will we get an update on targets at the annual report given that a lot of things have moved. And at that point in time, you have had time to mitigate more on the tariffs, different FX situation also since you hosted your Capital Markets Day. Peter Karlstromer: Thanks a lot, Martin. Let me start and then hand it over to Soren. The feedback, it's been a relatively extensive group of customers having a chance to look on the and also some of our channel partners. And as I said, the feedback is very positive. What we're trying to do here with the product range is very much to improve the performance, also comfort and as I mentioned, even looks of the products. And I do think the positive feedback is in that direction that, yes, that is really what we're able to do, and that is encouraging. Does this translate into a good kind of commercial performance yes, we like very much to believe that. I think that's, of course, what we believe in to put investments to develop this range. So that is certainly our belief. I think it's important though to say that this is a new range that we've launched over 12 to 18 months or so. And it will take some time before the big selling products of the range are into the market and fully ramped up. So I think the effect of this will build up over time. So it will not come immediately like in 1 quarter or something like that. But I do think it's fair to assume that it should in a healthy way support '26. Operator: And then I think to your question on the long-term targets, that's still our ambition, and that's what we are working towards. So in that sense, the annual report doesn't mark a new report out on that. I think we, as a company, are faring in the right direction to deliver on those, and that's the way we at least assess it in the company. Rune Sandager: We have some more questions on the line. The next question we have is from Richard Felton of Goldman Sachs. Richard Felton: Just 2 for me, please. First of all, I was wondering if you could put some sort of high-level thoughts around headwinds and tailwinds for margins into 2026. You already touched on the tariff dynamics, but any other key drivers that we should be aware of thinking about margin progression next year? And the second one, I'm sorry, just to clarify, what do you expect for underlying finance costs in Q4? I just want to check I heard correctly, but I think you referenced some benefit already in Q4 from the refinancing that you announced in Q3. Soren Jelert: I can start with the latter question. I hope at least I almost hinted at it when I replied earlier in the call. we will see good improvement in the fourth quarter. And that's also why we believe that for the full year of next year, the DKK 450 million is a good guesstimate. And then of course, as you have an ambition at least to reduce debt, of course, you will be a little bit more having lower interest towards the end of next year and a little higher. So I mean, in many ways, a good one is, of course, to take this DKK 450 million and divide it by DKK 4 and then you see that impact, of course, already in the fourth quarter. So I think that's pretty close to the wind sailing here. And then on margin for next year, of course, we are not reporting out on our expectations for next year. I think Peter also spoke to it in terms of our growth ambitions. We have actually all along had growth ambitions across our 3 business units, and that's also where we do expect still some operating leverage going into '26. Operator: The last question we have is from Oliver Metzger of ODDO BHF. Oliver Metzger: I joined call a little bit later. One question I had is one of my Juha takeaways because we saw plenty of Chinese players. And what I've also heard that the OTC category in the U.S. is evolving, particularly at lower price points, more dynamic than potentially thought. So we haven't talked for a while about your OTC offering and how it has performed. But it would be great to have your thoughts whether you see some of these developments at lower price points also evolving. And given also your experience you have from enterprise or also the gaming side for devices at lower price points, what would be your thoughts on this? Peter Karlstromer: Thanks a lot. So I think that if we look on the OTC, as I spoke about here a bit earlier and answered also some related questions, I think we recognize that this year for us has been a more difficult year in OTC and certainly a year where we even see some level of headwind to growth. We had that in the quarter also. I think you're right in the way that OTC, it's a broad umbrella of different type of products. We are very much taking a stance that we like to offer still a very good quality experience, both in terms of the hearing aids, but also the interaction and support we are giving to the customers even in the OTC channel. There certainly are alternatives in there, which are much more entry-level offerings that we do think is inferior. But it's for sure, true also that they are on cheaper price points. We think it's a little bit too early to evaluate. And like in many markets, we also believe that they can coexist in a healthy way, but it's certainly something we have a looked on. And we could, of course, also develop lower-end offerings if we believe that is commercially the most attractive opportunity. But we're not at the point where that is our conviction at this point in time. But certainly share your observations. So I think that's very much the situation. Operator: At this time, we have no further questions on the lines. Rune Sandager: Thank you very much, operator, and thank you, everybody, on the call.
Geoffroy d'Oultremont: Good afternoon, everyone, and welcome to Solvay's Third Quarter and First 9 Months of 2025 earnings call. I'm Geoffroy d'Oultremont, Head of Investor Relations, and I'm joined here today on the call by our CEO, Philippe Kehren; our CFO, Alex Blum; and our COO, Lanny Duvall. This call is being recorded and will be accessible for replay on the Investor Relations section of Solvay's website later today. I would like to remind you that the presentation includes forward-looking statements that are subject to risks and uncertainties. The slides presented in today's call are also available on our website. We'll further discuss our third quarter earnings, then give an update on the operational excellence program and come back also on some recent developments at Solvay before taking your questions. Philippe, please go ahead. Philippe Kehren: Thank you very much, Geoffroy and hello, everyone. As usual, I will start with a word on safety. While the number of injuries is stabilizing at lower rates since the beginning of the year, the few accidents we saw in our operations remind us that we need to continue to work hard on the transformation of our safety culture. Changing the mindset and the behaviors is our main focus. Safety will always remain our #1 priority. . Slide 6, please. So Alex will go through the earnings in detail, but I would like to give you a few messages first. So first, the overall environment remains difficult. We didn't see any improvement in the general macroeconomic indicators and the geopolitical and trade environment remains volatile. Our Coatis business continues to see very difficult market conditions related to the direct and indirect impact of the increased tariffs for Brazilian imports to the U.S. Our soda business also continues to be under pressure, specifically in our seaborne export markets due to Chinese overcapacity. Our analysis of the situation is confirmed by the recent anti involution regulation announced by the Chinese government and its intention to restructure industries where there is overcapacity. If and when they will target the older synthetic soda ash industry in China, we estimate that the market will rebalance and rapidly improve. But as long as demand remains subdued and supply remains as such, we expect to see continued price pressure in the Southeast Asian region. We continue to think that this situation is unsustainable for the region with many players seemingly selling below their cash costs. In this context, we have reduced the quantities produced in our European soda ash exporting plants. The upside to this downside is we were able to save some CO2 emission rights consumption. And since we've been building our CO2 emission rights portfolio for quite some time at Solvay and as how coal phaseout is more and more secured, we decided to sell part of our CO2 emission rights inventory in Q3, and that generated EUR 40 million EBITDA and EUR 50 million cash gain. So allow me to be very clear about this. This is definitely not a one-off, but it is a business decision that we may repeat in the future should these market conditions persist. Now before we move to financial, I would also like to spend a few minutes on the good work that we've done related to our transformation. Slide 8, please. So earlier this year, we shared with you our essential for generation strategy to establish Solvay as the leader in essential chemistry. Operational excellence is the first lever of the strategy and will allow us to accelerate the transformation of the company. We've been updating you regularly on the progress of our cost savings program with the commitment to generate EUR 350 million of cost savings by 2028. Today, we have invited Lanny Duvall, our Chief Operations Officer; to this call to give you a deeper understanding of what we do and how we achieve real results on the ground. Lanny, the floor is yours. Lanny Duvall: Thank you very much, Philippe. My job is to translate this strategic commitment into hard numbers across the company. Today, I will zoom in on our industrial sites and describe how we approach the sustained improvements. Our savings targets are the results of 2 main programs. First, we may be a 163-year-old company, but we are becoming a digital-first company. Over the last 18 months, we've invested significantly in both infrastructure and in capability. We've created a world-class data structure where all key operational data resides, and we can leverage our scale to quickly deploy across the organization. Second, we're implementing what we call our Star factory program, where all plants have a road map for improvement in really all dimensions needed to operate our plants. All the examples that we are going to discuss are or will be implemented across all regions and all clients. Slide 10, please. Our maintenance strategy is important for our fixed cost and the reliability of our assets. This transformation in our operational performance comes from moving away from a time-based maintenance to condition-based monitoring or what we call CBM. We utilize real-time data analysis to predict equipment failure and determine the optimal moment for intervention. By utilizing sensors to major and asset status, CBM enables the collection of critical data such as temperature, vibration or sound. This data allows us to spot trends predict potential failures and determine the remaining lifetime of the equipment. This allows us to reduce the cost of the repair and plan for the interventions. This shifts our entire operation from being reactive to being proactive. This isn't a hypothetical pilot. We've deployed this on a global scale. We've gone from a couple of hundred sensors in 2023 to over 4,500 sensors today and 9,000 by 2027. Creating a more resilient, reliable and cost-effective industrial footprint. This is a good example of the value we are creating with our digital and data strategy, and demonstrates our ability to quickly scale across the company in all regions. Vibration monitoring is not new or novel. But the deployment strategy at scale is a best-in-class practice. As an example, at the Dombasle site helped to detect abnormal vibration on a fan and a malfunctioning of a lubrication valve. Thanks to the alerts generated by the IoT sensors, this could be quickly corrected, and we saved a potential EUR 100,000 repair cost. These highlights -- these examples highlight the effectiveness of the CBM in preventing failures before they escalate into more serious and costly issues. Again, the secret is how we have invested in our data platform, and we are now perfectly set up for using advanced AI tools to further our impact. Another example, we are redefining how we manage material and energy performance across our industrial operations. This isn't just about efficiency. It's about unlocking EUR 37 million of potential plant variable costs by 2027, which represents roughly 2% reduction compared to 2023. It's about building a smarter, safer and more sustainable future. At the heart of this transformation is digitization. We are rolling out standard real-time dashboards giving operations and engineers instant access to the metrics that they need. The helicopter view, as we call it, which is the standard in all of our control room includes everything our employees need, such as safety indicators to ensure our people and processes are protected, real-time production levels to track throughput and performance or material and energy consumption metrics to drive efficiency. This is not a technical upgrade. This is a cultural shift. It's about embedding performance thinking into every layer of the organization, starting with the shop floor. It's about making sustainability and efficiency inseparable from operational excellence. Next slide, please. Continuously optimizing our industrial footprint is a core part of our strategy to enhance performance. Let me give you 3 examples. First, we've aligned our regional footprint with demand. In our peroxide business, we've taken decisive action in Povoa, in Portugal and Warrington in the U.K. and reduced our capacity in the European merchant markets. Second, we recently announced different measures in our Special Chem operations in Germany to secure our long-term competitiveness. In practice, this means we will consolidate our Special Chem German production sites to improve efficiency by relocating the NOCOLOK Tech Center and production operations from Garbsen to Bad Wimpfen. We will consolidate expertise into one location. We will establish Bad Wimpfen as a global hub for production, innovation and customer applications, reinforcing Solvay's position as a worldwide leader in automotive brazing. Third, our energy transition, which is key to our long-term competitiveness. At our Torrelavega soda ash plant in Spain, we could not ensure competitive production costs after a full coal phase out. Hence, we will supply Latin American customers from our Green River plant with a very cost-efficient alternative. We decided to decrease the Torrelavega production by 1/3. We will allow -- this will allow for reduced fixed cost and CapEx at the site while making the energy transition project possible for the remaining capacity. Indeed, earlier this year, we announced moving forward with the biomass co-generation unit that will reduce the CO2 emissions by half in 2027. These actions are taken to ensure our operations are lean, competitive and ready for the future. The last example, our spin review challenge. This is a 5-step process that brings together a multidisciplinary team to challenge traditional ways of working and create value. The team analyzes spending at a site level and covers all of the site-related purchasing categories, operations, procurement and leadership all need to work closely together to create value for each site. This is an ongoing process. We started with the industrial categories, and we've expanded to include facilities, R&D services and goods, on-site logistics and packaging. The SRC has the potential to return EUR 15 million to EUR 20 million annually, primarily in fixed costs. In 2025, we have challenged EUR 330 million in spending across 21 sites and identified EUR 11.3 million in savings opportunities, but we're not stopping there. We plan to complete 9 additional sites until the end of the year, aiming for a 5% savings on the addressable spend. An interesting case from our Qingdao site in China, where we redesigned the plastic pallets to reduce the rate by 18% and allowing for EUR 230,000 in annual savings. So this change is better for our bottom line, more efficient for us and our customers' operations and better for the environment. We are currently investigating how to scale this initiative to other sites. Slide 12, please. We feel confident we will deliver the EUR 350 million in gross annual savings by 2028. Because we have invested in our digital transformation, have an execution at scale strategy, all while improving safety performance and providing a platform that is future-proof. The early results are speaking for themselves. We achieved EUR 110 million in 2024 and are on our way to exceed EUR 200 million by the end of 2025. At the core of our transformation is digitization, by embedding digital tools and building a common data infrastructure, we are ensuring that our operations are future-proof and AI ready. We are already rolling out machine learning and exploring options for GenAI and Agentic AI in operations. To conclude, I want to leave this -- I want to leave you with this, we are not just cutting costs. We are fundamentally improving how Solvay operates for the next generation. And this is how we contribute to the long-term financial resilience of Solvay. With that, I'll hand it over to Alex to walk us through the Q3 results. Alexandre Blum: Thank you, Lanny, and good morning, good afternoon, everyone. Moving to the financial I'll remind you that my comments are based on organic evolution, meaning at constant scope and currency, unless otherwise stated. Moving to Slide 14. In the context of subdued demand underlying net sales in Q3 2025 reached EUR 1.040 billion, down minus 7% versus Q3 2024. Volumes, were down minus 4% year-on-year, mainly driven by weaker performance in the Coatis business and in the soda ash seaborne market, while volumes for peroxide, Bicar, Silica and Special Chem were steady year-on-year. Pricing was overall resilient, although we continue to see strong pressure on seaborne soda ash market and in our Coatis business. As already highlighted by Philippe. Slide 15, please. Underlying EBITDA amounted to EUR 232 million in Q3 2025, down minus 7% compared to last year. However, EBITDA margin remained solid, up 22%. Volume [indiscernible] mix was up thanks to the positive impact of the optimization of our portfolio of CO2 addition rights. Excluding this one-off, of course, the volume and mix was down mainly due to soda ash export volumes. Net pricing decreased year-on-year, again, primarily driven by the seaborne soda ash market in Coatis. Net pricing in the other businesses remained very resilient. With regard to fixed costs, the year-on-year variation this quarter was negative EUR 9 million. But this is exclusively coming from the EUR 10 million temporary stranded costs related to the separation from SYENSQO as our selling program continued to exceed inflation. Looking sequentially, we have stabilized our manufacturing cost base and despite still low production, we have been able to keep our maintenance cost below Q2 level. Moving to the segment review, starting with Basic Chemicals. Sales in the soda ash and derivatives business unit were lower for the quarter by 8% soda ash volumes were down mostly from the seaborne market, where unsustainable pricing pressure persist due to the overcapacities built in China. On the other hand, the bicarbonate volumes are steady year-on-year. Peroxide remains resilient with stable volumes in the merchant market. benefiting from the growing demand in the electronic grade H2O2 for the semiconductor industry. The segment was down minus 15% compared to Q3 2024, while the EBITDA margin remained slightly -- only slightly decrease of 23%, still a very healthy figure in such a challenging environment. Performance Chemical, moving to Slide 17. Silica sales remained more or less stable with some slight volume slowdown in the entire market. In line with last quarter, Coatis saw the largest decline with sales of minus 26%. Volumes were down in all end markets impacted by strong competition from Asian players. And the overall weak demand further aggravated by the U.S. tariff from Brazilian imports currently reaching 50% or more. Special Chem for the quarter, sorry, Special Chem net sales for the quarter were flat with slightly higher volumes in autocat in rare earth and electronics. Offsetting lower fluorine demand . As explained earlier by Lanny, this drove us to take strategic decisions in Germany to ensure the long-term competitiveness of the fluorine business line. The segment EBITDA was down minus 21% due to the negative volume of the different business units and negative net pricing of Coatis. The EBITDA margin decreased year-on-year to 15%. Slide 18, Corporate segment results. The EBITDA contribution of the Corporate segment in this -- the third quarter was a positive contribution of EUR 22 million. As explained by Philippe, this includes a EUR 40 million gain from optimizing our portfolio of CO2 emission rights. Generally speaking, to manage our EUA deficit we use a mix of CO2 emission rights, free allowances, EUA, inventory, energy transition projects and financial hedging instruments. Thanks to the progress made on the energy transition project and given the current low production level in Europe we've decided to optimize our portfolio of CO2 emission rights in Q3. I said in part of our inventory without changing our overall risk profile. As a consequence, the full year EBITDA for the corporate segment is now expected to be between minus EUR 40 million and minus EUR 50 million which is in regard to the previous guidance of minus EUR 80 million to EUR 90 million, excluding the positive EUR 40 million I just mentioned. This brings us to the free cash flow to shareholders from continuing operations. We generated EUR 117 million of free cash flow in the third quarter. Bringing the total for the first 9 months to EUR 214 million. This result was supported by a contribution of EUR 50 million from the optimization of the portfolio of CO2 emission rates. CapEx reached EUR 81 million for the quarter and EUR 214 million for the first 9 months of the year. This is well in line with our objective to stay within EUR 300 million. The cash flow -- the cash outflow year-to-date from provision are in line with expectation and include EUR 37 million related to the energy transition project in. So to wrap up the financial, I would like to end with a word on net debt. Net debt has come down a bit since the end of June. And this is in line with our expectation of approximately EUR 1.7 billion at the end of the year. Our leverage ratio remained healthy at 1.8x. And with that, Philippe, back to you for the recent development in the outlook. Philippe Kehren: Absolutely. Thank you very much, Alex. But before we move to the outlook, I'd like to remind you of some recent developments at Solvay. You might have seen the expansion of capacity of our electronic grade H2O2 in China. The announcement and our willingness to accelerate the development of circular Silica. And the changes we announced in Germany, as explained earlier by Lanny. While we stay focused on the transformation of the company through structural adjustments, we were also able to ensure the future long-term value creation of our businesses through disciplined investments in high-growth areas. Rare earth is another example. Earlier in the year, we inaugurated our rare use production line for permanent magnets at's La Rochelle in France. And given the recent developments around this industry, we will take the opportunity of this call to provide a bit more details about Solvay's current activities and the future prospects in the rare earth industry. At Solvay, we've been rare earth experts for quite some time. Our La Rochelle site has been processing them since its opening in 1948, right after World War II. Today, our position in value chain is focused on separation, purification and formulation. High-value chemical rare earth oxides are formulated in 3 industrial units. So in addition La Rochelle in France, we have one site in Japan and another site in China, and they're all serving several advanced applications such as emission-controlling cars, chemical polishing for semiconductors and precision optics, green energy or medical contrast agents in MRI procedures or Scintillators for PET scans. This global footprint and the modularity of our 3 plants allow us to ensure business continuity for our customers in these different industries, even at times of supply chain disruptions as it has happened earlier this year. So let's now have a look at our projects in La Rochelle and the new high potential opportunities in rare earth separation and purification that we want to capture. Next slide, please. So we proudly inaugurated our new production line in La Rochelle in April this year. And since April, we've been producing Nd-Pr oxide, that's neodymium-praseodymium oxides for the permanent magnets end markets. This is what we call the light rares for permanent magnets. And I'm excited to share that we've made the decision to start separation and purification of 3 more rare earth elements. Samarium has already started in the second half of 2025. And Dy-Tb or dysprosium and terbium which we call the halves, this will be done by 2026 and they are all essential for permanent magnets as well. And Solvay will be the first in Europe to do that. Moving forward, we have the ambition to grow this capacity as the demand for permanent magnets is expected to increase significantly in the next few years especially thanks to growing needs related to energy transition, as you can see on the slide. When looking at the production of magnets in Europe, today, it's very limited. But it could represent up to 40,000 tonnes by 2030, which is equivalent to 15,000 tons of light and heavy rare earth oxide needs. And we can capture up to 30% of that European market with our existing assets in La Rochelle quite easily. We will need to invest to reach that level, and we can do this in different stages. And thanks to our process innovation and our operational leadership, our team is continuously improving the product cost and value creation. And the total investment to bring these assets at full capacity is now expected to be between EUR 50 million and EUR 100 million versus the more than EUR 100 million we announced earlier. But to do this, we are first aligning all stakeholders of the value chain. We are discussing with potential partners and customers in Europe, but also in other regions, including North America. Regarding sourcing, we are partnering with recyclers and miners for the development of a secure and sustainable supply chain that would not lead to rely solely on Chinese materials. This is concrete. This is happening now. Additionally, and beyond permanent magnet, we're considering also supplying other essential rare earths like gadolinium or yttrium, which are critical for aeronautics, medical and other high-end applications. To conclude on this, we can say that our solution offers the greatest potential within the rare earth value chain. We already operate as Europe's largest rare earth producer of or if automotive, catalysts and electronics industry, and our strength lies in our proven ability and unique expertise to separate, purify and formulate every main rare earth element. I'm confident that based on the current geopolitical situation that these supply chains will be developed and we're the obvious partner to do it. Now moving to the outlook now. As shared at the beginning of this call, the environment remains difficult, and we do not see any short-term improvement. However, the overall stabilization of activity levels that we've seen in Q3 and the positive impact in the actions that we've taken support our results. This is why we confirm our full year guidance for 2025. We expect the underlying EBITDA to be between EUR 880 million and EUR 930 million. And we confirm that the free cash flow from continuing operations to Solvay shareholders is expected to be around EUR 300 million with CapEx at maximum EUR 300 million. And this will more than cover the dividend payment. This, I think, concludes our introduction. Which was quite extensive. And thank you very much, and back to you, for the Q&A session. Geoffroy d'Oultremont: Thank you, Philippe, Lanny and Alex. We move now to the Q&A session. We have until 2:55 so that you can join the next call after. And Gaya, please you can now open the line for questions. Operator: [Operator Instructions] The first question comes from Wim Hoste from KBC Security. Wim Hoste: Wim Hoste KBC Securities. I have a couple of questions around soda ash, if I can. Can you maybe elaborate on the production footprints? How fast do you intend to ramp up the Green River capacity expansion? And to what extent will that then reduce the European capacities I think there was an example from the Spanish plant, but I would like to have a bit more guarantee on the whole European footprint in soda ash. And then also, can you maybe elaborate on how much of the clearance European production is exported outside of Europe to give an idea of that? And then any thoughts on, the last question, any thoughts on the pricing for 2026 contracts given the state of the soda ash market, that would also be interesting. Philippe Kehren: Thank you very much for your questions. So first, the production footprint. Clearly, today, as we said, there is enough capacity. So we don't plan to, in the very short term, obviously, to increase our production. So what we will do is, as you said, arbitrate in order to use the most competitive assets to supply in the different markets. And this is also one of the reasons why we can adjust our portfolio of Q2 instruments because indeed -- and we mentioned several times, Latin America. It is today more competitive to supply Latin America from the U.S. than from Europe. And this is freeing up a little bit of CO2 quota's that we can valorize on the market. So you see that this is really very much related to the business, you see when we say the sale of CO2 is not a one-off. This is the perfect illustration. It's the way we manage our industrial footprint. Then how much of the production is still exported? We are still exporting soda ash from Europe to the seaborne market and in particular, to the Southeast Asian market. And this is also where -- and that's done mainly from Bulgaria. So we use our asset in Bulgaria to export to Middle East, to Africa and to Southeast Asia. And today, given the situation on the Southeast Asian market and the volumes that are sold and the level of the margins in this area, we decided to reduce our production in Bulgaria. And this is also why we can revisit our portfolio strategy on our CO2 instruments. 2026, I think it's too early to say very clearly, the dynamic is still the same. Keep in mind that we see a certain good resilience in Europe and in North America. And more volatility on the seaborne market still and in Latin America and Southeast Asia, volatility and low level of margins. Operator: The next question comes from Hannah Harms from BNP Paribas. Hannah Harms: I was wondering more broadly, if you're expecting any improvement in the underlying trend through 2026. And if not, what additional levers can you pull to ensure that you're able to cover the dividend for next year as well? Philippe Kehren: So I think, again, I think it's early to talk about 2026 from a business standpoint. We don't see any big changes, but we continue to work on what we control. We will continue to deliver the cost savings. We will continue to have the payback of the different restructuring actions that we take both on our industrial footprint and on the operating model of the group. And beyond that, we will also have, I think, a lower level of cash out next year from the provisions because this year, we had a high level. This is, I would say what we can say at this one. Operator: The next question comes from Katie Richards from Barclays. Katie Richards: I think my question would just be why now? My understanding is that the CO2 certificates have the potential to rise sharply going forward. So why have you chosen to monetize these certificates now? Was it purely just the cash optimization or are you confident that your future needs will be structurally lower? And also just a question on your priorities on sort of growth CapEx versus protecting the dividend. So you mentioned that La Rochelle needs another potentially EUR 100 million CapEx to scale up further. Would you be willing to sell more CO2 certificates, for example, in order to fund further expansion of this site? Philippe Kehren: Thank you. I mean if we sell CO2 credit, it's not to fund anything, it's because it is the result of the assessment of our portfolio at this moment. Maybe I will let Alex explain a little bit one now. And that's, I think, a good question. And then I would probably give you the answer regarding the CapEx priorities in terms of capital allocation. Alexandre Blum: Yes. Thank you, Philippe. Yes, it's a good question what you have to keep in mind is because, as we said, we have several projects, we have the energy transition project. We have the EUA forward, we have the EUA stock and so on. And there are plenty of parameters. You have the regulation and you have the level of production. So why now is also because we are the consumption of 2 things. We are derisking and are progressing on our coal phaseout in Europe. We have mentioned that we have not exceeded coal in Germany, which was -- it's a quite large plant of soda ash and we've talked several times about our Dombasle project for which we had to record, as you may remember, a provision last year, but we are no less than 1 year from start-up. So this part is quite derisked so it means we are confident to be able to exceed coal from France next year. So when you have the consumption of less demand for EUAs and at the same time, a production level, which is slightly more, yes, we are to take the positive part of the negative the business contract. So that's why we decided. But again, we will do that only if we think we are fairly covered until 2030. Philippe Kehren: And on your question regarding the prioritization of CapEx, I mean, let me just first remind you how we see the capital allocation main principles. First, we will dedicate between EUR 250 million and EUR 300 million for our essential CapEx. This is, I would say, #1, obviously. And we're working, Lanny can testify, as hard as we can to optimize this bucket, right? And this year, even if we have also a little bit of discretionary CapEx, we will be at a maximum of EUR 300 million. Number two, payment of the dividend. So that's EUR 250 million, EUR 260 million, more or less -- that's the #2 allocation of capital. Number three, it's discretionary allocation of capital to create additional value. First comment is obviously, in the current market environment. We don't need big investments in a new soda ash plant, in a new Dombasle plant and so on. So this question is addressed. But we want to continue to invest in small targeted investments in order -- in markets that are growing fast. And I mentioned that it's electronic grade H2O2 because artificial intelligence requires a lot of processors, and this requires more EG, electronic grade H2O2. I mentioned circular Silica and we also talked a little bit about rare earth. Those are investments that are, I think, important because we have a real differentiation in these different businesses, but there are a lot of big ticket items, right? So -- and we will do these investments only if we have secured offtake of the products that will be produced through these investments. So we will do them. We will do them if the conditions are here to get the right level of comfort on the profitability. Operator: The next question is coming from Matthew Yates from Bank of America. Matthew Yates: I had a question relating to the carbon trading you did in the quarter. I acknowledge this trading is possible to the extent you've got excess permits relative to the lower rates of production. And so Philippe it was pretty clear in the introduction there, that is definitely not a one-off, but it is made incredibly difficult for us from the outside to understand the size and recurring nature of this and the level of disclosure from the company is so limited around this carbon position. So maybe for Alex. Alex, what can you tell us today to help us better understand what that CO2 position of the group looks like as it stands. And in light of sort of the proposed changes in regulatory phase outs, your decarbonization projects and your potential production shutdowns. How do you think that evolves over the coming years so we can think a bit more intelligently about such trading opportunities going forward? Alexandre Blum: Okay. I think what we meant by saying I think it's not a one-off. I mean it's significant. We will not get 40 million every quarter, and that's key. What we meant is that it cannot be looked in isolation from the rest of the business situation. That's really what we mean. If the plant were saturated, everything was running high, we wouldn't have this flexibility. There, okay, from disclosure, I cannot give you a lot of detail. What I can tell you gather many parameters that will be the benchmark, what will be the volume of action. But I mean, when we look at the overall picture, even if we do this transaction, we consider we are fairly hedged, we are fairly covered until 2030. So it means whatever we are no longer exposed to variation of the price of the CO2 in Europe. That's the main element I can give you. And it should -- the quicker we do our -- the best protection we have are our energy transition project because when you move to -- from coal to biomass or to recycled waste, then I mean you significantly reduce your exposure and you have the opportunity to release some CO2. Matthew Yates: Okay. But when I think about your level of disclosure compared to other carbon-intensive businesses, whether that's a are in fertilizers or a utility company it still seems to be on the rather limited side. So why are you not able to be more forthcoming in quantifying the position of the group? Philippe Kehren: Well, I think we can probably check this, but we have -- we provisioned our annual report a certain number of elements, I guess, such as the inventory and hedges and so on. Our energy transition projects are public. I will communicate on them. And every time I think we say how many thousands of tons of CO2 emission reduction we expect. So I think there is nothing hidden in what we say our level of production, our level of emissions, our energy transition projects, what we have in inventory, what we take in terms of forward hedges everything is more or less defined. And as Alex said, the guiding, the guiding principle for us is really to be covered until 2030. I mean obviously, we are currently discussing what could be post 2030, but it's really to be covered by 2030. Alexandre Blum: Yes, we can follow up with the Investor Relations if there are certain questions that you think we could answer better. Overall, we don't think until 2030, you will have a big change in regulation or we consider ETS will still apply the benchmark, the allowance will progressively reduce. This is why we need to have this stock and forward, and this is why we need also to do the energy transition project. But we don't foresee by 2030 a big change. Is that clear Matthew? Matthew Yates: Yes, yes, we can follow up offline. Operator: The next question is coming from Thomas Wrigglesworth from Morgan Stanley. Please go ahead. Thomas Wrigglesworth: I did have a question on the carbon credits, but I -- I think we're kind of getting there. I mean, it just looks like a very big number, right? Because ultimately, EUR 40 million of profit on selling carbon credits I mean, if I assume that you bought at [ EUR 30 ] and you sold at [ EUR 70, ] which kind of stacks up with the kind of communication you've made in the past, that's 1 million tonnes of CO2, which is equivalent to 1 million tonnes of soda ash exports when the Europe exports 2 million tonnes a year. So in soda ash export equivalent, you've sold half a year's worth of all the European exports. And that's, I think, why we're getting a bit stuck on the order of magnitude of the size of the credit sale. So any -- but I think what you're saying is that there's energy savings as well, not just soda ash production savings that are going on top of that. So anything to clarify that kind of thought process would be helpful. Second question is just clarification. So if I understood correctly, the -- previously, you've been thinking on the rare earth business that I think you said, and forgive me if my understanding is wrong, that you wouldn't do this project of itself, the economics didn't stack up to compete with China and you needed to have customers provide long-term offtake agreements to deliver to approve the project. Have you now got those long-term offtake agreements if that's what's changed between the first half and now such that you're now willing to commit the capital? Philippe Kehren: Okay. So first question on the order magnitude. So clearly, I mean, as Alex said, we will not have this type of impact every quarter. This represents, I would say, more or less to give you [indiscernible] a yearly impact, right? And I think the numbers that you mentioned are wave overestimated because if you look at the CO2 price that we have today on the market, you don't come with this type of quantities. Now that being said, I mean, we are the only sodas ash exporter in Europe, I think, today. So it's true that we are impacting significantly. If we decide to cut the exports from Europe to the Southeast Asia, it has a significant impact because we are the only ones to do it, right? So that's, I think, the element. I don't know if I missed anything, Alex? Alexandre Blum: No, no, Philippe you're right. It's the combination of ETP, again, we are releasing also some quantity from [indiscernible] project. Philippe Kehren: Production, you're right, that is one element of the equation that we take into account when we set our portfolio. And then the other important element is the progress that we make on the coal phaseout in Europe. Now on rear earth, just to avoid any misunderstanding, we don't say that we will invest today between EUR 50 million and EUR 100 million, what we're saying is that what we did this year, investing a few millions to start production of Nd-Pr, so the light rare earths of permanent magnets, we will do the same for the hedges. So we're talking about a few million of investment. It's nothing big. It's just to show, we don't have to do it. We can do it super fast, and we want to work with the customers to check that it works. Now if you ask me today, do you have offtake contracts to move to the real stuff, so the big investment of EUR 50 million to EUR 100 million. I say not yet. We are progressing. It's true that the current context is supporting this type of discussions, but we are not ready today to move to the big investment. The -- what has changed, I would say, over the past days and weeks is that it seems to move forward in the U.S. There is -- there are some potential mechanisms that are implemented with floor prices. And we could envisage to contribute to this mechanism. Even from La Rochelle, we know we can produce, so this is the only thing that has changed. But we are -- we continue to discuss to the -- with the different potential customers and with the policymakers, both in Europe and in North America. Thomas Wrigglesworth: Just a follow-up on that, Philippe. What do you think the hesitation? Is it that customers are trying to figure out if this is a 1-year problem or a 10-year problem you kind of need, let's say, a multiyear offtake agreement and they're trying to figure out, well, do I want to commit to your multiyear offtake and commit to this whereas on the other hand, we don't -- it's very difficult to understand any of this trade development and how it's going [ pan ] out and therefore, we don't know if rare is a 1-year problem or a 10-year problem, right, in terms of supply chains? Is that -- do you think that's what the customers are struggling with? Philippe Kehren: Well, it's true that when you have a problem and then it's sold, you have a tendency to think that you don't need any more to move into long-term agreements. But I think fundamentally, fundamentally, both in Europe and in North America. Customers, they want to derisk their sourcing. So they're just trying to figure out what is the best -- how is the best way to do it. And they're probably also waiting for some indications from the policies. Gara, we will take 2 more questions, please. Operator: Okay. The next question is coming from Mr. Udeshi from JPMorgan. Chetan Udeshi: The first one was a bit weird one. I recently -- or actually, it was this week, Element Solutions brought fluorocarbon gases company, ESC for 12x EBITDA. And I think you are the ones who are supplying to them the fluorine-based gases and chemicals used in the semiconductor market. I'm just curious if somebody is buying a distributor of your business for 12x EBITDA. Why would you not consider monetizing this business within Solvay? Doesn't seem most of us care about this business anyway. So what is stopping you from monetizing this business? And the second question is, in your Performance Chemicals business, what exactly happened in Q3? Because your EBITDA seems to have collapsed from EUR 100 million to EUR 60 million, I understand there was a EUR 20 million one-off, but even then, it seems like a big collapse even when the sales aren't really that different from Q2 to Q3. So can you help us understand what happened in that business? Philippe Kehren: Thank you very much, Chetan. I will probably let Alex comment on the evolution of the Performance Chemicals between Q2 and Q3, I think that's your question. On fluorine, very clearly, you noticed that we're in a process of really restructuring this business and making sure that we concentrate our resources, efforts, capital on what will make the future of this business. So this is why basically we stopped our production in France. We also stopped our production of HF and organic fluorine in Germany. And we will concentrate on the aluminum bracing business. And also, we'll continue to produce some fluorine gas as this is indeed still a good business today. Then, I mean, again, there is absolutely no -- nothing is excluded at this point, but we're really focused on making sure that we have a sound and profitable business, and then we'll see. Alex, I don't know if we -- if you wanted to take the bridge on Performance Chemicals? Alexandre Blum: Would love to. Yes. So nothing major in Q3, just to remind that what we've mentioned in the past, we have mentioned that in Q1, we have successfully added litigation with one company that helped us to get paid and invoice some royalties for the past. We had the termination close of the contract in Q2, and we think, in general, this segment is probably the one which has the less -- the more -- the variability from quarter, there was nothing really special in Q3. It's true that all business has to be a little bit soft. I mean, you see the tire market, what we said about Coatis and in term of fluorine, I mean we are taking measures to improve the profitability of the business, but you don't see it yet. So nothing major to signal, and we are taking measure to improve sequentially. Operator: The next question and the final question comes from Tristan Lamotte from Deutsche Bank. Tristan Lamotte: Just one last, please. I was just wondering in the existing rare earth business, was the actual rare earth you're using in that? And how does that differ to the new ones that you'll be using with the new business if you develop that? Philippe Kehren: Well, today, on the auto catalysis business, on the electronics business and medical applications, we're not using the Nd-Pr and Dy-Tb. So the Neodymium, Praseodymium, dysprosium, terbium are really specific from the permanent magnet business. So we're not using them in our current businesses. It's more based on samarium and all this type of material that we're working. And on tandem as well. Geoffroy d'Oultremont: Thank you, Tristan. Thank you, Gaya, and thank you all for your participation today. So if you have any further questions, please feel free to reach out to the Investor Relations team. We have a few events planned in November and December. They are available in the financial calendar on our website. And we'll publish our Q4 and full year earnings on February 24. Thank you very much. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Welcome to the RXO Q3 2025 Earnings Conference Call and Webcast. My name is Michael, and I will be your operator for today's call. Please note that this conference is being recorded. During this call, the company will make certain forward-looking statements with the meaning of federal securities laws, which, by their nature, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release. You should refer to a copy of the company's earnings release in the Investor Relations section on the company's website for additional information regarding forward-looking statements and disclosures and reconciliations of non-GAAP financial measures the company uses when discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may now begin. Drew Wilkerson: Good morning, everyone. Thank you for joining today. I'm here in Charlotte with RXO's Chief Financial Officer, Jamie Harris; and Chief Strategy Officer, Jared Weisfeld. This morning, we announced our third quarter results. Year-over-year, overall brokerage volume grew 1%, driven by less-than-truckload volume growth of 43%. Brokerage truckload volume declined by 11% year-over-year but increased by 1% sequentially. Last mile stops grew by 12% year-over-year, the fifth consecutive quarter of double-digit growth. And we added cash to the balance sheet and had 56% adjusted free cash flow conversion. Brokerage gross margin was 13.5% and RXO's EBITDA was $32 million in the quarter, below our expectations. Contrary to our assumptions on last quarter's call, the market tightened in September. Capacity began exiting in certain regions, driven primarily by regulatory changes and enforcement. About 2/3 of RXO's freight in the quarter came from regions where buy rates increased and this impacted our results. Buy rates increased faster than our contractual sale rates with no meaningful corresponding increase in accretive spot opportunities. We take our commitments to our customers very seriously and continue to honor the service commitments we made in the quarter. Industry tender rejections in the third quarter were 6%. RXO's were just 2%. This built trust and strengthened relationship with our customers, and you can see the impact of our efforts and recognition we recently received from blue-chip customers, including United States Cold Storage, Owens Corning and Altonium. Reliably serving our customers' freight at this point in the market cycle will position RXO to win more spot loads and mini bids as the market recovers. Now I'd like to provide you with the details on our fourth quarter expectations, including EBITDA between $20 million and $30 million. The biggest driver of the sequential decline is volume weakness within our last mile business, which is counter to typical seasonality. While we posted another quarter of impressive double-digit stock growth in the third quarter, since Labor Day, we've seen a weakening in demand for big and bulky goods. Jamie and Jared will discuss this in more detail later in the call. In brokerage, we expect the squeeze dynamic to intensify into the fourth quarter. At this point in the cycle, roughly 70% of our truckload brokerage business is contract, primarily with enterprise customers. So the squeeze on our gross profit per load has been acute. In addition, we have not yet seen a meaningful increase in accretive spot opportunities. When demand ultimately recovers, spot loads will increase, which will be accretive to gross profit per load, helping to offset the higher cost of purchase transportation. The big question is whether these changes to the industry capacity are permanent. If the regulatory changes hold and enforcement continues, we believe a significant amount of truckload capacity will permanently exit the market. This will help improve the overall safety of the industry as well as help combat theft and fraud. This has the potential to be one of the largest structural changes to truckload supply since deregulation and could result in a higher for longer freight environment. RXO is well positioned to capitalize on that if it occurs because of our larger scale as the third largest provider of broker transportation. However, for a sustained freight market recovery, we need increased demand for goods, and we aren't seeing that yet. Demand trends weakened throughout the third quarter and remain below typical seasonality. In fact, during the month of August, cast freight shipments reached their lowest level since 2020. We continue to take strategic actions to position RXO for both the short term and the long term. We've greatly improved RXO's cost structure throughout the downturn and took additional action in the third quarter. Since we've become a public stand-alone company, we've removed more than $125 million of cost. That is a significant improvement to our cost structure. Right now, the impact is being masked by the market-driven declines in gross profit per load. We're looking at our actions holistically. Some examples of our initiatives include investing in artificial intelligence that frees up time for our team to focus on our customers' most challenging problems, optimizing our real estate footprint and rightsizing our teams to ensure the optimal balance between current demand and ensuring we're staffed for growth. Given the sustained soft freight market conditions, we've been moving quickly to streamline our costs within our brokerage business. As an example, in the third quarter, brokerage headcount declined by approximately 15% year-over-year. Our actions to date, including our investments in technology, have already yielded substantial productivity gains in brokerage. Productivity increased by 19% over the last 12 months and by 38% over the last 2 years. These are sticky changes to our business that will yield benefits in the future. I remain extremely confident in RXO's ability to deliver outsized earnings growth over the long term because of 5 things: our improved cost structure, larger scale, continued focus on profitable growth, best-in-class technology and ability to generate cash. First, our much more efficient cost structure will provide us with significant operating leverage when the market improves. Second, we have a much larger scale. Scale is a differentiator in brokerage, and I'll highlight 2 examples. Scale enables us to purchase transportation more effectively. Our common technology platform is helping us capitalize on additional power lanes while providing the best truck for each load. During the third quarter, our incremental buy rate favorability was similar to last quarter and approximately 30 to 50 basis points better when compared to the period before the carrier migration. Those improvements were more than offset by the September market tightening I mentioned earlier. We expect our buy rate favorability to further improve as we increase productivity across the organization. We remain confident that over time, our favorability will increase to approximately 100 basis points. Another benefit of scale is a decreased cost per load. This was one of the guiding principles of the Coyote acquisition, and we achieved results in this area. Since our spin, our cost per load has decreased by more than 20%. We're effectively leveraging our increased scale and technology platform, and we'll continue to bring down our cost to serve. The third driver of long-term value creation for RXO is profitable growth. This is part of our DNA, and we have continued opportunities to drive future growth. In addition to growing our core truckload business, we will also grow by offering valuable premium services that deepen relationships with customers. We're also in the early stages of growing more consistent sources of EBITDA, including managed transportation and LTL because they reliably bring in strong and more consistent profits through market cycles. In the third quarter, we grew LTL volume by 43%. While LTL volume has grown significantly, it only represents about 10% of total brokerage gross profit dollars. We have a long runway in LTL. We have an exceptional track record when it comes to growth. Over the 5 years prior to the Coyote acquisition, RXO grew total volume by 72% organically and 11% CAGR. Fourth, our technology is a differentiator. Customers and carriers constantly tell us that our tech is the best and easiest to use in the industry. We invest heavily in this area, spending over $100 million every year. This technology powered by AI and machine learning helps our employees be more productive, freeing up their time to focus on our customers and carriers. It also enhances our customer experience and drives our pricing engines. And fifth, our asset-light business model enables us to produce strong cash flow. In the quarter, despite the soft market conditions, our adjusted free cash flow conversion was 56%. We remain confident in delivering 40% to 60% conversion across market cycles. In conclusion, although we're in a challenging market environment, and we're not satisfied with our near-term performance, we've taken decisive strategic actions. We remain focused on what has made us so successful over the past decade plus. We provide exceptional service, a comprehensive set of solutions, cutting-edge technology and deep customer relationships. All of this provides RXO with a unique algorithm for long-term growth. Now Jamie will discuss our financial results in more detail. James Harris: Thank you, Drew, and good morning. Let's review our third quarter performance in more detail. Our results were slightly below our outlook. For the quarter, we reported $1.4 billion in total revenue, gross margin of 16.5%, adjusted EBITDA of $32 million and an adjusted EBITDA margin of 2.3%. Gross margin and adjusted EBITDA were primarily impacted by the increase in cost of transportation, further broad-based demand weakness and continued headwinds in the automotive sector. As Drew mentioned, cost of transportation increased without a corresponding increase in sale rates or accretive spot opportunities. This caused a margin squeeze on our contractual brokerage volume during the month of September. Jared will provide more details later in the call. Automotive was a continued headwind and represented an approximately $5 million year-over-year margin impact in the quarter. As we discussed over the past 2 quarters, this freight is time critical and with high service requirements and typically carries a higher-than-average gross margin with strong flow-through to EBITDA. Below the line, our interest expense was $9 million. For the quarter, our adjusted earnings per share was $0.01. You can find a bridge to adjusted EBITDA on Slide 7 of the earnings presentation. Now I'd like to give an overview of our performance within our lines of business. Brokerage revenue was $1 billion and represented 70% of our total revenue. Overall, brokerage volume growth was 1% in the quarter. We had strong LTL growth of 43%, which was offset by 11% decline in full truckload volume. The year-over-year decline in truckload volume was impacted by overall demand weakness, softness in the automotive sector and efforts we undertook with customers to optimize price, volume and service. Given the market tightening in September, brokerage gross margin was down 90 basis points sequentially to 13.5% at the low end of our outlook. Complementary services revenue in the quarter of $442 million increased by 5% year-over-year and was 30% of our total revenue. Gross margin within complementary services was 21.3%. Now let's discuss each line of business within complementary services. Managed Transportation generated $137 million of revenue in the quarter, down 9% year-over-year. Managed Transportation continues to be impacted by lower automotive volume in our managed expedite business. Our last mile business generated $305 million in revenue in the quarter, up 14% year-over-year. Last Mile stops grew by 12%. However, over the past few months, we have seen a weakening in the big and bulky demand. This trend has worsened into the fourth quarter. Let's now discuss cash. Please refer to Slide 8. Adjusted free cash flow in the third quarter was $18 million, yielding a strong 56% conversion from adjusted EBITDA. As a reminder, our semi-annual interest payment is not due until the fourth quarter, which benefited our third quarter conversion. Year-to-date, our conversion is 50%. We're very pleased with our conversion at this point in the freight cycle. Given our asset-light business model, we remain confident in a 40% to 60% conversion over the long term and across market cycles. We ended the quarter with $25 million of cash on the balance sheet, which increased by $7 million sequentially with no change to the revolver balance. We grew our cash balance despite $9 million of restructuring, transaction and integration cash outflows. As you can see on Slide 9, our liquidity position continues to be strong with $590 million of total committed liquidity, of which approximately $375 million is currently available. Quarter end net leverage was 2.3x LTM bank adjusted EBITDA, up slightly when compared to the prior quarter. I'd now like to talk about the actions we've taken to optimize our cost structure. We've taken actions to achieve more than $125 million of annualized expense savings, including $65 million of post-spin costs and $60 million of cost synergies related to the Coyote acquisition. Today, we announced that we're taking additional actions that will yield more than $30 million of incremental annualized savings. Collectively, this means a total reduction in annualized expenses over the last 3 years of more than $155 million. We're optimizing our cost structure, operating more efficiently and automating key processes. Now let's discuss our expectations for the fourth quarter. Our outlook reflects a fluid macroeconomic environment with weakening freight demand and a continued increase in the cost to purchase transportation. For the combined company in the fourth quarter, we expect to generate between $20 million and $30 million of adjusted EBITDA. While we would typically see a sequential increase in brokerage adjusted EBITDA in the fourth quarter, that is being more than offset by higher cost of purchase transportation. We're also expecting a decline in complementary services, driven by slowing demand in last mile, which is counter to normal seasonality. Jared will provide more details on our outlook shortly. Slide 14 includes our fourth quarter modeling assumptions. There are a few things I want to highlight. We expect CapEx of approximately $20 million. We're tracking towards the low end of our previously discussed $65 million to $75 million outlook for the full year 2025. For 2026, we continue to expect CapEx to be between $45 million and $55 million, down materially year-over-year. As we discussed, we're taking additional cost actions that will result in more than $30 million of annualized expense savings. In conjunction with these actions, we expect fourth quarter restructuring, transaction and integration expenses to be approximately $15 million. Below the line, we expect net interest expense of approximately $9 million, an adjusted effective tax rate of approximately 30% and fully diluted shares of 170 million. To summarize, recent accelerated capacity exits are putting upward pressure on our cost of purchase transportation and squeeze in our contractual brokerage gross margin. This impacts near-term profitability given our large footprint of contract business with Tier 1 shippers. We are reliably servicing our customers' freight and are well positioned to win spot opportunities and special projects when demand recovers. Longer term, as we think about the broader macro economy, we do see positive developments such as lower interest rates, new tax legislation, domestic investment announcements and improving clarity on freight. Lower interest rates specifically can spur freight activity in many rate-sensitive industries such as the housing sector. As an example, according to the American Trucking Association, every new home built requires between 6 and 10 truckloads of goods to be shipped. Mortgage rates recently reached 12-month lows and any recovery in the housing market would be positive for ground transportation and RXO. We are closely monitoring the macro environment and are positioned to benefit when demand strengthens. Now I'd like to turn it over to Chief Strategy Officer, Jared Weisfeld, who will talk in more detail about our results and our outlook. Jared Weisfeld: Thanks, Jamie, and good morning, everyone. As I typically do, I'll start with an overview of our brokerage performance in the quarter. To make the comparisons more useful for you, I'll give you combined numbers that include Coyote's results in the prior period. Brokerage volume in the quarter was up 1% year-over-year, outpacing the cash freight index. LTL volume increased by a strong 43% year-over-year. LTL represented 31% of brokerage volume in the quarter, up 900 basis points year-over-year and down slightly from the second quarter. Truckload volume was down 11% year-over-year and represented 69% of brokerage volume, up 100 basis points sequentially. Similar to last quarter, truckload volume was impacted by a decline in automotive, efforts we undertook with customers to optimize price, volume and service and broader market weakness. From a vertical perspective, automotive volume was down 22% year-over-year. In the industrial and manufacturing vertical, encouragingly, we saw a slight pickup sequentially, which was largely driven by special projects. Industrial manufacturing volume declined by 3% year-over-year. Contract volume was 71% of our overall truckload volume in the quarter. Contract business declined by 200 basis points sequentially and 100 basis points year-over-year. Spot represented 29% of our truckload volume in the quarter, up 200 basis points sequentially and 100 basis points year-over-year. This was partly tied to the Coyote technology integration. As we migrated shippers to RXO Connect from Bazooka, we benefited from an increase in API connectivity. This enhanced connectivity will also benefit the combined organization when the freight market eventually recovers. However, given the weakening demand environment, the spot opportunities were less robust when compared to the second quarter and not enough to offset the squeeze on our contractual book of business. Before reviewing our financial performance and market conditions in more detail, I'd like to talk more about some of the technology offerings that we rolled out in the quarter. We deliver technology that drives improvements across 4 key pillars: volume, margin, productivity and service. We've been developing and enhancing our artificial intelligence and machine learning capabilities for years, utilizing our proprietary data. During the quarter, we made progress further enhancing our AI capabilities across each pillar. We enhanced our proprietary and differentiated pricing model, which leverages the combined data of RXO and Coyote. We implemented agentic AI solutions to streamline carrier inquiries, reducing manual effort by tens of thousands of hours. We've deployed AI image solutions in last mile to ensure delivery and install quality, which has the opportunity to fully automate thousands of manual photo validations per day, and our engineering teams have been leveraging AI tools that have generated millions of lines of code. We're applying AI to structurally improve the long-term margin profile of the business. Let's now review our brokerage financial performance and market conditions in more detail, starting with revenue per load on Slide 10. In the third quarter, truckload revenue per load moderated. Year-over-year revenue per load, excluding the impact of changes in fuel prices and length of haul increased by 1%. The demand environment also weakened in the third quarter, negatively impacting revenue per load. Let's move to Slide 11 and discuss brokerage margin performance and current market conditions. As Drew mentioned, the truckload market tightened during the month of September. This squeezed the margins in our contractual book of business, resulting in a moderation in gross profit per load and third quarter brokerage gross margin at the low end of our outlook. From a market standpoint, buy rates and industry KPIs moved higher in the quarter. Tighter market conditions have been entirely driven by supply side dynamics as overall demand has weakened. This tightening in supply is largely due to enforcement actions related to non-domiciled CDLs and English language proficiency. From a seasonal standpoint, buy rates typically ease during September. This year, however, the market moved counter-seasonally and buy rates moved higher in September. This trend not only continued but was even more pronounced in October despite weaker demand. For the quarter, approximately 2/3 of our freight came from outbound states with buy rate increases. For example, we saw acute tightening in California and Texas. Over the last 2 months, industry-wide linehaul spot rates have moved up by approximately $0.06 per mile with no increase in sell rates or a corresponding increase in accretive spot opportunities. While RXO continued to procure transportation more favorably than the market, we are not immune to market squeezes given our large contractual book of business with Tier 1 enterprise shippers. As it relates to purchase transportation savings from the Coyote acquisition, our incremental buy rate favorability was similar to the prior quarter at approximately 30 to 50 basis points. Our customer and carrier representatives continue to increase their familiarity and productivity within RXO Connect. We remain confident in our ability to achieve 100 basis points of incremental favorability over the long term. As a reminder, in tightening market conditions, such as the current market, incremental favorability serves as cost avoidance. Turning to Slide 12. As we just discussed, truckload gross profit per load moderated in the third quarter given softer demand and tighter capacity. This market tightness intensified recently. And to put in perspective, our truckload gross profit per load in the month of October was approximately 25% behind our 5-year average, excluding COVID highs. Incremental margins attributable to a gross profit per load increase are very strong in excess of 80%. Moving to Slide 13. RXO's LTL brokerage volume continues to outperform the broader LTL market. In the quarter, LTL gross profit per load also improved sequentially. We have many opportunities to continue to grow LTL volume with existing and new customers. I'd now like to look forward and give you some more details on our fourth quarter outlook. We're assuming a muted peak season and weak demand trends across all our lines of business. Starting with brokerage. We expect overall volume to decline by a low single-digit percent year-over-year with continued soft truckload volume trends, partially offset by strong LTL growth. Market tightness intensified in the month of October and is expected to persist throughout Q4, pressuring brokerage gross margin and gross profit per load. We anticipate that brokerage gross margin will be between 12% and 13%. let's now talk about complementary services. In Managed Transportation, while the business has strong sales momentum and an expanded pipeline, managed expedite automotive headwinds continue to impact us in the near term. In last mile, demand trends within big and bulky have weakened after Labor Day, and we're taking that into account in our outlook. Putting it all together, we expect RXO's fourth quarter adjusted EBITDA to be in the range of $20 million to $30 million. While we would typically see a sequential increase in brokerage adjusted EBITDA in the fourth quarter, that is being more than offset by higher cost of purchase transportation. We are also expecting a decline in complementary services, driven by slowing demand in last mile, which is counter to normal seasonality. Taken together, the impact of these 2 items is approximately $15 million. Similar to previous quarters, we thought it would also be helpful to share some assumptions underlying our fourth quarter outlook. The low end of our adjusted EBITDA outlook assumes a further moderation of our truckload gross profit per load. This would include a continued increase in buy rates and no corresponding increase in accretive spot opportunities. The high end of our outlook assumes an increase in our gross profit per load and improvement in brokerage gross margin. This would include accretive spot opportunities to offset the squeeze. To close, we continue to operate in a soft demand environment. On the supply side, continued enforcement of non-domiciled CDL restrictions and English language proficiency would result in a major structural change to the industry. While our brokerage gross margin is impacted in the near term, assuming enforcement continues, this could result in a sharper inflection when demand eventually recovers. Longer term, this could be a very positive development for large-scale brokerages like RXO and it would strengthen safety, reduce theft and fraud. Our actions over the last several years have improved RXO's cost structure, which will lead to higher earnings across market cycles. We have taken actions to remove over $125 million of cost. We announced more than $30 million of new cost initiatives today to enhance operational efficiency. We've improved brokerage productivity by 38% over the last 2 years. Our brokerage cost per load has decreased by more than 20% since our spin, and we are committed to investing in technology, including AI with a strong return on invested capital. More than ever, shippers want to do business with large-scale brokerages that have the resources, capital and ability to invest throughout market cycles. With a continued focus on profitable growth, a more efficient cost structure, larger scale and a cutting-edge technology platform, we are well positioned to drive significant long-term earnings and free cash flow growth. With that, I'll turn it over to the operator for Q&A. Operator: It is now time for our Q&A session. Our first question will come from Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to get a sense, I guess, just on the underlying market dynamics and specifically the supply environment, which you've touched on here, but there's a lot of debate on whether these federal enforcement actions will be enough to shift the supply-demand balance. So the first question is, do you think the recent supply exits are sustainable and enough to structurally reduce market supply? And then second, if this is, in fact, the final squeeze that we would expect to see at the bottom of the cycle, if demand doesn't materialize near term, what actions can RXO take just to manage gross profit per load for, say, the next couple of quarters? Drew Wilkerson: Stephanie, it's Drew. I'll take the first part on reducing capacity, and Jared will take the second part of your question on the gross margin dollars and gross profit per load through a quarter. When you look at what's going on, on the supply side, as I said in my prepared commentary, I think this is the biggest structural change potentially in transportation. Compare it to something like ELDs. And when ELDs were enforced, drivers had a choice of whether or not they were going to invest into their equipment and continue to haul. At this point, they don't have a choice. They're being pulled off the road if they're non-domiciled drivers or the English language proficiency doesn't meet their requirements. So I think it's a much bigger change than what anything that has happened in the industry in the past. And it is something that will take out capacity in a major way in large percentage points. The one thing that we still need is for demand to return overall. As demand returns, what that does is it creates a much sharper inflection as the market comes back. Jared Weisfeld: And Stephanie, on your second part of the question in terms of if this is the final squeeze, but demand doesn't recover, what actions can we do? I would point to the $30 million of new cost initiatives that we announced this morning, more than $30 million, where you will see a partial impact here in the fourth quarter. We continue to streamline the cost structure of the business, and we see significant opportunities as it relates to improving that cost structure longer term. As you think about additionally heading into next year, and Drew touched on this in the opening remarks, our cost of purchase transportation benefits as carrier reps continue to gain incremental efficiencies on RXO Connect and Freight Optimizer, the ability to go ahead and become more productive and benefit from a PT standpoint, I think, are very real. And then the last thing I'd close with is, I think Jamie touched on this. Ultimately, we are seeing lower interest rates and some benefits associated with the recent bills that were passed through Congress as it relates to potential investments in the U.S. as well. So as you think about what this is setting up for when supply eventually continues to normalize combined with a demand inflection, it could be pretty strong on the other side, but enforcement does need to sustain. Operator: Our next question comes from Brandon Oglenski with Barclays. Brandon Oglenski: Drew, this is going to come off a little critical, but I think it's probably for the betterment of everyone on the call. I mean let's take it at face value. Your adjusted EBITDA guide here is down about 40% at the midpoint year-on-year, and that's a year-end Coyote. We really thought Coyote was going to be transformative, a pretty big acquisition for a company of your size. I guess looking back, are there things that you maybe wouldn't have done? And I mean, maybe to exemplify it, I think the last couple of years, you guys have said, look, 1Q is usually a lot weaker than 4Q. Is that what we're to infer here? And if that's the case, I mean, I guess investors are probably going to look for more tangible actions here on earnings. Drew Wilkerson: Yes, Brandon, thanks for the question. If you look back at the Coyote acquisition, on people, customers and technology, we have done extremely well. But the financial results are not where they need to be. And the biggest miss off of that was whenever you went into the 2025 market, we made a decision on pricing, and we took price up off of that. I made the wrong call on that one. And that is something that has impacted overall volumes. And if you go back and you look at our history, we've outgrown the market for several times. I look forward to us getting back to the days of where we are the market leader and we're the transportation leader from a growth standpoint of taking market share. Clearly, 2025 is not where we want it to be overall. As you go from 4Q to 1Q, first, I would say, let's start with the third quarter. Typically, from the third quarter to the fourth quarter, you see brokerage and last mile go up from an EBITDA perspective. That is not what you're seeing this year. So the headwind going from 4Q to 1Q is not the same as what it typically would be. We also have the cost actions that we have taken that will be impacted from 4Q to 1Q. So I don't think it's an apples-to-apples. Demand is still an unknown as we go into Q1 and are we still getting squeezed as we go into Q1? That's unknown. But ultimately, what is happening in the business right now is setting up for a very, very good thing. Brandon Oglenski: I appreciate that, Drew. And Jamie, can you talk to your adjusted leverage calc that I think speaks to some of your covenants? And is that going to be challenged just given the earnings outlook here into the fourth quarter, especially as you move forward? James Harris: Yes. Thanks. Yes. So we ended the quarter at a leverage of a net 2.3. If you look forward to the midpoint of our range at the end of Q4, say, 20 to 30, at 25, you'll be about 2.8. Our covenant is 4.5. So we've got a lot of headroom. We have a very strong balance sheet. We've got access to several hundreds of millions of dollars of capital. So we're not concerned about that. One thing I would point out, we had -- as Drew said, we had a strong cash flow quarter, 56% conversion, added cash to the balance sheet. As we look forward to the fourth quarter, we will have the semi-annual bond payment, which is normally due in Q4, which we'll make that. And so we'll use some cash in the fourth quarter. But as you look at '25 holistically, one thing really important to point out, there's about $65 million or $70 million of cash outflows in 2025 that will not reoccur in '26. Three drivers: #1, in the first quarter, we had $25 million of cash usage to finish paying for transaction fees related to the Coyote acquisition that happened in '24 is purely timing. Secondly, our total spend on restructuring and integration will go down approximately $30 million year-over-year. And then third, our CapEx will go down $10 million to $15 million. So if you think of all those together, we've really got $65 million or $70 million of cash outflow in 2025 that will not reoccur. If you put that in context of the $25 million midpoint of the range for the full year, that means we would be producing $20 million to $25 million of free cash flow in '25. So if you think about it at the bottom of the cycle, very strong. It really sets up nicely as the cycle improves, that number will go up. And so all that taken together, we have a very strong cash flow business. We have a very strong balance sheet. And we always watch the balance sheet closely, but we're -- it's not something that we're overly concerned about right now, but we do pay close attention as you'd expect us to. Operator: Our next question comes from Ravi Shanker with Morgan Stanley. Ravi Shanker: So it's a bit of an AI arms race out there in the brokerage space. It's all about how many agentic AI bots you have and how many press releases you put out. But you said that your customers are telling you that you have the best and easiest tech out there. Can you just unpack for us the process of going out there and selling your tech platform to your customers? Like what are they looking for? How do you drive conversion? And kind of how do you differentiate yourself with what else is out there from a tech world? Because sometimes it may be hard to see for us in our seat. Drew Wilkerson: Yes. Ravi, one, I appreciate the question. The only thing I would level set on is it's not about press releases for us. It's about results for employees. It's about results for customers. It's about results for carriers. And we are hitting an inflection point with our AI investments that we have been making. Not only have we been running an integration, we have been investing in AI, and we've been investing in it heavily. When you look on the ability of what we're able to do on the pricing side, it is something while we had a very strong pricing algorithm that's allowed us to outperform the market from a margin perspective for a decade plus, it is getting better. When you look at the way that we are communicating with carriers, it is changing, and it is allowing our reps to spend more time focusing on solutions. And then the last thing is even if you look at our last mile business, we've done things like whenever you're doing an installation versus a person going in there and getting a photo and checking it, we've been able to actually do that with an AI bot that is checking everything from an installation standpoint, which is critical to our customers and consumers and how that process unfolds. So for us, very excited about hitting an inflection point with AI and what it will actually mean from an operating margin perspective to the business and look forward to hosting you next week and let you actually see it on the floor of how it impacts carriers lives, how it impacts customers and how we're interacting with them so that you can see it live and in person. Ravi Shanker: Great. Looking forward to that as well. Maybe just a quick follow-up. Your 4Q guidance is predicated on the current demand-supply equation holding, right? So if for some reason, the supply side or the enforcement drops off or supply side gets looser, your 4Q gross margin will be better than guidance? Jared Weisfeld: Ravi, as you think about the range that we provided for Q4, $20 million to $30 million of adjusted EBITDA, the midpoint assumes that current market conditions in terms of the intensification that occurred in the month of October with respect to market tightness given the supply dynamics that we talked about, that sustains throughout the rest of the quarter. The low end assumes that the market further tightens in terms of that squeeze impact without a corresponding increase in demand in spot opportunities. So that environment would result at the low end. And for the high end, to your point, as you think about either the market tightening to the point where it results in some pressure in waterfall routing guides and some spot opportunities and/or if there is an easing in buy rates, that would allow gross profit per load to improve from current levels to get to the high end of our guide for Q4. Operator: Our next question comes from Chris Wetherbee with Wells Fargo. Christian Wetherbee: I guess I want to ask a question about operating expenses and your ability to maybe sort of rein those in a little bit as you go forward in this weaker market. Maybe you can talk a little bit about the potential opportunities you have. It looks like if I just sort of zone in on direct OpEx and labor expenses, those have been relatively flat in this market over the course of the last few quarters. Is there work that you can do there to try to adapt to what has been obviously a more challenging outlook? James Harris: Yes. So this is Jamie. We've taken a lot of cost actions since then, $155 million in total, including the synergies we've gotten from the acquisition. We're constantly looking at our expenses. If you look at our P&L, a lot of the direct OpEx that you see in the P&L relates to our last mile and our managed transportation business. SG&A that shows up in the P&L across all the business lines. there's still plenty of actions that we can take. We've talked about automation. We've talked about process improvement. One of the things that we're constantly working on, Drew mentioned in his remarks, footprint, how do we consolidate footprint so we can give the same level of high customer service and fewer square feet of space and fewer facilities. Those are the type of things we're constantly working on. So the answer is yes, there is more that we can do, and we're constantly working on those type of activities. And you can see it with the $30 million that we announced today. I mean that's a constant process that we're going through. Christian Wetherbee: Okay. That's helpful. And then I guess, maybe, Drew, if we could sort of zoom out a little bit and try to get a sense of maybe how we come out of this dynamic that we're in right now. I don't think we typically see the cycles turn simply driven by the supply coming out. And it seems like that's happening without any demand, I guess. Maybe help us a little bit as you think about the next couple of quarters as you guys are planning for the sort of demand environment. What do you see out there? You obviously need demand. Where do you think it comes from? Drew Wilkerson: Yes. I think, Chris, there's a lot of things that we're watching on the demand, as Jamie alluded to in his prepared comments. We're watching what happens on the interest rates. We're watching what is happening in the homes. We're paying very close attention on the automotive side. As you know, in automotive, there is the managed expedite portion. And that's when everything breaks down and you have to get something to a plant to avoid shutdown. That's a big piece of our business. And when you look at what that piece of the business was during the peak, it was around 13% of our gross margin dollars in brokerage came from expedite loads. Right now, we're sitting at around 1% or 2%, so to see where the business can go to getting back on track from that perspective. We've always had a big presence in retail and e-commerce, and we have a lot of great relationships there. From the Coyote acquisition, we gained a lot of exposure to food and beverage. And one of the things that we've been really focused on, on the sales side is expanding in the technology vertical and expanding in the high cargo value goods area. And we have got a very good pipeline. We're seeing good wins in those areas and look forward to the results. The second part of your question, I think, was more on the market and what's going on. And what I would say is this is not an episodic squeeze. This is not DOT checkpoint weak. This is not produce season. This is not a weather impact. This is a structural change that is taking place in the industry if it persists. And so supply coming out is real, is happening. And on the other side of that, with the demand, that sets up extremely well for large carriers, specifically brokers who have good relationships with their customers who provide good service, can provide a comprehensive set of solutions and have great technology. We fit -- we check the box on every one of those. So this is mechanical and part of what we go through at this point in the process, but we know what's on the other side of it. Christian Wetherbee: Are you willing to sort of venture a guess on what the capacity rationalization might look like in terms of percent of the fleet? Drew Wilkerson: Chris, we're watching a lot of the same things that you're watching. And I mean, if you take out the private fleets and the large carriers, there's numbers out there that it could be 15% to 20% of capacity. And if that happens, that is a big change within the industry and a lot of capacity that we'll be exiting. Operator: Our next question comes from Ken Hoexter with Bank of America. Ken Hoexter: So Drew or Jared, I just want to understand kind of the messaging here for the fourth quarter. Is this just the squeeze of the spot price that shifted quickly? Are you seeing an acceleration in the demand falling away? Just it seems like such a significant -- more significant change for a fourth quarter outlook than we've heard from other carriers that have also reported within the past week. So I just want to understand what you're seeing, maybe that's a little different. Is the cost exposure unique to RXO in terms of -- you noted 2/3 of the cost came from regions where the buy rates increased. Is that maybe something more particular to RXO than your peers? Or is it the capacity tightening more in Texas and California? So any thoughts? I know it's a long question, but any thoughts on that would be helpful. Jared Weisfeld: Ken, it's Jared. So when you think about the bridge from Q3 to Q4, typically, both brokerage and last mile are up sequentially from third quarter to fourth quarter. This year, we are assuming that they are both down sequentially. And that's a function of both of what you cited in terms of lower demand and higher PT costs. So on the demand side, we are seeing lower demand across the business. We saw that play out throughout Q3, and we are expecting the same in the fourth quarter. I'd say specific also to last mile, we did see a drop off, call it, after the Labor Day time frame with respect to goods for big and bulky. So last mile is seasonally up into the fourth quarter, and we are expecting that to decline sequentially given that decline in big and bulky demand. With respect to the question as it relates to purchase transportation costs, right? So when you think about our business, to your point, we did see about 2/3 of states where we were moving goods from an outbound standpoint, our PT costs going higher in the third quarter. So I'd say it moved modestly higher in the month of September, but that acute tightening really did happen over the last 4 weeks after the emergency order on non-domiciled CDLs came into effect at the end of September. And we've seen that play out with gross profit per load and gross margin compression within the brokerage business in the month of October. And what makes this interesting and unique to Drew's point, where this is very structural from our standpoint because this is not an episodic squeeze like we've seen over the last 3 years where whether it's seasonality due to produce season or DOT Checkpoint, this is a lot of capacity that is coming out of the market. And ultimately, it's happening at a point where we are having weaker demand trends. So you don't have routing guide pressures to allow for accretive spot opportunities, so that's really what's playing out here, Ken. Ken Hoexter: So just to clarify that, Jared, because again, I'm just trying to compare it versus what we've heard from some peers, right? So the lack of spot opportunities, but are you seeing that core demand falls faster? I'm just trying to differentiate kind of why we're seeing maybe some cost or some margin accretion at some relative peers versus the continued pressure. I get the cost side; I think you made that quite clear in terms of the speed with which this is happening. So is anything also happening on the demand side? Jared Weisfeld: So yes, demand has weakened. I would also -- when you look at our mix, mix is very different across different businesses and different brokerages, right? So for RXO, our contractual book of business, which was just north of 70% of our volume in the third quarter from a brokerage standpoint, really, if you think about largest shippers in North America, Tier 1 enterprise-class shippers, not as much SMB, right? One of the benefits associated with the acquisition of Coyote was we did get an SMB business, but ultimately, that's probably around 10% of total volume. The big bulk of our exposure really is large Tier 1 enterprise class shippers. So I do think that mix is also important. And I go back to the earlier question as it relates to automotive, which certainly has been a headwind for the business as well as an example, throughout the year, I suppose with the managed expedite type freight. So I would certainly highlight mix as a big difference. Drew Wilkerson: Ken, I would also -- I'll expand on it a little bit. I think there's a lot of public data out there that shows what's going on with demand. If you look at the cash freight index, it shows that it is down 7%. If you want to dive specifically into truckload, FreightWaves SONAR has got a product out there that shows it is down sitting around 17% right now on the truckload side. So I think it's not necessarily taking our word for, just look at the public data out there available in the truckload market. Operator: Our next question comes from Scott Group with Wolfe Research. Scott Group: So again, just sort of like a big picture. We're talking about a tightening market. And at the same time, like your truckload rev per load goes from up 3% to up 1%. Drew, you've been doing this a long time. Have you seen this before where the market tightens and your buy rates go up, but like industry spot rates or sell rates don't move? I don't know that I've seen this before. And then ultimately, I guess what I'm trying to understand is like if a typical squeeze for your business is a quarter or 2 and then eventually you sort of like benefit from it. Like do you think this is a -- if it's supply driven, is it a longer squeeze this time? Or do you think, hey, this can't -- this dynamic of buy rates up and sell rates not moving can't last. And at some point, the sell rates are going to have to start moving pretty quickly? Drew Wilkerson: Yes. Scott, I think that everything that you just said points to it being a structural change that has happened in the industry because it is something that we all have not seen before and shaking out this way. As far as how long the squeeze is, yes, I don't think it would be wise of me to venture a guess on how long the squeeze is because I don't think that anybody saw the upside and the downside of the cycle lasting 5-plus years at this point. So I don't know how long the squeeze will be. But yes, we are in the thick of it right now as something that impacts our margins. I'll tell you, if you go back and you look at the time of ELD, you actually saw our margins fall to 11.5% during that time. And within 2 quarters, you saw more than it makes up for that on the recovery side. Now there was demand there. So I think that demand is a key point. But I do not think that the capacity coming out in this situation is the same as ELD. I think it's in a much bigger way because at ELD, you had a choice of if you were going to spend the money and invest in your equipment to meet federal mandates. This time, you don't have a choice, you're just coming off of the road. Scott Group: All that makes sense. Can I just ask one quick follow-up. I think you mentioned that buy rates have gone up like $0.06 or something. How -- is there any like sensitivity like every penny or a buy rate equals how much of operating income or EBITDA? Any sort of sensitivity there? Drew Wilkerson: Yes. I mean for us, Scott, the industry went up $0.06. We were much less than that. And I think that goes to the benefit of the Coyote acquisition of being able to buy better than market. So for us, in a quarter, every penny that it goes up is $2.5 million of EBITDA. Operator: Our next question comes from Jordan Alliger with Goldman Sachs. Jordan Alliger: Yes. Just -- maybe just to follow on, on thinking about the purchase transport and the squeeze. Obviously, there's decent squeeze going on, PT is going up. I mean doesn't that read that as we get into the contract season next cycle, which I presume starts in earnest in early next year or March or something that we should see significant increase in or at least an increase in contract rates and the squeeze should be going away? Drew Wilkerson: Yes, Jordan, I think it will still depend on what happens with overall demand. And bid season is underway right now. We're in the middle of some of our largest bids. Yesterday in Charlotte, we had 7 of our largest customers, and we spent a lot of time talking about our pricing strategy with them, talking about how we could draw synergies between the customers that were in the room from a capacity standpoint, talking about what was going on with the federal mandates. So for us, we look at every customer as their own story as we go through the bid cycle. So is there the opportunity for rates to go up? Absolutely. But I think some of it depends on what's going on in the market as that customer's bid is going on. So I'm not going to forecast on where rates are going to go for next year. But what I will say is as routing got start to break down, that's where spot loads come in, and those are at a much higher revenue per load. Jordan Alliger: Well, I guess just as a quick follow-up. I mean, given what you're seeing in purchase transport, I mean, is the -- do you feel that the customers you're talking to are understanding that you're going to need to push rate up? Drew Wilkerson: We have very close relationships with all of our customers. Every one of them has got their own story. And for us, it's about providing a solution for them and for us that works for both the long -- short and the long term. So our customers are very well aware of what's going on in the market right now. Operator: Our next question comes from Tom Wadewitz with UBS. Thomas Wadewitz: So I wanted to swing back a little bit to just kind of how we should view the run rate in 4Q and what that implies for '26 or just broad brush how to think about '26. If you kind of take midpoint of your EBITDA guide for 4Q, add it up with the 3 you reported, you get $117 million for EBITDA base in '25, if you kind of put seasonality on the $25 million in 4Q, it's probably well below $100 million. So I guess, I know you've got the $30 million of cost saves, you've got other initiatives. But I mean, do you think '26 EBITDA is more closer to $100 million or closer to $150 million? Or just -- it seems like hard to know what's the right ballpark even to be in given 4Q is so tough. James Harris: Yes. This is Jamie. As you know, we do one quarter at a time. As we think about '26, as you know, there's a lot of unknowns heading into next year, we've got the volume demand, where does it go? We got the cost of purchase trends. How long does the squeeze endure? How does it get a little worse? Does it get better and when? You mentioned this. We do have a significant amount of cost that we've taken out of the business. Some piece of that is a run rate into '26. We've got the purchase transportation opportunities. Drew talked about 30 to 50 basis points to date. Much of that is showing up in the P&L as cost avoidance. That will translate. We will get more of that. We will get to that 100 basis points. And so I don't think you can take kind of a Q4 project into a Q1 or a Q2 because, again, Q4 is subseasonal. We would expect both last mile and brokerage to be up sequentially from Q3 to Q4. It's not, it's actually down. That being said, what that translates into a Q1 is not going to be normal. Also as it relates to the rest of the year. And as this demand -- as this market sets up, as Drew talked about on the capacity side, when demand comes back and it will come back, there are a lot of things going on out in the macro, the demand will come back, when, we don't know for sure. But when it does, we're set up very well to be a beneficiary of that. Drew Wilkerson: Tom, I agree with everything that Jamie just said. But one thing that I would add is if you look at what's happened in the industry over the last 7, 8 weeks and the impact that has had to financials, it's running in the negative way. It works the exact opposite whenever the market starts to turn on the positive way. And this is an industry that turns very, very quickly, and you've got the opportunity as the market recovers to expand margins in a big way. Thomas Wadewitz: Yes. Okay. That -- it seems like you could have a setup for a big improvement in second half '26, right? So that seems like a thing worth considering as well as a tough run rate coming in. I wanted to ask for like a second question and a follow-up. How do you think about what's important on enforcement and supply side? I mean I think -- I wonder if there is some avoidance of enforcement areas where the capacity that's questionable in the market, understands where the enforcement is taking place and then you avoid that. So part of the capacity doesn't leave the market that kind of sits on the sidelines or maybe just avoids or maybe given the way the interstates flow, they're across multiple states and you can't avoid enforcement. I just wanted to get your sense on that because it seems like such a big question and the potential impact is so large, but just kind of hard to know if it all comes out or not. Drew Wilkerson: Yes. I mean, Tom, we're watching extremely closely and it's something that we support. When you look at what this does for the industry, it makes it a safer industry. It eliminates fraud. It reduces theft. So this is a positive thing for the industry. It also puts something front of mind for our customers. And customers are going to look at who they're doing business with. They're going to look to do business with large, financially stable companies that have provided them with great service. They provide them with solutions. They've got good technology that allows them to make better decisions as a customer and they're going to go back to the people who have delivered for them in the past. And we think that we've set up very, very well in that market. Thomas Wadewitz: Do you have any visibility on kind of avoidance? Or is that hard to measure from the carriers? James Harris: Yes. This is Jamie. I mean, personally, what I see going on with the enforcement and I think what the industry sees going on right now is I don't think there's going to be -- this is not a state-by-state enforcement issue. This is more of a federal enforcement issue. And so regardless of where a carrier may be, I think they're subject to being taken off the road wherever. And it will take some time, but we are seeing the impact of the capacity, and it impacted it very quickly. And so I don't think we would say there's any one spot that folks can go run loads in that is not under risk of being caught. And so I think it will be a continued enforcement. Drew Wilkerson: Tom, just remember, you only have to drive a few hundred miles in any direction to be in another state line. Thomas Wadewitz: Yes, right. Well, that's where it seems like it's maybe tough to -- maybe some states are easier but hard to avoid states that are enforcing pretty significantly. Operator: Our next question comes from Jeff Kauffman with Vertical Research Partners. Jeffrey Kauffman: Group question, I know nobody can predict how long this squeeze is going to go on. But I guess kind of following Scott and Jordan's question a little bit, if things just stayed static where they are right now, where the market is, I know you talked about 1 to 2 quarters, 2 to 3 quarters. How long would it take you to price up to where this was not impacting the franchise anymore if it didn't get worse from where it was? Drew Wilkerson: Yes. I mean the biggest thing that we're watching right there is what happens on tender rejections. And if you look, even though demand is down significantly, tender rejections have gone up to over 6%. So right now, you are starting to see capacity push it to where it goes. And it's not necessarily as much on the contract rates that you're watching right there. It's more what happens on the tender rejections whenever routing got start to break and on the spot. So that's with demand extremely depressed, you're starting to see pressure on tender rejections. So that's mostly what I'm watching right now, Jeff. Jeffrey Kauffman: And where do we need to see normally tenders to get to where you can push price? Does it need to be above 8? Does it need to be above 10? Kind of where is that historic kind of breaking point? Drew Wilkerson: Yes. It needs to be at 10 or above. That's typically whenever you start to see tender rejections called spot loads. Whenever it gets into the mid-teens, that's excess of spot loads. And if you get back into a COVID-like environment, it was -- I think it was sitting in the high 20s, low 30s during that time frame. Jeffrey Kauffman: But your point would be in the long run, this is a good thing. And when the market does stabilize, we're better off would be the... Drew Wilkerson: In the long run, this is not a good thing. This is a great thing. You're talking about the carriers that customers are doing business with the people who have been there for them that they know that have the right qualifications on who they're doing business with. That's what they're looking for. And for us, the quality of carriers that we work for, the bar is extremely high. This is not something that we just started doing because of the federal mandates. If you go on and you look at our website, you can't go on and start a trucking company and do business with today. A lot of the large brokerages, you can go on and start doing business with today. We want to be able to monitor your safe set score. We want to be able to see a history of what you've done. A lot of other brokers, you can go out there and you can do your first loads with them digitally. And while digital is an important aspect of being able to do freight, the first thing that we want to do is get to know the carriers that we're doing business with. So we don't allow your first few loads to be booked digitally. We want to know who we're doing business with as you come on to the platform. We built the business off of high cargo value, off of automotive. So the vetting process for carriers for us has always been very strict and always been above federal guidelines. And so we think we're in a very good position to win off of that. Operator: That appears to be our last question. I'll turn the conference back to Drew Wilkerson for any additional remarks. Drew Wilkerson: Thank you, Michael. We're in a squeeze, but I remain extremely confident in RXO's ability to deliver outsized earnings growth over the long term. Our improved cost structure, larger scale, continued focus on profitable growth, best-in-class technology and ability to generate cash are differentiators for RXO. We remain focused on what has made us so successful over the past decade plus. We provide exceptional service, a comprehensive set of solutions, cutting-edge technology and deep customer relationships. Thank you all for your time today and look forward to seeing you soon. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome to the Genmab First Half 2025 Financial Results Conference Call. As a reminder, this conference call is being recorded. During this telephone conference, you may be presented with forward-looking statements that include words such as believes, anticipates, plans or expects. Actual results may differ materially, for example, as a result of delayed or unsuccessful development projects. Genmab is not under any obligation to update statements regarding the future nor to confirm such statements in relation to actual results, unless this is required by law. Please also note that Genmab may hold your personal data as indicated by you as part of our Investor Relations outreach activities in order to update you on Genmab going forward. Please refer to our website for more information on Genmab and our privacy policy. I would now like to hand the conference over to your first speaker today, Jan van de Winkel. Please go ahead. Jan van de Winkel: Hello, and welcome to our financial results call for the first 9 months of 2025. With me today is our Chief Financial Officer, Anthony Pagano; our Chief Commercial Officer, Brad Bailey; and our Chief Medical Officer, Ta Ahmadi. And for the Q&A, we will be joined by our Chief Development Officer, Judith Klimovsky. As noted, we will be making forward-looking statements, so please keep that in mind. During today's presentation, we will reference products being developed under some of our strategic collaborations. And this slide acknowledges those relationships. As we near the end of 2025, I would like to remind you of the commitments that we made at the beginning of the year. We said that we would accelerate the development of our high-impact late-stage pipeline that we would maximize the potential of our commercialized medicines and that we would deliver on our capital allocation priorities. I'm pleased to say that we are following through on these commitments, supporting our continued growth and long-term value creation. Over the past 9 months, our total revenue grew by 21%, fueled by increased recurring revenue. And we have invested fully in line with our capital allocation priorities. Importantly, we have grown operating profit by 52% even while making these strategic investments. We ended the first half with around $3.4 billion in cash. Our strong financial foundation has given us the flexibility for continued growth and expansion through investment in our high-impact late-stage programs. EPKINLY and Rina-S have both progressed rapidly over the course of this year with extremely encouraging data sets. And for Rina-S, we have initiated additional Phase III clinical trials. As part of our disciplined investment into the highest potential programs together with BioNTech, we have agreed that the current data in frontline head and neck cancer for GEN1042 did not meet our high bar for continued development. As part of our capital allocation priorities was our promise to explore focused M&A opportunities. We have delivered on this commitment with a potentially transformative proposed acquisition of Merus. So let's briefly review the highlights. The proposed acquisition of Merus is an exceptional opportunity that advances our evolution into a global biotech leader. It accelerates our shift towards a 100% owned model. It expands and diversifies our revenue and it brings us closer to achieving our 2030 vision to improve the lives of patients. With this proposed acquisition, we will add petosemtamab or peto to our already compelling portfolio. High potential assets like peto, which has received 2 breakthrough therapy designations are truly rare. The totality of data we have seen for peto underscores the potential as a best-in-class EGFR bispecific across head and neck cancer indications as well as in other EGFR-expressing tumors. And with data anticipated in 2026 from one or both of the ongoing Phase III trials, we expect peto will also be first-in-class with an initial launch expected in 2027. We are confident that our expertise and leadership in antibody-based innovation as well as our swift and broad clinical development of both EPKINLY and Rina-S demonstrate our ability to fully realize peto's potential. We will also see real promise for it to join EPKINLY and Rina-S as multibillion-dollar program. We expect to close the acquisition by early in the first quarter of 2026, subject to the satisfaction of customary closing conditions. And combined with our disciplined capital allocation, strong financial foundation and proven commercial execution, this transaction sets us up for durable long-term growth into the next decade. Now let's turn to some of the recent advancements for our late-stage programs. Beginning with EPKINLY, we eagerly await the -- its potential approval in second-line follicular lymphoma later this month. In addition to the unprecedented Phase III second-line follicular lymphoma data we discussed during our second quarter call, recently, we announced updated results for epcoritamab in the outpatient setting. These data evaluated the feasibility of treating and monitoring patients with relapsed or refractory diffuse large B-cell lymphoma in this setting. Data from both the Phase III second-line and outpatient studies are included in more than 20 EPCOR abstracts that have been accepted for presentation at this year's ASH meeting end of the year. Excitingly, the second-line follicular lymphoma data will be 1 of 7 oral presentations for epco at ASH. These abstracts highlight advances that expand epcoritamab's clinical profile, supporting use in earlier lines of therapy and across additional B-cell malignancies. So now let's turn to Rina-S. Last month at ESMO, we presented an update of the data for single-agent Rina-S in patients with advanced endometrial cancer. Today, Tahi will provide a brief overview of this data, which further supports the encouraging results that we showed at ASCO. This progress reflects our vision to accelerate our innovative late-stage pipeline and shows additional momentum behind the possibilities of Rina-S. Our confidence in the potential of Rina-S in endometrial cancer is reinforced by the breakthrough therapy designation granted by the U.S. FDA. As a reminder, this indicates that the FDA considers Rina-S to have the potential to significantly improve patient outcomes compared with existing therapies. The data we have seen and the recognition from the FDA both support our development plans for Rina-S. And I'm pleased to tell you that we have initiated the Phase III trial in endometrial cancer. So our rapid development of Rina-S continues. And we are also preparing for potential commercialization. TIVDAK is now available for prescribing in Germany, our first European market. And the foundation that we are building in the European gynomic community with TIVDAK will set us up for future success with Rina-S. Now over to Tahi and the updated Rina-S data from ESMO. Tahi, go ahead. Tahamtan Ahmadi: Thank you, Jan. At ASCO, we presented the first results for single-agent Rina-S in patients with advanced endometrial cancer from the ongoing Phase I/II RAINFOL-01 study. And at ESMO, just a few weeks ago, we provided an update on that data with 4 additional months of follow-up. What we saw was that at a median follow-up of around a year, Rina-S dose at 100 milligram per meter square showed deep and durable responses regardless of folate receptor alpha expression. With the disease control rate at that dose continuing to be at 100% and a confirmed ORR remaining at 50%, including 2 complete responders and with 7 out of the 11 confirmed responses still ongoing at that data cutoff. This compares to standard of care chemotherapy, which delivers approximately a 15% ORR and a limited durability, roughly around 6 months. In addition to the durable efficacy, Rina-S continues to have a manageable safety profile. There are still no signals of ocular toxicity, interstitial lung disease or neuropathy across the entire program. So in summary, the data we have seen for Rina-S, both in endometrial cancer and the data we presented on PROC reinforce our conviction that Rina-S is best-in-class ADC across efficacy, safety and durability across the entire spectrum of folate receptor alpha expression. And we are maximizing its potential with an accelerated and extremely comprehensive development plan that includes now 3 ongoing Phase IIIs, if you follow today's disclosure on clinicaltrials.gov and 2 Phase IIIs that are intended for potential registration under the accelerated approval pathway in the United States, one in PROC and one in second-line endometrial cancer. And we expect a first launch in 2027, and we also are generating data beyond GynOc with signal-seeking Phase II trial in non-small cell lung cancer. And now over to Brad for a review of the recent commercial performance for EPKINLY and TIVDAK. Brad Bailey: Yes. Thank you, Tahi. Q3 marked another strong quarter for our proprietary portfolio. Our commercialized medicines are contributing positively to our overall revenue growth, driven by the strong performance in our established markets as well as now the early success in new markets. This gives us further confidence in our growth potential as we advance our portfolio and prepare to bring our medicines to even more patients around the world. Take a closer look now at performance overall. EPKINLY and TIVDAK sales through the third quarter of 2025 were up 54% year-over-year. This accounted for 25% of our total revenue growth. And as we've said before, we expect our proprietary portfolio to increasingly contribute to our overall revenue growth over time. During the quarter, we continued to scale our operations across markets in a disciplined fashion, accelerate the adoption of our medicines and meet patients' needs. And as you just heard from Jan, the proposed Merus transaction provides us with the unique potential to double down on our shift to a 100% owned model and maximize our long-term growth. With EPKINLY, Rina-S, [ Acasunlimab ] and potentially petosemtamab, we have the pieces in place to deliver several multibillion-dollar opportunities in the coming years. Let's turn now to our EPKINLY's performance. EPKINLY posted $333 million through Q3, which represents a 64% year-over-year increase. We're highly encouraged by EPKINLY's performance and steady growth globally as the clear leader in the third-line setting across diffuse large B-cell lymphoma and follicular lymphoma. In the U.S., performance continues to demonstrate the value of EPKINLY as the only dual indication option in DLBCL and FL. We're seeing increases in adoption across sites of care and new patient starts, reinforcing both the clinical and operational differentiation that EPKINLY brings to the market. Indications, further growing utilization within ordering accounts and expanding more broadly into the community setting. As we prepare to enter earlier lines of therapy with the anticipated launch in second-line FL later this year, we'll build on this positive momentum to bring EPKINLY to even more patients. Now looking at Japan, we're seeing an encouraging start to EPKINLY's launch in third-line plus follicular lymphoma. Our teams are building on the traction we've seen in large B-cell lymphoma and continue to drive account activation while also preparing for future potential launches. To that end, today, we filed a supplemental JNDA for EPKINLY in second-line FL, marking another important milestone to potentially bring EPKINLY to earlier lines of therapy in this priority market. Across all other markets through our partner, AbbVie, we saw solid sales for EPKINLY in the quarter as an increasing number of countries gain access to reimbursement and saw rapid uptake. Globally, EPKINLY has received the most regulatory approvals for a bispecific in DLBCL and FL with approvals in more than 65 countries worldwide, including more than 50 countries now with the dual indication. As we look ahead to the remainder of the year and into 2026, we're focused on increasing utilization across sites of care and delivering EPKINLY to patients in earlier disease settings where we may have the opportunity to transform outcomes. With its strong performance to date and accelerating development program, we're confident in EPKINLY's growth potential to reach peak sales of more than $3 billion in the future. Now let's look at TIVDAK. TIVDAK is well recognized as the global standard of care in recurrent or metastatic cervical cancer. Our year-to-date sales for TIVDAK totaled $120 million with performance in both new and established markets, highlighting the clear need for women with advanced cervical cancer across geographies. In the U.S., we continue to see strong, stable performance across sites of care. And in Japan, we saw continued early launch success, further reinforcing the patient need, the strength of our launch strategy and impactful execution by our field teams. Broadening our reach across markets, in September, TIVDAK officially launched in Germany. This marks the first medicine we've launched in Europe independently. We've seen encouraging early uptake in Germany, providing positive momentum as we look ahead to expand to additional countries. With our focus on TIVDAK, we've made important progress establishing our operations to support our current and future portfolio in Europe. This strong foundation will ensure we are equipped to broaden our impact with the gynecologic cancer community and deliver our medicines to more patients around the world. The work we've done to transform our business has positioned us well now for sustained growth and profitability. We remain focused on expanding the utilization of our medicines and bringing them to as many patients as possible. The proposed acquisition of Merus and the potential addition of petosemtamab could strengthen the opportunities ahead for our proprietary portfolio of antibody-based medicines. We look forward to closing out the fiscal year with continued strong performance. And with that, I'll hand the call over to Anthony to discuss our financials. Anthony Pagano: Thanks, Brad. We continue to deliver solid revenue growth throughout the first 9 months of 2025, driven by sustained recurring revenues and the solid market performance of our products. We've also strengthened our long-term growth potential as we continue to generate encouraging clinical data for both epcoritamab and Rina-S. And our financials remain strong. We grew total revenues by 21% with recurring revenue up 26%. This was driven by royalties from DARZALEX and Kesimpta. And importantly, this growth was also supported by product sales from EPKINLY and TIVDAK, which together represented 25% of our total revenue growth. Looking at DARZALEX, we continue to see extremely strong growth. Overall, net sales grew by nearly 22% -- that's $10.4 billion for the first 9 months of the year, which translates to over $1.7 billion in royalty revenue for us. This growth was driven by continued share gains and solid performance in the frontline setting. So you can see that the quality of our revenue profile continues to improve. In fact, in the first 9 months of this year, recurring revenues represented 96% of our revenues, and that's up from 92% in the same period of last year, a clear sign of increasing visibility and durability of our revenues. What's really clear is that the investments we've made in building out our commercialization teams and capabilities are paying off. This sets us up well as we prepare for potential expansion into earlier lines for EPKINLY, including second-line FL and the anticipated launch of Rina-S and contingent on the successful close of the transaction, the launch of Peto. And we continue to take a disciplined approach to these investments. Total OpEx in the first 9 months of 2025 was slightly less than $1.5 billion, up 7% over the same period last year, excluding the impact of the ProfoundBio acquisition. And we're managing our investments strategically, prioritizing our high-impact Phase III programs and focused investments in our commercialization capabilities. Our operational discipline contributed to our operating profit growth of an impressive 52% in the first 9 months of the year. So here, you can see that we're really continuing to deliver on our commitments. Next, looking at our net financial items. Here, we have a net gain of $142 million. Then moving on to tax. We have tax expense of $217 million, which equates to an effective tax rate of 18.9%. Taken together, our net profit amounts to $932 million. So as you can see, continued strong underlying financial performance. With that, let's move to our 2025 financial guidance. We remain on track to achieve our existing financial guidance with projected double-digit revenue and double-digit profit growth. We expect our revenue to be in the range of around $3.5 billion to $3.7 billion, delivering a robust 15% growth at the midpoint. And it's our recurring revenues from royalty medicines and from EPKINLY and TIVDAK that's been driving that growth in 2025. In total for the year, we expect our recurring revenues to grow by 22%. For operating expenses, due to our continued focus and disciplined approach to our investments, we still expect to be in a range of around $2.1 billion to $2.2, putting all this together, we're planning for operating profit in a range between around $1.1 billion to $1.4 billion, with the midpoint of our guidance amounting to over $1.2 billion of operating profit and strong year-over-year growth of 26%. Our guidance highlights our continued strategic discipline, targeted investments and operational efficiency, all while advancing our pipeline and enhancing shareholder value. Now to give you just a bit more color on FX, every 10-point move in the exchange rate relative to our guidance rate of the U.S. dollar to the Danish kroner of 7.20 is worth just around $1 million in operating profit or loss at the midpoint. Now finally, before I conclude, I would like to take a minute to look ahead to 2026. While, of course, our guidance will be given in February next year, as I stand here today, 2026 consensus expectation for Genmab stand-alone investments appear to be in a reasonable place, capturing our investment priorities. And as I take a look at consensus expectations for Merus investments, they also appear to be in a reasonable place. Importantly, we remain confident that Genmab will deliver significant profitability in 2026 and meaningful EBITDA growth in 2027. Our performance in the first 9 months of 2025 underscores our ability to produce solid high-quality revenue growth, advance key pipeline assets, deliver on our capital allocation commitments with the proposed acquisition of Merus and maintain strong profitability through disciplined execution. So in summary, our very strong financial foundation, sustained profitability and disciplined capital allocation strategy positions Genmab for growth, creating value for both shareholders and for patients. And on that note, I'm going to hand the call back over to Jan. Jan van de Winkel: Thank you, Anthony. Let's move on to our final slide. We have strengthened the foundations of our business in the first 9 months of 2025. We have expanded the reach of both EPKINLY and TIVDAK to more patients. For Rina-S, we have presented additional support of clinical data showing its potential beyond ovarian cancer, and we are prepared to accelerate and maximize the potential with additional Phase III clinical trials. And we continue to anticipate further Acasunlimab data this year, and they will be presented at ESMO I-O in December in London. Beyond our commitments, to our existing pipeline priorities, we further delivered on our capital allocation strategy with the proposed acquisition of Merus, an extraordinary opportunity that will advance our evolution into a global biotech leader and position us for sustainable long-term growth and value creation. Before we move to the Q&A, I'm pleased to announce that we will hold our annual R&D update and ASH data review on December 11. And to ensure that this event is accessible to as many people as possible, this year's presentation will once again be fully virtual. Details will be available on our website, and we look forward to a lively event. That ends our formal presentation. Thank you for listening. Operator, please open the call for questions. Operator: [Operator Instructions]. We will now take the first question from the line of Jonathan Chang from Leerink. Jonathan Chang: Now coming out of ESMO, there's been a lot of discussion around the competitive landscape of Peto and Rina-S. What are your latest thoughts on how these drugs are positioned in the competitive landscape? And what gives you confidence in the potential for these 2 programs to be key drivers of growth? Jan van de Winkel: Thanks, Jonathan. Very good question. So let me ask Tahi to start off, giving you our thinking on the positioning of Peto as the best and first-in-class molecule and the same for Rina-S. And I'm sure that Judith will then also add to that. Tahi, why don't you get going? Tahamtan Ahmadi: Thank you, Jonathan, for the question. And so let me start this there was really nothing that in any shape or form was a surprise to us. Our conviction in Pito and Rena being the best and first-in-class asset in the respective indications of head and neck and GynOc has not changed. Pito, if you look at the totality of data, Jan said this in the prepared remarks, in our mind, has all the attributes of the best-in-class second-generation EGFR bispecific. There are 2 Phase IIIs already ongoing in head and neck in second-line immunotherapy for which it has a BTD and in combination with pembro in frontline where it has BTD. So it's also on track to be the first-in-class. Nothing really changed on that. As it relates to Rina, there's, of course, a couple of folate receptor alpha ADCs in development by AZ and Eli Lilly. Again, this is not news. we are, generally speaking, operating in a very competitive landscape. None of the data in any way, shape or form are changing our assumption that [ VAS ] based on the data in PROC and endometrial, both in response and long-term follow-up and durability and long-term safety has the profile to be best-in-class. I mentioned this in my comments. There are now 2 Phase IIs that are ongoing for some time. And we expect a launch at least one of these indications in '27 and 3 Phase IIIs that are actively enrolling. So I think we have a good position here also to be the first-in-class Topo ADC in GynOc space, and we're expanding already into other indications. So in totality, we feel very comfortable about the profile of the assets. We feel extremely comfortable over where we are positioned in the competitive landscape, and we feel very confident in our ability to accelerate the development of pito once we are having control of this asset, hopefully, and on Rina-S. So there's more to come on both of these assets. That's probably all that is to say at this point. Jan van de Winkel: Thanks, Tahi. Judith, do you want to add anything to that? Judith Klimovsky: No, beautifully said, nothing to add. Operator: We will now take the next question from the line of Michael Schmidt from Guggenheim Partners. Michael Schmidt: Congrats on all the progress. I had a question on EPKINLY. I was just wondering if you could comment on the commercial dynamics. I'm just curious in terms of sales, what are you seeing in terms of use in the approved indications between follicular and DLBCL. And then how should we think about the near-term growth opportunity in second line follicular in the U.S. and Japan in your markets? What is the magnitude of that near-term growth opportunity? Jan van de Winkel: Thanks, Michael, for the questions. And I think these are perfect questions for Brad to handle. Brad? Brad Bailey: Thank you for the question. We actually are extremely encouraged and pleased with our progress to date and the performance. We don't actually split out by indication, and that's actually part of the benefit, and we're hearing from customers and planning around their feedback that the dual indication from an operationalization perspective is extremely beneficial, along with the seamless SubQ administration. And as we move into the earlier lines of therapy, see this as a tremendous opportunity to bring treatment close to where patients live and see this as an opportunity, again, moving forward with where we are. So extremely encouraged with our performance to date. And as we know the value is in earlier lines of therapy and look forward to seeing that success in the future as well. Jan van de Winkel: Thanks, Brad. Do you want to say a bit about the size of the market in second-line follicular lymphoma? Brad Bailey: Yes. The second-line follicular lymphoma as previously stated, we really feel the value of these medicines are much broader and much greater in the earlier lines, approximately 9,000 patients in second-line FL, and it's really our first step into this larger opportunity. And so we would expect that this enabling treatment in earlier lines will open up additional opportunities for us in the not-too-distant future as well. Operator: Thank you. We will now take the next question from the line of Xian Deng from UBS. Xian Deng: Sorry, if I may just stay on EPKINLY a bit. I wonder if I could maybe push a little bit more on sort of the near-term performance given -- I mean, this quarter, we did see kind of a miss in EPKINLY. Just wondering is there anything you would flag in terms of this quarter's performance? And also just wondering for second-line follicular lymphoma, just wondering how should we think about the launch trajectory? Do you think this is actually going to be a bit more gradual given, I don't know, follicular lymphoma, is it mainly community setting? Or do you think this actually will be a pretty fast uptake? Jan van de Winkel: Thanks, Xian, for the questions. I'm going to hand them over to Brad. Brad, please comment. Brad Bailey: Yes. We're actually seeing right now, the observed consistent and continued uptake across sites of care in the U.S. And we do see to your latter part of the question that second-line FL allows this acceleration in the community setting where FL patients are actually treated, as you stated. And we do see that as a consistent uptake over time as we continue to get operationalization, if you will, of bispecifics in the community setting. And as it relates to the performance, we're extremely encouraged by what we're seeing year-to-date with the performance, both in the U.S. as well as Japan and through our partner, AbbVie globally. And again, feel like, as we've said all along, the earlier lines of therapy are where the value of EPKINLY will be and the second-line FL is really that first step taking us into this next phase. So hopefully, that answered your question. Jan van de Winkel: Thanks, Brad. And definitely, on, we definitely hope to move forward to frontline and second-line diffuse large B-cell lymphoma also very rapidly from here with readouts hopefully soon of the Phase III trial. So we're very encouraged by EPKINLY and really look forward to a very, very good future there. Let us move to the next question. Operator: We will now take the next question from the line of Qize Ding from Rothschild & Co. Qize Ding: One, if I may. So can you elaborate a little bit more on your decision to terminate the clinical development of 1042 in first-line head and neck cancer? And also what is the implication to the future development of this drug in first-line lung cancer and first-line melanoma? Jan van de Winkel: Thanks, for the question. I think I can start there and then maybe Judith can step in there. So what we determined together with our partner, BioNTech, that basically the data of 1042 in combination with chemo and pembro in frontline head and neck cancer didn't meet the high bar we have internally for continued development. So we stopped the development there. And that's where I want to leave at that. Judith, do you want to add anything there? Judith Klimovsky: Yes. No, just to add that this was the most relevant data set and the initial proof of concept. And based on that, we decided to stop the development in combination with pembro and chemo. Operator: Thank you. We will now take the next question from the line of Rajan Sharma from Goldman Sachs. Rajan Sharma: Just wanted to get your thoughts ahead of the EPKINLY PDUFA in November. There's obviously been a bit more of a focus seemingly on U.S. representation in clinical trials. So I just wanted to get your confidence going into that potential approval. And if you could just confirm that efficacy in the EPCORE FL-1 trial is consistent across both U.S. and non-U.S. patients. Jan van de Winkel: Thanks, Rajan, for the questions. Tahi, can you give some color on the U.S., non-U.S.? Tahamtan Ahmadi: Yes. I mean basically, the way I'm going to respond to that without getting into the minutes of the data is that there's absolutely nothing at this point that would indicate that it will not be approved in the next few weeks or days in the United States. Jan van de Winkel: All right. So we are highly confident, Rajan. So let's wait and see the coming weeks. Operator: Thank you. We will now take the next question from the line of Yaron Werber from TD Securities. Yaron Werber: Great. Anthony, I got a couple of questions for you more about 2026 and then '27. So you mentioned for next year, the numbers, the stand-alone OpEx for Merus and Genmab are reasonable. For Merus, they're sort of in the $450 million range in terms of OpEx, let's call it, $450 million, maybe some even have as high as $500 million. I think we're imagining there's going to be some synergies as you bring that company in. And I know you're not -- you can't give guidance, but can you give us any -- a little bit of a sense, are we thinking about this correctly? And then secondly, when you're talking about significant profitability next year, there could be as much as like $430 million change between interest income net to noninterest expense net because of the debt liability. So are we thinking about that correctly? Because it would impact profitability next year. Jan van de Winkel: Thanks, Yaron, for the questions. Anthony, I think it's good that you also got the chance to answer some questions here. thanks for that guidance. Anthony Pagano: I can really start off by thinking, as you all now know and appreciate, we have a very disciplined and focused approach to our investments. We've outlined for the market, starting with the overall capital allocation framework, a very clear framework of where and how we're going to invest on the one hand. And as we do that, do that in the most prioritized and productive manner as possible. That's how we're able to deliver on our 2024 actual financial results and also what our overall guide was for 2025 and where the year-to-date performance is. Moving forward, that same approach in terms of very clear investment priorities remains as well as that approach to being super focused and disciplined. Now to reiterate what I said, as I kind of look at overall stand-alone consensus for Genmab, that is in a reasonable place. Likewise, for Merus, here, I'm looking at the consensus number is in a reasonable place. We also have to appreciate where we are at in the overall process here as it relates to being on track to closing the transaction in early Q1 2026. Today, I thought it was important to provide that market -- the market the commentary similar to it did last year, but I think the overall investments are in a reasonable place. Of course, we will look for opportunities to prioritize, to remain disciplined. And ultimately, we'll provide our guidance when we get to February of 2026. Now my comment as it relates to significant profitability, just to be super clear, here, I am referring to EBIT. So I'm referring to our EBIT figure, our operating profit, consistent with historical practice, we are guiding on the EBIT line. So overall, if I think you sort of step back and we think about the overall setup here, what you should expect, Yaron, is continued investment in line with our capital allocation framework, lots of focus and discipline by the team and continue to deliver on our overall commitments, both operationally and financially. Operator: Thank you. We will now take the next question from the line of Asthika Goonewardene from Truist. Asthika Goonewardene: I want also to say congrats on all the growth that you guys have shown this quarter. It's impressive. Jan, when the Merus acquisition was announced, you mentioned that head and neck cancer was the main driving factor for that -- for your interest there. And you said you'll talk a little bit more about colorectal when that data is presented. The data in CRC at the triple meeting was, I would say, perhaps a little better than what even Bill telegraphed. So how do you view that colorectal opportunity? And then importantly, for that as well as head and neck, do you feel that you need a subcutaneous formulation to be competitive with your emerging competition from RYBREVANT. Jan van de Winkel: Thanks very much for the questions. And we said that well, the value was primarily determined by head and neck, and we want to expand head and neck, Asthika, as you know, into locally advanced and potentially other settings fairly soon. And we would say that the data, the early data in colorectal cancer is very exciting, but very early data. And we believe that there is potential in other EGFR-positive tumors also outside of head and neck, but there is simply no limited data there. I will ask Tahi to maybe give a bit more color there on our thinking. Tai? Tahamtan Ahmadi: Yes. Thank you, Asthika, and thank you for obviously hard questions. I'll try to manage this. I think as Jan said, early data, limited data, encouraging and we should leave it at that until we have control of the asset, and it's really us to speak about the data. But I think that's kind of the top line. And broadly speaking, I think we even talked about this in the prepared remarks when we announced the acquisition. We do think of pit as a best-in-class second-generation EGFR bispecific, and that obviously includes also opportunities outside of head and neck. But the focus is where it is right now. 2 Phase IIIs ongoing in head and neck. And there we have a significant head start over any form of competition. Subcutaneous administration is something that we are very familiar with that we have some deep understanding in prior path. And it's obviously something that we are looking at as part of a life cycle management. But our focus right now is execution of the studies that are already ongoing and then -- and we can talk more about what Genmab is going to plan in due time. Jan van de Winkel: Thanks, Tahi. So confirming that Asthika, the SubQ development is an integral part of our strategy for peto, but more to come after the finalization of the transaction. Let's move on to the next question, operator. Operator: Thank you. We will now take the next question from the line of Matthew Phipps from William Baird. Matthew Phipps: I've had a lot of investor interest recently on the first-line DLBCL trial with EPKINLY reading out next year. I'm wondering if you can give us any sense where you think that's a first half or second half readout? And then what level of PFS benefit do you think you need to really outcompete the Pola-R-CHP regimen that has gained some traction there? Jan van de Winkel: Thanks, Matthew, for the question. Tahi, can you give a bit of color on the frontline diffuse large B-cell lymphoma trial and the potential need for the type of data to give us an angle, a differentiated angle of other therapies. Tahamtan Ahmadi: Well, I'll take it, Jan. I think we have guided that we expect the readout to happen in 2026, and we should probably leave it at this. It's obviously an event-driven study, and we will update in the appropriate setting when we have a little bit more clarity. But clearly, the study was more or less fully accrued in the summer of last year. So as it relates to what it has to do in order to be competitive in the competitive landscape vis-a-vis putting I don't think it makes sense to go into some kind of like discussion about hazard ratio and what it has to show. I think we are very confident that if the study -- when the study reads out, that there will be a significant improvement over the standard of care and in that regard, also significantly differentiated from the Pola-R data, the POLARIX study. That is partially underwritten by the data that's going to be -- we presented now with a longer follow-up at ASH, where you have a Phase II data set that in these high-risk patients, IPI -35 shows an incredible high CR rate with an incredible high durability. And what we've seen over and over again is that these very robust Phase II studies that we ran and then the data we generated on them more or less one-to-one translates into the Phase III. And so we anticipate the same to be true for the frontline diffuse large B-cell study. Jan van de Winkel: Thanks, Tahi. So in addition to efficacy, also think about the convenience of the SubQ dosing and the safety pattern may be very different from other combination therapies, Matthew. So we are very excited about the potential to see the readout hopefully soon from the frontline diffuse large B-cell lymphoma. It's a potential game changer we feel for EPKINLY. Let's move to the next question. Operator: The next question comes from the of Victor Floch from BNP Paribas. Victor Floch: Maybe just a small housekeeping question on data readout timing. So thanks for the comments on the first-line DLBCL. But you used to have an anticipated readout column on the Slide 7. So I just wanted to ask you whether you can confirm that all the Phase III trials that are on that slide, all the timings are consistent with what we -- what you've discussed last time for the second quarter update. Jan van de Winkel: Tahi, can you comment on the timing there? Tahamtan Ahmadi: Nothing has changed. Jan van de Winkel: So we have confirmed the signal. Operator: Thank you. The next question is from the line of Zain Ebrahim from JPMorgan. Zain Ebrahim: I've got one clarification question for Anthony. Just on the OpEx for '26 in terms of when you say both the stand-alone investments for Merus and Genmab [indiscernible] reasonable place, I think is how you characterized it. Does that include the potential for indication expansion that you outlined for locally advanced head and neck for peto and maybe other indications that we might hear about more in Q1 was my first question. And the second question is just on -- if you can remind us on the filing strategy for Rina-S in PROC next year? I know you just said everything is on track. But in terms of recruitment, how that's progressing for the Phase III and when we can expect to see more duration response data from the Phase II trial? Jan van de Winkel: Thanks, , for the questions. I will leave the first one to Anthony, of course, to give you further clarity there. The second one I can take for Rina-S, filing strategy, the initial filing will likely be based on the Phase II potentially registrational trial for PROC. That trial is completely recruited and also in parallel, the Phase III is recruiting very rapidly. So we are fully on track there to have a readout next year, potentially a filing and an approval hopefully in '27. Anthony, can you give a bit more color on the inclusion of the locally advanced head and neck for the Genmab trials as projected for 2026? Anthony Pagano: Yes, the short answer is yes. So I think about, again, just reiterating, as we think looking about forward to 2026, it's important to condition the market, thinking about overall investment levels, again, to reiterate, expect as I look at consensus today for both Genmab stand-alone as well as Merus, look to be in a reasonable place, also reflective of our investment priorities. Of course, we're going to provide ultimately our guidance to the market in February of '26. But to put a finer point on it, an, yes, as I sit here today, it does include what we think about it from an overall portfolio development, including your specific question around inclusion of investment in the locally advanced. Operator: Next question is from the line of Charlie Haywood Bank of America. Charlie Haywood: Charlie Haywood, Bank of America. First one was on just how to look -- how you're looking at the first-line head and neck cancer landscape, specifically, I guess, the option to have a triplet versus a doublet strategy, how you think those segments of the markets differ versus the KEYTRUDA mono or combo arms that you have as part of the trials? And then the second one being in Rina-S, your endometrial data, I think optically looked like better responses in the folate receptor greater than 25% and a bigger delta than you'd seen in PROC. I guess, confidence in efficacy across broad folate receptor alpha expresses. Jan van de Winkel: Thanks, Charlie, for the question. Tahi, can you start and then maybe, Judith, you can step in there. Let's first start with the frontline head and neck cancer landscape. Tahamtan Ahmadi: Sure. I mean I would say the way I would answer your question is that broadly speaking, in the current landscape, as you were alluding to, there is a pembro mono strategy and then a pembro chemo strategy and at times, physicians make that choice based on maybe a slightly higher response rate for the chemo, pembro combination and a faster time to response, and that's a lot to do with location of the tumor and size of the tumor. That all becomes essentially irrelevant if the data in the Phase II with peto and pembro is essentially double twice the reported response rate for chemo pembro because at that point, you basically have a higher twice as high response rate without the significant toxicities of chemotherapy and these patients don't necessarily tolerate chemotherapy too well. So this is what we like about the profile of peto in particular, also the data on pembro really in the combination provides an opportunity where you have a high response rate, a rapid time to response without any of the quite significant toxicities that go along with combination chemotherapy in this patient setting. That's the head and neck story. On the EC and the Rina-S and endometrial cancer, I mean, there are nuances here and there. It's not that we have ever said that folate receptor alpha expression is eviraluvant to the response that's not the case. What we said is that Rina-S has a profile that allows us to generate meaningful responses across the entire spectrum of folate receptor alpha expression and thus does not require a biomarker selection. And that's a strategy that has allowed us to go into these indications. Endometrial is generally considered to be a lower folate receptor alpha expressing tumor than PROC. And it's also what is underriding the confidence in going to other indications such as, for example, EGFR non-small cell lung cancer. And so this is one of the differentiating aspects of Rina-S that it is able to generate meaningful and stable response rates across the entire spectrum. That doesn't mean that the higher don't even have higher responses. That just means that even at the lower end, the responses are meaningful and durable. Operator: There are no further questions at this time. I would now like to turn the conference back to Jan van de Winkel for closing remarks. Jan van de Winkel: So thank you for calling in today. If you have additional questions, please reach out to our Investor Relations team. We very much look forward to speaking with you all again soon. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: [Interpreted] Good morning. We will now begin NAVER's 2025 Q3 Earnings Conference Call. For the benefit of our investors joining from home and abroad, we will provide simultaneous interpretation service for the presentation and switch to consecutive interpretation for the Q&A. Unknown Executive: [Interpreted] Good morning. I am [indiscernible] from the Office of Capital Markets. I would like to thank the analysts and investors for joining NAVER's 2025 Q3 Earnings Presentation. On this call, we are joined by CEO, Soo-yeon Choi; and CFO, Hee-Cheol Kim, and they will walk you through NAVER's business highlights and strategies and financial results, after which, we will entertain your questions. Please note that the earnings results are K-IFRS based provided for timely communications and have not yet been audited by an independent auditor and hence, are subject to change after such review. With that, I will turn it over to our CEO to present on the business highlights. Soo-yeon Choi: [Interpreted] Good morning. I am Soo-yeon Choi, the CEO. In Q3, NAVER continued to strengthen its foundation for new growth by advancing its services and monetization through the integration of AI technology into content and data. In search, AI briefing has been expanded to 15% coverage, leading to a notable improvement in user satisfaction and delivery, delivering a positive user experience. At the same time, the revamped home screen, along with expanded content supply through Clip and Shopping Connect as well as personalized recommendations contributed to higher usability. As a result, the loyal user base strengthened both quantitatively and qualitatively during the quarter. Supported by these initiatives, together with NAVER's solid media influence and strong monetization capability, overall advertising revenue on the NAVER platform grew by 10.5% Y-o-Y. In commerce, NAVER strengthened a personalized experience optimized for exploration and discovery-based shopping by enhancing user benefits through services such as end delivery and membership. As a result, user engagement within the NAVER Plus Store app increased, surpassing 10 million downloads. In Q3, Smart Store GMV recorded accelerated growth with the full quarter reflection of the revised commission structure, serving as a key driver of overall performance. Going forward, NAVER will continue to enhance the customer experience through closer collaboration with Kurly and expanded application of AI-driven personalization. Let me begin with NAVER's differentiated AI-powered search services and the performance of the search platform. To strengthen competitiveness, informational search, AI briefing launched in March, expanded its coverage to 15% of integrated search queries as of September end. It continues to enhance our usability by providing information to reinforce with highly reliable sources and improving answer satisfaction for long-tail queries. AI briefing used by more than 30 million users offers a differentiated experience by enabling summarized information consumption as well as deeper exploration through research using related questions displayed at the bottom of the main text, thereby expanding content consumption. Since its launch, the number of clicks on related questions has increased by more than 5x compared to April, the early stage of the service. This allows users to explore more topics more deeply without entering new or complex queries by naturally engaging with a wider range of NAVER's UGC, creating a virtuous cycle of content consumption. Starting in November, NAVER will gradually test personalization in both the answer text and related question areas. In particular, for shopping and local queries, the company plans to strengthen contextual connections of businesses and explore monetization opportunities. Ultimately, NAVER aims to provide a differentiated search experience in which advertising and content are seamlessly integrated with the answer text while also exploring revenue models for the emerging AI agent environment. The home screen revamp in August, along with the expansion of high-quality content supply, including clip and the enhancement of personalized content recommendation logic led to higher feed engagement. As a result, in September, the average daily users of the home feed and clip stabilized at 10 million users each. With improvements in the usability and recommendation areas of the home feed, user activity indicators such as content impressions and clicks continue to increase. The resulting growth in feed consumption also translated into higher advertising revenue. The number of loyal users visiting NAVER home feed more than 20 days per month increased by over 2x Y-o-Y, while the proportion of such loyal users rose by 5 percentage points compared to the beginning of the year. This indicates that inactive users have been converted into active users, leading to the stable growth of the home feed. Also, NAVER's high-quality UGC and advertising content, together with its more advanced recommendation technology, are being effectively exposed in the right placement, thereby strengthening user engagement and lock-in. It is also expected to lead to further monetization opportunities, including advertising revenue growth. With a solid user base and stronger engagement, along with the expanded application of AI briefing, providing a differentiated search experience, NAVER achieved a 10.5% increase in total platform advertising revenue driven by improved AI-based advertising efficiency. In Q3, continued optimization of ad placements and services using NAVER's proprietary AI technology enabled more efficient ad exposure within the same inventory, resulting in higher advertising efficiency, steady growth across key metrics and an expanded advertiser base. NAVER is also seeking ways to further strengthen its response to commercial queries, one of the key competitive areas of its search business by delivering more satisfying search results for users while capturing additional advertising revenue. To this end, the company plans to expand efforts to identify new advertising services and optimize ad placements across its platforms, including commerce areas such as Plus store, the entertainment section, which is gradually being transitioned into a feed format. The automated advertising campaign at Boost has demonstrated proven advertising efficiency, contributing to both performance advertiser growth and overall advertising revenue expansion. Boost Shopping, which has successfully established itself recorded a conversion performance in September that was more than 100 percentage points higher than standard search ads. Supported by this momentum, the number of NAVER performance advertisers increased more than 2x Y-o-Y. Looking ahead, NAVER is building an environment that will allow Smart Store sellers to more easily experience ad Boost shopping within the seller center while continuing to incorporate advertiser feedback and expand exposure across various placements, including Plus Store. Furthermore, NAVER has integrated advertiser billing accounts to enable advertisers to manage campaigns under a single account and has launched a customized consulting program for advertisers that operate their campaigns directly. Next year, NAVER plans to introduce a new business agent that will design and execute growth strategies together with advertisers and business partners and evolve it into an integrated solution that analyzes business performance and competitiveness based on NAVER's high-quality data to propose practical solutions. Next, I will discuss the key achievements of the e-commerce business. In Q3, commerce focused on enhancing personalized experiences tailored for discovery and exploratory shopping, strengthening delivery competitiveness and expanding membership benefits. As a result of these efforts, Smart Store GMV grew by 12.3% Y-o-Y. NAVER Plus Store is rapidly evolving into a structure optimized for discovery and exploratory shopping through features such as Discovery Tab, AI shopping guide and content integration. By serving as a core channel that enables a brand experience-driven purchase journey supported by each brand's unique data and content assets, along with our proprietary promotions and campaigns, the platform has helped brands achieve 40% or higher growth for 5 consecutive quarters, firmly establishing itself as a key growth driver. NAVER plans to further refine its personalized recommendations and ranking algorithms within search to ensure that brand and SME product databases unique to NAVER are more effectively surfaced. The company will also significantly expand the application of AI personalization on the NAVER Plus Store home screen from 31% to 80%. These efforts are expected to enhance the discovery and exploration experience by connecting users with popular products and UGC while maximizing user lock-in and improving both time spent on the platform and purchase conversion rates. From a monetization perspective, GMV generated through AI recommendations within the Plus Store increased by 48% Q-o-Q, supported by enhanced personalization and service optimization. On some placements, conversion rates for personalized recommendations were more than 10x higher than those of standard formats. Going forward, NAVER plans to further expand the application and coverage of AI recommendations by accurately identifying user intent, thereby driving meaningful growth in both adoption and GMV. Thanks to these efforts, NAVER Plus store app surpassed 10 million downloads within 6 months of its launch. In-app activity also strengthened with page views increasing by 19.4% and average session duration rising by 9.7% Q-o-Q, reflecting higher user engagement. Membership has become a core element that not only provides shopping benefits, but also connects NAVER's broader ecosystem and encourages users to stay longer on the platform. Following the partnership with Netflix, NAVER expanded membership benefits in Q3 to include Microsoft Game Pass, Uber membership and free delivery on purchases over KRW 20,000 at Kurly N Mart. As a result, the number of active membership users increased by more than 20% Y-o-Y. In particular, the partnership with Microsoft Game Pass resulted in a 23% increase in male users in their teens and 20s compared to before its introduction, broadening NAVER's overall customer base. And in addition, fresh food purchases have also risen significantly, positioning membership as a key driver of commerce growth and a catalyst for greater content engagement across platforms. Following the partnership with Nexon in September, NAVER announced a new partnership with Spotify, global audio and subscription streaming platform, further expanding its content offerings. Through this partnership, NAVER plans to integrate Spotify's extensive library, including 100 million songs and more than 7 million podcasts across various NAVER services, enabling users to easily discover and enjoy audio content suited to their preferences and moods. NAVER will share more details on this collaboration in the near future. NAVER also continued its efforts to enhance user experience by strengthening delivery competitiveness. With the rebranding of N Delivery and the enhancement of free delivery and free return benefits for members, the purchase frequency of membership users increased by 13% Y-o-Y, while the membership purchase ratio rose by 1.3 percentage points Y-o-Y. These results show that stronger delivery competitiveness is driving higher purchase activity among our customers. Following the partnership with CJ Logistics in July, NAVER introduced an early morning delivery service with Kurly in September, resulting in a significant improvement in overall delivery lead time. In addition, the implementation of cold chain system has allowed NAVER to expand the share of low-temperature product listings, which were previously restricted, thereby strengthening its product assortment competitiveness. N Delivery GMV continued its strong growth with sellers that adopted N Delivery in the previous quarter, recording over 19 percentage points higher Q-o-Q GMV growth compared to those that had not. This clearly demonstrates that enhanced delivery competitiveness is driving both a stronger user lock-in and increased purchase activity. The C2C segment also delivered meaningful results. Cream and Soda achieved over 15% Y-o-Y GMV growth in Q3, driven by strong sales of exclusive brand products and growing demand for trading cards in Japan. In addition, both platforms are maximizing user experience and sales efficiency through content-driven planning and browsing enhancements aligned with evolving trends. Poshmark is expanding its app entry points through integration with the NAVER search engine while enhancing user experience by improving auto complete and search result layouts to deliver more accurate and relevant search experiences. Through the introduction of a new ad format and enhancement of ranking logic, NAVER continued to achieve growth in first-party advertising revenue, while efficient marketing execution led to improvements in both platform profitability and traffic quality, resulting in double-digit growth in GMV and revenue. Regarding Wallapop, whose acquisition was announced last quarter, the transaction process is proceeding as planned, and NAVER will provide a more detailed update on the global C2C business performance following the completion of the acquisition. In Q3, the core pillars of discovery and exploration-based app experience, brand membership, delivery and advertising were organically connected, creating strong synergies that reinforce the virtuous cycle from traffic inflow to purchase conversion and monetization, thereby advancing the overall growth of the platform. Going forward, NAVER will continue to leverage those organic synergies across the platform to further strengthen its solid position in the commerce market. Next, I will provide an update on the Fintech business. In Q3, NAVER Pay TPV reached KRW 22.7 trillion, representing a 21.7% Y-o-Y increase. Non-captive payments, which accounted for 55% of total TPV grew 31% Y-o-Y to reach KRW 13 trillion, driven by higher payment activity and continued merchant expansion. In addition, through the partnership with Nexon announced at the end of September, including account and payment integration, NAVER is continuing to expand its third-party ecosystem across both online and offline channels. In the platform business, NAVER completed the acquisition of Securities Plus Unlisted in September. In line with Korea's fintech policy direction, the company aims to evolve into an integrated platform that enhances accessibility and reliability for investors in the OTC market. Next, I will discuss Webtoon's results. In September, Webtoon Entertainment signed a global content partnership with Disney through which more than 35,000 titles from Marvel, Star Wars, Disney, Pixar and 20th Century Studios will be introduced for the first time on a new digital platform. The development and operation of this platform will be led by Webtoon Entertainment, and it will feature not only iconic titles from Disney portfolio spanning several decades, but also a selection of Webtoon original series. The new platform represents the results of an unprecedented collaboration that combining Webtoon's product and technological expertise with Disney's unrivaled IP portfolio, allowing users to enjoy Disney's iconic content all in one place. This initiative is expected to broaden Webtoon's reach beyond its existing user base, expand engagement with new global audiences and serve as an important stepping stone for global growth while also laying the foundation for an even deeper partnership with Disney in the future. Please note that Webtoon Entertainment is scheduled to announce its earnings on November 12, U.S. local time. For more detailed information, please refer to Webtoon's earnings release. Lastly, I will discuss the performance of the enterprise business. The B2B business within enterprise achieved new revenue generation through the monetization of GPU as a service contracts secured in the first half of the year. For LINE WORKS, the number of paid IDs continue to record double-digit growth Y-o-Y despite the high base effect from the same period last year. Services integrated with LINE WORKS such as AI node and Roger are also growing steadily as planned. In October, LINE WORKS launched its service in Taiwan and is now seeking to expand into global markets by leveraging its experience as the leading business platform in Japan. Leveraging its full stack AI capabilities, NAVER is building a stronger track record in Korea by providing AI transformation solutions and industry-specific products tailored to both the public sector and the private sector. The company's global sovereign AI initiatives are also progressing as planned. At the end of October, NAVER signed an MOU with NVIDIA to capture physical AI opportunities, which operates in real industrial environments and systems. Also, we secured an additional 60,000 latest GPUs and strengthened its AI capabilities. NAVER has been building industry-specific references, including the financial and energy sectors by providing neuro cloud and customized AI services to clients such as the Bank of Korea and KHNP. In a similar vein, the company is engaging discussions with multiple partners across the manufacturing industry, including the semiconductor, shipbuilding and defense to explore further collaboration opportunities. NAVER also plans to develop specialized AI models tailored to major industries and seek diverse use cases and additional business opportunities within the private cloud market, ensuring that optimized AI technologies can be swiftly adopted across sector. Following the launch of the new administration, large-scale national policy projects have been promoted to accelerate Korea's AI transformation, including initiatives for independent foundation model development, GPU leasing projects and the establishment of SPCs for AI data centers. And NAVER is actively participating in key projects under these initiatives. In Saudi Arabia, NAVER is finalizing the establishment of a joint venture with the Ministry of Housing, aiming to expand into super app, [indiscernible], data center and cloud businesses with the goal of commencing operations next year. The company is also pursuing various global collaborations and opportunities, including the development of an AI agent for tourism and a sovereign LLM in Thailand, participation in GPU as a Service and AI data center projects for Europe based in Morocco and human rights research collaboration with MIT to secure future robotics platforms and any plans to share further updates as these initiatives begin to take shape. Going forward, NAVER will continue to strengthen the competitiveness of its core businesses through AI, while also adding new growth drivers for mid- to long-term expansion and laying the groundwork for global growth. Now CFO, Hee-Cheol Kim, will discuss the financial performance. Hee-cheol Kim: [Interpreted] Good morning. This is CFO, Hee-Cheol Kim. I will now walk you through Q3 financial performance. Revenue in Q3 increased 15.6% Y-o-Y to KRW 3.1381 trillion, driven by solid growth across NAVER's core businesses, including advertising, commerce and fintech. Building on the previous quarter, AI-driven enhancement of advertising efficiency continued, resulting in advertising revenue growth outpacing the market rate. The full quarter impact of the revised commission structure in the commerce business further accelerated overall revenue growth, while seasonal effects from the triple holiday peak period also contributed to the increase. Operating profit increased 8.6% Y-o-Y to KRW 570.6 billion, maintaining a solid growth trend despite higher expenses related to mid- to long-term business expansion and competitiveness enhancement supported by accelerated top line growth. The operating profit margin reached 18.2%, a slight increase from the previous quarter. Next, I will explain the revenue by business segment. In Q3, search platform revenue increased 6.3% Y-o-Y to KRW 1.0602 trillion. Total NAVER platform advertising revenue, which includes search, display commerce, fintech and Webtoon ads grew 10.5% Y-o-Y. This reflects the combined impact of AI-based ad and service optimization, advancements in personalized ad recommendations and the continued expansion of the advertiser base. In Q4, along with along the -- although the long holidays in October may have some impact due to fewer business days, NAVER will continue to enhance advertising efficiency through AI, expand monetization of noncommercial queries and broaden ad inventory, thereby strengthening its competitive edge in the advertising market. Commerce revenue increased 35.9% Y-o-Y to KRW 985.5 billion. The enhanced discovery and exploration experience within the NAVER Plus Store app, expanded membership benefits and the revised commission structure all contributed positively, driving balanced Y-o-Y growth across all segments. Commission and sales revenue grew 39.7% Y-o-Y as the enhanced discovery and exploration experience within the NAVER Plus Store app led to brand purchase growth, driving an increase in Smart Store GMV. The full quarter impact of the revised commission structure also contributed with Smart Store revenue increasing 102% Y-o-Y. Commerce advertising revenue grew 31.2% Y-o-Y, driven by advancement in AI-based recommendation ads and the full rollout of ad boost shopping in Q3. Membership revenue increased 30.5% Y-o-Y, supported by a broader user base and higher active user numbers following the addition of new benefits such as partnerships with Microsoft Game Pass and Uber and free delivery at Kurly N Mart. Fintech revenue increased 12.5% Y-o-Y to KRW 433.1 billion. At the end of September, NAVER launched the beta service of the Connect terminal, which seamlessly links online and offline merchants. This enables NAVER to provide not only payment services within its ecosystem, but also data-driven customer management functions. Going forward, the company will focus on building an integrated online/offline ecosystem and creating new value for both users and merchants. Content revenue increased 10% Y-o-Y to KRW 509.3 billion. Within this, Webtoon revenue based on NAVER's consolidated results in Korean won terms grew 11.3% Y-o-Y. For more details, please refer to Webtoon Entertainment's earnings announcement scheduled for November 12 local time. SNOW Revenue increased 24.3% Y-o-Y, driven by the continued growth in paid subscribers of its camera app integrated with AI content features. Enterprise revenue increased 3.8% Y-o-Y to KRW 150 billion. The number of paid LINE WORKS IDs continued to record double-digit growth in Q3. And GPU as a Service contracts secured in the first half have begun generating revenue. The year-over-year comparison reflects the base effect from one-off revenue related to well-booked deliveries to the Jeonbuk Office of Education in the same period last year. Next, I will discuss the detailed cost items. Development and operations expenses increased 14.2% Y-o-Y, mainly due to higher headcount from new hires, increased stock-based compensation following the rise in share price and onetime severance payments related to Poshmark's workforce optimization initiatives. Partner expenses increased 17% Y-o-Y, while infrastructure costs rose 22.7% Y-o-Y, driven by higher depreciation expenses from the acquisition of new assets such as GPUs. Considering model training and inference for AI integration across all businesses as well as the expansion of new initiatives, including government projects, NAVER expects large-scale infrastructure investments to continue. Marketing expenses increased 20.3% Y-o-Y, driven by promotional activities in the commerce, fintech and Webtoon businesses. Through the end of the year, NAVER plans to efficiently execute various marketing initiatives aimed at enhancing competitiveness across business units and strengthening the foundation for top line growth, including content expansion to boost engagement with the NAVER app ecosystem and promotions for Kurly N Mart launched in September. Next, I will explain NAVER's operating profit by business segment. First, the Integrated Search Platform and Commerce segment maintained a stable profit margin of over 30% despite a slight year-over-year decline due to AI integration within services and shopping promotions while continuing to deliver solid top line growth. In the Fintech business, despite continued growth in payment revenue, profitability declined slightly Y-o-Y due to delayed purchase confirmations caused by summer vacation seasonality and expanded promotional activities. In content, operating losses widened due to increased production costs related to Webtoon IP business development and higher marketing expenses to strengthen global competitiveness. In the Enterprise business, losses also expanded, driven by increased infrastructure investments for AI model training and inference. Going forward, NAVER plans to continue investing to secure future growth drivers, including investments in global platform development for Webtoon, expanded infrastructure investment in the enterprise business to support project acquisition. In the mid- to long term, however, the company will work to narrow operating losses. Q3 consolidated net income increased 38.6% Y-o-Y to KRW 734.7 billion, driven by higher -- the overall increase in investment gains of affiliated companies, including higher equity method gains from A Holdings following the consolidation of LINE Man into LYC. Operating cash flow remained on a stable growth trend, while Q3 free cash flow decreased by KRW 185.2 billion Y-o-Y to KRW 201.9 billion due to increased infrastructure investments. Going forward, we will continue to make capital expenditures to strengthen the competitiveness of each business unit while maintaining financial soundness through stable operating cash flow driven by top line growth and disciplined debt management. This concludes the overview of our Q3 financial results. We will now move on to the Q&A session. Unknown Executive: Before we begin the Q&A session, let me make a brief announcement. Tomorrow, NAVER will unveil its detailed strategic direction at DAN25 Integrated Conference through both on-site participation and live online streaming. We invite everyone to join and tune in. Operator: [Foreign Language] [Operator Instructions] [Foreign Language] The first question will be provided by Stanley Yang from JPMorgan. Stanley Yang: [Interpreted] I have two questions. Number one is related mostly to CapEx. So I understand that GPU CapEx will be increasing this year. And so I'm curious about any guidance on GPU CapEx for this year and next year and also a guidance on the total CapEx that you forecast. And also, I'm curious whether the 60,000 GPUs in the partnership with NVIDIA is included in this GPU CapEx. And along these lines also, I'm curious about management's thoughts on the potential pressure on margin that the increased depreciation expenses can bring about. My number two question is largely about the vertical AI. I'm sure that you are engaging in a myriad of different strategies in terms of your AI verticals, especially on the B2C side in ads and shopping. I'm curious about how the extent to which AI is integrated into your services? And also along that lines, the revenue contribution. I know it's early days right now, but what do you expect for this year and in the future? Hee-cheol Kim: [Interpreted] To answer your first question, our AI integration efforts have resulted in very fruitful and meaningful outcomes in terms of boosting our revenue and monetization strategies with our AI briefing and also ad boost amongst other commitments and efforts. We have also communicated to investors and markets our commitment to keep on investing in the infrastructure and therefore, CapEx in terms of increasing the competitiveness of our services. And although I can't speak to the exact figures right now, as of this year, we expect our GPU CapEx to -- including GPU CapEx, our entire CapEx to stand around the KRW 1 trillion range. And from 2026 and onwards, considering our new business expansion strategies and plans, we expect about KRW 1 trillion in CapEx to go into GPU investments alone. And in terms of our GPU investments, although it is, of course, a proactive move on our part, this also includes our endeavors into increasing profitability as well as it includes GPU as a Service provided to the government and also public sectors as well. So with the review that we have, we will continue to actively invest in GPU with our CapEx. And also this figure will include the 50,000 NVIDIA GPUs that you mentioned. Soo-yeon Choi: [Interpreted] And to address your second question, when we first released the AI briefing service earlier this year, our initial goal for coverage was in the 10% range within the year closing out. However, as the business has progressed, we've come to realize that this has actually been very effective in boosting not only our loyal user base, but also our existing search business as well. And therefore, we'll be accelerating our efforts to bring this figure up to the 20% range. And you'll know if you compare with our global platform competitors that we at NAVER have all around a comprehensive understanding of our users, which we will lean into in terms of providing numerous vertical services, including payment services, reservations, shopping, so on and so forth, which will make sure that we can be a lot more flexible in terms of the AI services that we provide. You'll be able to hear more announcements about the exact timing and features at tomorrow's DAN event. However, by spring of next year, we plan on rolling out our AI shopping agent as well as the AI tab and integrated AI services that will be providing a lot more integrated approach to what we provide in terms of our services. The integrated AI agent is part of our omni service strategies, and we've begun to come to the realization that this has been a significant boost in our revenue with search ads, commerce and also the local business side as well. And so as you've mentioned, it is still early days in terms of revenue contribution, but we expect strong contributions to monetization and revenue moving forward. Operator: [Interpreted] The following question will be presented by Junhyun Kim from HSBC. Junhyun Kim: [Interpreted] I have two questions for you. Number one is about the enterprise side. I know that there has been some variability until now with WORKS and so on and so forth. However, it seems that you are really doubling down on your commercialization efforts with the commercial divisions for GPU as a Service, AI and also Digital Twins on the move. So I'm curious about how you expect revenue to pan out moving forward. It seems that physical AI and robots are one of your focus areas. What will be some of the major key monetization pillars moving forward? And number two, speaking to the commerce marketing expense, when can we expect these expenses to start going down until when do you think we will expect these expenses to be executed? And also on the GPU side, we talked about the GPU CapEx investments that will be going into infrastructure. When do you think that the GPU business will begin to turn a plus margin? Soo-yeon Choi: [Interpreted] I'll answer your first question first and speak a little bit more about the color on the R&D that we have for Digital Twins and robots. You know that in 2017, which was quite a while before the terminology or concept of physical AI really began to come to the fore, we established NAVER Labs to that end. And our core competitive, of course, we assess lies in not hardware, but on the software side. So our focus has really been on developing our software, ARC and ALIKE. ARC will be providing management services in an integrated and comprehensive manner that can bring together robots that are from various different manufacturers, playing a role like Windows or Android sorts. And ALIKE will be able to provide accurate location and delivery services. And we have continued to make endeavors to make sure that if you look at our technology through our efforts in R&D, our technology competitiveness and capabilities, competencies are truly global #1 and at the top. And 3 or 4 years ago, when we began the test bed at the 174 headquarters of NAVER, we were able to make sure that we can go ahead with more speed and also make sure that we can use and accelerate, compile more global references with those efforts. Although it is still early days to really speak to the entire global market size that we can forecast, as per our expectations, we expect that our market share in terms of global robots will stand at about at least 30% in the international arena. And we are making sure that this can serve as our next growth driver moving forward. And we are continuously working to make sure that we can create these technologies in-house and internalize these core competencies in terms of the technology that we have. And especially given that we are a full stack AI service provider based on our cloud competencies, we are working to make sure that the potential that we see in opening up new markets in Korea for tailored and customized cloud to manufacturers can really serve as a growth driver moving forward, and we will continue to focus our efforts in this area. With the Bank of Korea and also Korea Hydro KHNP, we are continuously in negotiations about these types of customized private cloud services that we can provide, and we will be coming to you with more details and color once we can provide them to you. Hee-cheol Kim: [Interpreted] And speaking to your second question on commerce, you'll know that we've revamped our commission structure, and we are planning on fully leaning into the changes that we have made. However, our focus on marketing in this arena is not just as a one-off initiative in order to boost GMV. It will be an all-around comprehensive strategy that focuses on increasing loyalty as well as other aspects, and management will continue to focus on this aspect. And we did touch upon this topic when we were talking about GPU CapEx guidances, but we will continue to make sure that our investments are very active and aggressive on the GPU side, and this will also lead into revenue contributions and growth as well. So we will be taking into consideration the growth in revenue as well as we decide upon our investment plans in GPU. And as is with all infrastructure investments, the direct revenue contribution in the early stages, especially is quite minimal. So this really is in the term of a long-term view with a long-term lens. And so maybe in the temporary time, there might be a slight dip in revenue because of this. However, in the mid- to long term, we are more than certain that this will be able to turn a plus. Sorry, just a revision about one of the interpretation that was provided. The market share of 39% when we're speaking about NAVER's robot initiative wasn't NAVER's market share. It is the OS control platform market within the robot market that is expected to account for about 39% of the global market moving forward. Operator: [Interpreted] The following question will be presented by Eric Cha from Goldman Sachs. Minuh Cha: [Interpreted] So I have two questions for you. Number one is about AI briefing. I know that you aren't into really pushing full monetization strategies yet with AI briefing, but I'm curious about the user behavior or pattern changes that you've seen after the release. And also any updates on the performance or results in a more detailed manner would be very much appreciated. And question number 2 is about the commerce side. I know that the uptick in take rate has really pushed up revenue this year. What do you expect for take rate next year and moving forward? Will there be some meaningful growth in take rate continuing on moving forward? And also, if you can provide us a little bit more update about any recent changes or any results regarding the Kurly partnership. Soo-yeon Choi: [Interpreted] First of all, to answer your question about AI briefing, when we launched AI briefing service, it really wasn't geared towards monetization side. It was more towards really ramping up our weaker side comparatively compared to our competitors that was pointed out in terms of the information-seeking queries in order to increase the quality. And in the initial stages, we were able to find that with the coverage on information-seeking queries as well as long-tail queries, which comprise of 15 words or more that the user satisfaction was very high, and we found that the duration time spent was going up as well as Y-o-Y increase in [indiscernible]. And the search result satisfaction is, of course, important, but also tying that in with the relevant information or relevant questions is extremely important. That's something that we continue to monitor. And if you compare the relevant questions that people click on at the bottom of the AI briefing service, compared to the initial launch days, it has expanded to about fivefold. So that is one of the changes that we have seen. And the fact that it's creating a virtuous cycle where it really is encouraging users and to use the search results, but also explore upon their search results and to build upon that and also to consume content as well. And with the increase in query coverage, I also mentioned about how we will be integrating more and more AI into the business queries as well as the commercial queries, and we're continuing to monitor very closely how this impacts our monetization strategies and also how this will impact the merchants and businesses as well. And at NAVER Place, which comprises of restaurants and other places to go out, we've integrated AI services. And as a result, we've seen our GPR go up 2.3 fold and conversion rates increased 15%. So these are some of the positives that we've seen throughout the release that has made us really have a much more stronger confidence in expanding these services moving forward, and these will be really panning out in our AI agent services that we will be rolling out such as AI tab and so on and so forth next year. And in terms of the shopping side, as you will know, the big boost to our revenue in terms of the shopping side has really been twofold. Number one is the increased shopping revenue that came after the release of Plus Shop and also the increase after we've integrated our services with AI. And with the change in our commission structure as well, that has been a big boost to our revenue. We can look on the GMV side where it's been a big boost for brand stores on shopping as well, as well as in delivery. And we will be leaning into these AI verticals and looking at the commission structure revamp, we are very certain that this will be a boost in terms of increasing take rate moving forward as well. And since the launch of the NAVER Plus Store app, we've been in talks with manufacturers about the ad inventory and placements of our stores that we have, and this will also be a meaningful contribution to revenue monetization as well. And next, speaking to the Kurly side, our shopping strategy has really been in leveraging the lead and edge we have in AI technology and also the shopping product listings that we have in order to provide more personalized recommendations, boosting this side as well as making sure that we make improvements on to the logistics side, which has been played out as one of our weaknesses. And in this area, Kurly will be able to provide more [indiscernible] It is still early days, so we can't talk to the exact figures. However, it is on par and progressing well as we have initially planned. Operator: [Interpreted] The last question will be presented by [indiscernible] from Bernstein. Unknown Analyst: [Interpreted] My question is related to the commerce side, especially the marketing expense. I am curious about the incremental increase on commerce that accounts for in the Y-o-Y increase in marketing expense. Hee-cheol Kim: [Interpreted] On a Y-o-Y basis as of Q3, our marketing expense has increased KRW 85 billion, and about half of that is commerce. And from that commerce marketing expense, which is half of KRW 85 billion, half of that, again, is from the increase in the provisions that came from the increase in GMV as on the backdrop of the increase in commissions as per the structure revamp. And another half will go to the strategic promotions that we provided. Unknown Executive: [Interpreted] Thank you very much for joining us, and we look forward to your continued... [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Toshiyuki Miyakawa: Now we are starting KDDI's earnings release event for the second quarter of fiscal year ending March 2026. Later, we will have a Q&A session as well. Thank you very much for taking part despite your tight schedule. I'll be serving as moderator. I am Miyakawa from IR Department. This event is being live streamed with simultaneous interpretation between English and Japanese. And also, this event can be viewed on an on-demand basis on the website of our IR department. Let me introduce our participants. Representative Director, President and CEO, Matsuda; Representative Director, Executive Vice President, Executive Director of Business Solutions sector, Kuwahara; Director, Senior Managing Executive Officer, CFO, Saishoji; Director, Senior Managing Executive Officer, Executive Director, Personal Business Sector, Takezawa; Managing Executive Officer, CSO and CDO, Katsuki; Executive Officer -- Executive Director, Corporate Management Division, Aketa. We have 3 types of documents regarding earnings posted on our IR site. And also, please refer to our disclaimer regarding the content of the presentation as well as the targets such as number of contracts that may be referred to in the Q&A. Matsuda, President, will give a summary of presentation. And then after that, we will have Q&A. President, Matsuda, please. Hiromichi Matsuda: Let me start my presentation, earnings results for the first half financial for fiscal year ending March 2026. I would like to explain the following 4 points today. First, I will discuss consolidated financial results. These are the highlights of consolidated results. We increased both revenue and profit. We are making progress toward achieving the EPS target as planned. Operating revenue was JPY 2,963.2 billion, a 3.8% increase year-on-year, 46.8% of the full year forecast. Operating income was JPY 577.2 billion, up 0.7%, progress rate of 49%. Net income or profit for the period was JPY 377.7 billion, up 7.6%, with progress rate of 50.5%. Second quarter year-over-year growth was strong with operating revenue up 4.1%, operating income up 2.9%, net income up 18.6%. As a topic, I would like to explain the Q-on-Q situation of the performance in Q2. During Q2, we saw the effects of our price revisions become apparent and achieved a solid growth. Quarterly operating revenue increased 6.3% Q-on-Q. Quarterly operating profit increased by 11.8%. Our profit during the quarter grew by 20.7%. Next, I would like to explain the factors behind the changes in consolidated operating income. Each business grew, offsetting the impact of prior year sales promotional expenses. Mobile in the Personal Service segment increased JPY 11.1 billion year-over-year and income from Finance and Energy business and Lawson equity method profits combined increased by JPY 12.7 billion. DX increased by JPY 3.9 billion. Technological structural reforms up by JPY 9.6 billion. And the impact of prior year sales promotion expenses, negative JPY 31.2 billion was overcome, and we're expecting to see accelerated growth. These are the key points of consolidated operating profit in the second half to achieve full year targets. The mobile business is to accelerate growth with our target of value enhancement through service revisions with second half year-on-year growth exceeding approximately JPY 19 billion over JPY 30 billion growth for the full year. Combining DX Finance, Energy and Lawson equity method, profits are being aimed for an addition of approximately JPY 30 billion. Finance, which is key, will shift to a strategy with greater focus on loan-to-deposit ratio, while DX will be placed on a growth trajectory through initiatives, including a turnaround of BPO business. And positive impact of technological reforms approximately JPY 13 billion, second half increase up JPY 55 billion to achieve full year target. The negative impact from prior year sales promotions will end in the first half. Next, mobile structural transformation. This is about virtual cycle created by Power to Connect. And amid rising prices, we aim to create a virtuous cycle of growth, providing new value to earn revenue, returning that value to stakeholders and reinvesting it for the next era. We're able to create value because of the past investment, and that cycle is starting to kick in, I feel. This virtuous cycle growing together with our partner will be continuously implemented. In this cycle, I would like to talk about our mobile business. Our mobile business is undergoing structural reforms focused on lifetime value as is in the diagram. Our focus is to make sure that each brand of ours meets such customer needs, so that they will continue to use our offering over the long term. For UQ mobile customers, we would like them to see the value and the attractions of au as a brand, and we are recommending migrating to au. Now we will review plans and sales approaches that would induce short-term churns by customers who are only after incentives and benefits. In the process of structural reforms, some customers who have not used our service for long may choose to cancel their subscriptions. We are aware of that, but we would like to focus on the long term to drive ARPU growth through value creation and reduction in churns by encouraging longer contracts, so that we can have a leaner business foundation. The announcement of capability to offer connected experience and communication quality form the foundation of value creation. According to OpenSignal's user experience analysis, following February global #1 ranking, we achieved #1 in Japan for the third consecutive time last month. So based on this best network that we offer in the industry, we are enhancing our capability to offer a connected experience, and we are supplementing it with au Starlink Direct, which began data communication business in August. Many customers are already using this service. So we would like to expand this value based on connected experience. au 5G Lane. Even in crowded areas, you can have a sense of security being able to connect smoothly. And for au unlimited data overseas, this is free of charge for 15 days, and it has contributed to a rising awareness that you don't need a WiFi router overseas. We have an investment in Lawson. So we would like to pursue initiatives to enhance engagement by proposing savings and a sense of security in daily life. Ponta Pass and Earthquake Preparedness Support together with Aioi Dowa will provide service within the year that deposits JPY 30,000 into au PAY balance or bank account of customers. This is all part of the price plan. The effects of structural reforms are beginning to materialize. The initiatives we have explained so far have borne through, leading to growth in mobile ARPU, which contributes to LTV and churn rates are showing an improving trend. On the left, mobile ARPU has steadily increased this quarter, reaching JPY 4,460 in Q2, accelerating growth with year-on-year increase of JPY 140 and smartphone churn rate improved Q-on-Q. Year-on-year increase also narrowed from 0.17 points in Q1 to 0.12 points in Q2. Now as part of further effect, one of our indicators is switching between brands. So brand switching not from au to UQ Mobile, but brand switching from UQ Mobile to au saw a positive reversal finally in September. This continues into October. So this is as a result of our transformation, making our main brand au more attractive and steadily changing the plans and sales approaches. And on the right-hand side, for UQ Mobile, there are initiatives to extend the contracts. As a testimony to that, there have been improvements in home set discounts and handset bundle rates. So these are the kinds of initiatives we are implementing deeply. Through such structural transformation, focus on LTV, mobile revenue on a Personal Service segment basis has significantly surpassed last year's year-on-year growth in the first half, reaching a positive JPY 12.5 billion, accelerating growth. And in the second half, we expect further improvements in churn rates and ARPU growth driven by progress in structural transformation, brand mix and expanding contribution from service revisions and the impact of service revisions and mobile is expected to exceed initial forecast. Next, I will explain the initiatives to achieve the full year target. And we aim for JPY 55 billion increase in profit is our target. And as in the focal area, we aim for JPY 30 billion scale increase in profit. The focal area, the Energy and Lawson are progressing well. On the other hand, Finance and DX are recognized as challenges due to changes in the business environment since the beginning of the fiscal year. I will explain the initiatives for these 2 later. First, Finance. We are now in the world with interest rates, so the competition is intensifying over deposit. Instead of depending on the housing loan, we will shift our strategy mindful of loan-to-deposit ratio. And individuals deposit balance has grown by 1.3x. But in order to strengthen deposit procurement power, we will be working on initiatives such as bank securities alliance. As for credit card membership, the expansion is urgently needed, especially for Gold Card, 1.72 million membership is what we would like to achieve. As for the business segment performance, in the first half, operating income was plus 3.4% year-on-year. It's a somewhat slow result. Mobile, IoT and data center did well. On the other hand, BPO business and SI-related business had a temporary profit decrease factors. So compared to the initial projection at the beginning of the year, we are behind the projection. However, we could identify -- we have a clear outlook for resolving those one-off factors, so we have addressed the risks. And one of the businesses is BPO business or Altius Link. Now since the first half, we are working on initiatives to defend the share of existing service and expanding services using AI. And in September, we could turn the tide and deliver increase in revenue and profit. And as a result of activated sales, new orders increased by 2.8x year-on-year and the number of ongoing projects increased by 2x year-on-year. And also, we are proceeding with integration of internal systems as part of our efforts to improve efficiency, and we are seeing results. And by maintaining the momentum, we would like to deliver a turnaround in the second half of the year. Also, in the second half as the driver for growth. So mobile and IoT are going to deliver a double-digit growth year-on-year. And in addition, Facility Solutions, Starlink drones, such new services are going to make a contribution to growth gradually. Next, I will explain the initiative for the next stage of growth. Six months have passed since the launch of the new management structure, and the construction of our future business foundation is progressing, including the execution of fee revisions. Considering this progress, we will discuss the new key themes we are focusing on for the next midterm management strategy starting next year. On the left, theme one, in the area of AI. In addition to transforming infrastructure, including telecommunications into a next-generation model, we will further expand our value-added and growth areas by leveraging digital data and AI. On the right-hand side, another thing, another key point. Moving forward, centering on the communication, we are now in the phase of delivering growth. So together with growth, return-based capital allocation is what we would like to do while being mindful of capital efficiency. For that, being mindful of the credit rating, we will use leverage, and we would like to maximize the investment capital, and growth investment will be made in a disciplined manner, and we would like to make investment in areas where we can expect high returns in medium to long term. Conversely, for areas that do not meet the criteria, we will consider a review of business portfolio, including withdrawal. In conjunction with these ideas, we intend to implement flexible share buybacks alongside our commitment to stable dividend increases. By deepening our strength of sustainable growth in the AI era and pursuing quality with an awareness of capital efficiency, we aim to enhance corporate value. Regarding the enhancement of network. In Opensignal, our ranking is #1. So in addition to SSI, we are creating communication an area where we overlap millimeter wave on Sub6. And as for data center, this is the case of Telehouse. So Telehouse-accumulated know-how both in Japan and overseas will be applied. As we do so to prepare for AI age, we are expanding data centers. And in London, we will be constructing sixth data center in London, spending total project cost of JPY 60 billion. So real-time processing such as inference AI could be supported with a power supply of about 57 megawatts at this London DC to come. As for domestic AI data center, Telehouse know-how will be utilized and AI data center in Japan proceeded quickly and Osaka Sakai Data Center will go into operation in January 2026. So by providing sovereign AI development environment, in addition to training functions, we would like to build a distributed computing platform in various locations to meet the expanding demand for inference. This is consumer services based upon the strategic tie-up with Google Cloud. So now there are issues that contents are used without consent. So this service provides a peace of mind to content providers and also the accurate information can be provided to customers. So since our announcement, we've received inquiries from many content providers. And as the key strength of KDDI, we are advancing initiatives to create new value by combining real world and digital. And with Lawson, we are working to continue our initiatives to generate value by utilizing technology. We will work to address societal challenges in Japan by utilizing the site here in Takanawa. And based upon the explanation in the next phase, we will be moving on to the second round and the third round of the value generation cycle. So we will have a 6G to follow 5G. So high-quality network and high value-added services need to be created. For that, we will conduct disciplined, efficient investment, and we will strengthen partnership. And here is the summary at the end. Being mindful of our lifetime value for mobile, now the structural reform is progressing. And then on a full year basis, we have outlook for increasing profit by more than JPY 30 million. For Finance and DX, we have identified challenges. And in the second half, we will be executing a strategy. So consolidated performance and mobile business is progressing in line with our projection at the beginning of fiscal year. And as management, we are growing more confident about delivering results. So the interim dividend is going to be JPY 40, which is half of JPY 80 full year dividend, which we announced at the beginning of fiscal year. And today, I talked about initiatives for the next stage of growth. But for the next medium-term plan, we will be proceeding with infrastructure advancement and partnership for service deployment. And in the age of AI, we will be aiming to generate corporate value and sustainable growth. Thank you for your continued support, and thank you for your attention. Toshiyuki Miyakawa: Mr. Matsuda, the President, thank you very much. At this moment, we would like to start the Q&A. [Operator Instructions]. Kazuki Tokunaga: My name is Tokunaga from Daiwa Securities. I have 2 questions. My first question is this. In October and the second half, I would like your comment on the mobile business' competitive environment. NTT is saying that competition is very severe, and they said they had to increase promotional expenses. SoftBank is saying that they are acquiring customers with a focus on quality. It seems that they're taking different approaches and views. Given that, how have you competed in October? And net increases in IDs are slowing in terms of growth. So in the second half, how are you going to compete? So may I have your comment on the competitive landscape? Hiromichi Matsuda: Thank you for your question. As I said in my presentation, we are now robustly promoting structural reform transformation. So ARPU growth and reduction in churn and a positive migration from one brand to the other and increase in bundle rates, I think we're seeing the results -- positive results in these aspects. So I think we're having the necessary pieces fall into the right places. IDs perhaps may not be all that robust, but we were anticipating that. So we're trying to increase our health structurally speaking. We want our operation to be mean and lean. That's what we've been doing for the past 6 months. So in that regard, well, it depends on how you look at the competitive landscape. But landscape in terms of promotional expenses, not that we're having a head-on competition with our peers who are pouring promotional expenses. Rather, we would like to compete on the basis of product capabilities. We want to convey the attractions of our products to our customers to compete in the market, and that will be our approach in the second half as well. Kazuki Tokunaga: All right. It seems that churn rate is improving. And so will that continue in the second half? Hiromichi Matsuda: Well, there are some seasonal changes that will all appear, but we want customers to use our service over the long term. That will be our focus. So reduction in churn rate and ARPU growth, those are what we would like to pursue robustly. Kazuki Tokunaga: So my second question is about the idea behind the midterm plan. I think you talked about capital allocation in one of the pages in the presentation. So a detailed question. Number one, as you review your business portfolio, are you going to look at ROIC? What KPIs are you going to use as criteria for judgment? And you talk about flexible buyback or shareholder return. Given your makeup, it may be difficult for you to move flexibly. So if you could please comment on these aspects. Hiromichi Matsuda: Thank you for the question. So capital efficiency, what are the indicators? We are discussing that as we speak. Internally, we need to have a discipline set. And by so doing, we will be able to encourage investment for growth in the future. So if you could wait until we come to a conclusion as to which indicators we're going to use for that. That is one message I would like to convey. Second, being flexible. At this moment, we would like to do what we're doing right now. And upon doing so, we would like to be flexible in deciding on a share buyback. It may depend on the definition. Nanae Saishoji: Thank you. Flexible share buyback, that is something that we have used as a phrase, not that our stance has changed this fiscal year. Already, JPY 350 billion buyback and JPY 50 billion purchase, altogether, JPY 400 billion of buyback has already been conducted. And in the second half, we are increasingly confident to meet the EPS target for interim dividend. We are quite confident that we will be able to reach the level that we have said. And for this fiscal year, at this moment, we're not thinking of having any additional buybacks. And for the next year onward, as is noted in the presentation, but based on the growth strategy in the midterm plan, we will conduct share buybacks flexibly. It depends on the trends regarding major shareholders. And the balance between investment and shareholder return, we would like to remain flexible. Toshiyuki Miyakawa: The next question, Section B, Row 2, the person in the back. Daisaku Masuno: Masuno from Nomura Securities. So thank you very much for your clear explanation based upon profit. And first question, the second half profit plan. As for mobile, in the first half, 110% increase; and second quarter, JPY 19 billion increase; first quarter, JPY 11 billion increase. So it's an acceleration. But au revision of price and UQ price revision back in November given that we believe you could deliver bigger. So you put the word over. So I think there is upside. So on the other hand, your focal areas, Finance, Energy, Lawson, DX, all combined, JPY 16.6 billion increase in profit first half; and second half, JPY 30 billion increase. So JPY 13 billion increase is needed. So is it possible for you to achieve this? So where you see growth, so the fee revision and IoT data center, the new business and cost reduction, with all those elements, can you deliver results? Or do you need turnaround to be achieved? So how do you view the probability of achievement of second half target? Hiromichi Matsuda: Thank you for your question. In the second half, JPY 55 billion increase in profit, we are looking at the composition. So JPY 30 billion is what we would like to create in focal areas. So Finance and Energy included. So Finance, Energy and these business segments. So as mentioned, in the first half, we have identified to address challenges. So those businesses have hit a turning point. So we would like to grow those businesses. And with that, we would like to deliver JPY 30 billion. And in addition to that, mobile segment, JPY 19 billion and above. So that's the area where we would like to generate profit. So if anything. So this slide, rather than complementing with this, but we would like to grow each business. Since these are focal areas, we would like to grow these businesses. Daisaku Masuno: My second question is regarding medium-term plan. Regarding capital, basically, the balance sheet optimization and then share buyback and the EPS ambition. So balance sheet and P&L, the balance would be good balance to be aimed for, I believe. And what I do not understand is big theme one, the added value and the growing area, what do you mean by them? So going through your presentation, I do not have clear idea. So what specifically are you thinking about? Could you elaborate? Hiromichi Matsuda: Thank you for the question. So as of today, for the next medium-term plan, what I would like to do is deliver our message. So on the right-hand side, capital allocation concept, that's what we would like to adopt. And on the left-hand side, so we have deployed social infrastructure, including telecommunication infrastructure. So moving forward, data center, AI and such infrastructure. So not only infrastructure, but we would like to go beyond that, and we would like to deliver the added value as well. This goes for data centers in Japan as well as overseas. So it's a transformation to the infrastructure. That's the wording we use, but we do have the resolution determination and the responsibility regarding the infrastructure. So we would like to apply that mindset to the AI, but please wait for the announcement of medium-term plan for details. Daisaku Masuno: I do understand the infrastructure, but when it comes to the added value and growing areas, so you are announcing more details when you announced the medium-term plan? Hiromichi Matsuda: Yes. Toshiyuki Miyakawa: Next, Section A, Row 2, I see a hand. Please go ahead. Satoru Kikuchi: My name is Kikuchi from SMBC Nikko Securities. Mobile income increase is really good news, I feel. With increase in income from mobile, you will be able to do a lot more things. So I look forward to seeing such new activities. In the past, you said that you will focus on ARPU over the number of IDs. I think that was around 3 years ago when you said that. But if the number of IDs decline, you think that momentum is important. Mobility needs to be increased. You had to change what you were saying in 6 months' time, which was disappointing. This time, you used the term transformation. And so I believe that you need to change the KPIs. Otherwise, you will have to start saying something different. If momentum is sluggish, you will have to change your approach. So churn rate is a very important factor, and it was very difficult for us to assess what was going on because of the churn rate. So what is it that you are going after? Lifetime value as a term, it's easy to understand. But would that become an indicator? What is the definition? So with these indicators, this is what you're trying to do. If you could clarify that. President Matsuda, what is it that you are looking to achieve? So that's my first question. Hiromichi Matsuda: Thank you for your question. So increase in income in the mobile business, we are becoming increasingly confident about that. Because of increasing income there, we will be able to make more investment for growth in other areas. And we're talking about structural reform or transformation. We would like to track what is being substantively changed. So KPIs and set KPIs will have to be watched and monitored. We have made service revisions. Because we have had price revisions, we've had to send message to customers through DM and electronically. And those customers who have not used our service for long, because they were notified, decided to cancel. But how many customers are not using data? What is the ratio? We have been able to monitor that. And how much data is being used by a certain customer over how many months, we're able to grasp the specifics. Because some customers are utilizing data, they're willing to use our service over the longer term, we found. And so we're looking at such detailed KPIs as we continue with our structural reform. Satoru Kikuchi: If there is a sharp reduction in the number of users, then that could affect you. It's very important. So even if the number of IDs go down, you won't change your approach? Hiromichi Matsuda: We have no intention of changing our concept or idea. It's not 1 or 0. It's not that we're not going to pursue the number of IDs. Of course, for future growth, the number of IDs is still important. We want to capture good excellent customers. So those customers who are willing to cancel within a short period of time, that's not the kind of customers we're after. We would like to increase the number of IDs by capturing customers who are here with us for the long term. Satoru Kikuchi: My second question, well, you've been talking about growth, investment for growth. But the next medium-term plan is going to be formulated in 6 months' time. And so by that time, the number of IDs could further go down. I don't think you can just restrict your discussion in telecom business alone. But according to SoftBank, Crystal Intelligence is being aggressively marketed according to their President. NTT is increasing the number of data centers by spending JPY 1 trillion or so. There may be pros and cons with respect to such approaches, but especially your business segment this time, in the current medium-term business plan, it seems that you were not able to successfully strengthen your business segment. So above and beyond building data centers under the current plan, perhaps you could have done more to reinforce the business segment, Mr. Matsuda. And under the current medium-term plan, that's the case. And for the next plan as well, you should look to strengthen the business segment. And there could be various directions. It could be IT services, data centers, solutions, AI. There are various aspects, and you will consider that for the next medium-term plan. But don't you need to identify important areas to start taking measures under the current plan? So Mr. Matsuda, which direction are you heading? If you could just give us a hint or show a direction as to which direction you're heading or trying to head? Hiromichi Matsuda: Well, the Personal Service segment, it is still a large foundation for business. But in terms of growth, we have to tackle the business segment. We've had double-digit growth. And in the next medium-term business plan, we have no doubt that it will continue to be our growth driver. So given that, what are we going to do in which area? That's what we have to clarify in the next medium-term plan. As I said earlier, based on the telecom infrastructure that we have, offer value-added in telecom business as well as in other businesses, convey that to the customer and service the customers, so that we can earn compensation. So connectivity or telecom and data centers where AI is being utilized, I think these are pieces that are indispensable to each other. And I don't mean to single out AI business on a stand-alone basis. AI is something that can be incorporated into our existing business as well. So we believe that part of our business will transform into one that will embrace AI. And I think AI will accelerate in some areas, but in terms of growth and so forth, how can we incorporate AI to enhance security and what positive impact could it have. That is what we're calculating. And we would like to, of course, increase the odds so that we can be successful in the next medium-term business plan. Toshiyuki Miyakawa: Next person, Section C, Row 3, the person in front. Yusuke Okumura: Okumura from Okasan Securities. In the first half, looking at the profit and also, I have a question about your thinking about the second half. Page 7. Operating income increase is shown in this table from the beginning of the year, roaming and the stakeholder return, and they seem to be contributing to the increase in profit, but the stakeholder benefit sharing and roaming in the second half, do you foresee some special factors regarding them? Hiromichi Matsuda: So what you said is others portion. Yusuke Okumura: Yes. Hiromichi Matsuda: In others, so from our viewpoint, MVNO and Rakuten roaming decrease in revenue and stakeholder return benefit sharing. And for this stakeholder portion, it's something that will continue from this year. So what is the portion for this year? We are not specifying it, but it's a portion that's continuing into next year. And as for our technology partners, already some number is incorporated in that sense. So it's a sharing of benefit with the shops and also the personnel expense. Yusuke Okumura: As for the roaming and stakeholder portion, it's decrease in the profit a bit above JPY 30 billion. Is my understanding wrong? Hiromichi Matsuda: Not that big. The amount is not that big. So the profit decrease -- so regarding roaming, that's about JPY 1.9 billion. And Rakuten roaming revenue, I think income decrease will gradually shrink. Yusuke Okumura: Okay. Understand. Excuse me. So in order to deliver continuously value to customers, stakeholder benefit sharing cost, annually, JPY 20 billion to JPY 30 billion is what we anticipate on a full year basis. And in the first half, in that sense, the amount is not so big. It has not incurred so much. And others section has various other elements. So for example, positive elements are included as well. So in the second quarter, we had positive elements contributing. Then on that basis, in the second half, the profit increase and decrease, Page 19 shows the plan for the second half. But what kind of changes were there compared to the beginning of your projection? In the focus areas, JPY 10 billion or so of downward revision was made. Is it the right understanding? If so, the Finance, Energy, Lawson business segment, what kind of change happened? And the full year profit plan has been retained. So the others is in balance with the decrease in profit. So roaming and stakeholder benefit sharing cost. So I would like to know the changes in the elements, positives and negatives. Nanae Saishoji: Regarding that, from the initial guidance, the absolute amount has not been changed. So while we anticipate several factors, we anticipate we have not much changed. This is your view. Yusuke Okumura: Excuse me. I might be wrong. Toshiyuki Miyakawa: Thank you very much. The time to close is fast approaching. We will be taking one last question. So Section C, Row 1, please. Tetsuro Tsusaka: Tsusaka from Morgan Stanley. Share price, of course, is determined by the market. That's fine. You are performing very well, and NTT, who's not performing very well, share price valuation, market assessment, there's not much of a difference between you, KDDI and NTT, despite the difference in performance. According to market, price hikes cannot happen every year. You made a price revision this time, you're looking at the situation, looking at the customer reaction. Value enhancement, of course, can continue, but it seems that you've already done the price revisions. So in the next step, what is going to be your focus for growth? I don't think the stock market has yet to understand that. For the next phase of growth, you have included a number of slides, but they are rather abstract. So telecom network quality being very good, but that's taken for granted. I'm sure you're focusing on that. But from the user's perspective, 99.9%, 99.8%, they won't perceive the difference between the two. So in that regard, what you have included in the slides is rather taken for granted. You are not going deeper enough in terms of your strategy, it seems. So there's lack of catalyst. I just can't see what we can be excited about. Well, all of that can be explained by the next medium-term business plan, you may say, and that's fine, but peers of yours are putting out a lot of different messages about that. I think you need to assume the same attitude perhaps. So if you could share your thinking as to what you're going to do for the next phase of growth. I have only that question. Hiromichi Matsuda: Well, thank you for your question. As you pointed out, we made a price revision. We launched a price revision. And I think it will have a tangible absolute effect this year and next year, and we will have a greater source of investment for the future as a result. And on the right-hand side of one of the slides, capital allocation, I talked about the medium-term business plan and specifics are on the left-hand side, what's going to be the catalyst for the next phase of growth? That was your question. Not that I'm asking you to wait for the next medium-term business plan to come out, but we're in tumultuous age with the emergence of AI. And we have a picture for the future, but we're focusing on increasing the odds, if you will, increasing the likelihood of achieving that vision. And you're saying that we should give sneak peeks, and I note that. We would like to prepare for that for the next phase. Thank you. Toshiyuki Miyakawa: Now it's time to close. So with that, we would like to close the second quarter earnings briefing for the year ending March 2026. Thank you very much for your attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good afternoon, ladies and gentlemen, and welcome to the WELL Health Technologies Corp. Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Tyler Baba, Investor Relations Manager. Please go ahead. Tyler Baba: Thank you, operator, and welcome, everyone, to WELL Health's Fiscal Third Quarter Financial Results Conference Call for the 3 months ended September 30, 2025. Joining me on the call today are Hamed Shahbazi, Chairman and CEO; and Eva Fong, the company's CFO. I trust that everyone has received a copy of our financial results press release that was issued earlier today. Portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws, including future-oriented financial information and financial outlook information. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and factors, many of which are outside of WELL's control, that may cause the actual results, performance or achievements of WELL to differ materially from the anticipated results, performance or achievements implied by such forward-looking statements. These factors are further outlined in today's press release and in our management discussion and analysis. We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. We do not undertake any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except if it is required by law. We may use terms such as adjusted gross profit, adjusted gross margin, adjusted EBITDA, adjusted EBITDA margin, shareholder EBITDA, adjusted net income and adjusted free cash flow on this conference call, all of which are non-GAAP and non-IFRS measures. For more information on how we define these terms, please refer to the definition set out in today's press release and our management's discussion and analysis. The company believes that adjusted EBITDA is a meaningful financial metric as it measures cash generated from operations from which the company can use to fund working capital requirements, service future interest and principal debt repayments and fund future growth initiatives. Adjusted EBITDA should not be construed as an alternative to net income or loss determined in accordance with IFRS. And with that, let me turn the call over to Mr. Hamed Shahbazi, Chairman and CEO. Hamed Shahbazi: Thank you, Tyler, and good day, everyone. We appreciate everyone for joining us today as we discuss our Q3 2025 financial results. Q3 2025 was an excellent quarter for WELL, driven by strong performances network-wide, but especially in our core Canadian business. We're seeing our technology-enabled approach, which is increasingly AI-enabled, drive real business results across the enterprise. We feel qualified and authentic to say that we're firmly delivering on our mandate of delivering high-quality tech-enabled care and/or supporting physicians across the continent in delivering high-quality tech-enabled care in their environments. We generated approximately $365 million in revenues for the quarter, which were up by 56% year-over-year and surpassed $1 billion in revenue and $137 million in adjusted EBITDA in just the first 9 months of the year. 5 years ago, for perspective, our quarterly revenues were $12 million and year-to-date revenue as of Q3 2020 was approximately $33 million with negative adjusted EBITDA. Our revenues have grown more than 30 times in 5 years, while our adjusted EBITDA is trending to meet our stated guidance of between $190 million and $210 million this year. We also witnessed improvements in a number of operations and productivity metrics, which we'll discuss later on this call, which we feel demonstrate that we're not just growing but delivering real value and efficiency to the health care markets we serve. We achieved adjusted EBITDA of $59.9 million in Q3, an increase of 296% as compared to $15.1 million in Q3 of '24. If one were to exclude the impact of Circle Medical deferred revenues, Q2 -- Q3 would have been $347 million, representing 48% year-over-year growth, while adjusted EBITDA would have been $42.3 million, representing a 180% increase compared to the previous year. Also very pleased to report that given management's very intense focus on margins, we've improved our gross margins by 510 bps to 45.5% from 40.4% last year, and our operating adjusted EBITDA margins have improved by 990 bps year-over-year. Free cash flow attributable to shareholders in Q3 was $30.2 million, including one small divestiture we had in our CRH platform and $15.1 million in Q3 without it. Eva will speak to this in greater length later. I will now share with you some of our operational highlights for Q3. As of the end of Q3 '25, WELL had over 4,500 billable and non-billable providers delivering care across our entire network of physical and virtual clinics. Of that number, we now have over 1,300 physicians in Canada operating with WELL, which is just over 1% of all physicians practicing in the country. We continue to focus on achieving 10% market share within 8 to 10 years, so we have a tremendous amount of runway left to continue to expand our footprint across Canada. As a reminder, we are the market leader. In addition, over 43,000 health care providers across the country, the majority of which are physicians, continue to benefit from our SaaS and technology services. We estimate that more than 40% of all physicians in Canada engage with our WELLSTAR technology platform in some capacity. Looking at our patient visits, which are a strong indicator of our revenue growth and progress, patient visits are very strong for the quarter, especially in Canada. Total care interactions were over 2.7 million in Q3, which represented a 29% increase compared to last year and represented 19% organic growth. For the second quarter in a row, Canadian patient visits surpassed 1 million in a single quarter, reaching 1.08 million patient visits in Q3 2025. Total patient visits increased 38% year-over-year, including organic growth of 9%, accounting for both clinic absorptions and same clinic expansion. System-wide, inclusive of U.S. and Canada, we delivered over 1.7 million patient visits in Q3, a 19% increase from the prior year, with organic growth of 3%. We note that the slower organic growth in patient visits system-wide was attributable to Circle Medical, whose patient visits were lower than last year because of the significant focus on compliance. However, I'm pleased to note that Q3 was a bounce-back quarter for Circle Medical compared to Q2. We'll talk a bit more about these positive results at Circle Medical later in the call. I'd like to now share with you an updated overview of WELL Health and its key operating subsidiaries. We think it's important to convey what the company will look like as the dust settles on its journey to simplify and streamline operations, especially with the divestiture processes we have underway in the United States currently. As you can see, our core operating business and capital allocation focus is our Canadian clinics network. This is where we have a leadership position in Canada and where we are able to generate the highest return on invested capital or ROIC. Our 3 key areas of focus here are: primary care; diagnostics and specialized care; and of course, our preventative and executive health line of business. Complementing our Canadian clinic network assets, we have our strategically controlled operating platforms. This includes WELLSTAR, for which we are planning an IPO next year on the TSX and HEALWELL, which is already a publicly listed company on the TSX. WELLSTAR is focused on providing digital enablement solutions for health care providers and clinics, while HEALWELL is building AI solutions and data science, health care information systems for public health as well as other solutions for big pharma and life sciences companies. An easy way to think about this is that WELLSTAR generally serves SMB or small and medium-sized businesses clients, such as outpatient medical clinics and doctors, whereas HEALWELL serves large enterprises around the globe, such as the NHS. It is important to note that both HEALWELL and WELLSTAR are able to fund their future acquisition plans through their own fundraising and capital allocation programs. This structure is very capital efficient for WELL shareholders who will continue to benefit from the consolidated financial statements and enterprise value of both WELLSTAR and HEALWELL without seeing any dilution in WELL's own share capital. Incidentally, CYBERWELL is another strategically controlled operating platform, but has been excluded from this slide for the moment due to its small size. It is currently generating less than 1% of WELL's total revenue. Now that we've covered off the key results, I'd like to go over a few key presentation themes we'll be covering in the rest of the presentation. One, of course, will be our Canadian clinics update; two, WELLSTAR; three, HEALWELL AI; and fourth, we'll provide an update on the strategic alternative processes for our U.S. assets. The first key theme I'd like to address this morning is the success of our Canadian business. As you can see from these charts, the historical performance of our Canadian clinics business has been exceptionally strong. Over the past 4 years, our Canadian clinics business has exceeded 50% compound annual growth rate. During the 9 months ended September 30th, Canadian clinics achieved revenue of $325.3 million. Our year-to-date revenues have already surpassed our total revenue for all of 2024. For perspective, 5 years ago, our Canadian clinics revenue was $9.7 million for the quarter and $26.4 million on a year-to-date basis. So again, well over 10 times. Adjusted EBITDA attributable to our Canadian clinics business has grown at a compound annual growth rate of over 44%. During the 9 months ended September 30, '25, Canadian clinics achieved adjusted EBITDA of $45.7 million. Notably, our year-to-date adjusted EBITDA for the first 9 months has also surpassed our total adjusted EBITDA last year with an additional $5 million so far. Our Canadian clinics network has grown to 227 clinics at the end of Q3 2025. Our Canadian clinics business continued its strong growth trajectory in Q3 2025. Patient visits in our Canadian clinics network totaled 1.08 million in the third fiscal quarter, our second quarter in which we surpassed 1 million patient visits and up 38% from 780,000 in Q3 2024. The number of billable providers within the network reached 2,068 in Q3, up 17% from 1,769 in Q3 of last year, highlighting the growing magnitude of our scale. Note that the number of doctors here is just over 1,300, as mentioned earlier. In the quarter we recruited 44 physicians versus acquiring 64 physicians into our platform through our M&A program. We're pleased to note that we are now recruiting more physicians than ever before as the WELL brand is gaining recognition as an attractive place for physicians to work and build their practice. This is due to the hard work we're doing to win the hearts and minds of doctors by making their lives easier and helping them be more successful in their practice. A major goal of our platform is to allow providers to spend more quality time seeing patients without having to worry about the overhead tasks or managing a clinic or spending countless hours on charting patient records. This shows that our business model is working. In fact, in Q3 '25, our number of patient visits per billable provider was 524 compared to 441 in Q3 of last year, representing a year-over-year increase of 19% in this very important metric. With patient visits growing faster than the number of billable providers in WELL's Canadian clinic network, we are demonstrating increasing efficiency in our clinics. While there are many more contributors to this improvement, we believe improved tooling and technology to be one of those key reasons. And looking at our Canadian business, including Canadian clinics, WELLSTAR and CYBERWELL, but excluding HEALWELL, our WELL Canada business is experiencing accelerating growth, as you can see from both of these graphs. In Q3 '25, WELL Canada generated revenue of $129.3 million compared to $93.5 million in the prior year's quarter, an increase of 38% as compared to the prior year's growth of 27%. We're also quite proud to report that our adjusted EBITDA is growing faster than our revenues now, which was not the case last year. In Q3 2025, adjusted EBITDA for our total WELL Canada business reached $21 million, up from $14 million year-over-year, representing an increase of 50% as compared to the prior year growth rate of 16%. On to our Canadian clinics capital allocation track record slide. If you were on last quarter's conference call, you would have likely remembered this slide. We've updated it to include -- to demonstrate our capital allocation record at Canadian clinics. As a reminder, this slide speaks to all of our clinical acquisitions and absorption since inception. On the right hand of the slide, we provided total figures relative to our capital allocation record in Canadian clinics. As you can see, we've allocated about $280 million overall in 31 separate transactions where we have acquired $273 million in revenues. Our total deal multiple for all acquisitions was 9.4x EBITDA at the time of acquisition. Since then, we've grown the EBITDA of all of our acquired assets by 117%, rerating the implied multiple to 4.3x. If one takes out MyHealth, the specialized care and diagnostic imaging platform, which was our single largest and most expensive acquisition to date in Canada, the average original multiple that we transacted against was 5.8x EBITDA. But given that we've substantially improved the EBITDA for these businesses, the implied multiple after these improvements currently stands at just 2.2x shareholder EBITDA. This yields an adjusted EBITDA growth of 164%. In Q3 2025, we continued executing on our strategic growth plan through the expansion of our clinic network. During Q3, we acquired 5 clinics generating over $27.5 million in annual revenue. Our owned and operated clinic network welcomed 68 new billable providers in the third fiscal quarter, further strengthening our capacity to deliver high-quality care. As we articulated at the beginning of our call, the main focus of our capital allocation focus is our Canadian clinics business. As such, we have picked up the pace of our M&A program relative to Canadian clinics. Year-to-date, we have already completed 12 transactions and acquired $67 million in clinical revenue, which includes acquired and absorption revenue, which exceeds our full year metrics in the prior year. By comparison last year, we completed 10 transactions in the full year, accounting for $53 million of acquired business. We continue to tool up our M&A program and are getting ready to improve these numbers as we get into 2026. We have now spent considerable time and effort streamlining, automating, and where possible, AI-enabling our corporate development efforts with the goal of evolving our M&A efforts into a true, efficient machine. As for our growing M&A pipeline, we're pleased to report that we are working on some of our largest acquisitions to date in Canadian clinics and have approximately $235 million in clinics under LOI with approximately $0.25 billion overall under LOI enterprise-wide, including WELLSTAR and HEALWELL. The $235 million figure reflects 8 signed LOIs and 61 clinics and includes some of the largest targets we've had locked down in quite some time. As a comparison, on our prior call in August, we had 25 clinics and only $48 million in annual revenue under LOI. We also have a very large pipeline of target acquisitions that are in the pre-LOI stage. For our total pipeline, including both LOI and pre-LOI, we now have more than 35 targets engaged, representing over $350 million in annual revenue and more than 130 clinics. The second theme I'd like to talk about is WELLSTAR. As a reminder, WELLSTAR is a WELL subsidiary, which we intend to spin out as a publicly listed high-growth, profitable, pure-play Software-as-a-Service or SaaS health care technology company, which would still be majority owned by WELL. WELLSTAR is laser-focused on addressing the diverse needs of health care providers by streamlining care delivery, integrating fragmented health care systems, reducing provider burnout and improving patient experiences and outcomes. Last week, we announced a $62 million equity financing for WELLSTAR, which is expected to close by early December 2025. This financing was led by syndicate of investors, including 3 of Canada's most prominent fund investors: Mawer Investment Management; EdgePoint Wealth Management; and Picton Mahoney. We're very grateful for the support provided by these investors and extremely proud to have the support of such outstanding Canadian institutions. This equity offering was done at $1.50 per share, which is a 50% premium compared to the prior WELLSTAR financing that we completed at $1 per share in December of '24. On a fully diluted basis, the post-money valuation for WELLSTAR is approximately now $535 million, and WELL's ownership stake is approximately 70%. This would imply that WELLSTAR should contribute approximately $375 million to WELL's valuation on a sum of parts valuation. Thus, you can see we are unlocking the value of WELLSTAR as we believe it is not properly reflected in the total value of WELL Health, which we believe remains undervalued. We continue to believe WELLSTAR will be a very strong IPO candidate on the TSX main board sometime early in 2026, depending on market conditions. Our plan is to build additional scale before going forward with the [ goPublic ] initiative by completing additional acquisitions that will position WELLSTAR towards achieving more than $100 million in annualized revenue run rate. WELLSTAR has already signed an agreement to acquire a health care billing company, which is expected to close in early December and subject to regulatory approval, and earlier this week announced the acquisition of Mutuo, a leading Canadian AI Scribe platform. We're also pleased to report that WELLSTAR delivered another exceptional quarter, generating revenue of $18.3 million, an increase of 67% as compared to revenue of $10.9 million in Q3 of the prior year. WELLSTAR achieved monthly recurring revenue or MRR of $5.5 million at the end of Q3, 2025, an increase of 63% as compared to Q3 of '24. WELLSTAR continues to have a strong profitability profile with adjusted EBITDA of $6.4 million in Q3, an increase of 69% as compared to adjusted EBITDA of $3.8 million in Q3 of '24. Adjusted EBITDA margins were 35% in Q3 for WELLSTAR on a pre-shared services basis. WELLSTAR's EBITDA margins were boosted by a significant provincial ocean referral e-referral contract. However, I want to point out that once we add in the shared services and public company overhead costs, the EBITDA margins will be expected to be slightly lower when we go public. The third theme I'd like to talk about is HEALWELL AI. As a quick reminder, HEALWELL is a global health care software company with enterprise-grade data science and AI offerings, serving 70 of the largest health systems here in Canada and globally in 11 countries, including customers such as the NHS in the U.K. and the governments of France, Spain, Saudi Arabia, Abu Dhabi, New Zealand, Australia and various health systems in the United States. Earlier this week, HEALWELL announced 3 transactions, which allow the company to evolve into becoming a pure-play high-margin AI and SaaS Software-as-a-Services focused business on large enterprise customers such as health systems and life sciences pharmaceutical companies globally. The transactions include the following. First, HEALWELL has divested its Polyclinic family medicine and specialty group of clinics to WELL Health Clinic Network. This includes 2 clinics and approximately 40 physicians. WELL had already been managing these 2 clinics for HEALWELL since January of 2024. And so it's highly logical that WELL now becomes the owner and operator of these clinics. Secondly, HEALWELL sold its majority interest in Mutuo Health Solutions to WELLSTAR. As you may recall, Mutuo is primarily focused on selling solutions to doctors and clinics, which actually aligns better with WELLSTAR's mandate and its Nexus AI platform as opposed to HEALWELL and its focused on public health and enterprise customers around the globe. The divestiture of Mutuo enables HEALWELL to concentrate resources on its core digital health care solutions while Mutuo strengthens WELLSTAR's Nexus AI platform. For clarity, HEALWELL is building category-leading AI solutions for public health and life sciences, while WELLSTAR advances digital enablement for health care providers and clinics across Canada. And third, HEALWELL has formed a 50-50 clinical research JV or joint venture with WELL. This joint venture includes biopharma services and Canadian phase onward, which will no longer be consolidated under HEALWELL. We intend to continue the strategic evaluation process for this joint venture to find the best solution to support the growth opportunity in clinical research. And we'll keep our shareholders updated. These 3 transactions will allow HEALWELL to place a greater focus on integrating its industry-leading and third-party validated AI solutions with its Healthcare Software segment and obtain important synergies that will result in margin expansion and organic growth. HEALWELL's new pure-play yearly revenues are currently at $120 million and profitable on an adjusted EBITDA basis. We're also very pleased to report that our -- that this was BR's second quarter of inclusion of HEALWELL into our financial statements, which were released earlier this morning by the company. HEALWELL achieved quarterly revenue from continuing operations of $30.4 million for Q3, an increase of 354%. Also during Q3 2025, HEALWELL reported positive adjusted EBITDA of $700,000 compared to an adjusted EBITDA loss of $2.8 million for the same quarter last year. We're extremely proud of the progress made by HEALWELL, a company that we helped launch and incubate with management more than 2 years ago and in which we took a majority voting position this past April. The fourth theme I'd like to talk about is our current strategic review process for our U.S. assets. We are, of course, limited in what we can say about these strategic review processes with our U.S. assets, especially given the advanced nature of some of our work here, but I will try to give you some high-level color. We remain committed to our strategy of divesting the company's U.S. care delivery assets, including WISP, Circle Medical and CRH, noting that Circle Medical will likely take longer and be more of a 2026 project due to our focus on clearing the previously noted regulatory inquiry. Currently, we have multiple advanced conversations occurring across 2 of these assets. And our objective, which is consistent with our announcement back in August at our Q2 earnings event is to announce at least one divestment by the end of the year. Given the significant revenue and EBITDA attributable to these assets, we also have worked very hard to improve our executable pipeline of deals that would benefit from these divestments, which we obviously covered quite comprehensively earlier as part of our M&A pipeline review. And now a quick word on WISP. WISP continues to demonstrate strong business fundamentals with consistent revenue growth and operating margin expansion. WISP had a strong Q3 with quarterly revenues of $30.3 million, an increase of 13% from $26.9 million achieved in Q3 last year. WISP continues to achieve positive adjusted EBITDA of $1.3 million in Q3 of this year. Moving on to Circle Medical. Last year, we were just getting started on executing on our strategic alternatives process for Circle when we had to slow down the process due to the regulatory inquiry, year-end audit and reclassification of deferred revenue. Circle Medical reported revenue of $42 million in Q3, an increase of 120% compared to revenue of $19.1 million last year. Revenue was boosted by approximately $17.6 million of deferred revenue in Q3. If you remove the deferred revenue, Circle Medical's revenues did decline on a year-over-year basis. However, with the greater focus on compliance and execution, it did also see an improvement in EBITDA, generating $4.8 million in EBITDA, not including the deferred revenues, which was an improvement from the previous year, again, excluding the impact of deferred revenues. We're encouraged by the stabilization of revenues and improvement of EBITDA at Circle Medical and continue to be focused on improving our compliance program and clearing our regulatory review process. We look forward to providing updates there, too. And finally, CRH and Provider Staffing. As for CRH, the combined CRH anesthesia and staffing business has been performing very well, having generated revenue of $125.1 million in Q3 compared to $94.7 million in Q3 of 2024, an improvement of 32% year-over-year. Adjusted EBITDA for combined anesthesia and staffing was $22.7 million in Q3 compared to $20 million in Q3 of last year, an improvement of 14%. These results are indicative of the growth and strong profitability of these 2 assets. I will now turn the call over to our CFO, Eva Fong, who will review the financials in greater detail for Q3. Eva? Eva Fong: Thank you, Hamed. Let's start with the factors that led to the strong revenue growth in the quarter. As you can see from the graph on the left, WELL achieved record quarterly revenue of $364.6 million in Q3 2025, driven by positive contribution from HEALWELL of $37.9 million and very strong net growth of $57.4 million. The Circle Medical deferrals attributed $35.2 million. Adjusted EBITDA in Q3 2025 was $59.9 million, a 296% increase, which was due to $35.2 million from the Circle Medical deferrals and $8.2 million from [ growth ]. HEALWELL's contribution to adjusted EBITDA was small at $1.4 million. In the fourth quarter, we expect a positive contribution of approximately $16 million from the Circle Medical deferred revenue and approximately $18 million contributions in the first half of 2026 and negligible thereafter. On a year-to-date basis, in Q3, we achieved revenues of over $1 billion as compared to revenues of $685 million last year, reflecting growth of 48%. Year-to-date EBITDA for the 9 months of 2025 was $137 million, which was 172% higher than the previous year. Now on to quarterly adjusted net income. Overall, our Q3 2025 results reflect continued profitability in the business. WELL reported record adjusted net income of $41 million or $0.16 per share in Q3 2025 compared to adjusted net income of $4.1 million or $0.02 per share in Q3 of last year. During the quarter, the net impact of Circle Medical deferrals was $17.7 million. HEALWELL's contribution was a negative impact of $1.9 million to adjusted net income, while we had a one-time gain of $8 million from the divestment of a clinical asset in CLH, resulting in net growth of $13.1 million to the record adjusted net income. This growth represents a significant improvement in profitability over the past year. WELL achieved adjusted free cash flow attributable to shareholders of $15.1 million in Q3 2025, a slight decrease from $16.1 million in Q3 of last year. Free cash flow was positively impacted by $4.8 million increase in adjusted shareholder EBITDA, but however, this was offset by taxes, interest and capital expenditures and a small negative cash flow at HEALWELL. During the quarter, we had higher quarterly cash taxes compared to last year due to the higher profitability for the company. And capital expenditures were also greater than normal due to investments in new equipment and clinical facilities to drive new revenue, especially related to our executive health and longevity clinics. One thing to note, including proceeds from divestment in our free cash flow attributable to shareholders, our actual cash flow in the quarter was $30.2 million, including the cash of $15.1 million from the divestment of the CLH assets. Now turning into our balance sheet as of September 30, 2025. WELL ended Q3 2025 with a solid balance sheet, holding cash and cash equivalents of $82.5 million. We remain in good standing and fully compliant with all covenants related to our 2 credit lines at WELL: JPMorgan in the U.S.; and Royal Bank in Canada. The outstanding debt from these credit lines was approximately CAD 347 million as of September 30, 2025. This doesn't include HEALWELL's credit line with the Bank of Nova Scotia, which is also in good standing with outstanding debt of $49 million as of the end of September 2025. We resumed our normal course issuer bid or NCIB in the second quarter. Year-to-date, as of November 5, 2025, the company has bought back approximately 297,000 shares in 2025. We are expecting to continue with our share buyback program for the remainder of the year as permitted. I'm pleased to report that we have the cash and available resources to continue to fund our organic and inorganic growth program. This is true for Canadian clinics and WELLSTAR, where the majority of our M&A pipeline is focused on. That concludes my financial update, and I will now turn the call back over to Hamed. Hamed Shahbazi: Thank you, Eva. With the record results achieved in Q3 of 2025 and the size of our M&A pipeline under LOI, I'm very excited and confident about our outlook for the balance of the year and into 2026. In the fourth quarter, we believe shareholders can expect to see us continue to achieve new levels in revenue, adjusted EBITDA and adjusted net income. As for guidance, we are reaffirming our prior guidance, which was as follows. Our 2025 annual guidance for revenues to be between $1.4 billion and $1.45 billion, representing 52% to 58% annual growth as compared to 2024. Furthermore, we reaffirm our guidance for annual adjusted EBITDA to be in the upper half of our previously provided guidance of $190 million to $210 million. Excluding the impact of Circle Medical deferrals, the company's annual revenue guidance would be between $1.36 billion and $1.41 billion. And excluding the impact of those deferrals, our guidance for annual adjusted EBITDA would be in the range of between $150 million and $170 million. Our present guidance for the balance of the year is sensitive to a number of factors, including the timing of additional M&A and/or divestitures, which may cause these figures to slightly change or be reissued or updated accordingly. For example, if we have a significant divestiture that may require us to discontinue that revenue line item, which would obviously change our financial results, and we would update accordingly. Our longer-term view of the Canadian clinic market remains very bullish. For WELL Canada, which includes Canadian clinics and WELLSTAR, we are targeting to be over $800 million in revenue and over $100 million in adjusted EBITDA within 18 months. We remain resolutely committed to the sale processes of all of our U.S. assets, including WISP, Circle and CRH, as discussed earlier. Our objective continues to be to, again, announce at least one of these transactions that unlocks value by the end of the year. Note that we did have a small divestiture within CRH, but of course, we are in process with all of CRH as well. In summary, we are very pleased with the strength and fundamentals of our business and look forward to delivering strong results in 2025 and beyond. Thematically speaking, WELL management is very much focused on streamlining, integrating and unlocking value from its parts to achieve optimal shareholder value. WELL's growth engine has never been stronger. Our organic growth continues to be strong, especially in Canada, where we are executing on an extremely healthy M&A pipeline. We have a strong balance sheet and are well positioned to improve shareholder value. In closing, I'd like to thank our Board of Directors, WELL's senior management team as well as the senior teams at WELL Clinics, WELLSTAR, HEALWELL and CYBERWELL and all of our employees and contractors for their tremendous effort and support. In particular, I'd like to thank our team of health care practitioners and other frontline workers who provide outstanding patient care every day. They're the true heroes of the health care ecosystem, and we're grateful to have an opportunity to serve them. It brings meaning to everything that we do. I also want to thank you all for joining us today on this call and thank our shareholders and investors for their continued support as well as the valued analysts that help tell these important stories and shed light on our performances. We appreciate everyone's support. And with that, operator, we'd be pleased to answer some questions. Operator: [Operator instructions] The first question comes from David Kwan at TD Cowen. David Kwan: I was just wondering on the margin front, you've done a pretty good job of increasing the margins throughout this year. When you look at it, I guess, excluding the deferred revenue from Circle came in at 12.2%. That's up from roughly 11.5% in the first half of this year. How should we be looking at the margin profile, I guess, in the coming quarters, assuming you don't sell any of your U.S. businesses? Hamed Shahbazi: Yes. Thanks, David. Yes, I agree. This has been a real bright spot for us. As you know, this has been an area of focus for management. Look, I think a lot of this has to do with the shift of our revenue mix, not only as a whole with all the different parts of the business, but also within areas like Canadian Clinics, where we're not just actioning absorptions and things of that nature. We are leaning into higher-margin, higher-quality type assets. This past year, we've acquired more preventative health and executive health type businesses, which have improved margins. Obviously, the growth of WELLSTAR, which has significantly higher margins than our general clinic business drives up the mix, as does HEALWELL given the large SaaS and services component there. And look, I think -- those growth trends, I think, are going to continue to be areas that we focus on. We'd like to see HEALWELL and WELLSTAR continue to grow as well. We're going to be very balanced in the way that we grow our Canadian Clinics business. David Kwan: That's helpful color, Hamed. And I guess digging a little bit further into that, though, maybe specifically on the Canadian Clinics business and you talked about the absorptions and your ability to really boost the margin there. Like how much of that margin uplift that we've seen at least relative to the first half of this year and even last year is coming from the ability of your clinic transformation team to really boost the margins versus some other stuff like you alluded to revenue mix? Hamed Shahbazi: If you recall the capital allocation slide in the script, I think that tells a real compelling story. I mean -- and demonstrating and kind of bringing that slide back quarter-over-quarter, I think it's really indicative of how we continue with that same clinic population to improve those numbers. And so that's all due to the progress that we're making with our technology. That's all -- and if you remember also in the script, we're seeing more patient visits on a per provider basis, 19% increase year-over-year. That is coming as a result of our execution on the ground. And this is what makes us so hopeful about the business. And it's candidly also becoming a new growth engine because happy doctors causes them to talk in the community. And we are now getting pretty close to recruiting more physicians than we're acquiring through our M&A program, which candidly has never been the case. And this quarter, it was pretty close. And so I think that's -- you're correct to point out that the clinic transformation continues to be a really important factor for us, and we are executing quite well there and achieving our goals. David Kwan: That's great. One last question. At WELLSTAR also on the margin side, we saw them quite strong this quarter, roughly 37%. That was roughly in line with what we saw last year. But relative to like other quarters, Q1, Q2, Q4, at least from what you've disclosed, it's notably higher. So I was just wondering, is there something seasonal that happens in Q3 that leads to this jump in margins? Hamed Shahbazi: Yes. As I mentioned in my script, we did also have a pretty significant win in our e-referral business with a significant provincial client and that -- not only did we have that win, but we were able to harvest that into revenue and begin that journey with that customer, and so -- and that new contract. So I think this is indicative of the continued growth and momentum of the WELLSTAR platform and especially with sort of landmark, key areas of focus like e-referrals within the Ocean platform. Operator: The next question comes from Derek Greenberg at Maxim Group. Derek Greenberg: I was wondering with the recent raise for WELLSTAR and your plans to boost revenue there, I was wondering in terms of potential acquisition targets, what you're really looking for and what framework you're applying in terms of multiples? Hamed Shahbazi: Great question. Look, with WELLSTAR, we essentially have a 3-pronged business model today. So we're industry leaders here in billing. We are top 3 in electronic medical records in the outpatient market. And then really our digital health applications or apps, productivity apps to support physicians. These are sort of the 3 key areas. And we have real targets across all 3 of these core areas and have been pretty proficient at executing on those in the past year or so. I will note that in the script today, we talked about the billing company that we have signed an SPA with, which has not closed because it is subject to regulatory approval. And we also acquired, of course, Mutuo from HEALWELL, which is the ambient Scribe company that was already being invoked and used within the Nexus AI platform. So essentially here, you have 2 of those 3 components where we've made acquisitions. And I think you're going to continue to see us really layer in a very comprehensive sort of approach to how we think about growing that platform. So we're going to be very disciplined and continue to build out under these 3 areas. As far as -- further to your question about multiples, we continue to be very disciplined, right? I think we look at these opportunities on a price to sales basis or ARR. We also look at them on an EBITDA basis. But we generally don't like transacting unless we can find our way to a 20% IRR. Hopefully, that's helpful. Derek Greenberg: Yes. That's very helpful. And then I was wondering just on the CRH side and the divestment of the asset you made this quarter, I was wondering maybe what the financial impact of that may look like on the current business? Hamed Shahbazi: Look, I think we've done divestments in the CRH portfolio before. We do that when we feel that there's an opportunity to transact at a higher multiple. And there are situations where private equity may be consolidating assets in the U.S. in the GI space. And of course, we partner with GIs within that -- within the CRH platform when we provide the anesthesia for colonoscopies in partnership with those GIs. And so those PE firms sometimes are motivated to transact because they're trying to capture the entire platform. And so these are the signature of these types of transactions. And this one was a over 10x multiple. It's not -- it doesn't have the revenue or EBITDA profile that would make us change our guidance or anything like that. But obviously, it added some nice cash and returned some cash to our treasury this past quarter. So we're pretty pleased about that. Operator: The next question comes from Rob Goff of Ventum. Rob Goff: My question would be on the competitive dynamics of the clinic absorption. Are you finding that the sellers are changing expectations? Are you seeing new potential competitors when you are in negotiations? And you mentioned that you've been much more able to recruit doctors. Do you find that opening up new clinics is more and more of an option for you given the greater availability of physicians? Hamed Shahbazi: Great questions, Rob. Thank you. I'm very pleased to report that the competitive dynamics haven't changed much, especially not in primary care. We definitely do have PE to contend with in sort of more of the specialized care side of things. But in primary care, not so much. And so we aren't seeing a changing dynamic on the ground in terms of negotiations so much. Again, there is more competition at the diagnostic specialty care level. But again, not nearly as much as you would find south of the border. And further to your question about physicians and our recruitment efforts, we don't love doing greenfields unless there's an opportunity to do so without having to put up the capital for a new facility. One of the great things about absorptions is we're typically acquiring or absorbing clinics that candidly could use more doctors, but we absorb all of that -- all of those leaseholds, right? Clinics do cost money. And if we were to be starting those from scratch, that would require a significant amount of capital. And this is what's so compelling about our M&A program and absorption program that I think is overlooked sometimes is that, if you were to be doing this without the kind of dynamics that we have, you'd be spending a very significant amount of capital to set up these types of clinics and their respective leaseholds. And we're just not seeing that. So this is a very -- this has been a very capital-efficient build. We did, of course, have a little bit more CapEx this quarter. But again, a lot of that went to support our higher-end executive health and preventative health clinics, which do require a more significant experience. But we feel really encouraged by the fact that we are able to recruit more doctors. And that incremental doctor -- when we drop an incremental doctor to -- in an existing clinic that we've acquired, this is in addition to our clinic transformation efforts, this is what drives operating margins up really significantly. That incremental doctor makes a big difference. And this is what's so encouraging about what we're reporting to you today. Operator: The next question comes from Erin Kyle at CIBC. Erin Kyle: I just wanted to follow up with a question on the virtual care assets and the strategic process there. So I think last quarter, you noted there was an uptick in interest for those assets. So my question just is around valuation expectations and whether those are more aligned than maybe what you've seen in the past? Hamed Shahbazi: Thanks, Erin. I appreciate the question. Look, the valuation expectations we have are very much I would say in line with what we're seeing in the market. Of course, digital health was seeing very different valuation profiles for these types of care-enabled strategy -- tech-enabled care delivery strategies or virtual health strategies in the U.S. And that obviously came off quite significantly over the last few years. And so you are starting to see some transactions occur, but at not those sort of pandemic type rates. But I would say that they are quite reasonable. They're essentially -- we're likely seeing double-digit EBITDA or what tends to be kind of that Teladoc multiple of roughly 1x sales for virtual care. Teladoc obviously is not seeing very good growth. And so they're not even trading at a onetime sales mark. So that's kind of where the market is today. But, yes, we're pleased with the looks that we're getting and the conversations we're having so far. Erin Kyle: Okay. That's helpful color. And if I could just ask one more on the WELLSTAR business. Maybe just speak to the demand for Nexus AI and maybe more broadly where you would expect the organic growth profile for WELLSTAR to land for 2025? Hamed Shahbazi: So the demand for our Nexus AI has been strong. I mean we've continued to see good, strong double-digit growth. As you may remember, Nexus is a member -- was selected as part of the Infoway program that is awarding, I guess, cost-free enablement for physicians for a period of time. Mutuo, by the way, is another partner with the Infoway program. So this has paved the way for some additional growth. And look, there's a lot of scribes out there. And so that's what's so unique about Nexus. Nexus isn't just an AI scribe. It is an agentic platform that invokes a multitude of different actions. AI Scribe is sort of one component of that. And so we feel like we're ahead of the pack here. While there's a lot of AI scribes, very few of them enjoy the kind of connectivity with integrated EMR connections that we have. And so we feel that we're in a really good position to continue our journey of double-digit growth here overall. The key, I think, is going to be to innovate. And I think the one thing that's really exciting about our WELLSTAR platform is that this is a team that can innovate, they can build software. It's not a team that is just growing by acquisition. They're developing a really solid platform here. Operator: The next question comes from Michael Freeman at Raymond James. Michael Freeman: Just putting some breadcrumbs together, looking at the under LOI pipeline in Canadian -- for Canadian Clinics that jumps in a big way between quarters. So you obviously signed a few large LOIs. Looking at the amount of revenue that, that would bring in and estimating some multiples, like the capital you need to deploy toward that, if I were to match it up with one of your U.S. assets or a collection of them, it seems like you would need to sell CRH in order to go and acquire those clinics. You tell me if I'm wrong there? But can -- given this process started later, I was sort of assuming that the CRH process would close later. But given this divestment this quarter and these new LOIs, what can you tell us about the advancement of the CRH process? Hamed Shahbazi: Yes. Look, the CRH process is going really well. And I think we've advanced it quite quickly. So look, you're -- it's an insightful view that you've provided here. It's -- look, we have to be very clear and very focused on being able to backfill that revenue and EBITDA that CRH would vacate once we have a successful transaction. And so we're working really hard to make that happen. And so yes, we are very much looking to make sure that we don't just have a successful sale event and then we sort of sit there with a big hole in our revenue and EBITDA. So I think shareholders and analysts can feel confident that we are thinking about how to backfill and create new momentum in Canada, as we've mentioned several times before over the last few quarters. And so, yes, like we're being very intentional about bringing those together. And so as things move into LOI, that obviously creates a lot more urgency for us to execute on U.S. divestitures. So you're not far off in your thinking. And of course, we're not there yet. Otherwise, we would have announced it, but we're very much focused on a great outcome, not only in terms of divestitures, but also being able to turn around and allocate that capital in a really compelling way that demonstrates the kind of on strategy and focus that I think shareholders can expect to see from us. Michael Freeman: All right. I wonder, you mentioned that there was some good success with OceanMD this quarter with the provincial contract. I wonder if there's any more color you can provide on what province, magnitude of contract and anything else? Hamed Shahbazi: Thanks, Michael. Unfortunately, I can't talk about the particular contract that we are working on with a particular customer to make sure that we disclose at a time that they're comfortable with. But we're quite pleased that we were able to bring into revenue a pretty significant amount of ARR. Sort of several million dollars worth of ARR has been activated already. And so, this was more than we had expected when we had pulled together our forecast for this year. And of course, these are not customers and opportunities that happen without a lot of foresight and preparation. They are -- they tend to be multiyear sales cycles. And so it's really great to see that WELLSTAR is indexing ahead of its expectations for sure. Michael Freeman: And very last for Eva. I noticed a $10.5 million impairment charge. I wonder if you could describe what that's associated with? Eva Fong: Yes. So that's related to our HEALWEll divestment of its clinical operations. So HEALWELL recognized an impairment on these assets, and which is included in the WELL's consolidated results. And I can give you more details when we meet later too. Operator: That concludes today's Q&A. I will turn the call back over to Hamed Shahbazi for closing comments. Hamed Shahbazi: I'd like to thank everyone for attending today, and we look forward to an exciting next several weeks and hopefully delivering the type of results that we are all expecting for Q4 and beyond. And look forward to speak to you next in, I'm guessing, March of 2026. Thank you very much. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Good morning, and thank you for joining us today for Concentra Group Holdings Parent, Inc. Earnings conference call to discuss the third quarter 2025 results. Speaking today are the company's Chief Executive Officer, Keith Newton; and the company's President and Chief Financial Officer, Matt DiCanio. Management will give you an overview and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including, without limitation, statements regarding operating results, growth opportunities and other statements that refer to Concentra's plans, expectations, strategies, intentions and beliefs. These forward-looking statements are based on the information available to management of Concentra today, and the company assumes no obligation to update these statements as circumstances change. At this time, I will turn the conference call over to Mr. Keith Newton. William Newton: Thanks, operator. Good morning, everyone. Welcome to Concentra's Third Quarter 2025 Earnings Call. We are pleased to report on another strong quarter with the business generating solid year-over-year volume and rate growth across both workers' compensation and employer services. This resulted in 17% year-over-year revenue growth in the third quarter and 10.6% revenue growth, excluding the impact of the Nova acquisition. During the quarter, we finalized the integration and rebranding of the Nova occupational health centers and opened an additional occupational health center, de novo in Atlanta, Georgia, bringing us to 5 de novo centers opened so far this year with 2 more anticipated by the end of the year. Also, our onsite health clinics operating segment performed well during the quarter, fueled by strong and accelerating organic growth as well as the now nearly completed integration of the Pivot Onsite Innovations business. As with prior quarters, I'll touch on some of our key financial highlights and provide a lens on selected metrics, both including and excluding the impact of the Nova acquisition so that folks have a good sense of core business performance. Similar to last quarter, I would note here at the outset that we had the same number of revenue days in Q3 2025 as Q3 2024, so there is no need to adjust any prior year comparisons for days. Total company revenue was $572.8 million in Q3 2025 compared to $489.6 million in Q3 of the prior year, representing 17% growth year-over-year. As previously mentioned, excluding contributions from Nova, revenue was $541.5 million, resulting in a 10.6% increase over the prior year. Total patient visits increased 9.2% in the quarter to more than 55,500 visits per day. Our workers' compensation visits per day increased 9.8% and employer services visit volumes increased 8.9% relative to prior year. Excluding the impact from the acquisition of Nova, total visits per day increased 3.0%. Workers' compensation visits increased 4.4%, outpacing the year-over-year growth observed in the first half of the year and employer services visits increased 1.9%, which was in line with the Q2 2025 growth. We had a strong quarter in terms of workers' comp visits with 2 things going for us to contribute in part to the outsized year-over-year growth. First, Hurricane Beryl led to softer than normal volume in early July 2024. Additionally, we continue to see growth from the visit mix within workers' compensation visits driven primarily by follow-up injury visits and physical therapy visits. Our operations and sales and marketing teams have done a nice job driving visits and gaining market share against the macroeconomic backdrop that I would generally describe as uncertain considering interest rates, tariffs and the shutdown. Some recently published jobs data would seemingly indicate that we're in an economic environment that is slowing down, but we aren't necessarily seeing that play out in our business to date. With respect to macroeconomic data reporting over a long period of time, we have seen correlation between our workers' compensation volume and employment levels reported by the BLS, and there is strong correlation between our employer services volumes and quits and hiring rates within the BLS JOLTS data. However, we have also found that our workers' comp visit data has largely lacked correlation with BLS employment data in the most recent times. I just point that out so that the folks don't rely solely on the publicly reported jobs data as the only proxy for our visit volume. On the rate front, we had strong growth again with a 4.2% increase in revenue per visit this quarter versus the same quarter prior year. This growth was driven by a 4.7% increase in workers' compensation and a 2.7% increase in employer services revenue per visit. Adjusted EBITDA was $118.9 million in the quarter versus $101.6 million in the same quarter prior year or a 17.1% increase. Adjusted EBITDA margin increased slightly from 20.7% in Q3 2024 to 20.8% in Q3 2025. As with prior quarters, we are comparing against prior year margin that was not fully burdened by public company and other separation costs. Additionally, similar to last quarter, we had a number of onetime Nova integration costs that burdened adjusted EBITDA. This expansion in margin even with these dynamics is another strong indicator of the performance of our business. Adjusted net income attributable to the company's $49.9 million and adjusted earnings per share was $0.39 for the third quarter 2025. These compare favorable to prior year adjusted net income attributable to the company and adjusted earnings per share of $44.3 million and $0.37, respectively. As a reminder, adjusted EBITDA and adjusted net income reflect the add-back of transaction expenses related to our acquisition activity as well as onetime costs related to our separation from Select Medical. Now I'll turn it over to Matt to provide additional details on our financial results. Matthew DiCanio: Thanks, Keith, and good morning, everyone. I'll start by going through some more details on our results in our 3 operating segments. In our occupational health operating segment, total revenue of $526 million in Q3 2025 was 13.6% higher than the same quarter of prior year. Workers' compensation revenue of $343.5 million in Q3 2025 was 15% higher than prior year. Work comp visits per day increased 9.8% from prior year and work comp revenue per visit increased 4.7% versus prior year. Within employer services, revenue of $173.2 million increased 11.9% from prior year. Employer services visits per day increased 8.9% from prior year and employer services revenue per visit increased 2.7% versus prior year. As with the past 2 quarters, here are the same stats excluding the impact of Nova to help isolate our core business from our Q1 acquisition. Total revenue within the occupational health center operating segment was $494.7 million in Q3 2025, a 6.8% increase over the prior year. Total visits per day increased 3% over the same quarter prior year, and revenue per visit increased 3.9% from $141 in Q3 2024 to $147 in Q3 2025. Workers' compensation revenue of $324 million in Q3 2025 was 8.5% higher than prior year. Workers' compensation visits per day were 4.4% higher than prior year and work comp revenue per visit was 3.9% higher than prior year. Within employer services, revenue of $161.7 million in Q3 2025 increased 4.4% from prior year. Employer services visits per day were 1.9% higher than prior year, and employer services revenue per visit was 2.5% higher than prior year. Moving on from our occupational health centers, our, onsite health clinics segment reported revenue of $34.9 million in Q3 2025, 123.8% increase from the same quarter prior year. This was largely driven by the acquisition of Pivot Onsite Innovations in Q2 of this year. Excluding the impact from Pivot, the Onsite segment revenue grew 17.5% year-over-year. The growth in the legacy Onsite business is indicative of the nice momentum we are seeing with the platform as a solution to employers across the country who are seeing double-digit year-over-year increases in employee health benefit costs. We believe we are naturally positioned to further penetrate this growing market given our national presence in infrastructure and deep relationships across approximately 200,000 existing employer customers. We expect this to continue to be an important part of our organic and inorganic growth strategy over the coming years. And finally, other businesses generated revenue of $11.9 million in the quarter, an 8.1% increase against the same quarter of prior year. Now switching to expenses. Cost of services was $405.5 million or 70.8% of revenue in Q3 2025, down from 71.7% of revenue for the same quarter prior year. The decrease as a percentage of revenue can generally be attributed to an overall improvement in staffing efficiencies at our centers. As with the last quarter, we had a number of onetime costs related to the Nova transition that are not adjusted out of adjusted EBITDA. We estimate that the net incremental costs totaled more than $500,000 during the quarter and are now substantially complete as of September. Our total general and administrative expenses were $52.9 million or 9.2% of revenue in Q3 2025 compared to 7.6% of revenue in the same quarter prior year. And just to reiterate, this comparison is not apples-to-apples as we have expenses in Q3 of this year that we did not have in the prior year before we separated from Select and were fully burdened with public company costs. We also have some onetime acquisition-related expenses here related to Pivot and Nova that are adjustments to EBITDA. Excluding items that are added back for the purpose of calculating adjusted EBITDA, including equity compensation expense, onetime Select separation costs and M&A transaction costs, G&A expense was $48.5 million for the quarter or 8.5% of revenue compared to 7.5% of revenue in the same quarter prior year. The increase was largely driven by expected increases in personnel costs since becoming a public company and with our ongoing separation from Select Medical. On the topic of separation, we have onboarded approximately 2/3 of the colleagues needed to fully transition services over from Select, and we have made meaningful progress towards reducing our transition services agreement spend as those folks ramp up and knowledge transfer occurs. We have until November of 2026 to complete the transition. But at this point, we expect to be substantially complete with separation activities by the summer of 2026. As previously communicated, on a run rate basis, we will have net incremental expense as a stand-alone public company, but a significant portion of these costs are already embedded into our 2025 actual results and our guidance. The overall adjusted EBITDA margin in Q3 2025 was 20.8% compared to 20.7% during the same quarter of prior year. Keith mentioned this, but I think it's important to underscore that we're achieving incremental year-over-year gain in margin despite additional public company and separation costs. In Q3 2025, we generated $60.6 million in operating cash flow. This compares to $65.9 million in the third quarter of 2024, with the year-over-year decrease largely driven by a $25 million increase in cash interest payments, offset by a $12 million decrease in cash taxes paid. Investing activities used $20.5 million of cash in the third quarter and was driven by our spend on center de novos, relocations, renovations and normal maintenance. The year-over-year increase from $17 million of spend in Q3 2024 was due in part to approximately $3 million of onetime CapEx related to the Nova integration. The substantial majority of Nova capital has been spent as of the end of the third quarter. Free cash flow or cash flow from operations less cash flow from investing activity, excluding business combinations, totaled $40.2 million, a decrease from prior year third quarter free cash flow of $50.8 million. Additional cash interest expense following the recapitalization of the business in July 2024 and Nova integration CapEx were the primary drivers of the decrease. On an LTM basis, excluding acquisitions, we've generated $176.3 million of free cash flow, which is net of approximately $11 million in onetime Nova integration CapEx. Financing activities during the quarter resulted in net cash outflows of $64.1 million. This was primarily due to repayments of $25 million outstanding on the revolving credit facility in both August and September and an $8 million dividend payment. Subsequent to quarter end, we made another $35 million revolver payment, resulting in 0 outstanding balance on the credit facility. We ended the quarter with total debt balance of $1.61 billion and a cash balance of $50 million. Our net leverage ratio per our credit agreement at the end of September was 3.6x. We continue to focus on deleveraging towards our targets of 3.5x or below by the end of this year and below 3.0x by the end of 2026. Q4 is typically our strongest cash flow period, so meaningful progress will be made towards these targets during the quarter. Now with respect to our growth efforts. Regarding Nova, we have now -- we now have all centers converted to Concentra systems, processes and signage, and our teams have shifted focus towards growing visits and bringing operating efficiencies in line with the rest of our platform. As it relates to cost synergies through the end of Q3, we estimate we have captured just over 85% of our planned operational and back-office synergies. So not all of that was fully reflected across the entire quarter, with the remainder to occur through Q1 of 2026. We still have some running room before we hit expected run rate performance from both a top line and cost perspective, but we are pleased with the progress to date. Similarly, integration of our Pivot acquisition continues to go smoothly with most expected synergies having been captured to date. On the de novo front, we opened 1 location in Atlanta, Georgia in the quarter, and we have 2 more locations in California and Florida planned for the fourth quarter. Shifting to 2026 activity, we currently have 6 sites across Florida, Georgia, Missouri, Idaho and Arizona in advanced stages of development and have a number of other locations that we are actively evaluating. On the M&A front, with the Nova and Pivot integrations largely behind us, we are shifting our focus back towards our core acquisition strategy of practices with around 1 to 5 occupational health centers. We've had a lot of success with these smaller deals over the last decade with an average acquisition multiple of less than 3x EBITDA on a post-synergy basis. We've been building out our deal pipeline, and we have several active targets that we are pursuing that could close over the next 3 to 6 months. From a capital allocation standpoint, we believe we can continue to execute on our growth strategy in parallel with our deleveraging efforts and achieve the leverage targets that we've consistently communicated to the market at or below 3.5x by the end of 2025 and at or below 3x by the end of 2026. In most instances, these smaller M&A deals and de novo sites are actually leverage accretive for us. And now wrapping up with just some several subsequent events. First, we're pleased to announce a continuation of our dividend this quarter with the Concentra's Board of Directors declaring a cash dividend of $0.0625 per share on November 5, 2025. The dividend will be payable on or about December 9, 2025, to stockholders of record as of the close of business on December 2, 2025. Also, the Board of Directors has authorized a share repurchase program of up to $100 million of the company's outstanding common stock. The share repurchase authorization will expire on December 31, 2027, unless extended or terminated earlier by the Board of Directors. While our aforementioned leverage targets and growth objectives remain the priority, we believe the company's robust free cash flow generation provides additional flexibility to execute opportunistic buybacks when market conditions and valuation levels suggest that it's appropriate. And finally, with respect to guidance, we are raising the low end of our 2025 revenue guidance range from $2.13 billion to $2.145 billion and the low end of our 2025 adjusted EBITDA guidance range from $420 million to $425 million. The top end of both ranges remain unchanged. We are also reaffirming our CapEx range of $80 million to $90 million, while noting that we are trending towards the lower end of that range. I also want to remind folks that the CapEx range this year is elevated relative to normal due to the incurrence of approximately $10 million to $15 million in onetime Nova integration-related spend. We are also reiterating our previously stated leverage targets of less than or equal to 3.5x by the end of 2025 and less than 3x by the end of 2026. I'll pass it back to Keith to wrap things up. William Newton: Thanks, Matt. As you can see with our results, we put together 3 nice quarters to start the year and have solid momentum heading into the fourth quarter. Team is working hard and is motivated to finish out the year strong. Looking forward, in addition to the M&A and de novo growth backlog that Matt touched upon, we are evaluating and expect to invest over the coming year in new technological capabilities that should drive improvements in new customer capture, existing customer retention and general operating efficiencies with our internal systems. Historically, this has been an advantage for us from a value proposition standpoint. We believe that it's of a paramount importance to continue to invest in technologies that improve patient, employer ecosystem partner experiences as well as our colleague efficiencies and help further differentiate ourselves from our competition. Technological initiatives include digital bilateral interconnectivity with customers, systems modernization, payment automation, patient scheduling capabilities and AI initiatives, among others, that we anticipate will all have a meaningful impact upon implementation. With respect to 2026, similar to this year, we expect to provide guidance early next year once we have further visibility into visit trends and updates on state fee schedules. On our last call, we touched on the expected rate tailwinds in California and a few other states. While this gave us some early visibility into 2026 rates for one of our larger states, many states don't finalize fee schedules until late this year or early next year, and we think it's important to have a little more information before issuing formal guidance. Lastly, I'd like to conclude by saying that I'm pleased with the progress we've made as a company since our IPO in July 2024. We outperformed the organic growth algorithm we originally communicated during the roadshow despite a choppy jobs market. We acquired and fully integrated a large player in the occupational health center space in Nova. We substantially bolstered our on-site platform through the acquisition and integration of Pivot Onsite. We've made substantial progress towards full separation from Select and wind down the transition services agreement, maintaining EBITDA margin even with the incremental G&A cost. We've continued to develop and execute on strong core M&A and de novo strategy. We've continued to delever on the time line that we've been communicating throughout the year. We implemented a number of new technological initiatives and we continue to deliver best-in-class care for our patients and outstanding outcomes for our customers. We have obviously had a tremendous number of moving pieces over the past 12 months, but the team has remained focused and performed exceptionally throughout. Very proud of the efforts across the board. This concludes our prepared remarks, and we thank everybody for the time today. We'd like to turn it back over to the operator to open up the call for questions. Thank you. Operator: [Operator Instructions] Your first question for today is from Ann Hynes with Mizuho. Ann Hynes: Just heading into 2026. I know that you don't want to give guidance, but would there be any like major headwinds or tailwinds that you would call out while we finalize our models? William Newton: Ann, this is Keith. No, I don't think so. Like we -- the environment we've been through has been somewhat choppy, as we mentioned on the call, over the last year, 1.5 years, 2 years, and we've done quite well in that. And so other than just continuing to perform as we have performed in the current environment is what we will continue to do. But other than that, I don't really see any headwinds or anything that's obstacles in our way at this point in time. Really feel bullish about next year and anticipate having a really good year. Operator: Your next question is from Benjamin Rossi with JPMorgan. Benjamin Rossi: I guess just thinking about volume trend across your employer services segment this year, another good quarter. You have year-to-date volume growth increasing in that 1.5% to 2% range on like a core basis. Can you just walk us through what's maybe driving some of the improvement this year on core and maybe what you're hearing from your employer clients? And then just looking into next year, how are you thinking about that core trend as we begin to lap some of this year's M&A benefit? William Newton: I'll take it initially. This is Keith again. Yes, so we were coming out of some years as a result of COVID that there had to be some resetting, so to speak, and that's happened. And now we are in a little bit more of a comparable year-over-year comparison as far as the core as we continue to grow that. So just taking those dynamics out, what are the things that we're doing to really add fuel to the fire. A lot of things in our sales and marketing from technology, people, how we're going to market, how we're getting better information, how we're identifying new leads, how we're account managing existing customers, how we're trying to get more pocket share out of those existing customers, how we're trying to eliminate leakage relative to any leakage we could be having out there. So pulling a lot of levers and using technology as a key component of that, I believe, is what's helping drive this so far. Matt, I don't know if you want to add anything. Matthew DiCanio: Yes, Ben, you were asking specifically about employer services. Is that right? Benjamin Rossi: Yes. Matthew DiCanio: Yes. As Keith mentioned, we had the rightsizing coming out of COVID that took quite a while post COVID. And our employer services visits volume flipped positive in Q1 of this year. So this is our third quarter now in a row with positive visit growth there. And what we're seeing right now is stability in that service line. So 1.9% this quarter ex Nova. Last quarter, it was 2%. So almost exactly identical to the prior quarter. It's about half of our visit volume, but it's about 1/3 of our revenue. So obviously, our work comp business is important to the overall trajectory of the business. Benjamin Rossi: Got it. Okay. And just as a follow-up, I guess, just flip into that workers' comp space. I guess, similarly, on a year-to-date basis, you're kind of just north of that 2.5% year-over-year range on a core basis for visits per day. I guess just thinking about that, are you taking market share at this point within that space? Or do you kind of think of growth in that -- as generally in line with the broader market at that level? Matthew DiCanio: Yes. So we've had couple strong quarters work comp visit growth rates. There's a lot of variables in there. There's a lot of different visit types, initial injuries, rechecks, physical therapy, specialty visits. So there's a lot of variables that make up that number. But obviously, we're pleased with the last couple of quarters of growth. And we believe we are taking share, but it's complicated to calculate and estimate. But we also had some prior year dynamics with a soft July of last year that helped us in the quarter. But even without that, we would have had a nice quarter. So we do believe we're taking market share. William Newton: Yes. And I would add that when you look at the components of what drives work comp, as Matt mentioned, it's -- injuries is the initial driver. And after that, you get the follow-up injury visits with the physician, PT, specialty visits. All of those are growing several reasons. Injury severity seems to be a little higher maybe than historically just to aging workforce, comorbidities, things like that. That stretches out the length of the case a little bit as far as instead of 5 visits, it may take 6 visits to get that individual back to full duty. We've implemented, again, several technology-related things to capture follow-up visits. So we've seen appointments and follow-up -- missed appointments and people not skipping out as much. So we're capturing more of that person's injury care as a result of then getting them back to full duty. So it's really several components that kind of drive that. And again, several levers that we're pulling associated with that. Operator: Your next question for today is from Justin Bowers with Deutsche Bank. Justin Bowers: So Keith, I just wanted to understand your comments a little more about the decoupling of the historical correlation between workers' comp and your visit -- pardon me, the BLS data and your visit volume there. Just sort of can you elaborate a bit on what period you're referring to? And any thoughts on what some of the factors are driving that? And then part 2 is just you mentioned investing in IT systems. Just curious, is that more of like an offensive or a defensive measure? I mean a lot of our work that we've done on you guys in the past suggests that the connectivity and interconnectedness with employers is one of your competitive advantages out there. William Newton: Yes. I think really probably over the last 2 years is where there's been somewhat of a, for lack of a better description, decoupling BLS data and what's happening with us. We've scratched our heads at the initial periods of that. Later on, some of the results that we were seeing seem to make more sense after significant revisions in that data. So I don't know what all drives that, what's going on at the levels that, that's happening. But we still look at it at this point in time. It's just been all over the place relative to the results that we're showing. So that's really the comment I'm making there. Historically, prior to that, there was a good correlation as far as job growth and kind of what was happening with our employer services. But again, not so much over the last 2 years or so. So that's really the comment there. As far as technology, yes, there's -- we've got the normal type of things that we're doing as far as modernizing things with our legacy systems and those type of things, but really deploying some new technologies within our business to get stickier with employers and payers, but also to accelerate the sales funnel, so to speak, as far as engaging with certain data firms out there that allow us to better identify potential prospects and then handling 250,000 employers nationwide across our footprint and 30% of those employers have decision-makers that are turning over every year. A lot of those are very, very small employers that we don't necessarily touch base with that often from a company perspective. Our local people may be touching base with them, but they don't need us that often. And if they have a decision-maker turnover, new person comes in, they don't know Concentra. Next thing you know, they're using the local urgent care, the next door or further down. So what we're doing is getting that information sooner, using technology to reengage with those employers before those type things happen. And I think that's really going to give us some win in our sales as we move forward relative to that. Operator: Your next question for today is from Stephen Baxter with Wells Fargo. Stephen Baxter: So good to see the volume acceleration in the quarter. And to your point, it doesn't seem like the macro is necessarily impacting you negatively on the demand side. I know this hasn't been as much of an issue for you as providers with greater reliance on nurse labor, but wondering if some of the softness in the broader economic picture is having potentially a positive impact on your ability to hire and retain your workforce and maybe put some moderate downward pressure on wage inflation that we've seen? Matthew DiCanio: Stephen, it's Matt. I can take this one. I would say, overall, our labor force stats are very stable. We have had some recent success with hiring, but no material changes. Overall, we've seen stability. Our turnover at the total company level has actually come down slightly. And from a cost perspective, very stable throughout the years in that, call it, 3% range. So we have seen some positive movement lately, but I would generalize it as a stable environment. Stephen Baxter: Got it. And then just a question on the deal pipeline. I appreciate the comments you made there. As we think about what might else be out there on the larger side of the spectrum, I guess, is there any way to kind of use the Nova deal as maybe a benchmark? Like do you think there are other assets out there that are in the ballpark when it comes to size and whether you think that the valuation there was maybe a reasonable way to think about what might be left that you'd be willing to be active on? William Newton: I would -- this is Keith. I would say on the bricks-and-mortar side, there's not anything out there of that size and unlikely of that valuation. Anything that we would look at would be less than that from a valuations point from a bricks and mortar. And again, so nothing of that size. Where there are potential transactions of that size would be on the onsite health clinics. And we've talked about that in the past where that's a key strategy for us to grow that business. We acquired Pivot this year and doubled our revenue size from roughly $60 million to $120 million as far as that business. But again, Pivot was very synergistic as far as look and scope of services is what Concentra historically provided, which was primarily OccMed. They weren't really providing much advanced primary care. Where we're gaining traction, of course, as I've said in the past, is with the deployment of Epic as our electronic medical record within our onsites, it's opened those doors for us to more aggressively organically grow that business. We are having success there even against the biggies. We're probably a top 10, but still relatively small compared to the #1, #2, #3 onsite health companies in this industry who primarily focus on advanced primary care. But we feel very confident and we're showing the results relative to going head-to-head and winning new business from those entities. As I've said in the past, many of those entities are in a potential transaction mode, so to speak, at some point in time, and they're in it right now. Those are potentials at some point in time, but not anything we are currently aggressively contemplating. We're continuing to build our business. And as Matt mentioned, we're continuing to focus on delevering. That's a key strategy or a key focus for us this year as a result of doing the 2 transactions. Now we're back to driving our leverage down, which seems to be a key point out there. And as we've talked about in the past, we have the ability to do that and do that quickly. We talked about where we're going to be at the end of this year and where we're going to be at the end of next year, and we will be there. Operator: Your next question is from Ben Hendrix with RBC. Michael Murray: It's Michael Murray on for Ben. While a weakening economy can impact your volumes, you've shown the ability to weather that in past downturns with a pretty stable EBITDA margin. I wanted to see if you can expand upon the company's ability to flex costs on a potential employment weakness. Matthew DiCanio: Yes. Sure. We've talked about this in the past a lot when we get this question, and our teams are really good at flexing staffing to the visit volumes that we see every single day on a weekly basis, on a monthly basis. There's seasonality in our business, as you guys have hopefully seen over time period since we've been public, but also through Select's ownership when we were filing financials through Select. We have large part-time labor forces, both on the medical and the therapy side, and the teams can predict visit volumes based on historical trends very well. And so we do that in the normal course of our business. And if there is an uptick or a downturn in the economy, the teams can react very quickly. And we've shown that over a long period of time. The last major economic cycle was many, many years ago, but we performed very well through that time period. Michael Murray: That's helpful. And my next question, with the understanding that rates are still being finalized, could you just take a moment to talk about your expectations for 2026 at a high level? How much visibility do you have on rate growth on the workers' comp side? And then the same question on the employer services side, how are the rate conversations progressing with employers? Matthew DiCanio: Yes. So on the work comp side of the equation, we do know a number of states, but we estimate that there's still at least 1/3, if not more of the states that we do not know that will come out later this year or early next year. And so for that reason, we'd obviously like to see all those state fee schedule updates come through before we give guidance. But as we mentioned on the last call, our largest state, we do have very good insight into the state of California, which is going to be a strong rate year for us, and it's going to set the foundation for a solid rate year, next year in terms of work comp. So we expect a good rate year and potentially some upside as we hear more from the remaining states. From an employer services standpoint, that is a process that we control, and we expect that will be very similar to this year and prior years where we'll set the rates -- the rate increases very much in line with inflation. So we expect that to be a normal year in terms of employer services rate increase. So we have always pointed to 3%, that's a 5-, 10-, 15-, 20-year average that we see across both service lines, and we expect that will be pretty close to what we see next year. William Newton: Yes, that's exactly what I was going to say. You can probably plan on something similar to historical averages based on what we know at this point in time. Operator: We have reached the end of the question-and-answer session, and I will now turn the call over to Keith Newton for closing remarks. William Newton: I appreciate everybody being here today. Thank you for joining us, and we'll talk with you next quarter. Operator: Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.