加载中...
共找到 25,003 条相关资讯
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby and I'll be your conference operator today. At this time, I would like to welcome you to the SmartStop Self Storage REIT Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the call over to David Corak. Please go ahead. David Corak: Thank you, operator. Before we begin, I would like to remind everyone that certain statements made during today's call, including statements about our future plans, prospects and expectations may be considered forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements are subject to numerous risks and uncertainties as described in our filings with the Securities and Exchange Commission, and these risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in our earnings release that we issued last night, along with the comments on this call, are made only as of today. The company assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, we will also refer to certain non-GAAP financial measures. Information regarding our use of these measures and a reconciliation of these measures to GAAP measures can be found in our earnings release and supplemental disclosure that were issued last night and are available for download on our website at investors.smartstopselfstorage.com. In addition to myself, today, we have H. Michael Schwartz, Founder, Chairman and CEO; as well as James Barry, our CFO. Now I'll turn it over to Michael. H. Schwartz: Thank you, David, and thank you for joining us today for our third quarter earnings call to discuss our first full quarter as a New York Stock Exchange listed company. I'll start with some introductory remarks on SmartStop, the Argus transaction and the industry before I hand it over to James to discuss the quarter. After that, we'll open it up to Q&A with James, David and myself. Before we dive into the high-level remarks, a few highlights of our third quarter results. We posted a strong third quarter with sector-leading same-store revenue growth of 2.5% and average occupancy of 92.6%, both largely in line with our expectations. We reported FFO as adjusted per share of $0.47, which was about $0.02 below our expectations for the quarter. This was entirely driven by 2 events that we noted in last night's earnings release, an unexpected vacate of our only notable industrial tenant and the recognition of a onetime equity-based compensation expense related to performance units issued in 2023. James will elaborate on these items later in the call. With these pieces in mind and our 3Q strong operating results, we maintained the midpoint of our full year 2025 FFO as adjusted per share guidance. We had another robust quarter, both in terms of performance and activity. First, we opportunistically returned to the Canadian Maple bond market, raising CAD 200 million at a 3.89% coupon this time with a 5-year maturity. During the quarter, we acquired approximately $86 million of Class A storage properties on balance sheet in both the U.S. and Canada. We also acquired one property subsequent to the quarter end for $15.3 million. These on-balance sheet acquisitions are primarily Class A properties located in top markets consistent with our communicated acquisition strategy. We also increased our loans and preferred investments to the managed REITs by approximately $20 million. Between these loans and our on-balance sheet acquisitions, we deployed about $106 million of accretive capital during the quarter. Additionally, we are proud of SmartStop's inclusion as a member of the MSCI U.S. REIT Index, more commonly known as the RMZ. Lastly, but certainly not least, we entered into a contribution agreement with Argus Professional Storage Management. Needless to say, it was another very active quarter. Before turning to the industry, I just want to spend a minute on the Argus transaction, which we closed on October 1. Since the IPO roadshow, we have been communicating to TheStreet that we intended to enter the third-party management business, and we're actively exploring either developing a platform of our own or acquiring an existing pure-play platform. After thoroughly studying the merits of both paths, we decided that if we could find the right partner, the latter would be the most beneficial to our shareholders. We've known the principles of Argus for almost 2 decades and have the utmost respect for what they've built. So we have tremendous confidence that we've identified the right partner, one with a robust third-party management platform, a top-notch team of professionals, strong relationships across the United States and a managed portfolio that strongly overlapped with ours. With approximately 230 stores under management across 26 states, Argus was the second largest independent third-party storage manager in the U.S. Together, we now operate more than 460 self-storage properties in North America, nearly doubling our store count and increasing our overall owned and managed net rental square feet to over 35 million. This deal immediately jump starts our third-party management strategy in an accretive manner rather than a dilutive and lengthy process of developing one ourselves. A few highlights of the deal. Given the size of the managed portfolio, this essentially doubles our data sets, enabling better revenue management across both existing and new geographies. We get immediate property clustering in 12 current SmartStop markets, which in time should lead to margin expansion for both managed and owned properties. This provides SmartStop with direct access to a captive pipeline of potential acquisition targets, including off-market deals. It also opens the door to bridge lending to current or potential owners, which is something that no other independent third-party manager can provide. And lastly, this deal paves the way for SmartStop to expand third-party management in Canada, a vastly underserved management market. As for an update, as of today, we have not experienced any attrition or indications of attrition beyond what we had already known in our underwriting. The integration is going very well, and we've had no turnover of Argus employees. Finally, I'll note that we closed our first lending opportunity with a $4.8 million preferred investment related to a 5-property portfolio that just onboarded onto our platform last week. Turning to the industry. On the operations front, we continue to believe that 2025 will be an incrementally better year than 2024, but not as strong as a more normalized year in storage. Accordingly, we saw a more normalized rental season as compared to the past 2 years, but again, still not quite a typical rental season. The recovery in storage is happening, but the choppiness in customer demand continues. During the quarter, we saw a healthy July and August to close out busy season, but a weaker-than-anticipated September. Industry move-in rates continue to stabilize but are still negative year-over-year, though significantly less negative than the previous 2 years. However, our strategy is working. Website visits are up significantly. Reservations remain strong. In the third quarter, we posted the highest ever lead conversion statistics in our company's history. We also posted the highest hit rate on tenant protection in our company's history. Our customers' health remains strong. delinquencies remain at below average levels and, in fact, are down year-over-year. 25% of our new rentals utilize our Smart Pay feature for payments and nearly 50,000 customers have downloaded our mobile app. ECRIs remain healthy without any change in attrition. Customers citing their rental rates as a reason for leaving our properties is down year-over-year on our exit surveys. With our year-to-date results through busy season paired with an improved supply picture, we remain optimistic on the sector's slow and steady recovery, creating momentum as we head into 2026. I do want to quickly touch on the retail shareholder lockup expiration. On October 1, our 6-month post lockup of our existing retail shareholders expired. Over the course of the next 2 weeks, as expected, we saw elevated volume and volatility in our stock price. Since then, both volume and volatility have normalized. While we aren't able to calculate the exact turnover of our retail shareholder base, we want to once again thank our retail shareholders who have been such an important part of SmartStop. Taking a step back, we have accomplished a tremendous amount in a short period of time as a publicly traded company. We believe we're off to a strong start and are executing on the story that we laid out on our IPO roadshow in March. 2025 will certainly be known as a transformational year for SmartStop. We had a successful IPO raising $931.5 million in some of the most difficult capital markets and tariff concerns, AKA Liberation Day. We raised $700 million in Maple bonds at a sub-4% rate. We had more than $500 million in accretive acquisitions over the past 12 months, including the acquisition of Argus professional storage management, sector-leading same-store revenue growth even with the backdrop of the single largest self-storage supply wave in our sector's history and expected strong FFO growth that should further accelerate in the fourth quarter. Without a doubt, we're in a choppy self-storage market with volatile capital markets and plenty of uncertainty in the broader economic environment. However, through all this choppiness, SmartStop's accomplishments over the past 7 months have positioned this company to achieve solid forward growth and take advantage of the better days ahead in self-storage. We are a small-cap company with a large cap platform built for continued growth in the U.S. and Canada. With that, I'll turn it over to James to discuss the quarter. James Barry: Thank you, Michael. Starting with our operating performance, we are pleased to report that our same-store pool posted year-over-year revenue growth of 2.5%, the with operating expense growth of 4.5%, leading to an NOI increase of 1.5%. These were all in line with our expectations. The FX impact from our 13 Canadian same-store assets was a headwind of approximately 10 basis points to our overall same-store pool as we posted constant currency revenue growth of 2.6%, expense growth of 4.6% and NOI growth of 1.6%. Revenue growth was in line for the third quarter, and we accomplished best-in-class same-store revenue growth utilizing less concessions and limited marketing dollars while maintaining strong occupancy of over 92%. On the operating expense front, property taxes were up 4.8% and marketing expense was up only 1.8%. We saw muted or negative expense growth in payroll, utilities, professional and administrative expenses. Notably, our property insurance was down 4.5% this quarter as we finally started to see pressure alleviate in that market. The result was that same-store operating expenses were up 4.5% year-over-year. Our same-store pool ended the quarter at 92.4% occupancy, up 10 basis points year-over-year, while average occupancy was 92.6%, up 40 basis points year-over-year. Our web rates were down about 3.9% year-over-year for the third quarter, while our achieved move-in rates were down 8.5% on average as the stabilization of the rate environment slowly but surely continues. As we moved into October, we put a strong emphasis on maintaining occupancy headed into slow season. In doing so, we actually grew our average and ending occupancy over September by about 10 basis points. October ended occupancy at 92.5%, up 20 basis points year-over-year. In-place rates were up 50 basis points year-over-year and flat versus September, and we are positive on a year-over-year basis for rentals in the month of October by 9%. On the external growth front, we acquired 6 properties for $83 million and a piece of land within a joint venture for $1 million during the quarter, leading to a full year acquisition of $318 million through the end of September. Subsequent to quarter end, we acquired Argus as well as 1 property in the Orlando MSA for $15.3 million. I'll note that as of September 30, we have acquired nearly $500 million on balance sheet over the last 12 months. Turning to the managed REIT platform. Our 3 managed REIT funds, inclusive of 1031 eligible DST programs ended the quarter with assets under management of $972 million. We recognized gross fees of $3.6 million, and the managed REITs have a combined portfolio of 48 operating properties and approximately 4 million net rentable square feet at quarter end. We also increased our loans and preferred investments to the managed REITs by approximately $20 million, all of which happened in September. As a result, we recognized interest income of $1.5 million during the quarter. The DST programs continue to successfully raise equity, and we are excited that SST X has closed its first property subsequent to quarter end as that program gets up and running. The result of all of this is that for the third quarter of 2025, we posted fully diluted FFO as adjusted per share and unit of $0.47. As Michael mentioned, this was a few cents below our expectations, driven by 2 main items. First, we recorded an approximate $825,000 expense due to performance-based equity compensation in G&A from the expectation that legacy performance units issued in 2023 will vest at 200% of target. These units were tied to same-store operating performance relative to our peer group. The midpoint of our previous guidance for G&A expenses issued in August 2025 did not contemplate the recognition of this expense on the midpoint for the full year 2025. The impact of this expense to our FFO as adjusted per share and OP unit outstanding is about $0.015 for the full year 2025. Second, during the quarter, a tenant renting industrial space at one of our non-same-store properties unexpectedly defaulted on their lease and vacated the space. This tenant accounted for approximately $730,000 of annual NOI. We believe the impact to our FFO as adjusted per share to be just under $0.01 for the full year 2025. We are in the process of finding a replacement tenant while simultaneously evaluating a redevelopment of that space into traditional self-storage. And just to preempt the question, this was our only industrial space in the owned portfolio. Even in the face of those 2 items, third quarter was a much cleaner quarter from a transaction standpoint as compared to the second quarter, but there are a few more moving pieces to keep in mind headed into the fourth quarter on the capital side. These include the September maple bond, which was completed on September 26, the coupon step-down of our U.S. private placement, which occurred on October 1, and the refinance of our joint venture level debt, which was completed last week. Looking out to the remainder of 2025, we updated our guidance for the full year last night. We are now expecting same-store revenue growth in the 1.9% to 2.3% range with operating expense growth in the 4.0% to 4.4% range, resulting in NOI growth of 0.9% to 1.1%. The other moving pieces as compared to our previous guidance were as follows: better-than-expected execution on the Canadian Maple bond, better-than-expected managed REIT EBITDA, and higher G&A, primarily driven by the previously mentioned performance units, reduction of our same-store NOI guidance by 10 basis points at the midpoint and a reduction to our non-same-store NOI due to the aforementioned industrial tenant. We also narrowed our acquisitions guidance to $365 million to $385 million. The result of all of these updates is that we are tightening our FFO as adjusted per share range to $1.87 to $1.91 for the full year 2025. Lastly, turning to the balance sheet. In September, we priced our second Maple bond, raising CAD 200 million or approximately USD 144 million. The notes have a 5-year maturity and bear a coupon of 3.888%. We were extremely pleased with this execution, which coming off the back of our June offering was multiple times oversubscribed. In October, we closed on a CAD 160 million term loan within our SmartCentres joint ventures, of which we are 50% owners. The loan is a 5-year term and bears a fixed interest rate of 3.87%. We used the proceeds to pay off all the existing JV level debt, which had a weighted average cost of 5.7%. The joint venture was also able to raise excess proceeds of approximately CAD 27 million as a result of this refinance. With the Maple bond and the JV level debt issued in October, we have fully hedged our Canadian FX exposure from a cash flow standpoint naturally. Additionally, over 99% of our outstanding debt was fixed as of quarter end and pro forma for the JV refinance. While our work on the balance sheet is continuous, we are very happy with the transformation of the debt stack that we've been able to accomplish since April. And with that, operator, we will open it up to questions. Operator: [Operator Instructions] Your first question comes from Todd Thomas with KeyBanc Capital Markets. Todd Thomas: James, I wanted to ask about acquisitions. You touched on investments that you've completed. I think it was over the last 12 months, targeting $375 million this calendar year. How are you thinking about acquisitions from here with a view into '26? Do you pause given sort of some of the volatility in capital costs and with leverage in the high 5s? Or do you stay -- do you maintain this pace moving ahead? David Corak: Todd, it's Corak. I'll start and then hand it over to the rest of the team here. So what we've said from the get-go is that we've got this target leverage range in the 5 to 6x range, and we intend to stay in there. Obviously, there's going to be periods where we are below it as we were right after the IPO, and there's going to be periods that we opportunistically look to take that up a little bit. But we do want to maintain that as our target range on a go-forward basis. When you think about the pace of acquisitions, right, this year, [ 3.75 ] is the midpoint of the range, which entails just over 10% growth of the asset base overall. We'd love to be able to grow the portfolio by 10% or more in a given year. But realistically, when you just do the math, if we wanted to do that next year, that would require some common equity to help keep us in that target leverage range. And so what we've said from the beginning is we're not going to go out and issue common equity at a 6.5% cap to go buy 5.5 cap assets on a go-forward basis. So the math just doesn't make sense to us. So I think what I would say is when we look out, we're going to be really prudent with how we deploy capital and be opportunistic on a go-forward basis. H. Schwartz: And Todd, this is Michael Schwartz. I would add also is that as many of you are aware, we've had some significant structural changes to our balance sheet, which we're starting to see kind of that kind of flow-through with respect to kind of our FFO for the third quarter, moving in potentially the fourth quarter and then 2026. And so as we look at our levers to growth, clearly, external growth is one that we'd like to capitalize on. But we obviously need to be careful of where we're trading. But we do have other levers of growth. We do have our same-store pool. We do have our non-same-store pool. We have our joint venture pool. And we have our third-party management platform with Argus, which obviously we're spending a lot of attention. And last but not least, we do have our managed REIT platform, which we think will be -- add some additional contribution as we move forward. And then finally, at this point, we do not have a joint venture partner. At some point in the future, we will have a joint venture partner, and we think that, that will create additional lever for growth. James Barry: Just to frame one more thing. Michael mentioned the acquisition of Argus, which obviously closed subsequent to quarter end. And some of the consideration there was in the form of equity for tax planning purposes. So actually, that transaction should bring down our leverage on a net basis when you roll from 9/30 to 10/1 just from that transaction alone. Todd Thomas: Okay. That's helpful. And then 1 or 2 on Argus actually. First, can you talk about the integration of that platform, the time line for SmartStop to fully integrate leasing, revenue management, financial reporting, whatever else. And Michael, you talked about the scale benefits that you might expect to achieve in some of the overlapping markets. Any early update or insights on that and sort of the time line to begin to see some of those benefits? H. Schwartz: Todd, thank you. Well, the good news here is that with the acquisition of Argus there's not this integration within SmartStop, okay? And so let me step back. When we decided to acquire Argus, we spent a lot of time understanding what Argus had built. And they had built this entrepreneurial third-party management platform that was developed for entrepreneurial self-storage owners that were fiercely independent. And so some want full service, but some actually want to stay in the overall aggregate operations. And so we've recognized that we have to respect the entrepreneurial owners within that. And so what our strategy has been, and we've been making this clear is that we want to provide the services that these owners want. And so what we stepped back and said, how do we do that? Well, one, we didn't think it was prudent to go in there and say to these owners that you now all have to be pushed on to the SmartStop platform. That's not very entrepreneurial whatsoever. And being an entrepreneur, I'm very sensitive to that. So we put together a menu, a menu of options that gives us a differentiated experience versus some of the third-party platforms out there. One, if you want to be on the SmartStop platform, hey, great. We will brand you, sign a couple of year agreement, and we will kick in some dollars to change signs out and brand and onward you march. Or if you like your brand, well, we love your brand, too. You can keep your brand and you can move to the SmartStop platform. We'll create a page within the SmartStop environment and you're utilizing all the benefits. However, if you really want to maintain your independence through a private label solution, we're going to allow that. Now do we think that the properties will perform better on the SmartStop platform. Absolutely, yes. However, we think there's some significant amount of enhancements that we're going to be able to offer the current owners. So for an example, from an accounting perspective, from a reporting perspective and in addition, consultation perspective on things that they're seeing, how we look at it. And so one of the big items that we're doing, we're having a very large operator meeting at the end of January. We need to get out and meet these operators one-on-one. We need to introduce ourselves to them. And so from that perspective, I think next year, we will start to see, I think, some of the choices that they will exercise. And so that's how we kind of look at the transaction, and that's how we're handling the transaction. But we do believe, over time, at a minimum, people will probably be choosing the SmartStop legacy brand at minimum. We're engaging a lot of the owners right now, and a lot of them are very intrigued. But I think in January, it will be a great opportunity to introduce ourselves. And I think at that point, we will get a better sense of who's going to be transitioning to the SmartStop platform. James Barry: Yes. And Todd, just to add on in terms of kind of time lines and lead flows that we've seen thus far, I would say we've seen interest across owners across the spectrum of menus, right? So we've had people that want to engage with a SmartStop branded location, some that want SmartStop legacy and some want to continue on and then learn more about the platform. So overall, the reception from the owners has been positive and definitely curious about the upgrades that are going to... H. Schwartz: And I will add that, obviously, they're running on a separate operating system. We've received a separate data card, and we're about 3 to 4 weeks into being able to provide some similar aspects that we have at SmartStop. So that takes a little bit of time. So it's probably a 60 to 90 days just from a technology perspective. James Barry: And lastly, one of the strategies we had in this transaction is we could actually bring our balance sheet to bear to help out owners. And as we mentioned in our opening remarks, we've already closed on one of those transactions in a highly accretive manner, double-digit coupon in the preferred investment. So -- and again, that's servicing our customers from an owner perspective. Operator: Your next question comes from the line of Jonathan Hughes with Raymond James. Jonathan Hughes: I appreciate you adding the earnings bridge, I find it very helpful. I think some who see that might be inclined to annualize that implied fourth quarter figure to get a sense of next year's earnings. But what are some considerations we should be aware of as we look at that implied fourth quarter FFO and think ahead to next year? I mean I know there's overall seasonality in the business. Is there also maybe some G&A seasonality? Just some more color there would be great. David Corak: Thanks, Jonathan. It's Corak. I will try not to be long-winded here, but I will probably fail because it's a [ last one pack ]. So yes, we gave the quarterly bridge just given the step-up in FFO from 3Q to 4Q. So it's $0.56 for the 4Q on the midpoint. I'll note, just to be clear that, that $0.56 is on the 4Q share count of about 59.2 million shares, not the full year weighted average share count of 51 million shares. So that $0.56, is that a good run rate in the 2026, to your question. And I'll try to answer that as best I can without going into actual guidance, which we will give in February. So 4Q is the first quarter that reflects all of the various financing activities that we've done this year from the IPO to the Maple bonds to the JV refi to the private placement coupon step down. It's not quite a full year of the JV, but that's the least impactful piece there. So from a financing standpoint, it's a pretty darn good run rate, right? From a G&A standpoint, the implied guide for 4Q is about $7 million of clean G&A. That 3Q number was $9 million. So in addition to the $825,000 of performance units, which all hit in the third quarter, there's some seasonality in G&A, whereby 4Q is naturally less than 3Q. My point being that, that, that $7 million is probably not the right number, but also $9 million is probably not the right number, so somewhere in the middle. Those are the 2 sort of pieces I would call out on that front. Everything else is sort of an assumption into next year. And so I don't want to get in the same-store necessarily just given the fact that we'll guide to that as we get into February. But for the non-same-store pool, right, we have 28 properties and another 10 that are in the JV. The non-same-store properties are obviously classified as such because they're non-stabilized and/or their recent acquisitions or both. Inherently, in those, we would expect the NOI generated by the properties to be higher next year, offset, of course, by the property with the industrial tenant that we discussed. On the JVs, 4 of those 10 properties are non-stabilized and 6 that are stabilized are putting up better NOI growth than the same-store GTA properties. So 2 of those 3 pools of our properties in theory, would put up better NOI growth than this year. On the 3PM front, the third-party management front, obviously, we completed that transaction in October. So the accretion for the full year is not quite recognized. But if you pair that, and that should be pretty good growth for us. It was an accretive transaction, and we still feel really good about the yields that we gave on those numbers. And then on the managed REIT side, the natural growth in the fees from the revenue growth of those unstabilized portfolios paired with potential future AUM growth did benefit us into 2026. So a lot there, but those are some of the big pieces I'd point to, Jonathan. Jonathan Hughes: Very helpful. I appreciate it. Just one more for me on just the acquisitions front and guidance for the year there was tightened, but can you talk about how you source investment opportunities, maybe what percent are brokered versus sourced via relationships. And maybe how much do you look at on a monthly basis versus what is acquired, so effectively like a conversion rate? H. Schwartz: Yes, that's a good question. Obviously, we believe we see, I think, most acquisitions out there in the U.S. and also Canada. So we've got a team of about 6 people that are just carrying through acquisitions on both sides of the overall aggregate border. Many acquisitions are not institutional quality. I think they're discarded from -- at minimum. I think overall, the acquisition flow and quality has been pretty consistent from our perspective. that I think sellers are willing to trade, not all of them, but they are willing to trade. And I think it's been evidenced by our $0.5 billion. We found that -- I think we found the right acquisitions at the right pricing, I think, at the right time. And so we feel pretty comfortable with respect to the flow. From where we get these, I mean, we -- look, we've -- this is my 21st year. So Wayne has been with me 17 years. So between the 2 of us, we're getting from the traditional brokers, we're getting traditional from owners, developers, third parties. I mean we get a lot of calls from a variety of different people that have self-storage properties. And so they can be on or off market. And so I think that has been very consistent. And obviously, Bliss in Canada has a tremendous amount of relationships within Canada. So she's hearing and seeing all those deals and starting to pitch those to us. I think with respect to kind of a hit rate, I can't say -- I give you a number from a hit rate. But what I can say, the ones we want, there's enough out there that we can transact. Operator: Your next question comes from the line of Nicholas Yulico with Scotiabank. Viktor Fediv: Hello. This is Viktor Fediv on with Nick. Now as we are getting closer to the end of this year, just trying to understand your framework of thinking about 2026, kind of what is your base macro expectation for 2026? And how are you thinking about move-in rents and occupancy dynamics kind of in the next 12 months versus the last 12 months? David Corak: Thanks for the question. So I will once again be careful here on sort of the 2026 outlook. But I think from a macro standpoint, there's a lot at play, both -- a lot of moving pieces, both in the United States and Canada, right? And so I don't want to get too bogged down in the macro because honestly, I don't know. With that said, from a storage perspective, there is one thing I do know, and it's that the supply picture in self-storage in the United States is improving, right? And the impact from that new supply will be less in 2026 than it will be in 2025. So from the demand side, I think there's a lot of moving pieces, and it's too early to really tell. But from the supply side, which is a good half of the total equation, we feel better about 2026 than 2025. H. Schwartz: Yes. And I think if you step back also, I think that you are seeing additional listings out there. Listings are up year-over-year. You're not seeing things trade. I think you're still probably seeing the prices maybe come down to 5%, 10% to 15%. But I think that sets us up for 2026 and that in concert with the reduction in interest rates, I think could create some mobility. I don't want to overplay that. But the listing for housing, I think, is a good indicator of future transactions. And you're seeing a lot of markets where listings are increasing and people are talking about that. So I think we're cautiously optimistic with respect to that. But in addition, I will add that what I'm seeing, even with all the choppiness we've talked about, you're seeing natural absorption in the storage market. And I think that's incredibly important. And I know that I'm a broken record on supply, and we've talked about supply, but I think that natural absorption is going to carry over into 2026. Viktor Fediv: Understood. And then a second small one for me. Now that you've added this third-party managed platform and have access to much more data across several markets, where should we expect to see the first synergies in terms of improved pricing strategies and expense control? James Barry: Yes. This is James. I'll jump in on specifically the margin expansion story. We've always said it's -- whenever we get to sort of 10 properties or so in an MSA, that's sort of our benchmark for getting to economies of scale. Within the next 12 months, we start to see that real -- that margin improvement in those economies of scale start to come in. Clearly, we just closed on this Argus transaction on October 1. I will note, there are 4 more markets that the Argus property overlap tips us into that 10-property mark, right? So we were previously at 6, and we've added 4 more as a result of that transaction. But again, it's going to take, call it, a 12-month period before we start to see the economies of scale really chip in there. And then from a revenue management perspective, I mean, clearly, that's our mousetrap and our algorithms are continuing to incorporate that data and then further enhance their overall pricing synergies to maximize revenue, right? And so that's going to be -- that's an ongoing process, whether it's our data or the newly integrated Argus data as well. Operator: Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Robin Haneland: This is Robin Haneland sitting in for Juan. I was curious on Toronto, what your preliminary thoughts are on the market's performance heading into '26. And if you can provide some data points on expected new supply this year and 2026, specifically for Toronto? H. Schwartz: It's Michael Schwartz. Why don't I talk about supply, and then I'll kick it over to David to talk about some of the KPIs. From a supply perspective, there's been a lot of chatter out there, and we've heard it with respect to additional supply in Canada and in Toronto. And the answer is yes. And we've been very clear in communicating that on previous calls, there is a good amount of supply in Toronto right now. Now a lot of the supply that is from us. We have delivered 7 properties in the GTA in the past 36 months. We have a pipeline of about a dozen identified properties that we'll look to deliver over the next 5 years and an additional pipeline -- an additional pipeline behind that. Today, about half of our properties are being impacted by new supply. Now the square foot under construction is approximately 10% from our estimation of existing stock. Now those stats are pretty consistent with what we've seen for the past 5 years or so. But when we look out and we expect to see that drop to 5% to 6% next year. And so that said, there are isolated trade areas as there always will be, particularly where multiple projects are being delivered at once, and we will see temporary softness. But we -- this is not a structural or Toronto-wide issue. So for example, lease side, which is one of the most competitive, I think, markets within the GTA, we have 8 properties in a 0.5 mile range of competition. And we're still experiencing very high overall occupancy and $35-plus rents per square foot. I think the answer is we can compete, specifically from a technology perspective. So at scale, the GTA in Canada in general remain dramatically undersupplied relative to the population. Urban densification continues. Living spaces are shrinking and new supply, they face significant barriers. In some areas, the development charges, just for the privilege to develop self-storage is approximately $45 a square foot. So in a lot of cases, the math simply doesn't support a national, regional oversupply narrative. And so we don't think that will be for the foreseeable future. David? David Corak: Yes. So just to talk about some of the metrics in Toronto right now. On a constant currency basis, same-store revenue growth was 1.4% in the third quarter. the comp in 3Q '24 was 2.6%. So a much tougher comp than the U.S., which was actually net. If you look at our joint venture properties that would meet the definition of our same-store pool, they actually did even better at around 5.3% year-over-year revenue growth on a constant currency basis. As we sit here today or at the end of October, excuse me, the occupancy is 92.5%. That's up 80 bps year-over-year. So that gap has widened and is actually wider than the states. And then we've added another 20 basis points in the first 6 days of November. Move-in rates were down about 9% in October, which was actually better than the States. I think our overall demand remains solid, right, in our trade areas. I think the platform continues to capture an outsized amount of that demand. And really, we haven't seen any of the weakness from changes to immigration policy or macro environment. And it appears that the recently proposed budget could be a potential economic catalyst. So given our operational advantages and everything I just said, our thesis on Canada and the GTA remains unchanged. Robin Haneland: Just curious if it's impacting your thoughts on deploying capital for SmartCentres JV, if you'd like to take that elsewhere? Or just curious on your thoughts there? David Corak: Can you repeat that. You were a little choppy there. Robin Haneland: I was just curious on the -- if that changes your view on deploying capital through the SmartCentres JV, if you're thinking about taking some of that capital deployment in other markets? H. Schwartz: No. No. I mean, actually, we're leaning into the SmartCentres joint venture. Part of the strength of that relationship is their access to their retail platform and a lot of underutilized land within some of their retail that we can leverage up and put a SmartStop self-storage next to a Walmart, next to a Home Depot. So the answer is no. I think we are interested in expanding, but not at the expense of that joint venture. I think we've talked about that we believe there's a tremendous opportunity in Canada, and that's why we moved into developing on the island of Victoria, Vancouver, Calgary, Edmonton and Montreal. And so I think sitting and building out, I think, one of the nicest aggregate portfolio in the GTA is now going to benefit us with respect to our overall growth path throughout the top 5 metropolitan cities within Canada. Robin Haneland: And now that we're past the IPO lockup, can you maybe talk about what the potential recapture rate back into your managed REIT funds has been? H. Schwartz: Well, one of the things when it comes to the kind of the managed REIT platform, we were going to talk about this is that because we switched over to our -- a new managing broker-dealer, we were effectively about 6 months behind with respect to be able to kind of launch new products. So I think at this point, the recapture rate, we're going to have to look at 2026 from that perspective. So right now, we don't have the proper product out in the marketplace right now. Robin Haneland: Understood. And then I was just also curious if you can maybe disclose the industrial tenant that went bankrupt. James Barry: Yes. It's -- actually, we're a little bit limited in what we can say in terms of this particular matter because obviously, someone -- we had a tenant that broke their lease prematurely. And so we're evaluating all of our options as it relates to that contract. So at this time, we're not at liberty. Just to talk about that particular property. Just to note, this is a component of this non-same-store asset where the majority of the square footage is self-storage. So if you think about it, there is a redevelopment opportunity. It could also just be a re-leasing opportunity. So we're looking at all those options. Operator: Your next question comes from Michael Mueller with JPMorgan. Michael Mueller: I guess for the 2 questions. First, I guess, how much higher are the margins in the markets that you were talking about where you have at least 10 properties compared to the others? And then the second question, just going down the path of adding a JV, I guess, what hole do you see that needs to be filled by adding a JV or that you can fill by adding a JV, especially because it could, I guess, increase optically the complexity to the story overall. So I guess, how do you think about that trade-off? James Barry: Yes. I'll start with the margin question. So when we look at our markets, where we've consistently had 10-plus properties, we're generally about 300 basis points higher than our overall portfolio average. And if you look at a market like Toronto, where we have 35 properties in that MSA, we're actually closer to 500 basis points higher in terms of our -- relative to our portfolio average. So that just gives you a sense of the scalability of the platform in all of these particular markets. David Corak: Yes. So from a joint venture to your second question there, Mike, I'll be clear, we already have a joint venture, right, with SmartCentres that is a pure development joint venture. I believe what you're referring to is if we added an institutional acquisitions joint venture. So I'll speak to that specifically. What we look for and -- what we'd look for there and what the gap, I guess, we would be trying to fill is given the size of our company, right, if we wanted to go out and acquire a $1 billion portfolio, right, and I'm making numbers up here, it would be tough for us to do that with the capital that we have right now. But if we were able to partner with an institutional joint venture where we were a smaller part of the overall deal, ELP and put 5%, 10%, 15%, 20% into a particular joint venture, that deal is all of a sudden a lot more achievable for SmartStop to take down. I think beyond that, portfolios that are maybe not pure stabilized, maybe there's a place in there. But I think the main goal would be to be able to compete for larger deals and make those deals accretive for SmartCentres. Operator: Your next question comes from Wes Golladay with Baird. Wesley Golladay: A question on the revenue management. Sometimes it's early to detect signs of weakness in the economy. I'm just curious if your revenue management is pivoting more to an occupancy mentality right now? H. Schwartz: I mean our strategy is currently an occupancy strategy. So we think that best positions us for success. More importantly, it best positions us in the slow seasons in the fourth quarter and the first quarter to maintain as high as occupancy as we can so that as we move into the busy season that we're only focusing on really economic overall aggregate occupancy. And so that to us has always been incredibly important. We focus on high occupancy, then we're focusing on rates and discounts and then we're focusing on existing customer rent increases. That is kind of -- has been our process. David Corak: Yes. If you think about the occupancy that we posted in the quarter and then where we are in October, we're sitting here at the end of October at 92.5% occupancy. That's up 20 basis points year-over-year. And importantly, it's up 10 basis points over September, which is a really nice sequential move for us and really illustrates our strategy that Michael laid out to maintain occupancy into the fall. So we're really happy with that. Wesley Golladay: Okay. And maybe a quick follow-up on the fourth quarter. It looks like the guidance implies like a small uptick in the fourth quarter on same-store revenue. Is that maybe going to be due to the occupancy build? Or will that be potentially easy comps, rate? What's driving that? David Corak: I -- just doing the math, I think it actually -- it's a slight downtick versus the 2.5% and absolute on same-store revenue. It implies a further reduction of the OpEx. So the OpEx is where the absolute NOI gain would be there. But we're assuming same-store revenue goes down in the fourth quarter versus the third quarter in terms of absolute dollars. Operator: Your last question comes from Eric Luebchow with Wells Fargo. Eric Luebchow: I apologize if I missed this earlier, but it seems like your Q3 same-store came in largely in line with expectations. Q4, obviously, maybe the expectations are a touch lower. So could you maybe just touch on some of the moving parts and what you're seeing in October. I know there are some difficult comps in a handful of hurricane or storm impacted markets that you're going to lap. But maybe just give us kind of an update on how you're feeling in terms of exit rate going into '26 versus last quarter? David Corak: So I just went over the October occupancy number, so I'm not going to say that again. But we feel really good about where occupancy is sitting in the 92.5% range. When you think about move-in rates during the quarter, the third quarter, James touched on this in his remarks, but they were down about 8.9%. In October, those were down about 18% year-over-year as the building occupancy strategy played out. You pointed this out, but I'll note that October was -- October 2024 was the most difficult move-in comp of the whole second half of 2024. So not too surprising to see that down year-over-year. As we moved into November, the trends have improved. We're still sitting at 92.5% occupancy, which is really -- really happy with that. and the move-in rates have actually improved sequentially by about 6% or 7% over the October numbers and in-place rates have actually improved sequentially over the October numbers as well. And we're now up 40 basis points in occupancy year-over-year. So those stats have improved as we've gone into November. And then lastly, just to touch on ECRIs as they are a piece of the whole puzzle, we continue to pull that lever without changes to attrition there. Attrition is actually down year-over-year, as James and Michael mentioned. And without getting into specific numbers because some of that's a bit proprietary, we gave ECRIs to more tenants in October than the new rentals, right? And that average ECRI was above the 18% in a really healthy place. So we feel really good about all those pieces as we stand here right now. H. Schwartz: Just to touch because you brought up the hurricane-impacted markets, just to kind of recap those. Obviously, Asheville was a hurricane-impacted market and as was kind of the Gulf Coast of Florida. We're effectively lapping the occupancy comp on Asheville. But remember, we didn't do any sort of existing customer rate increases until the first quarter of 2025. So both the Asheville market as well as the, for example, the Tampa market, while we are starting to lap the occupancy comp where we had elevated occupancy, we are coming in with a pretty healthy head of steam on the rate side. Eric Luebchow: Got it. Super helpful. Appreciate that. And maybe just one final question. I think -- how are you guys thinking about -- obviously, move-in rates, there's a little bit of tough pressure in the back half of the year. Part of it is comp based. We've heard of some of your larger peers kind of leaning in on discounts or promotions, kind of more short-term ways to bring people in the door. How are you seeing that competitive backdrop play out between discounted move-in rates versus promotions or upfront discounts? And what do you think is kind of more effective in keeping that occupancy number up? David Corak: Yes. So if you look at what we've done this year versus last year, year-to-date, our concession numbers have been down pretty materially, like in the 20% to 30% range. So we were able to drive rentals without using concessions nearly as much, and that's paid off for us I think -- and you see it in the revenue growth numbers and the results overall. As we stand here today, that's less so the case, right? We're utilizing concessions a little bit more than we were in the third quarter, especially as compared to last year, but not drastically differently. So I'd say we're utilizing all of our tools to drive rentals right now. The one thing I would point out is that from a marketing spend perspective, we've been not utilizing that nearly as much as we were last year. I mean, in the second quarter, I think we were negative 4% or 5%. And in this quarter, the third quarter, we were only up like 1.5%, 1.8%, something like that. So not having to spend a lot to drive rentals. And those rentals for what it's worth were up 3% in the third quarter and are up 8% -- 8% or 9% into October. So the strategy is working. Operator: And with no further questions in queue, I'd like to turn the conference back over to Michael Schwartz for closing remarks. H. Schwartz: Thank you, operator. It's been an amazing first 7 months as a publicly traded company. We've accomplished a lot in just a short amount of time. We thank our investors, both retail and institution for their support, and we look forward to the next quarter in 2026. Thank you for your time and interest in SmartStop Self Storage, The Smarter Way To Store. Have a great day. Operator: This concludes today's conference call. You may now disconnect.
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.
Pedro Siguenza Hernandez: Good morning. I'm Pedro Siguenza, CEO of Sacyr. Joining me today is Carlos Mijangos, the company's Chief Financial Officer. Thank you all very much for attending the earnings call of Sacyr for the third quarter of fiscal year 2025. Sacyr continues to grow in line with its 2024-2027 strategic plan, bolstered by the strength of our concession model and backed by the key figures reported in Q3. Revenue grew by 5% compared to the prior year, reaching EUR 3.412 billion. Net profit, excluding the effect of divestments in Colombia rose by 81% to EUR 132 million (sic) [ EUR 134 million ]. 92% of EBITDA comes from our concession activities. Operating cash flow increased by 11% to EUR 890 million, and we have invested EUR 232 million of new capital in the first 9 months of the year, bringing the total equity invested in our concessions at the end of September to EUR 2.017 billion. Among the most significant milestones of the year, I would like to highlight the 4 that are shown on the slide. The 4 new concession awards in Italy, Chile and Paraguay which I will describe later and which represent a clear success in terms of backlog. The investment-grade rating obtained from the global agency Morningstar DBRS, which will facilitate and increase our sources of financing. Next, our presence in tenders for the most relevant concession projects currently on the market, where we are confident that we will continue to win contracts. As a fourth milestone, I can announce that the divestment of our 3 concession assets in Colombia has already obtained all the necessary authorizations. So the transaction will be closed and payment will be received during the month of November. As I mentioned, in fiscal year 2025, we have been awarded 4 new concession projects, which implies a hit rate of 50% on the bids timely submitted. However, this ratio is actually higher as 1 of the 8 concessions tendered, the Red Deer Hospital in Alberta in Canada was canceled prior to its award. The 4 new concession projects include the Novara City of Health and Science project in Italy in the Piedmont region. This is a multifunctional complex that will comprise a new hospital and a university campus with an investment of EUR 525 million. This contract will be valid for 25 years and will consolidate our position in Italy, which is one of our core strategic markets. Next, the Antofagasta plant, the largest wastewater reuse plant in Latin America, a key project to ensure sustainable water supply in the arid region of Antofagasta in the Atacama Desert with an investment of EUR 300 million and a duration of 35 years. Next, the Asunci n elevated urban highway, which extends the Eastern route in Paraguay, a EUR 174 million project with a duration of 23 years. And last week, we won the tender for the construction of the Pie de Monte in Nahuel in Chile, a 20-kilometer section of highway that is key to the road modernization plan in the Biob o region in Concepci n. This investment totals EUR 330 million, and the project will be valid for 45 years. These 4 greenfield concession projects enable us to continue ensuring our commitment to steady growth. On this slide, you can see a map highlighting the main opportunities that we are currently bidding for, prequalifying for or analyzing. And these align with our strategic plans goal to strengthen our presence in English-speaking countries with a particular focus on tenders in North America and Australia, while continuing to prioritize our core markets in Italy and Chile. In the short term, we are awaiting the outcome of the tenders for the Ontario Science Museum in Toronto, Canada and the Coquimbo desalination plant in Chile, both concessions lasting 30 and 21 years, respectively. In the United States, as you know, we have prequalified for the managed lanes projects in Atlanta as well as for the I-285 and I-24 projects in Tennessee, where we plan to submit bids in the first half of the next year. And we're also in the process of prequalifying for the I-77 project in North Carolina. In Canada, we have prequalified for the Trans-Canada Highway concession, which bids will be submitted in the first quarter of 2026, and we are pursuing various hospital concession opportunities such as the Windsor Hospital for Ontario Infrastructure (sic) [ Infrastructure Ontario]. In Australia, we are competing in 3 major water projects, the Adelaide Desalination Plant for Northern Water Supply, the Wyaralong Water Treatment Plant, south of Brisbane, and the Aurora reuse plant in Melbourne. In addition, we are pursuing several hospital projects such as the Parkville Hospital in Victoria and several landmark buildings for the 2032 Olympic Games in Brisbane. In our strategic Italian market, we are preparing to submit our prequalification for the Brenner Motorway, the A22, which connects Modena to the Brenner Pass and Austria. And we're also monitoring the upcoming tenders for the Turin-Milan and Brescia-Padua sections of the A4 Motorway, which are expected to be launched soon. Finally, in Chile, in addition to awaiting the result of November 14 of Coquimbo desalination plant, we are pursuing several water projects and highway concessions on Route 5, such as the Caldera-Antofagasta Highway, which is a private initiative developed by Sacyr and the R o Bueno-Puerto Montt section. I'll now give the floor to Carlos Mijangos to report on the financial performance in greater detail. Carlos Gorozarri: Thank you very much, Pedro. Let's move on to analyze the company's operational and financial performance. In the first 9 months of the year, revenue rose by 5% compared to the prior year, reaching EUR 3.412 billion. EBITDA also grew by 7%, reaching EUR 1.018 billion. And in addition, EBITDA margin rose, improving the company's operational efficiency. In terms of net profit, if we exclude divestments, there has been a very significant increase of 81%, reaching EUR 134 million. However, the sale of assets in Colombia had a one-off impact of minus EUR 72 million, reducing the final net profit to EUR 62 million. This provision of EUR 72 million has increased this quarter compared to the prior one as the contribution in this period of positive profit from the 3 assets held for sale also pushes the value of its equity up. However, the effect is neutral as a positive contribution to the income statement is offset by the increase in the provision for the sale. Operating cash flow grew by 11% to EUR 890 million, showing the company's ability to generate cash and the operating cash flow to EBITDA conversion margin reached 88% compared to 85% in the prior year. Another important point is the update of the valuation of concession assets carried out in June this year. As of December 2025, these assets are worth almost EUR 4 billion, and the trend is clearly upward. Our aim being to outstrip EUR 5 billion in 2027 and reaching EUR 9 billion to EUR 10 billion in 2033. With regards to shareholders, the company has fulfilled its cash remuneration commitment, paying a cash dividend of EUR 0.045 per share in July 2025 and maintaining the policy established under its strategic plan to remunerate shareholders allocating at least EUR 225 million in cash during the period of the 2024-2027 strategic plan. In the financial sphere, the company has obtained an investment-grade rating from Morningstar DBRS, a clear sign of strength and investor confidence. This achievement enables the company to diversify its financing sources, reducing financing costs and streamlining prequalification processes for new projects. In addition, it opens the door to issuing debt in the U.S. market through private placements known as USPPs. As we announced a few months ago, a significant milestone has been the sale of 3 motorways in Colombia for USD 1.6 billion, which represents a very attractive multiple on the initial investment of 2.7x and 12% above our internal valuation. All the necessary authorizations have already been obtained and at the closing a receipt of funds will take place during November, we're talking about more than USD 300 million. We continue to advance in our commitment to sustainability, both in project financing and in emissions reduction and social inclusion, aligning ourselves with the most demanding international standards. By way of example, we can mention the financing of the Buenaventura-Buga project that was closed in August, amounting to EUR 780 million with indicators for reducing polluting gases and hiring women in the areas of influence. As for the evolution of consolidated debt in the course of these 9 months, it has been reduced by EUR 400 million. It is worth highlighting the strong operating cash flow generated by business activity amounting to EUR 890 million, the financial result, which mainly contributes to project debt amounting to EUR 446 million, and the fact that we have invested almost EUR 500 million in our assets. And finally, under the heading of miscellaneous, we find the effect of the consolidation of Chilean assets that were held for sale in 2024 and the deconsolidation of Colombian assets amounting to minus EUR 215 million, which together with the exchange rate effect of EUR 302 million on leases and dividends generates a total impact of minus EUR 439 million. That's how we came to EUR 6.489 billion as at September 2025. In terms of recourse debt evolution, the most remarkable event reported over the quarter is the payment of a dividend to our shareholders amounted to EUR 36 million, together with the cash working capital recovery of EUR 15 million. We have invested EUR 33 million, of which EUR 24 million corresponds to equity in our concessions, the rest being machinery. And once the cash inflow from the divestment in Colombia is obtained, recourse debt will be reduced markedly. Now Pedro will give you more color on the performance of each business area. Pedro Siguenza Hernandez: Thank you very much, Carlos. Now I will provide details on the performance of our 3 business areas. The Concessions division posted revenue of EUR 1.266 billion, representing an increase of 2% year-on-year. The positive contribution of Chilean assets, especially the Itata Route and Route 68, reduced the negative accounting impact of financial assets on both operating income and EBITDA for the division, which fell by 8% and 9%, respectively. Revenue from construction grew by 37%, thanks to the contribution of major greenfield projects such as the Velindre Hospital in Cardiff, the Buga-Buenaventura Highway in Colombia or the Fruit Route in Chile. Our concessions have distributed EUR 114 million in the first 9 months of the year. So far, we have invested EUR 225 million, bringing the total equity invested in our infrastructure concession assets to EUR 1.889 billion. This year, we have also brought 3 assets into operation, all of them in Chile, the Atacama Airport in January, the Itata Route, the North Access to Concepci n in April and Route 68 on July 1. As I mentioned earlier, we have been shortlisted for 2 managed lanes projects in the U.S., the I-285 in Georgia and the I-24 in Tennessee, and we are currently in the prequalification phase for the I-77 in North Carolina. On the other hand, we have received further recognition for the I-10 highway project in Louisiana in the U.S. This being the seventh award received by our concession. Let me remind you that this is the largest financing in terms of volume and complexity carried out through a public-private partnership in the state of Louisiana. In the Engineering & Infrastructure division, revenue grew by 12% to EUR 2.205 billion, thanks to the significant growth of our activity in Italy and particularly the contribution of the A21 motorway. For this same reason, EBITDA rose to 42% up to EUR 407 million. If we analyze the construction activity in isolation since, as you know, Italian concessions are included in this division, the EBITDA margin remained stable, standing at 4.8% over revenue. The division's backlog has set a new record, climbing by 15% in the first 9 months of the year, reaching EUR 12.151 billion, of which 71% of the backlog corresponds to activity for our own concessions. Some of the highlights of the last quarter include the completion of a 32-kilometer road in Sweden, the execution of a contract for the Dublin Airport underpass with an investment of EUR 265 million and the completion and opening to traffic of an 11-mile section of the SR23 highway in Jacksonville, Florida, our largest construction project to date in the U.S. And finally, our Water division continues to post double-digit growth in 2025, both in terms of revenue, which rose by 17% until September and now exceeds EUR 200 million and in terms of EBITDA, which reached EUR 46 million, up 23% year-on-year. The backlog grew by almost 50% to EUR 7.148 billion, largely thanks to the award of the Antofagasta reuse plant. Total equity invested in the concessions of this division reached EUR 128 million. A major milestone this quarter was the fact that our Perth desalination plant in Australia reached its first million megaliters of water produced since operations began in 2011. This facility is the largest producer of desalinated water in Australia, the seventh largest in the world and is recognized as a benchmark in the industry. To conclude this presentation, and by way of conclusion, I would like to express our confidence in the successful attainment of our 2024-2027 strategic plan, thanks to the highlights we have just explained. First, our success in securing concessions with 4 new awards in the first 9 months of the year. Second, the manifold growth opportunities we are bidding on in our strategic markets, where we are confident we will continue our successful track record in terms of backlog. Third, the 11% increase in operating cash flow to EUR 890 million. And finally, achieving investment-grade rating and delivering returns to our shareholders through the first cash dividend payment, thus fulfilling our commitments. We are now available to answer any questions you may have. Unknown Executive: Good morning, everybody. Next, we're going to start with the Q&A session. We are going to start with the questions coming through the telephone line. And next, we are going to continue with the questions posted via chat in the webcast. Luis Prieto from Kepler Cheuvreux, you have the floor for the first question. Luis Prieto: I have 2 questions -- 2 quick questions. Thank you very much for answering this question. As for the earn-outs of Colombia, in terms of some pending offsets, how likely it is for Sacyr to receive the full amount that was timely agreed during the sales agreement. And the next question, and I don't mean to be impatient. I would like to know which is the current situation with Pedemontana in terms of rebalancing. Could you give us an update on how the situation evolves with regards to Pedemontana? Unknown Executive: Okay. We are going to answer in just a moment, please. Carlos Gorozarri: Okay, Luis. As for Colombia, according to the purchase and sale agreement, we agreed that the result of the arbitration award will go to the construction consortium where we hold 60%. The amount has not been ultimately agreed. This has to be decided upon by the arbitration award, but the proportional amount will correspond to Sacyr, and this is what we announced as a relevant fact that was timely disclosed. Luis, as for Pedemontana-Veneta rebalancing, as we mentioned in the past, as our Chairman mentioned in the past, we have no concern whatsoever. We have made steady progress with our technicians in Pedemontana-Veneta. We are also making steady progress with the financial adviser in the region, KPMG, in order to rebalance their financial and economic plan that is tied to this concession project. Unknown Executive: Luis, do you have any additional questions? Luis Prieto: Yes. Let me go back to what Carlos answered as for Colombia. You cannot provide any degree of certainty as to the final numbers, right? Do you think that you can provide any numbers as for the final earn-outs? Unknown Executive: Luis, as you may understand, we have submitted all the necessary arguments when our construction works were halted. But for the moment, we cannot actually provide an answer. However, we stand very high chances. Unknown Executive: The next question is by Miguel Gonz lez Toquero from JB Capital. Miguel González Toquero: I have 2 questions. Actually, I have 3 questions. The first question is, as for the evolution of the first 9 months, I have a question as for FFOs, even though cash conversion was a little bit weaker this quarter compared to the prior year. Is this due to the effect of intangible assets? Could you give us some more color in this regard? And also, I would like to know whether you can mention certain Colombia aside where your estimates are in terms of growth for Q4? And along these lines, now that you have officially closed the project in Colombia, can you give us some information as to the loss in terms of FFOs that this could represent and whether this is going to be offset by the new projects that you have won? And lastly, concerning the Water division business, you are performing very well, but margins have come down slightly over this quarter. I don't know whether this is due to the mix between concessions and other integrated businesses. I would like to know whether you can give us some more color as to what you expect in terms of sales growth in 2026 and how you think the margins might evolve into the future? And finally, I would like to know whether any value should be continued to be materialized in this division going forward? Unknown Executive: Thank you very much, Miguel. We will answer in just a moment. Carlos Gorozarri: Okay. So the first question concerning operating cash flows for the first 9 months. Since most of our assets are assets held for availability, not all payments are monthly. Sometimes we get paid every 6 or 9 months. Therefore, our quarters can be compared one against the other and not against the prior quarter. And with regards to last year, the difference is very small. Conversion and exchange rates play a key role here. So there's nothing remarkable in this respect. From a company perspective, we continue to grow at a rate of 11%. As for the closing of the year, we will continue to consolidate operating cash flows in Colombia until the very end. We believe that this is going to happen in November. And of course, the last month, we are not going to price this in, but we believe that we will be posting about EUR 1.3 billion, just like in the prior fiscal year and new projects that, of course, contributing cash, such as the Itata Road or the I-68 and I-21 Motorways. As for the losses coming from the assets sold, we are talking about EUR 170 million. That's our estimation for 2026, taking into account, however, that we are going to offset this amount, thanks to the projects that have been awarded to the company over the past months. And as for the question concerning the Water division, Pedro will answer that. Pedro Siguenza Hernandez: Well, we continue to remain right on course. This quarter, that was slight percentage fall, but we are now commissioning some projects we have been awarded such as the Antofagasta project. And therefore, EBITDA margin will be around 21% to 22% in that division. And since we are growing and as we showed during the presentation, we are now focused on carrying out some key projects, for example, concession projects in Chile and Australia, respectively. Based upon this growth, we aim at keeping on growing strategically within this division, and we are not considering to sell the Water division partially at all. Unknown Executive: Thank you very much, Miguel. Do you have any further questions? Miguel González Toquero: No, that's all. Thank you very much. Unknown Executive: There are no further questions from the conference call. Now we are going to read aloud the questions received through webcast. [indiscernible] asks whether we can give some color as to dividend for next year for shareholders. Okay, we're going to answer in just a moment. Unknown Executive: Under our strategic plan, we said that we're going to distribute EUR 225 million between 2025 and 2028. Therefore, next year, we are going to increase our dividend year-on-year. However, this decision is to be made by the Board of Directors when the time comes, and this is going to be submitted for approval at the GSM. Actually, it should be 2024-2020 -- 2025-2027 rather. Unknown Executive: Filipe Leite asks whether we can give more details as for the provisions of EUR 50 million in terms of traffic for Q3 and whether we should expect more provisions in Q4 or in early 2026. The second question is whether the construction backlog that we have reported on includes anything about the Messina Bridge project or not. We are going to answer in just a moment. Unknown Executive: Filipe, as for provisions, this is a technical issue, an accounting issue. We have been awarded for projects from day 1, you begin to receive some revenue, but you cannot amortize anything that you have not invested in yet. So right now, we are allocating provisions to these projects, the I-68, Itata project and the I-21 project. These projects will become operational within 2 or 3 years when amortization will take place in our accounting records. So provisions will be kept in 2025. However, this corresponds to amortizations that will take place once investments are made. Unknown Executive: Filipe, let me add that the construction backlog does not include the Messina Bridge project. The construction backlog has risen by 15%. In Attachment 32, we list other concession contracts that are included in the concession backlog but have not been included in the construction backlog yet because actually, they are included 2 months later. Unknown Executive: The next question is by Julius Nickelsen from Bank of America. The first question is the following. Concerning the rating, we have been awarded the investment-grade rating from Morningstar. Are we working with Moody's and Fitch or not? That's the first question. And the next question is about the A22 project in terms of investment. Next, he asks whether we can provide any estimate as to net debt -- net recourse debt at the end of the year once we have collected the funds from Colombia. And the fourth question is whether the complementary incentive plan that the Chairman and the company's management have will be paid in Q4 or whether it's going to be postponed until 2026. Julius, we'll get back to you in just a moment. Unknown Executive: [Foreign Language] Okay, Julius. We are working with other rating agencies. Each rating agency has its own methodology. We are making progress to engage with other agencies. And now that we are about to close our financial statements for 2025, we believe that we are going to complete some of these conversations we are engaged in. We'll see what plays out. As for the net recourse debt, once we receive funds from Colombia, this debt will be reduced considerably. We are not concerned about this debt anymore, EUR 20 million more or less is not relevant. Taking into account that Q4 is normally strong in terms of working capital, in terms of construction and we are also estimating some significant investments in assets, equity, we believe that this debt, however, will be reduced markedly. The answer is yes. As for the A22 highway that runs around 313 kilometers, we are talking about EUR 2 billion in terms of investment. And as for the incentive plan, it's going to be paid next year. Unknown Executive: Okay. Thank you very much for all the questions. And now let me once again turn to Pedro Siguenza, the CEO, for some closing remarks. Pedro Siguenza Hernandez: If there are no further questions, thank you very much for attending this earnings call. We wish you farewell until next time, and have a very nice afternoon. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for holding, and welcome to Suzano's conference call to discuss the results for the third quarter of 2025. We would like to inform that all participants will be in a listen-only mode during the presentation that will be addressed by the CEO, Mr. Beto Abreu and other executive officers. This call will be presented in English with simultaneous translation to Portuguese. [Operator Instructions]. Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Suzano's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. You should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Suzano and could cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Mr. Beto Abreu. Please, you may begin your presentation. João Fernandez de Abreu: Hi, everyone. Thank you for attending our third quarter call results. Let me start with the highlights of the quarter, which most of the figures was quite aligned with what we planned for the quarter. But I'd like to highlight a couple of things. The first one, it's send to the team in Pine Bluff, our congratulation for the process of turning around the business. So as you saw, we have the first positive EBITDA result for the quarter for Pine Bluff, and I think this is the new trend for the business. So the team over there is doing a great job. So we are very glad about what we have achieved at this time. And -- but the most important one here regarding the highlights is the cash cost. So we are glad to having the chance to keep the trend of reducing our cash cost. This is something that we're going to keep working, of course, not only for the next quarter, but also for the next couple of years, so we still see opportunities to keep gaining efficiency to gaining productivity. And this is an area that is under our control, and this will be in the next 2 years, our main focus. So reducing the total operational disbursement, it's absolutely key and will be the first priority for the organization here in the next 2 years. So this is something that is under our control, and we understand that we don't need to expect or to live a different cycle of price to do the job that we have been doing. We must anticipate ourselves to make sure that we bring to the organization any kind of opportunity to give -- to keep efficiency and productivity in our business. The consequence of that, it's, of course, deleveraging the company, which is absolutely a priority for us. So having the chance to deleverage the company even on a low cycle of price, it's something that we believe and that we want to keep doing, and not waiting, do you know, different cycles in terms of price to focus on deleveraging the company. We believe that we can do that even on scenarios as the one that we are living right now, okay? So that's my highlight. That's the main message. So now I will hand over to Fabio that will cover the Paper and Packaging business. Fabio Almeida Oliveira: Thanks, Beto. Good morning, everyone. Please let's turn to the next page of the presentation. Our third quarter results were highlighted by strong sales volumes in all markets in our first quarterly positive EBITDA for Suzano Packaging. We have had stable operations in all our mills with lower cash costs versus previous quarter in Brazil and also in the United States, with lack of annual planned shutdowns. Our third quarter volume marks the highest quarterly volume for our Paper and Packaging business unit in history, even faced very challenging paper market conditions. Print and write demand, including imports in the Brazilian market according to IBA, declined by 7% in the first 2 months of the third quarter compared to the same period of last year. However, domestic producers outperformed imports with a more moderate 4% decline and a 29% drop in imported volumes. The overall contraction in demand was primarily driven by the coated paper segment, which had benefited from additional demand during the 2024 election period. Demand for cut size and uncoated papers remained relatively stable. Turning to the international markets served by the company. We see that despite the structural reduction for print and write in mature markets, uncoated paper grades, our main export product performs better than the other grades. On the negative side, there are continued negative effects of economic headwinds and uncertainties related to the ongoing trade war. In Europe, demand has been more sensitive to those trends, reducing 6% on the year-to-date, while in North America and LatAm, demand for uncoated wood-free continue to be stable. Now looking at paperboard demand. In Brazil, we saw a 4% demand decrease in the first 2 months of the Q3 compared to the same period of last year. Sales from domestic producers dropped only 1%, while imports shrunk minus 14% in the same comparison period. In the U.S. market, data from the American Forest and Paper Association show SBS shipments have grown 5.9% on a year-over-year basis, while inventories have grown 17% on the same basis. This is mainly due to the ramp-up of a new SBS machine in the second quarter of the year. Yet, according to FP&A, our operating rate for SBS producers grew 3.4 percentage points versus Q2, reaching 86.5% albeit below historical levels. Looking at Suzano figures, our sales volumes were higher on a quarter-over-quarter and year-over-year basis. Our export volumes in Brazil remained strong in the period. Better sales performance in Brazil quarter-over-quarter reflect demand for uncoated and cut size while on the year-over-year reduction in Brazilian sales is led by the coated paper segment. Suzano packaging volumes recovered from the maintenance outage and increased 7% versus the previous quarter. In terms of pricing, prices from sales in Brazil reduced 2% on a quarter-over-quarter due to seasonality and product mix, but were 2% higher on a year-over-year basis. Prices on other external markets suffered by our Brazilian operations, reduced 6% quarter-over-quarter and 10% year-over-year, reflecting challenging market conditions across all regions as well as FX effects. Prices in dollars for Suzano packaging grew 2% quarter-over-quarter, reducing 1% in reais due to FX effects. Our EBITDA has reached BRL 542 million in the quarter, an 11% increase quarter-over-quarter and a 10% decrease year-over-year. On a quarter-over-quarter basis, we have had improvements in our cash costs in Brazil and also in the U.S., higher sales volumes and on the down side, lower prices in our export markets and unfavorable exchange rate. On a year-over-year basis, the decrease in EBITDA is mainly due to lower export prices and exchange rate. This is our first positive quarterly EBITDA for Suzano packaging. Looking ahead to Suzano's Paper and Packaging business performance, we have planned maintenance outages in Limeira and Suzano mills in Q4, which would have an impact on costs. During the Limeira outage, we will finalize the implementation of a series of improvements at the mill, which will upgrade the site's sustainability attributes and reduce its pulp and paper cash costs moving forward. Ex outage, we expect costs to be stable in the next quarter for all our paper operations and sales volumes should increase in line with the historical seasonality for the period. We expect a stable sales prices in Q4 and better regional mix due to higher sales volume in the Brazilian domestic market. Suzano Packaging EBITDA will continue to improve in Q4 and beyond. Now I'll hand over to Leo, who will be presenting our pulp business results. Leonardo Grimaldi: Thanks, Fabio, and good morning, everyone. Let's now turn to our pulp business unit, where I'd like to share some highlights for the third quarter. The early July announcement of potential 50% tariffs from Brazilian pulp exports to the U.S., which could compromise the midterm continuity of pulp flows into this market and its customers introduced an unprecedented short-term turbulence in the market. This uncertainty affected logistics streams and reduced visibility for market participants regarding near-term dynamics, which contributed to a deterioration in sentiment and triggering a further drop in pulp prices in China to sub-500 levels. Prices in Europe and North America follow the same downward price trend with the usual lag. As the quarter evolved, when Brazilian pulp was included in the U.S. exemption list, the restored tariff-free access allowed operations to stabilize and ease commercial risk. It's worth noting that although the potential new U.S. tariffs on Brazilian pulp would likely be neutralized over the medium term given the tendency of global pulp markets to rebalance through interconnected trade flows, the initial reaction from pulp and paper participants underscored market sensitivity to trade policy signals. As usual, in pulp cycles, the sub-500 price point triggered a strong buying activity from Chinese customers, including integrated paper producers who also secured significant pulp volumes during the quarter. Our order intake levels in China were abnormally high throughout the quarter, generating backlogs of deliveries, which persist to this day as our sales to the other regions in the world were executed as previously planned for the quarter. We have effectively sold all our production volumes during Q3, keeping our inventory stable in line with our commercial strategy. Our invoice volumes were, however, impacted by our announced production curtailment, which started in July in the last 12 months. We have announced 3 rounds of price increases for all markets starting August, which are being implemented as we speak, but still not yet reflected in our third quarter's invoiced prices due to the carryover effect on our higher-than-usual backlog, as well as the lagging effect in Europe and North America. Looking to the right side of the slide, despite strong volumes, a combination of lower prices in U.S. dollar terms and a less favorable FX resulted in a BRL 4.5 billion EBITDA for our pulp business unit, equivalent to 49% EBITDA margin. Now looking forward, I would like to highlight the following points. In China, following our strong sales performance in the previous quarter, October order intake also reached high levels with all of our customers confirming purchases with a new $10 price hike, including integrated paper producers who keep buying market pulp. As these orders were received or closed in the last days of October, you probably saw that, that's already reflected on today's index publication. Since September, paper and board production in China has continued to grow, driven by seasonally higher demand during this time of the year and supported by exports of coated paper, tissue and carton board that exceeded levels seen in the same period of 2024. In China, price increases were announced by paper and paperboard producers for November across most grades. Although this is still in the process of being implemented, these moves may indicate a turning point in paper pricing dynamics. Still on the outlook for paper pricing and pulp demand, September brought yet another shift for Chinese producers. Stricter regulations on imported recycled grades, which represent over 3 million tons of furnishing to this market, prompted domestic pulp producers to fill the gap using unbleached BCTMP and other mechanical pulp grades made from local hardwood, which has consequently driven up demand for local wood. In addition, wood chip demand in China is being fueled by the ramp-up of new integrated capacities launched since late 2024 as well as the restart of some of Chenming's operations. Despite uncertainties around local wood prices and its full market impact, these developments are expected to intensify demand in the coming months and further pressure wood chip prices. We continue to monitor wood cost dynamics in the region as rising demand for Chinese wood chips also supported by tighter recycled fiber imports points to a more favorable paper pricing environment and higher cash costs for Chinese market pulp and integrated paper producers. All considered, we expect that pulp prices will continue to move up from the current levels. During the next months, we will seek the implementation of the remaining part of our price increase announcement, meaning $20 on a net basis, which were still not implemented. Volume-wise, as we progress through the fourth quarter, we continue to allocate our targeted volumes across all regions with full confidence in closing 2025 as planned. On the supply side of the equation, it's important to notice that hardwood pulp prices have remained below the estimated cash cost of roughly $600 per ton for 13 consecutive months. According to a leading consultancy in our sector, over 15% of global hardwood market pulp production today is operating underwater, and softwood pulp producers are facing an even greater pressure. Zooming into Europe, producers have now enjoyed 1 year below breakeven levels considered their regional sales only, and we estimate that more than 25% of European capacity is currently unprofitable, all based on local delivery costs and the European price index net of rebates. As I have stated in multiple occasions, I view this scenario as completely unsustainable and believe that more significant supply side adjustments are likely to take place going forward. Still on the supply side, just this week, a major Brazilian competitor has announced further capacity swings to dissolving pulp, taking approximately 600,000 tons of paper grid pulp out of the market in '26 when compared to 2025, which should improve the S&D fundamentals for the upcoming months. With that said, I would now like to invite Aires to address our cash cost performance for the past quarter. Aires Galhardo: Okay, Leo. Thank you very much. Moving to next slide. The cash costs, excluding downtime in the third quarter came in at BRL 801 per ton, making a 4% decrease compared to the second quarter. The most significant driver of this reduction was the lower cost, the lower wood cost mainly due to improved wood quality, resulting in a lower specific consumption and operational efficiencies in harvesting and logistics. Additional contributing factors included lower consumption and price of key inputs such as caustic soda, chlorine dioxide and lime, reduced energy costs, especially for natural gas, driven by the decline in the Brent price and FX appreciation, which lowered the cost of dollar-denominated foods in local currency. When we compare to our cash cost to the third quarter in '24, the cash cost decreased 7%, reflecting gains from operational efficiencies, input cost reductions and scale. The key highlight was the broad contribution of Ribas units, which supported improvements across all cash cost components. The highlights of improved performance were wood costs, which saw the most significant reduction driven by shorter average ratios, better performance on the field and a lower diesel price, which scale gains also helping dilute indirect costs and lower input consumption, especially caustic soda and fuel oil, supported by operational improvements and fuel to gas conversion in the lime kilns at the Ribas and Imperatriz mills. Looking ahead, we are pleased to share that the cash cost production ex downtime, is already running below the BRL 800 per ton mark. This solid performance give us confidence that we will deliver in the fourth quarter '24-'25. The most competitive quarterly cash cost of the year, while also supporting a full year average close to the level recorded in fourth quarter '24. Now I hand over to Marcos to continue the presentation. Marcos Assumpcao: Thank you, Aires. Good morning, everyone. So I'll start with the leverage. Our leverage in dollar terms ticked up to 3.3x. Despite our net debt remained stable in the quarter, our EBITDA last 12 months declined mainly because of lower pulp prices. In terms of our net debt, as I mentioned, it remained stable on a quarter-on-quarter basis, and I would like to highlight that we continue to generate positive free cash flow throughout the quarter, and that we saw some nonrecurring events impacting our liquidity and leverage in the quarter, namely the wood deal that we did with Eldorado and also the premium we paid for the repurchase of the bonds of 2026 and 2027. These events totaled close to BRL 1 billion. In terms of liability management, we did a lot of different transactions with a highlight of the issuance in September of $1 billion new 10-year bond for Suzano issued at the lowest corporate spread ever for the company, and we also repurchased the bonds maturing in the short term, 2026 and 2027. The result of that is that we were able to reduce our short-term maturity risk, and we also were able to increase our average terms of our debt from 74 months to 80 months without changing the average cost of our debt, which remains stable at 5%. Moving to Slide #8. We highlight the healthy hedge portfolio that we have at this point with a put option of BRL 564 and a call option above BRL 650. Our total portfolio is at $6 billion. And if we were to -- if the BRL remains stable at BRL 532, which was the level of the closing of the third quarter, we would have a positive cash impact of nearly BRL 2.5 billion in the upcoming 2 years, including the fourth quarter, with the impact of positive BRL 800 million in 2026. Moving to the next Slide #9. We would like to reinforce our guidance for CapEx for 2025 at BRL 13.3 billion, which implies a CapEx of BRL 2.9 billion in the last quarter of the year. Now I would like to hand over to Beto for his final remarks. João Fernandez de Abreu: Thank you very much, Marcos. A couple of things that we understand that it's absolutely key to send as a final message regarding the next couple of quarters. So looking ahead, as I said, we will keep focusing the whole team in the cash production cost, not only for the fourth quarter, but we understand that, that must be attendance in the way that we manage the business, and this is dealing with something that we control to be prepared for any kind of scenario in the long term. So that's the first thing. The second one is that we have a couple of investments that we made in the last, mainly a couple of 2 years. As I mentioned, Suzano Packaging. There's a new tissue mill in Aracruz that just start up and also keep working in the progress to the closing of the JV with K-C. So this is an investment that we have made that we must keep working to gradually improve performance in packaging, in Aracruz, but make sure that we will extract the values and the efficiency that we mentioned when we signed a JV with K-C. So having said that, the focus is extracting value from the investment that we have made already and not putting other initiatives on the table. So how to summarize this is, focus on what we control. We keep reducing cash cost and also making sure that we will extract the value from the investment that we have been making. Having said that, I will open for the questions. Operator: [Operator Instructions] Our first question comes from Caio Ribeiro with Bank of America. Caio Ribeiro: So I wanted to dive into a little bit more detail on your view on the dynamics of wood chips and softwood in the Chinese market specifically. So first of all, I wanted to ask you if you've noted any meaningful changes in terms of the prices of domestic wood chips in China as a result of all of the supply additions that we've been seeing coming from Huatai, Nine Dragons, and in particular, Chenming's announced resumption, right? And whether that has had any meaningful impact in your perception on the marginal cost of production of pulp in China? And then secondly, in terms of softwood, right, clearly, the dynamics for that fiber have been weaker in comparison to hardwood with prices dropping, while hardwood has been on a recovery track. And our perception is that this has largely to do with an abundance of this type of fiber, right, softwood in Chinese markets as a result of higher domestic production. So I wanted to ask whether you've seen any meaningful changes there in terms of domestic producers in China perhaps reducing softwood output as a result of the recent drop in softwood prices, and whether that incentive from customers to switch from softwood into hardwood is still present, or if there have been any changes there given that reduction in the spread between both fibers? Leonardo Grimaldi: Caio, this is Leo here. Thank you for your questions. Regarding wood chips, yes, we have seen an uptick in the prices, not only of the Chinese wood chips, but also of imported wood chips in this last 2, 3 months. Imported wood chips on a BDMT basis have increased almost $10, which would generate roughly an effect of $20 in the cash cost of bleached hardwood production, while Chinese wood chip prices as per our monitoring has increased from $25 and in some cases, $40, and that's always a double effect, approximately on the cash cost of production. So your assumption is aligned with ours that yes, this will create an effect in an increasing cash cost of Chinese producers, both of market pulp and also integrated paper and packaging producers, which we are seeing that are now and more intensely pushing for paper price increases. I believe obviously, this is a consequence of higher costs in their season, and that should support the S&D fundamentals for hardwood for the upcoming months. Regarding softwood, yes, indeed, it's weaker. It seems to be trending in the opposite direction than hardwood for the past months, especially in China. I think there are 2 effects. First is the availability of the unforeseen softwood chips at a very competitive price, in some cases, at the same price as hardwood chips since the beginning of this year due to the infected wood and the policy to try to cut and use this wood as soon as possible. We believe that this wood will last more 2 to 3 quarters in the market. And that is putting pressure on softwood both by some integrated players, now producing softwood in their system, and they used to buy it, but also having less -- putting -- leaving less space for softwood pulp. And the second factor, which I would like to call your attention is the fiber-to-fiber movement. Obviously, even with the gap that has reduced from over $200 to roughly $150, $160, it's a huge incentive still for fiber substitution. We see a lot of traction, a lot of action in China, many, many customers interested in seeking our support in this journey. So in terms of how can they be less and less dependent on softwood and more and more dependent on hardwood fibers like ours. So I think it's a double effect that is making the scenario for software producers a bit worse than what we see in hardwood today. Operator: Our next question comes from Daniel Sasson with Itau BBA. Daniel Sasson: My first question goes to Aires. Aires, if you could comment a little bit about your cash costs. You mentioned that you're running already below BRL 800 per tonne in the fourth quarter. But considering the deal you announced with Eldorado that -- and the TOD and that you are not that far from your expected cash cost level in 2027, according to our TOD, if there is room for additional improvements or lower cash costs in the medium term? I'm thinking more specifically about 2027, not to anticipate what -- any revisions you might make to your TOD, but to think if this cost-cutting trajectory is going to be somewhat linear throughout 2026 and 2027 or if you have specific events that we should see maybe in 2027 so as to drive your costs down? And my second question to Grimaldi. Thank you so much for the comprehensive backdrop that you viewed for pulp prices. Grimaldi, if you could just discuss a little bit about your expectations for the main topics to be discussed in 2 weeks at the London Pulp Week or in 1 week at the London Pulp Week -- last week, Chenming's stoppage was maybe the most important topic. And exactly, you mentioned in your speech that you're thinking -- that you are still hopeful or optimistic about price increases going through. Is there anything that changed over the past couple of weeks, so as to give you or to leave you more optimistic given that the industry was not able to absorb the price increase attempts in September and October, right? Is there anything that changed at all? Or if you could explain why you are optimistic or more optimistic now than you were in the past maybe 2 months? Aires Galhardo: Daniel, thank you for your question, Aires speaking. Considering the deal with Eldorado, we start to supply our facilities in Mato Grosso do Sul with this wood probably in January. Then we do not suffer any impact, just probably reschedule the sequence that we receive at the facility in the fourth quarter to rebalance consider this new volumes. But the main reason of this deal that give you our rationale to do this was that our reduced -- our consumption per ton of wood, consumption wood per tonne in the coming years. When we compare with your previous analysis, we are considering in the business case and with the first samples that we have of this wood, a reduction of around 4% the necessity of wood per ton in Mato Grosso do Sul. If you consider that we will supply on an average, 18 million cubic meters per year, we will need 4% and less for the coming years to produce the same amount of pulp. That's the rationale that you have to do this deal. We'll try to explain better in the Suzano days in the next month. Then the rationale to next year and the other one is to running always below 800 tonnes per quarter. Of course, we can be affected with some sched off downtimes that will affect in a specific quarter. But the idea that we have in our plans that our average will be below 800 tonnes per year. Leonardo Grimaldi: Okay. And Daniel, now it's Leo here. I'm going to answer the second part of your question regarding expectations for London Pulp Week. I think first, expectation, which is more and more clear is that this market scenario is completely unsustainable. And as we are going to a market that is a core of production of softwood, I think this tonne is even higher than what we see or sense when we're talking about South American pulp production. It's completely unsustainable, even if we consider European cash costs and sales into the European market. Again, as I stated in my speech, as per our calculations, more than a year already bleeding 25% of the local hardwood production. So this is unsustainable and the fact that the market is unsustainable as is, I think, will be one of the main factors being discussed during London Pulp Week. I also think that what will be a topic is the rhythm of unexpected closures. As I mentioned during the last call, we saw a very low level of unexpected closures in the first half of this year. And our line of thought is that all the instabilities around the world and geopolitical issues made some decisions not to be taken in the short term as many were on the wait-and-see mode to try to see what could be the scenario after there was a clear view on tariffs. As this is now clear, we see that the addition of this unsustainable scenario with a clarity in terms of tariffs will speed up the amount of unexpected closures, commercial downtimes that we see in the market. And in fact, as per our controls according to consultancies numbers, if we compare the unexpected closures of beach chemical pulp in the first half of the year, and just the 4 months of the second half of the year, meaning until October, there is already a 40% increase on disclosed unexpected closures. So our thoughts or our line of thought seems to be executing or seems to be happening as we speak. And we again believe much more has to happen under this very depressed pricing scenario. Now regarding your question on my optimism a quarter ago and today, I think my optimism level is slightly better now despite I was optimistic in the last quarter. Thus, the reason we have announced a sequence of 3 price increases. And the reason why we did that is because, obviously, we were monitoring order inflows in all markets and in China, more deeply even with the purchasing patterns of integrated paper producers, the amount of capacity on the water in the world as we speak, and this feeling of optimism now has been a bit upgraded, if I could put it this way, due to the fact that we're seeing a reversion in the cost of wood chips to Chinese producers. As I mentioned to Caio previously, we have seen this $25 to $40-ish increase on the prices of BDMT, meaning an impact of anywhere from $50 to $80 in the cash cost of Chinese producers who are using Chinese wood. And this obviously put pressures in the whole system and establishes a new grown for what they can accept or base their decisions in terms of timing that they buy market pulp rather than consume local wood as well. So it's my optimism increased a bit, I would say, due to the effect of this new scenario regarding regulations on recycled fiber, as I mentioned, and wood increase. It is, however, important to say that my optimism is somehow limited. We see gradual price increases, but under this oversupply scenario, unless something major happens on the supply side of the equation, my optimism is not as big as you can imagine. So I would just like to point this out. João Fernandez de Abreu: I'm sorry, just complementing the first question regarding the TOD that you asked. Just a remark here, we are completely committed with the guidance that we shared with the market regarding what we have to deliver by 2027 and confident that we're going to be able to deliver, okay? Operator: Our next question comes from Rafael Barcellos with Bradesco BBI. Rafael Barcellos: Beto, I wanted to use one of your highlights during your speech. I mean, congratulations for the results in your U.S. Packaging business. It's good to see that you are on track to keep delivering in this new business. And my first question is exactly about it. I mean, what can we expect in the coming quarters? Or do you have any sense of EBITDA contribution from this business for next year? And ultimately, what is the full potential in the long term for the business? And the second question, Beto. The second question is about Lenzing. If I'm not wrong, you can already exercise the option to acquire an additional stake in the company. So could you -- could you please share with us your overall thoughts on the investment? I mean, other than that, after roughly a year, I mean, what has changed in terms of how do you see Lenzing as part of your portfolio? João Fernandez de Abreu: Thank you very much. Yes, since October, we already have the option to execute if we want, as you know. We are not considering to use this coal in the short term. We're still with the team, analyzing all the trends, all the investment in further capacity in the business, mainly on dissolving pulp globally. This is a market that it's also facing a business environment in terms of competition, mainly in Asia, which we should further analyze. So I'd say that the best answer for Lenzing now is we will keep as it is with the 15% and keep analyzing the business and keep this study. There is no plan for using the coal in the short term. Regarding Suzano Packaging, as I mentioned, we are very glad to be anticipating, I would say, the business plan. Firstly, in terms of positive EBITDA after taking a business that used to have a negative EBITDA. A lot of initiatives have been implemented on the commercial side, on the procurement side, on the logistics side. On the logistics side, we have been able to take the advantage that we have a strong logistic operation in U.S. that's led by Leo's team in U.S. and there's our synergy on those negotiations to do all the logistics for the business. We were able also to adjust the team for the reality that we have in the company and in the market. I would say that it's still a lot to come. Fabio has a clear plan for the next 2 years, not only for generating positive EBITDA, but also generating the amount of cash that we are expecting for the business. It's a small business, as you know, but it's helping us a lot to understand the market, of course, to extract value from the unit, but also to understand what is for a company moving abroad. Having the chance to implement our principles in terms of management in a different future. I think we are also learning a lot in Pine Bluff that will help us on the K-C JV in the future. So I cannot disclose a number in terms of next figures, but I would say that we are very glad regarding what we have delivered so far. Operator: Our next question comes from Caio Greiner with UBS. Caio Greiner: My first question on pulp. I wanted to go back to that discussion on the long-term fundamentals that Suzano discussed during the Investor Day. I mean we've seen a significant amount of capacity additions in China in 2026, but pulp production in China still seems to be growing only gradually. Still, I guess, the market in general and investors have been really concerned about this idea of China becoming the dominant player in the industry. And again, I know you provided a deep dive on this during our Investor Day in 2024. So I just wanted to understand if there are any updates on that structural view being that maybe a tighter wood chip market as we already discussed, anti-involution ideas in China. So I guess the question is, since last year, have you become more or less concerned at the margin regarding the structural fundamentals for pulp? The second question on Kimberly-Clark and following up on this last topic. Just maybe Beto or Fabio, if you guys can give us an update of how the asset is performing. How -- if you have been able to dig a bit deeper into each asset that you're acquiring, if there's more clarity on the synergy potential, fiber-to-fiber potential? Or maybe if you got the chance to understand if there are any assets that don't really fit quite well into the portfolio that are likely to be sold. Anything that you could comment here would be really helpful. Leonardo Grimaldi: Caio, this is Leo here. I try to answer your question, not taking color out of our Suzano Day 2025 as we are planning to update completely the scenario that we presented last year, bringing insights on the verticalization effect of Chinese production in our hardwood market. And again, it's important to say that as we have local market intel teams in most major markets, China included, this anticipation of view of trend makes us, I guess, more prepared for any kind of reaction or action that we need to take in terms of what's coming ahead of us. So our view, I would say, is quite neutral at this time. I think the same trend that I have presented to you and to all of you during our last investors call is maintained. We see -- we still see this verticalization affecting our market. But as you mentioned, we are not seeing this pulp production yet growing. Obviously, when you put all these projects in a time line, still a lot of them, I think the effect we are going to see on a bit more short to midterm, the next 4 quarters, which has 2 ways of looking at this, right? The negative way is impacting, obviously, market fundamentals. And the positive way is a much bigger demand for local wood chips and a pressure that this could further pose on wood chip prices. And again, we have to monitor that. And as we speak and see what's going on is that this market prices that we still see, which are low, despite they're going slightly up from the 494 valley a few months ago, still is incentivizing many, many Chinese producers, paper producers, integrated paper producers to buy market pulp. And this is the reason why we see that pulp production is yet not growing or is not growing, while imports of pulp are booming in the market. You probably saw that hardwood pulp is -- the imports of hardwood pulp is growing more than 11% year-to-date to China. However, I would say that our view remains cautious, right? We are in a cautious mode, which obviously will depend on how we interact and see these moving parts in the wood chip prices in China. And also, as I mentioned, this completely unsustainable pricing scenario and how it correlates to cash costs around the world and will depend on supply side adjustments in the near term. João Fernandez de Abreu: Luis, do you want to jump in and I can complement? Luis Renato Bueno: Okay, Beto. Caio, this is Luis speaking. As we have already disclosed before, during the phase pre-signing, we have visited all the mills around the globe, and we were very positively impressed at that time with the conditions of the plants and also housekeeping and everything. So at this stage, we have received more information and have been talking to KC given the constraints that the process requires. And we are more positive with the initial estimates that we had. And as time goes by, we will have more time to fine-tune the estimates and to build a business plan for closing. So our idea is when we close the deal, we will have already a business plan for the coming 2 years with the right level of detail on which are the levers to generate value on the deal. João Fernandez de Abreu: Just to complement on that, we see the value creation in the business that we mentioned. It's very clear for us the elements that we have analyzed before the deal and maybe further elements that we will find, and we are already discovering. I would say that our main concern is not regarding the assets. If there's opportunity to optimize the asset, we will do it. If there's opportunity to optimize geographies, we will do it. This is something that usually is not in the agenda of a big multi-national, but we will consider portfolio management as if necessary. I would say that the main elements that we should take into account against not the assets, it's not the carve-out that we have to do, which is difficult. But it's putting 2 cultures to walk together with the same values, but having the ability to extract the best of each one. That's the main challenge that this organization have in this process. Operator: Our next question comes from Yuri Pereira with Santander. Yuri Pereira: I'd like to ask maybe if you have any information about the floods in Southeast Asia, if you see any impact -- any further impacts on wood prices in China, if you have any information, please? And regarding dissolving pulp, do you see more shifts like Bracell's one for the next year? If you can recap for us what's going on in the dissolving pulp market to result in this shift or if it's only low hardwood prices per se? Leonardo Grimaldi: Yuri, this is Leo here. I'm going to answer both questions. Obviously, floods have influenced also wood chip prices in the short term. I didn't mention it because obviously, this is very, very punctual and short-term-ish, first in the southern part of China. And now as you probably saw in Vietnam 2, 3 days ago where the daily rainfall was a record all-time high. But, yes, obviously, this is also influencing wood chip price and its dynamics. In terms of dissolving pulp, what we see is that today, prices in DWP is trending higher than the historic average of delta between hardwood and DWP over $250, and that's incentivizing this flex capacity to swing in that direction. So in this case, yes, we expect that possible new flex capacity moving or shifting from hardwood, which, as I mentioned, is unsustainable to dissolving is possible. Operator: Our next question comes from Lucas Laghi with XP. Lucas Laghi: I just have one, I mean, on CapEx. But could you please provide us an update on -- specifically on expansion CapEx. I mean, if we exclude the BRL 935 million expected from your 3 main projects, I mean, according to your latest presentation deck and considering the BRL 1.6 billion in the guidance for 2025. I mean, is it reasonable to expect that this line should reduce in the next year proportionally to this reduction on the 3 main projects that you guys are concluding this year? Or I mean should we expect Suzano to continue to approve new competitive projects like those ones already in 2026? And if you could also link your rationale for this -- the approval of this competitive related projects in terms of market conditions. I mean, it would be important as well for us to better understand how to think of this expansion CapEx line going forward? Marcos Assumpcao: Lucas, Marcos here. We will update the market with our guidance for 2026 CapEx by the end of this month. But I will try to give you a little bit of a trend, what we see in terms of CapEx. As you mentioned, we still had in 2025 disbursements for the Cerrado project. And we also had the conclusion of some growth projects that we undertook in 2025, namely the Fluff project at Limeira mill, which will start up in the fourth quarter. Also the additional capacity in tissue at Aracruz Mill and the new biomass boiler at Aracruz as well. So going forward, we should expect a declining trend in terms of CapEx for next year as we will have lower disbursements and also we'll have less projects in our pipeline. Operator: Our next question comes from Henrique Marques with Goldman Sachs. Henrique Tavian Marques: So just regarding pulp prices, I mean, Leo, you mentioned that pulp price situation is unsustainable. But at the same time, the pulp price cycle has been -- the hikes have been very gradual, right? So I think this is the main difference from what we've seen in other cycles. At the same time, we have APP OKI entering the first half of next year alongside other projects in China. So just to get a sense of where exactly do you see pulp price cycles in the future? Like do you think we are seeing a derating of this range of prices? Like in the past, I mean, we would usually see prices going above $700 per tonne in both cycles. And now the -- I think it's hard to think that we'll see prices reaching $700 again. So just wanted to get your sense on what exactly do you see these price ranges going forward? Leonardo Grimaldi: Hi, Henrique, thank you for this question. It's a tricky one to answer as obviously, it has several parts that are connected to our commercial strategy and are very sensitive in that case. But let me try -- and I'm going to give a lot of color in terms of how we are seeing the variables that can change this game in the short term and looking forward during our Investors Day. But in principle, they all originate from the fact that we have now been living a scenario where for several, several months the industry is bleeding, right? And several things could happen to change this scenario. First is, again, reintensifying of permanent closures. We have seen a decline in permanent closures in BCP during this year. Again, we suppose that a lot of that has to do with the uncertainties that the geopolitical and tariffs have created in the decision-making process of this extremely high cost and unsustainable producers that we see in the Northern Hemisphere. Second is the unexpected downtime rhythm going forward. Even though I mentioned that we see an uptick already in the 4 months of the second semester, compared to the first semester of this year, it's still low compared to previous years. For the same, we expect or we suppose for the same reasons of the one that I mentioned regarding permanent closures and all the uncertainties during these tariffs and geopolitical timing. This, again, is unsustainable and something should or could happen in that direction. Third point that could change these dynamics is the timing of the new projects being implemented. Today, we have official news regarding OKI, which are the same as you have. But obviously, all of this more challenging scenarios can stimulate different actions in terms of time to market of new projects. And in the same token, time to market of the verticalized projects in China or their ramp-up curves, right? So that is a variable that we have to follow very closely and could change completely the game as we look forward. And fourth and very important as we talk about verticalization in China and the impact it has on reducing demand for hardwood pulp. But there is a huge opportunity, which is what we see on the Western world. More than -- or 2/3 of the pulp produce in the world is integrated into paper and packaging production. Many, many old sites, old mills, which were the origin of paper production and board production are in Europe and in North America and persisting this trend or this pricing trend, we believe that these mills are unviable or unsustainable. So we believe a lot in the thesis of deep verticalization in the western part of the world as a consequence of what we're seeing in China as we speak. Operator: Our next question comes from Eugenia Cavalheiro with Morgan Stanley. Eugenia Cavalheiro: I wanted to explore a bit more what you're seeing as growth opportunities in the paper market in the U.S. And also on the profitability side, where do you feel like -- what level you feel like it's reasonable for the company to achieve? And how far are you from that right now? Fabio Almeida Oliveira: Eugenia, it's Fabio here. Beto, I can take that about the U.S. We're still a very small player here in the American market. We have 45% of the SDS market. So still plenty of rooms to grow. At the moment, what we are doing here, Eugenia, is focusing on our growth in foodservice. It's trying to diversify a little bit from the liquid packaging board market that we are concentrated, and it's doing well. Regarding business moving forward and our profitability moving forward, we cannot provide any color on that, but I would like to say that there's still lots of opportunities for us to improve in terms of costs here, and we're going to be addressing that in the next quarters and moving in the next year. João Fernandez de Abreu: Thank you, Fabio. Absolutely aligned with what we said in the beginning, which is focus on efficiency. So as Fabio said, a lot of -- still a lot of opportunity to improve portfolio and cost in the current facility that we have in U.S. And Eugenia, there is no further, let's say, inorganically alternative for U.S. in the short term at this time. So we are again completely focused on extracting the value from those assets that we have a prior already. We finalize the call here. And I want to remember that we have the Suzano Investor Day 2025 on December 11. So we will be great to have all of you with us. So thank you for attending the call. And the RI team is always available to clarify any further questions. Thank you very much. Operator: The Suzano S.A. third quarter of the 2025 conference call is concluded. The Investor Relations department is available to answer further questions you may have. Thank you, and have a good 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.]
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.
Operator: Good morning. This is the Chorus Call. Welcome to the presentation of the financial results as of 30 September 2025 of Ascopiave. [Operator Instructions] The chairman and CEO of Ascopiave, is now going to give the illustration. Nicola Cecconato: Thank you, everyone. Thanks, everyone. Page 2, consolidated results as of 30 September 2025 compared to 30 September 2022. Let's go to slide page 2 of Ascopiave results and [indiscernible] structure as of 30 September 2025. The slide [indiscernible] includes the group's corporate structure as of 30 September 2025. If it should be noted that scope of consolidation has been simplified compared to the first nine months of the previous period due to a number of extraordinary transactions finalized at the end of 2024. On 31 December 2024, the reorganization of the subsidiaries active in the gas distribution and renewable energy sector became effective for statutory purposes. Through a series of merger and demerger transactions, the Group's activities in the natural gas distribution sector merged into two companies, one operating in the Northeast, one in the Northwest. Specifically, the group companies [indiscernible] AP Reti Gas North S.r.l. were merged by incorporation into subsidiary [indiscernible] and at the same time, the [indiscernible] merger in [indiscernible] from [indiscernible], the group's other distribution companies, [indiscernible] were merged by incorporation into [indiscernible] following this operation, from [indiscernible], which changes company name to [indiscernible] paid out a partial and proportionate demerger in [indiscernible] on the same date, the merger project by incorporation of the company Asco Renewables became -- effective as Asco EG S.p.A., which took the name Asco Power S.p.A. [indiscernible] merger transaction that took place took effect for statutory purposes as of 31 December 2024 and for tax and accounting purposes as of 1 January 2024, while [indiscernible] demerger transactions took effect as of 31 December 2024. On 16 December 2024, and effective 31 December 2024, Salinella Eolico S.r.l. changed its company name to Asco Wind & Solar S.r.l. On 9 May 2025, Ascopiave acquired 9.8% of the share capital of Asco Power S.p.A., becoming sole shareholder. Effective 31 May 2025, Cart Acqua S.r.l. was merged by incorporation into Ascopiave S.p.A. In December 2024, Ascopiave exercised its put option on 25% of the capital of EstEnergy S.p.A. and the transfer of the share took place on 24 June 2025. On 1 July 2025, the transaction for the acquisition of the [indiscernible] of 100% of the newly formed company, AP Reti Gas North S.p.A. the company that took over certain business branches previously owned by Unareti S.p.A. and LD Reti S.r.l. [indiscernible] in the gas distribution business in the provinces of Brescia, Cremona, Bergamo, Pavia and Lodi and these operations became effective. Page 3, slide 3, changes in the consolidation perimeter and disposals of shareholders. The slide summarizes the impact of the main extraordinary transactions on the economic and financial [ engagements ] shown in the accounting documents. Consolidated income statement for the first nine months, slide page 4. In the first nine months of 2025, the group realized revenues of EUR 183.9 million, excluding an EBITDA of EUR 115.6 million and a EBIT of 72.3 million. The net balance of financial income and expenses was positive at EUR 15.6 million, an improvement of EUR 23.2 million compared to the first nine months of 2024. This change is mainly explained by higher dividends paid by investing companies, in particular, by the dividend of EUR 22 million distributable by EstEnergy prior to the sale of shares. Income from companies consolidated using the equity method, which amounted to EUR 0.3 million, refers exclusively to the consolidated profit accrued by the Cogeide S.p.A. which showed a negative change of EUR 7.8 million compared to the first nine months of 2024. It should be noted in the 2024 financial year of Cogeide and the [indiscernible] by Ascopiave 25% of the [indiscernible] the economic [indiscernible] group [indiscernible] pertaining to the group after 30 September 2024, while there is no accounting entry in the 2025 financial year. Taxes allocated in the first nine months of 2025 weigh on the income statement by EUR 12.3 million. The tax rate, calculated by normalising the pre-tax result of the effects of the consolidation of the companies Consolidated using the equity method, dividends received from investees and the capital gain realised from the Sale of the investment in EstEnergy [indiscernible] 36.1% as of 30 September 2024, to 33.1% as of 30 September 2025. Consolidated balance sheet, 30 September 2025 slides on Page 5. As of ended 30 September 2025, the group has EUR 1.551 billion in invested capital. Investment consists of [indiscernible] EUR 1,204.7 billion in intangible assets. EUR 55.8 million from the value of minority interest has [indiscernible] contributed and [indiscernible] EUR 25.7 million. EUR 53 million from other fixed assets EUR 54.7 million on the negative balance of working capital items and provisions to EUR 50.3 million from net invested capital in assets held for sale. [indiscernible] value of the 3% stake have in Hera Comm, the sale of which the Hera Group [indiscernible] on 8 October 2025 at a price of EUR 54.8 million. The intangible fixed assets shown under [indiscernible] amounting to EUR 1.247 billion, mainly consists of gas distribution networks and plants owned by the group, [ EUR 1.403 billion ], of which EUR 398.7 million is attributable to [indiscernible] consolidated as from 1 July 2025 [indiscernible] recognized following business combination of EUR 106.5 billion [indiscernible] equipment [indiscernible] real estate and the value of [indiscernible] plants. It should be noted that during the fourth quarter of the 2024 financial year, Ascopiave exercised its put option on the remaining shares of [indiscernible] for the 1 October 2024 [indiscernible] are recorded as of 30 September 2024 [indiscernible]. Shareholders' equity as of 30 September 2025 amounted to EUR 898.1 billion, an increase of [indiscernible] million compared to 31 December 2024. Net financial position was EUR 633.1 million, an increase of EUR 245.5 million compared to the end of 2024. The debt equity ratio was 0.71. Slide page 6, operating [indiscernible] distribution, Slide page 6. As of 30 September 2025, the group's distribution company has managed approximately 1.2 million users, which approximately 45,900 users of Ap Reti Gas North consolidated into the group in 1 July 2025, an increase of 55% compared to 31 December 2024. In the first nine months of 2025 income distributed through net worth EUR 1.044 billion [indiscernible] in gas [indiscernible] consolidation as of 1 July 2025, we distributed 74 million cubic metres in the third quarter of 2025. The group perspective, [indiscernible] power plant with an installed capacity of 84.1 megawatts. In the first nine months of 2025, electricity production amounted to 145 gigawatts, a decrease of 25 gigawatts, minus 14% compared to the same period of the previous year, the latter being characterized by significant rainfall. Revenues, Slide page 7. Revenues from the first nine months of 2025 amounted to EUR 183.9 million showed an increase of [indiscernible] determined by [indiscernible] consolidation perimeter by EUR 27.7 million, increased by EUR 0.3 million in gas distribution [indiscernible] revenues, the decrease in revenues from the sale of [indiscernible] from renewable sources of [indiscernible], an increase in revenues from energy efficient certificate EUR 1.9 million, an increase in other revenues of EUR 2.8 million. Gas distribution tariff revenues amounted to EUR 152.2 million and for an increase of EUR 29 million compared to the same period the previous year due to the enlargement of the scope of consolidation for [indiscernible] and to the relation of 2024 [indiscernible] operating costs and [indiscernible] 2025 on a like-for-like basis, EUR 48.6 million. Revenues from all generations from renewable sources amounted to EUR 17.4 million, decreased by EUR 4.1 million. Decreases mainly explained by the lower volume of energy produced. Slide Page 8, operating profit, other operating expenses. Operating income for the first nine months of 2025 amounted to EUR 72.3 million, shows an increase of EUR 38.1 million due to the [indiscernible] scope of consolidation, EUR 5.1 million, increasing gas distribution target revenues, EUR 9.3 million, a decrease in revenue from the sale of electricity generated from renewable sources, EUR 1.1 million. The decrease in amortization and depreciation, EUR 1.1 million, capital gains of EUR 26.4 million related to the [indiscernible] sales in net energy, EUR 0.3 million decrease in net operating expenses. Net operating expenses for the first nine months of 2025, the margins of EUR 50.9 million recorded an increase of EUR 7.6 million, driven by the change in the [indiscernible] revenue and cost items. Expansion on scope of consolidation, EUR 7.9 million. Low transaction fees remain [indiscernible] EUR 0.9 million, higher personnel costs, EUR 0.6 million, higher consulting costs, EUR 0.2 million of which EUR 0.2 million related to [indiscernible] higher cost for gas and electric utilities, EUR 0.2 million, low compensation to directors and [indiscernible] higher contribution for safety incentives, EUR 2.4 million, lower capital rate [indiscernible] costs, EUR 0.4 million. Other changes with a positive impact, EUR 0.3 million. Slide page 9, personnel. As of 30 September 25, the group has 721 employees, an increase of [indiscernible] compared to 30 December 2024. This increase is mainly explained by the consolidation of AP Reti Gas North as of 1 July 2025, which have 229 employees as of 30 September 2025. [indiscernible] personnel cost for the first nine months of 2025 was EUR 18.2 million, determined by [indiscernible] consolidation EUR 2.6 million; higher capitalized labor costs, EUR 1.6 million, EUR 2.2 million increase in current personnel costs, mainly due to higher cost of incentive plans [indiscernible] increases during [indiscernible] the contracting business provided for the national interconference and in part [indiscernible] recognition. Captain Expenditures, Slide page. Capital expenditures in the first nine months of 2025 amounted to EUR 60.6 million, an increase of EUR 9.1 million. Investments paid by AP Reti Gas North [indiscernible] consolidated since 1 July 2025 amount to EUR 4.3 million. Most of the technical investments related to the development [indiscernible] of gas network [indiscernible] amounted to EUR 31.3 million, of which EUR 12.2 million in connection [indiscernible] in network expansion [indiscernible] reduction plans. Investments in [indiscernible] amounted to EUR 8.3 billion. Investment in the [indiscernible] related to costs incurred for the maintenance and expansion of hydroelectric plant, EUR 3 million, for the construction of [indiscernible] plant, EUR 9.6 million and for the construction of other green energy plant, EUR 2.7 million. Other investments amounted to EUR 5.4 million related investments in land and buildings, EUR 0.9 million, hardware and software EUR 2.2 million, company vehicles, EUR 0.7 million an [indiscernible] EUR 0.4 million. Net financial position and cash flow, slide page 11. The net financial position, effective 30 September 2025 amount to total EUR 633.1 million, an increase of EUR 245.5 million compared to 31 December 2024. During the first nine months of 2025, cash flow generated financial resources of total of EUR 67.3 million; net investment, in tangible and intangible assets resulted in cash outflows of EUR 60.6 million, net working capital management absorbed resources of EUR 2.7 million. The group collected dividends of EUR 2.7 million from investee company not consolidated on a line-by-line basis. Shareholder's equity resulted in cash outflows of EUR 32.5 million [indiscernible] to shareholders. The purchase of equity investments resulted in cash outflows of EUR 472.2 million. The realization of Equity investments generated resources of EUR 234.1 million. Financial payrolls, slide page 12. Financial events as of 30 September 225 amounted to [indiscernible]. The loans are 60% variable rate and [indiscernible] average cost of debt in the first nine months of 2025 was 3.11%. I have concluded my presentation. Now it is Q&A session. Thank you. Operator: [Operator Instructions] First question from Roberto Letizia. Roberto Letizia: Good afternoon, everyone. Thank you for the presentation. Can you give us an update about the annual growth, RAB growth on annual anal basis, taking into account new business acquisitions. consequent to the expansion of the network, how will your strategy be in consideration of all these new strategies and new business combinations that we have made? And if you have any M&A opportunities as of today, can you give us also and overview considering the new regulatory framework? Nicola Cecconato: Good afternoon [indiscernible] your first answer. The global RAB expansion of the scope of consolidation finalized as of 1 July 2025 is EUR 1.85 billion, so EUR 1.85 billion if RAB grows in relation to investments. We can -- there can be EUR 25 million, EUR 30 million on an annual basis. We are also evaluating other M&A operations big and small on a small basis and operations. we will be acquiring a distribution network, but on a small scale. If there are opportunities, we are able to seize opportunity. So we have an opportunity to grow. On renewable energy, our view is taking for granted since we have been consolidating on gas distribution. The renewables are not something but not a significant core business for us. But if there is indeed an opportunity that brings up, there is some disposal in the [indiscernible] companies, we could take advantage for further growth. Related to other M&A operations in gas distribution, [indiscernible] on the market. We have some small operations that will be following and if there are big operation, they will surely be entertaining as the proposals. Especially, there are some operators that want to leave the gas distribution business. Relating to regulatory legislation. It has been quite constant. Nothing unusual has been happening. Some decisions that were meant to be taken have been postponed. Operator: Next question is by Emanuele Oggioni or Kepler. Emanuele Oggioni: My first question is synergies. [indiscernible] mentioned, also in the press release. can you tell us what the target is going to be for 2026 in the field of gas and what synergies you envision in 2026? Then I have a question for you relating to [indiscernible] Have you had any negotiations with [indiscernible]? The last question is about the gas standards. For gas standards, has there been any change in the legislation on some business combinations, what is your opinion? And what do you envision? What do you expect for the year 2026? What are your best case scenarios for Ascopiave? Nicola Cecconato: Thank you. From the moment we made the major acquisition of the [indiscernible], we took a joint, an important leap forward with a significant increase in above the base and also in the number of [indiscernible] we started global reorganization of the company that we add locally and we drove ahead of the reorganization of the network. I see information technology network management network. They're not in a position to give you a very precise and exact quantification of the exact positive impact the operation has had on us for Ascopiave [indiscernible] merge into our assets to bear fruit -- are going to bear fruit in the coming years. But as of today, I cannot give you any exact figures. So when we enter these figures into the year-end balance sheet financial statements, we will be able to give an exact amount. In relation to Itau gas. Relating to the acquisition of Itau gas assets [indiscernible] decision, we are interested in [indiscernible]. This is a fantastic result for us. We will be having an extra from 27,000 to 30,000 BDR delivery points. So especially in the province of Padua, we will be able to consolidate and enhance the efficiency of our services. So if the number of users is not yet high, the operations are rather positive. Relating to gas standards, your last question. There's been quite a lot of movement not only [indiscernible] but also around operations relating to the various category of the trade association. We don't -- there is a proposal in order that to merge the ATEMs and there is a counterproposal, the counterproposal is also tried to extend the concession in retail for investment. So we feel if we go to merge the ATEM, this is, in our opinion, within [indiscernible] as a negative proposal on the operation because if there is a merger, there will be [indiscernible] the value of the ATEMs will shoot up from EUR 130 million to EUR 700 million. So the participation in the [indiscernible] there will be a selection. [indiscernible] a very strong financial capabilities will be favored but if we analyze other factors, there won't be a real competition. So there will be a monopoly because only one big player or two big players would be able to participate in this bid. There is no possibility for other small players in the situation of monopoly [indiscernible] there were just one operated [indiscernible] so all other local and small operators were wiped off so even all of us have to pay the fees, the major beneficiary was just one player. In this case, the tender is managed in a centralized level. And local players there is no benefits that trickle down to local players, but proposals that helps all the players in the power and gas distribution, it will be something that benefits all the territories and not just one big player. The positive situation that [indiscernible] will be that all small players have a share of the cake and not just one big monopoly. So the best solution would be that all players can beat in a gas standard. I hope I have been clear with my opinion. So this is not just the opinion of Ascopiave, it is widely believed by all the smaller operators. Emanuele Oggioni: I have a follow=up. You spoke of around 30,000 delivery points [indiscernible] what is the RAB connected to these delivery point? Nicola Cecconato: This was not included in the EUR 1.85 billion? Emanuele Oggioni: Yes, they were not included. Nicola Cecconato: The operation will [indiscernible] March 2026. Operator: Next question [indiscernible] Mediobanca. Unknown Analyst: Good afternoon. a follow-up. On Itau gas to [indiscernible] when do you expect the closing? And when is the cash out of these 30,000 redelivery points? Nicola Cecconato: The closing is in the stage for every March 2026 and the fee is confidential, it is a price on the RAB which is EUR 22 million but the exact fees are confidential. Operator: Next question is from Davide Candela, Intesa Sanpaolo. Davide Candela: On gas distribution, what you have just said on the strategy, would you be willing to leave the Northeast and enter regions of Italy? And in that case, how would you approach [indiscernible] just enter the two regions of Italy instead of staying just in the Northeast? Regarding the [indiscernible], do you have any news for us regarding these two areas? Nicola Cecconato: Relating to the growth in gas distribution. We are moving around gradually. We look for assets, which are adjacent to where we are where we operate because it is more feasible for us, more convenient for us to work in an area which is [indiscernible] where we usually operate but this doesn't mean we cannot -- we are not going to enter other regions in Italy. But of course, no doubt that now we are a local operator we are just in Italy. So as I said, we just want assets which are joining in the areas where we operate. Relating to collaboration with [indiscernible]. We have been working on some assumptions. We have been negotiating, negotiations have [indiscernible] slow. We have been analyzing new forms of collaboration that relate to the management, joint management some businesses and the possibility of collaborating. Operator: The next question is a follow-up from Roberto Letizia, Equita. Roberto Letizia: Considering the two option that you spoke about. In general, how strong is your balance sheet in order to support some extraordinary operations if the opportunity comes for you. How solid is your cash flow? Nicola Cecconato: We can [indiscernible] more or less the demand that we can invest. And then obviously, it's a step-by-step process [indiscernible] is what we can invest as of today without thinking of some extraordinary financial operations. Operator: There are no further questions. Nicola Cecconato: Thank you very much [indiscernible] and have a great day. Operator: This is the Chorus Call operator. We have finished the operation. Now you can disconnect your phones. [Statements in English on this transcript were spoken by an interpreter present on the live 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.
Pedro Siguenza Hernandez: Good morning. I'm Pedro Siguenza, CEO of Sacyr. Joining me today is Carlos Mijangos, the company's Chief Financial Officer. Thank you all very much for attending the earnings call of Sacyr for the third quarter of fiscal year 2025. Sacyr continues to grow in line with its 2024-2027 strategic plan, bolstered by the strength of our concession model and backed by the key figures reported in Q3. Revenue grew by 5% compared to the prior year, reaching EUR 3.412 billion. Net profit, excluding the effect of divestments in Colombia rose by 81% to EUR 132 million (sic) [ EUR 134 million ]. 92% of EBITDA comes from our concession activities. Operating cash flow increased by 11% to EUR 890 million, and we have invested EUR 232 million of new capital in the first 9 months of the year, bringing the total equity invested in our concessions at the end of September to EUR 2.017 billion. Among the most significant milestones of the year, I would like to highlight the 4 that are shown on the slide. The 4 new concession awards in Italy, Chile and Paraguay which I will describe later and which represent a clear success in terms of backlog. The investment-grade rating obtained from the global agency Morningstar DBRS, which will facilitate and increase our sources of financing. Next, our presence in tenders for the most relevant concession projects currently on the market, where we are confident that we will continue to win contracts. As a fourth milestone, I can announce that the divestment of our 3 concession assets in Colombia has already obtained all the necessary authorizations. So the transaction will be closed and payment will be received during the month of November. As I mentioned, in fiscal year 2025, we have been awarded 4 new concession projects, which implies a hit rate of 50% on the bids timely submitted. However, this ratio is actually higher as 1 of the 8 concessions tendered, the Red Deer Hospital in Alberta in Canada was canceled prior to its award. The 4 new concession projects include the Novara City of Health and Science project in Italy in the Piedmont region. This is a multifunctional complex that will comprise a new hospital and a university campus with an investment of EUR 525 million. This contract will be valid for 25 years and will consolidate our position in Italy, which is one of our core strategic markets. Next, the Antofagasta plant, the largest wastewater reuse plant in Latin America, a key project to ensure sustainable water supply in the arid region of Antofagasta in the Atacama Desert with an investment of EUR 300 million and a duration of 35 years. Next, the Asunci n elevated urban highway, which extends the Eastern route in Paraguay, a EUR 174 million project with a duration of 23 years. And last week, we won the tender for the construction of the Pie de Monte in Nahuel in Chile, a 20-kilometer section of highway that is key to the road modernization plan in the Biob o region in Concepci n. This investment totals EUR 330 million, and the project will be valid for 45 years. These 4 greenfield concession projects enable us to continue ensuring our commitment to steady growth. On this slide, you can see a map highlighting the main opportunities that we are currently bidding for, prequalifying for or analyzing. And these align with our strategic plans goal to strengthen our presence in English-speaking countries with a particular focus on tenders in North America and Australia, while continuing to prioritize our core markets in Italy and Chile. In the short term, we are awaiting the outcome of the tenders for the Ontario Science Museum in Toronto, Canada and the Coquimbo desalination plant in Chile, both concessions lasting 30 and 21 years, respectively. In the United States, as you know, we have prequalified for the managed lanes projects in Atlanta as well as for the I-285 and I-24 projects in Tennessee, where we plan to submit bids in the first half of the next year. And we're also in the process of prequalifying for the I-77 project in North Carolina. In Canada, we have prequalified for the Trans-Canada Highway concession, which bids will be submitted in the first quarter of 2026, and we are pursuing various hospital concession opportunities such as the Windsor Hospital for Ontario Infrastructure (sic) [ Infrastructure Ontario]. In Australia, we are competing in 3 major water projects, the Adelaide Desalination Plant for Northern Water Supply, the Wyaralong Water Treatment Plant, south of Brisbane, and the Aurora reuse plant in Melbourne. In addition, we are pursuing several hospital projects such as the Parkville Hospital in Victoria and several landmark buildings for the 2032 Olympic Games in Brisbane. In our strategic Italian market, we are preparing to submit our prequalification for the Brenner Motorway, the A22, which connects Modena to the Brenner Pass and Austria. And we're also monitoring the upcoming tenders for the Turin-Milan and Brescia-Padua sections of the A4 Motorway, which are expected to be launched soon. Finally, in Chile, in addition to awaiting the result of November 14 of Coquimbo desalination plant, we are pursuing several water projects and highway concessions on Route 5, such as the Caldera-Antofagasta Highway, which is a private initiative developed by Sacyr and the R o Bueno-Puerto Montt section. I'll now give the floor to Carlos Mijangos to report on the financial performance in greater detail. Carlos Gorozarri: Thank you very much, Pedro. Let's move on to analyze the company's operational and financial performance. In the first 9 months of the year, revenue rose by 5% compared to the prior year, reaching EUR 3.412 billion. EBITDA also grew by 7%, reaching EUR 1.018 billion. And in addition, EBITDA margin rose, improving the company's operational efficiency. In terms of net profit, if we exclude divestments, there has been a very significant increase of 81%, reaching EUR 134 million. However, the sale of assets in Colombia had a one-off impact of minus EUR 72 million, reducing the final net profit to EUR 62 million. This provision of EUR 72 million has increased this quarter compared to the prior one as the contribution in this period of positive profit from the 3 assets held for sale also pushes the value of its equity up. However, the effect is neutral as a positive contribution to the income statement is offset by the increase in the provision for the sale. Operating cash flow grew by 11% to EUR 890 million, showing the company's ability to generate cash and the operating cash flow to EBITDA conversion margin reached 88% compared to 85% in the prior year. Another important point is the update of the valuation of concession assets carried out in June this year. As of December 2025, these assets are worth almost EUR 4 billion, and the trend is clearly upward. Our aim being to outstrip EUR 5 billion in 2027 and reaching EUR 9 billion to EUR 10 billion in 2033. With regards to shareholders, the company has fulfilled its cash remuneration commitment, paying a cash dividend of EUR 0.045 per share in July 2025 and maintaining the policy established under its strategic plan to remunerate shareholders allocating at least EUR 225 million in cash during the period of the 2024-2027 strategic plan. In the financial sphere, the company has obtained an investment-grade rating from Morningstar DBRS, a clear sign of strength and investor confidence. This achievement enables the company to diversify its financing sources, reducing financing costs and streamlining prequalification processes for new projects. In addition, it opens the door to issuing debt in the U.S. market through private placements known as USPPs. As we announced a few months ago, a significant milestone has been the sale of 3 motorways in Colombia for USD 1.6 billion, which represents a very attractive multiple on the initial investment of 2.7x and 12% above our internal valuation. All the necessary authorizations have already been obtained and at the closing a receipt of funds will take place during November, we're talking about more than USD 300 million. We continue to advance in our commitment to sustainability, both in project financing and in emissions reduction and social inclusion, aligning ourselves with the most demanding international standards. By way of example, we can mention the financing of the Buenaventura-Buga project that was closed in August, amounting to EUR 780 million with indicators for reducing polluting gases and hiring women in the areas of influence. As for the evolution of consolidated debt in the course of these 9 months, it has been reduced by EUR 400 million. It is worth highlighting the strong operating cash flow generated by business activity amounting to EUR 890 million, the financial result, which mainly contributes to project debt amounting to EUR 446 million, and the fact that we have invested almost EUR 500 million in our assets. And finally, under the heading of miscellaneous, we find the effect of the consolidation of Chilean assets that were held for sale in 2024 and the deconsolidation of Colombian assets amounting to minus EUR 215 million, which together with the exchange rate effect of EUR 302 million on leases and dividends generates a total impact of minus EUR 439 million. That's how we came to EUR 6.489 billion as at September 2025. In terms of recourse debt evolution, the most remarkable event reported over the quarter is the payment of a dividend to our shareholders amounted to EUR 36 million, together with the cash working capital recovery of EUR 15 million. We have invested EUR 33 million, of which EUR 24 million corresponds to equity in our concessions, the rest being machinery. And once the cash inflow from the divestment in Colombia is obtained, recourse debt will be reduced markedly. Now Pedro will give you more color on the performance of each business area. Pedro Siguenza Hernandez: Thank you very much, Carlos. Now I will provide details on the performance of our 3 business areas. The Concessions division posted revenue of EUR 1.266 billion, representing an increase of 2% year-on-year. The positive contribution of Chilean assets, especially the Itata Route and Route 68, reduced the negative accounting impact of financial assets on both operating income and EBITDA for the division, which fell by 8% and 9%, respectively. Revenue from construction grew by 37%, thanks to the contribution of major greenfield projects such as the Velindre Hospital in Cardiff, the Buga-Buenaventura Highway in Colombia or the Fruit Route in Chile. Our concessions have distributed EUR 114 million in the first 9 months of the year. So far, we have invested EUR 225 million, bringing the total equity invested in our infrastructure concession assets to EUR 1.889 billion. This year, we have also brought 3 assets into operation, all of them in Chile, the Atacama Airport in January, the Itata Route, the North Access to Concepci n in April and Route 68 on July 1. As I mentioned earlier, we have been shortlisted for 2 managed lanes projects in the U.S., the I-285 in Georgia and the I-24 in Tennessee, and we are currently in the prequalification phase for the I-77 in North Carolina. On the other hand, we have received further recognition for the I-10 highway project in Louisiana in the U.S. This being the seventh award received by our concession. Let me remind you that this is the largest financing in terms of volume and complexity carried out through a public-private partnership in the state of Louisiana. In the Engineering & Infrastructure division, revenue grew by 12% to EUR 2.205 billion, thanks to the significant growth of our activity in Italy and particularly the contribution of the A21 motorway. For this same reason, EBITDA rose to 42% up to EUR 407 million. If we analyze the construction activity in isolation since, as you know, Italian concessions are included in this division, the EBITDA margin remained stable, standing at 4.8% over revenue. The division's backlog has set a new record, climbing by 15% in the first 9 months of the year, reaching EUR 12.151 billion, of which 71% of the backlog corresponds to activity for our own concessions. Some of the highlights of the last quarter include the completion of a 32-kilometer road in Sweden, the execution of a contract for the Dublin Airport underpass with an investment of EUR 265 million and the completion and opening to traffic of an 11-mile section of the SR23 highway in Jacksonville, Florida, our largest construction project to date in the U.S. And finally, our Water division continues to post double-digit growth in 2025, both in terms of revenue, which rose by 17% until September and now exceeds EUR 200 million and in terms of EBITDA, which reached EUR 46 million, up 23% year-on-year. The backlog grew by almost 50% to EUR 7.148 billion, largely thanks to the award of the Antofagasta reuse plant. Total equity invested in the concessions of this division reached EUR 128 million. A major milestone this quarter was the fact that our Perth desalination plant in Australia reached its first million megaliters of water produced since operations began in 2011. This facility is the largest producer of desalinated water in Australia, the seventh largest in the world and is recognized as a benchmark in the industry. To conclude this presentation, and by way of conclusion, I would like to express our confidence in the successful attainment of our 2024-2027 strategic plan, thanks to the highlights we have just explained. First, our success in securing concessions with 4 new awards in the first 9 months of the year. Second, the manifold growth opportunities we are bidding on in our strategic markets, where we are confident we will continue our successful track record in terms of backlog. Third, the 11% increase in operating cash flow to EUR 890 million. And finally, achieving investment-grade rating and delivering returns to our shareholders through the first cash dividend payment, thus fulfilling our commitments. We are now available to answer any questions you may have. Unknown Executive: Good morning, everybody. Next, we're going to start with the Q&A session. We are going to start with the questions coming through the telephone line. And next, we are going to continue with the questions posted via chat in the webcast. Luis Prieto from Kepler Cheuvreux, you have the floor for the first question. Luis Prieto: I have 2 questions -- 2 quick questions. Thank you very much for answering this question. As for the earn-outs of Colombia, in terms of some pending offsets, how likely it is for Sacyr to receive the full amount that was timely agreed during the sales agreement. And the next question, and I don't mean to be impatient. I would like to know which is the current situation with Pedemontana in terms of rebalancing. Could you give us an update on how the situation evolves with regards to Pedemontana? Unknown Executive: Okay. We are going to answer in just a moment, please. Carlos Gorozarri: Okay, Luis. As for Colombia, according to the purchase and sale agreement, we agreed that the result of the arbitration award will go to the construction consortium where we hold 60%. The amount has not been ultimately agreed. This has to be decided upon by the arbitration award, but the proportional amount will correspond to Sacyr, and this is what we announced as a relevant fact that was timely disclosed. Luis, as for Pedemontana-Veneta rebalancing, as we mentioned in the past, as our Chairman mentioned in the past, we have no concern whatsoever. We have made steady progress with our technicians in Pedemontana-Veneta. We are also making steady progress with the financial adviser in the region, KPMG, in order to rebalance their financial and economic plan that is tied to this concession project. Unknown Executive: Luis, do you have any additional questions? Luis Prieto: Yes. Let me go back to what Carlos answered as for Colombia. You cannot provide any degree of certainty as to the final numbers, right? Do you think that you can provide any numbers as for the final earn-outs? Unknown Executive: Luis, as you may understand, we have submitted all the necessary arguments when our construction works were halted. But for the moment, we cannot actually provide an answer. However, we stand very high chances. Unknown Executive: The next question is by Miguel Gonz lez Toquero from JB Capital. Miguel González Toquero: I have 2 questions. Actually, I have 3 questions. The first question is, as for the evolution of the first 9 months, I have a question as for FFOs, even though cash conversion was a little bit weaker this quarter compared to the prior year. Is this due to the effect of intangible assets? Could you give us some more color in this regard? And also, I would like to know whether you can mention certain Colombia aside where your estimates are in terms of growth for Q4? And along these lines, now that you have officially closed the project in Colombia, can you give us some information as to the loss in terms of FFOs that this could represent and whether this is going to be offset by the new projects that you have won? And lastly, concerning the Water division business, you are performing very well, but margins have come down slightly over this quarter. I don't know whether this is due to the mix between concessions and other integrated businesses. I would like to know whether you can give us some more color as to what you expect in terms of sales growth in 2026 and how you think the margins might evolve into the future? And finally, I would like to know whether any value should be continued to be materialized in this division going forward? Unknown Executive: Thank you very much, Miguel. We will answer in just a moment. Carlos Gorozarri: Okay. So the first question concerning operating cash flows for the first 9 months. Since most of our assets are assets held for availability, not all payments are monthly. Sometimes we get paid every 6 or 9 months. Therefore, our quarters can be compared one against the other and not against the prior quarter. And with regards to last year, the difference is very small. Conversion and exchange rates play a key role here. So there's nothing remarkable in this respect. From a company perspective, we continue to grow at a rate of 11%. As for the closing of the year, we will continue to consolidate operating cash flows in Colombia until the very end. We believe that this is going to happen in November. And of course, the last month, we are not going to price this in, but we believe that we will be posting about EUR 1.3 billion, just like in the prior fiscal year and new projects that, of course, contributing cash, such as the Itata Road or the I-68 and I-21 Motorways. As for the losses coming from the assets sold, we are talking about EUR 170 million. That's our estimation for 2026, taking into account, however, that we are going to offset this amount, thanks to the projects that have been awarded to the company over the past months. And as for the question concerning the Water division, Pedro will answer that. Pedro Siguenza Hernandez: Well, we continue to remain right on course. This quarter, that was slight percentage fall, but we are now commissioning some projects we have been awarded such as the Antofagasta project. And therefore, EBITDA margin will be around 21% to 22% in that division. And since we are growing and as we showed during the presentation, we are now focused on carrying out some key projects, for example, concession projects in Chile and Australia, respectively. Based upon this growth, we aim at keeping on growing strategically within this division, and we are not considering to sell the Water division partially at all. Unknown Executive: Thank you very much, Miguel. Do you have any further questions? Miguel González Toquero: No, that's all. Thank you very much. Unknown Executive: There are no further questions from the conference call. Now we are going to read aloud the questions received through webcast. [indiscernible] asks whether we can give some color as to dividend for next year for shareholders. Okay, we're going to answer in just a moment. Unknown Executive: Under our strategic plan, we said that we're going to distribute EUR 225 million between 2025 and 2028. Therefore, next year, we are going to increase our dividend year-on-year. However, this decision is to be made by the Board of Directors when the time comes, and this is going to be submitted for approval at the GSM. Actually, it should be 2024-2020 -- 2025-2027 rather. Unknown Executive: Filipe Leite asks whether we can give more details as for the provisions of EUR 50 million in terms of traffic for Q3 and whether we should expect more provisions in Q4 or in early 2026. The second question is whether the construction backlog that we have reported on includes anything about the Messina Bridge project or not. We are going to answer in just a moment. Unknown Executive: Filipe, as for provisions, this is a technical issue, an accounting issue. We have been awarded for projects from day 1, you begin to receive some revenue, but you cannot amortize anything that you have not invested in yet. So right now, we are allocating provisions to these projects, the I-68, Itata project and the I-21 project. These projects will become operational within 2 or 3 years when amortization will take place in our accounting records. So provisions will be kept in 2025. However, this corresponds to amortizations that will take place once investments are made. Unknown Executive: Filipe, let me add that the construction backlog does not include the Messina Bridge project. The construction backlog has risen by 15%. In Attachment 32, we list other concession contracts that are included in the concession backlog but have not been included in the construction backlog yet because actually, they are included 2 months later. Unknown Executive: The next question is by Julius Nickelsen from Bank of America. The first question is the following. Concerning the rating, we have been awarded the investment-grade rating from Morningstar. Are we working with Moody's and Fitch or not? That's the first question. And the next question is about the A22 project in terms of investment. Next, he asks whether we can provide any estimate as to net debt -- net recourse debt at the end of the year once we have collected the funds from Colombia. And the fourth question is whether the complementary incentive plan that the Chairman and the company's management have will be paid in Q4 or whether it's going to be postponed until 2026. Julius, we'll get back to you in just a moment. Unknown Executive: [Foreign Language] Okay, Julius. We are working with other rating agencies. Each rating agency has its own methodology. We are making progress to engage with other agencies. And now that we are about to close our financial statements for 2025, we believe that we are going to complete some of these conversations we are engaged in. We'll see what plays out. As for the net recourse debt, once we receive funds from Colombia, this debt will be reduced considerably. We are not concerned about this debt anymore, EUR 20 million more or less is not relevant. Taking into account that Q4 is normally strong in terms of working capital, in terms of construction and we are also estimating some significant investments in assets, equity, we believe that this debt, however, will be reduced markedly. The answer is yes. As for the A22 highway that runs around 313 kilometers, we are talking about EUR 2 billion in terms of investment. And as for the incentive plan, it's going to be paid next year. Unknown Executive: Okay. Thank you very much for all the questions. And now let me once again turn to Pedro Siguenza, the CEO, for some closing remarks. Pedro Siguenza Hernandez: If there are no further questions, thank you very much for attending this earnings call. We wish you farewell until next time, and have a very nice afternoon. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Helen Hickman: Good morning, everyone, and welcome to Global Fashion Group's Q3 2025 Results Presentation. I'm Helen Hickman, CFO of GFG, and I'm here today with our CEO, Christoph Barchewitz, who will join us for Q&A. Today, I'll provide an overview of our third quarter results and full year guidance. After that, we'll open it up for questions. Starting with a summary of our Q3 performance. Our NMV was broadly stable year-on-year with 0.4% decrease on a constant currency basis. Our gross margin improved by 1.3 percentage points year-over-year to reach 46.1%. Our adjusted EBITDA margin benefited from the gross margin expansion and disciplined cost management to deliver a strong 4.4 percentage point improvement year-over-year to a positive 1.6%. This marks our first positive adjusted EBITDA on a last 12-month basis for our current footprint. Let's take a closer look at our group KPIs. For over a year now, we gradually slowed the rate of active customer decline each quarter. In Q3, active customers declined 2.3% year-over-year to 7.4 million, driven by fewer churn customers in all regions. Order frequency increased 0.4% year-over-year to 2.3x, marking the first increase since Q1 '23. In Q3, we generated EUR 239 million of NMV, which is broadly flat from last year on a constant currency basis. The group's marketplace participation increased 2 percentage points to 39%, supported by ANZ's fulfilled by offering. Average order value rose by 1%, primarily due to price inflation, which was partially offset by reduced items per order. Orders declined by 1.4% year-over-year. We continue to experience FX headwinds this quarter from a significant impact of the Australian dollar remaining weak, down 8% year-on-year against the euro. This means we had a lower euro reported value for NMV, and average order value earned in Australia, our largest market. Moving on to revenue and margins. Our revenue decreased by 1.5% on a constant currency basis year-on-year. Our continued gross margin improvement resulted mainly from a higher share of marketplace and platform services across all regions. This flowed through to improved our adjusted EBITDA margin, and combined with cost reductions led to a strong 4.4 percentage point improvement year-over-year. Our robust year-to-date performance has resulted in an adjusted EBITDA loss of EUR 7 million, representing a significant EUR 20 million improvement versus last year. Importantly, we achieved a major milestone for GFG by reaching an adjusted EBITDA profit of EUR 2.4 million on a last 12-month basis. Now let's turn to our regional performance. Both ANZ and LatAm have continued their positive trends by delivering top line growth each quarter this year. ANZ NMV grew by 4.9% and LatAm by 3.8% year-over-year on a constant currency basis. LatAm also made return to active customer growth in the quarter. SEA remains challenged and a focus area for us to stabilize and turn around business. All regions delivered year-on-year improvement in gross margin. Now let's move to our cash flow for the quarter. Our normalized free cash flow improved to EUR 11 million year-on-year as it benefited from a EUR 7 million improvement in adjusted EBITDA and a EUR 6 million CapEx reduction in part to the completion of our 2024 OWMS project investment. We had EUR 6 million working capital outflow, which was elevated versus last year due to payables timing differences. Normalized free cash flow for Q3 was negative EUR 15 million. Looking ahead, Q4 is our largest quarter along where we seasonally generate strong positive cash flow. We continue to have a solid liquidity position with EUR 136 million of pro forma cash and EUR 85 million of pro forma net cash at the end of Q3. Pro forma net cash excludes our outstanding convertible bond liability and other smaller loans. Since the Q3 close, we repurchased EUR 6.7 million more of the bond at a discount. We remain open to considering all opportunities to strengthen our liquidity, including potential debt financing and repurchases of the remaining EUR 40.9 million of outstanding bonds. Now looking to the rest of the year. We have delivered on our expectations to be year-to-date. We are now narrowing our NMV expectation for negative 5% to positive 5% to negative 2% to positive 2% on a constant currency basis. This equates to around EUR 1.01 billion to EUR 1.06 billion. Given our positive trajectory on adjusted EBITDA and considering Q4 is our most important trading quarter, we expect to achieve our breakeven target and deliver single-digit euro million results of adjusted EBITDA for the full year. Our full year expectations that leases, working capital and CapEx remain unchanged. We will share our expectations for 2026 at our Q4 and full year results presentation in early March. We'll now open the call to your questions. If you'd like to submit a written question, please take on the speech bubble at the bottom of the screen. Thank you. Operator: [Operator Instructions] We will now take our first question from Anne Critchlow of Berenberg. Anne Critchlow: I've got a few questions, so I'll ask them one by one. First of all, on the level of inventories at the end of Q3. I just wondered how those compared to last year? And also, if you could comment on the composition of those inventories in terms of aged stock and stock being in the right place and the right time and so on. Helen Hickman: Yes, of course. So our stock in quarter 3 this year is broadly flat with where we were this time last year. With regards to quality, we are confident in the quality as we are heading into obviously our busiest trading season across all of our regions. And our aging profile is broadly the same as we disclosed at the H2 results on our aged inventory and for us, we define that as over 180 days being about 14% of our total stock. Anne Critchlow: 14%. And I guess, much depends on Q4. But with regard to normalized free cash flow for the full year, where would you expect to be compared to last year's EUR 42 million outflow at this point? Helen Hickman: So obviously, yes, I think you hit the nail on the head, because obviously, a lot depends on the coming couple of months with regard to that being our seasonal peak. But if we sort of go through the component parts, we obviously are guiding into a breakeven to single-digit positive adjusted EBITDA so that will give us a significant improvement year-on-year on our profit flowing through to cash. Last year, we did have significant inflow sort of over EUR 30 million on working capital. And we're saying that this year, that will definitely be muted and closer to sort of a breakeven. And then we've also given an indication with regards of what our leases will remain broadly constant year-on-year and our CapEx is running at about EUR 15 million. So all of those will then give us constituent parts to normalize free cash flow. Obviously, the quantum of the profit is the key moving items in there and the delivery of where we have over the next couple of months will define that. Anne Critchlow: That's very helpful. I've got a question on CapEx outlook for next year as well. So I understand that various systems investments have been completed now. Do you have a sense of where CapEx could come down to next year, please? Helen Hickman: I mean we'll obviously provide all of our next year guidance when we announce Q4 and full year in March. But I think it's safe to say we have no significant infrastructure projects on the horizon in the short to medium term. So our CapEx will definitely be concentrated around our internal technology CapEx, which again makes up the majority of the EUR 15 million this year. Anne Critchlow: Very helpful. I understand the new -- a question on Southeast Asia. The new Chief Executive has started only in September. But I think previously, you talked about focusing on the top 30 brands in Southeast Asia. So I just wondered if you have a sense of early thoughts on what the potential strategy might be first impressions and possible turnaround. Christoph Barchewitz: Yes. Thanks, Anne. I'll take that. So we -- as you say, we have our new CEO for the region in the seat since September. So it's obviously early days for him. But what his mandate is and the objective obviously is to continue the turnaround actions we initiated already quite a while back. The activities we focused on both on the commercial side, so you mentioned the top 30 brands and really curating the assortment more narrowly around the 4 categories and the most relevant brands. That is continuing, and it's also yielding results. So we see better results in the bigger brands than we see in the longer tail, and that's obviously part of the deliberate strategy of discontinuing along the long-tail assortment. And then also on the marketing side, we're seeing some progress in terms of both our efficiency, which protects our bottom line to some degree in this turnaround as well. So I think we're broadly on track with the turnaround action. We don't expect the significant change in direction. And from all I know we -- I would definitely be very confident in the leadership team in place now there, which is driving all of these actions. So I think, as always, these things take a little bit of time to come through. The one that has the longest kind of period is obviously the buying activity since we have quite a bit of forward commitments. We don't think we're in any way overcommitted, and we've brought down our commitments for this year relative to where we were at the beginning of the year quite substantially. And we're taking a cautious approach for our retail buying and concentrating that on the largest brands for 2026. And I think as you know, we have a very large share, over 50% of our business in the region coming from marketplace. And so from a balance sheet and risk management perspective, we are in a quite favorable position there, and that will also protect cash and help us manage profitability overall. Anne Critchlow: That's pretty helpful. So you mentioned the share of marketplace giving you some protection. Does that confirm your sort of view in patience in turning this around? And how many years do you think you would give it until you might consider an exit from that region? Christoph Barchewitz: Yes. I think -- I mean the -- while we're obviously not pleased with the top line trends and the double-digit declines we've not seen for quite a number of quarters is not where we want to be in and there's many factors that we've also covered in the past calls that affirm that. But I think we see definitely a core base of the customer and a core assortment that is very relevant and that is an attractive business to pursue. One thing we don't talk about as much that I think is also very important is we have a quite sizable B2B business in the region, which helps us on the overall financial profile. And so when you look at the last disclosed regional EBITDA we have is LTM for June this year, and that was under EUR 1 million negative on EBITDA. So it's not like despite all the challenges on the top line we are improving on the gross margin side, and we are managing costs, be it marketing investments and other variable costs, but also the fixed cost base very, very carefully to make sure that the overall, let's say, financial burden on a group is within a manageable range. And we expect that to continue in that way and then obviously improve in the course of '26 and '27. Anne Critchlow: Just got 3 more questions, but I wondered if anybody else wanted to have a go. Operator: And we will now take our next question from Russell Pointon of Edison. Russell Pointon: A couple of questions, if that's okay. First of all, great to see the narrowing of the guidance range for the NMV. That implies obviously -- some good things are not coming quite through as quickly and perhaps there's less negative on some side. So could you just talk about what is a little bit better, what is a little bit worse to narrow that range? Interesting that ANZ and LatAm, the revenue -- the annual revenue growth will decline in Q2. And the second question was in terms of the gross margin, it's mainly mix, which is driving that improvement in gross margin. So therefore, retail margin is flat. So could you just talk about some of the drivers to that retail margin, please? Helen Hickman: Yes. So let me take your first question, Russell, with regards to guidance. So we have been broadly consistent throughout the year and considering we are hitting at that midpoint. So if you think about Q4, we're minus 0.4% and year-to-date, the group we're 0.1%. So given some of it is actually more mathematical in the fact that we've now only got a quarter of trade left. And whilst it's our largest trade to then be reaching the extremities of potentially plus 5 and minus 5, we've been over a quarter worth of trade would have actually made the quarter performance beyond aspiration and terribly bad on the other end. So the narrowing is a reflection of the passage of time and to the fact that to date, where we are at 0. And actually, we still within the quarter, have a relatively large range even to hit the plus 2 for the year minus 2 for the year. And we wanted to maintain that breadth because as you know, it is our most critical, it's also hugely competitive time of the year. So we need to see ourselves to manage that. You're right with regards we've continued to see the growth in LatAm and ANZ. LatAm has come off a little bit compared to where we were at quarter 2. Some of that has been driven by the sort of the change in season and it being seasonally very cold when we're not -- traditionally, it would have been much hotter in Brazil. So some of our winter inventory running out. But on the flip of that, that whilst we're still disappointed with it, obviously, we're seeing a reduction in the decline in Southeast Asia. So hopefully, that covers the way around the top line. With regards to margins, so yes, with regard to our 1.3 increase, again, there's a variety of components. But we're seeing trading margin increase predominantly in LatAm and Southeast and -- LatAm and Australia and some of that driven by actually reduced discounts on a year-on-year basis. This year -- this quarter, sorry, marketplace participation has had a key driver in that 1.3% increase as we've increased our overall participation by 2 percentage points and also was still relatively small. We've also seen a year-on-year increase in our platform services, which has also contributed quite strongly to the gross margin increase in the quarter. Operator: We'll now take our next questing from Antonio, NuWays. Antonio Perez: Could you provide us a little more color on the main cost drivers of the improvement in adjusted EBITDA, please? Helen Hickman: Yes. Of course, Antonio. So they're in line with some of the cost drivers that we've spoken about. So looking around fulfillment efficiencies and capability around picking, scheduling, batching, we've done a lot of work with regards to delivery and improving some of our -- times of our delivery carriers. We have had a continued review of our organizational structures, which we've been speaking about for many quarters, so sort of year-on-year, we're about 10% down in total headcount as a result of organizational design and restructuring. We've even reviewed all of our tech contracts, so it's really a mixture of efficiencies in our fulfillment, cost savings with regards to people and structure, all of our sort of G&A contracts, whether that be tech or more general G&A and also being disciplined around reviewing our leases and we've come out of a couple of more expensive sites, office sites, et cetera. So it's very holistic both operationally and more sort of G&A focused. Antonio Perez: That's super helpful. I have two more questions, if that's okay. What's the short-term plan to turn around Southeast Asia? Is there anything in particular you have in mind that could have a good impact? And also, is there -- maybe this was also asked before, but do you have a time horizon in mind? Or maybe is there a certain point, a certain decision point in which divestment could become an option? Christoph Barchewitz: Yes. Thanks, Antonio. I'll try to address that. So I mean there isn't a silver bullet, obviously, in these types of turnarounds in terms of one activity that would drive all the financial profile we'd like to see. So the challenges that we're facing, we see as really at the core of the activities of the business. So on the one hand, that is the commercial side, the assortment that we're offering, the level of relevance, exclusivity and competitiveness of the assortment. We've had a very broad assortment to cater to different price points, very different audiences across the region. Obviously, between Singapore customers and Indonesian customers, there's many, many differences in their interest, their spending power, their fashion trends, et cetera. But what we're trying to do and have already executed quite a bit on in the course of this year is to really sharpen and focus on the big brands that resonate basically across the region and generally with our global brands as well. So if you look at the side of the app, you will see very familiar global brands has been highlighted as the most relevant assortment. I think Helen has also talked about the freshness of our inventory. We have had -- because of the historical performance sometimes challenges with just too much aged stock. And obviously, that impacts the relevancy to the customer. So bringing in as much newness as possible on the retail side where we do the buying, but also working very closely with the marketplace partners to make sure that the stock that is available for sale on the marketplace side is of the current season, most relevant stock, which has not always been the case. So that's the supply side, if you want where there's much more to be done where we're making some good progress relative to where we were a year ago. And then the other side, on the demand side, what we're trying to move to is a much stronger focus on higher-value loyal customers and really growing share of wallet with those customers. So what that will eventually mean is that we will have a shrinking customer base, but hopefully, a higher spend per customer for the remaining base due to higher frequency and partially also higher price points that those customers are buying. And so we've adjusted our CRM, our VIP program and other things to really focus on that customer side and that demand side. So also, I would say of the two sides of the equation that we're focused on, our operations are very efficient and work well, and we don't have significant issues. There's always room for improvement, but it's not a substantial issue. And our tech is also stable and reliable and not a significant issue in this turnaround. And then the last point I'll add to this is the B2B business where we are serving brands to support sales on the dot-com, and that is something that we will continue to focus on and try to also broaden the customer or the partner base to have a larger number of meaningful partners that can also then leverage the spare capacity we have in the fulfillment centers in the region in a better way. So while we want to turn around the top line of the B2C business, getting a bit more volume from the partners on the B2B business can help with the overall financial profile. And so at this point, we don't have any intention of divestment or anything like that. As always, in any business, we will always reconsider and look at options that present themselves, but fundamentally, we want to improve the core dynamics of the business, and we are confident that we can do that with the team in place, the learnings over the years and also our track record of growing the business in ANZ and LatAm after some challenging periods in those markets post-COVID as well. So I hope that gives you a bit of context of where we're going here. Antonio Perez: This is super helpful. If there's still room for one question, I would like to ask you, in terms of seasonality we -- or I know that Q3 is usually weaker compared to the high peak quarters due to Ramadan or to the holiday season in Q4. But it was this Q3 a normalized weaker Q3, so to say, as usual? Or it was more pronounced or even better? What did you see? What were the trends for the quarter? Christoph Barchewitz: Yes, that's a good question. So you're completely right on the seasonality, and I think one thing always to call out that the holiday period and Black Friday, 11/11 are fixed in the calendar, although even there the day of the week that these events fall on, we see as usually a bit of an impact on how a year turns out or a simple trading period turns out. Obviously, on a Ramadan season, we have a change in the calendar every year. And so it moves earlier in the year, every year. So that seasonality we've obviously seen this year in particular, that the cutoff between Q1 and Q2 in Southeast Asia having an impact. Coming back to Q3 in your question, we have had no abnormalities on a year-on-year basis or any hard or soft comps that would be material. Yes, there's always some details around certain actions, certain events in the market when exactly did a certain campaign fall in the calendar, but big picture, I would say this is a fairly normal quarter that we've seen. Antonio Perez: Maybe just thinking about your last answer to the strategy in Asia. You told us that the continuous focus is to target the core customer base, the loyal, high-value customer base. But we've seen that the, for example, the turnaround efforts in customer numbers in LatAm and Australia and New Zealand have paid off with successful marketing campaigns. Can we expect as well a significant marketing effort to drive or to reconnect or to capture this or engage better with this core customer base? Or will it be more on the price side or the offer side? Christoph Barchewitz: Yes. Thank you. Great question, actually. So we definitely see an opportunity and a need to reinvest into our brands in Southeast Asia. We have very high brand awareness. But I think we clearly need a refresh of what the brand stands for, for the customer. From a timing perspective, we only want to do that when we feel like we have all of our capabilities and our assortment lined up to exactly deliver that. So simply speaking, if we're still going through clearing a lot of a stock it's probably not the right moment to go with a brand campaign that is focused on business, exclusivity, the best global brands, et cetera. So we need to bring that in balance. And that is definitely something that is on the horizon for 2026. And we have seen, in particular, with the "Got You Looking" campaign in Australia that, that can really make both existing customers perceive the brand in a new and different way and also bring back a lot of churn customers or bring new customers to the platform and certainly as a business that's now 12, 13 years old, 14 in some markets, we have had continuous need of reinvigorating the brand and articulating to customers of what the brand stands for. And so this is on the cards for 2026. Don't expect a big one-off investment that goes materially beyond our existing marketing budget or so, but we may have some quarters in which we put some extra marketing investment in and that may delay some profitability improvements by the business. Operator: We'll now take the follow-up question from Anne Critchlow of Berenberg. Anne Critchlow: I've got about 5 questions, please, if that's all right. So just a follow-up on Southeast Asia for background understanding, Do you target different products between the different country sites? So Singapore versus Indonesia, for example, or do you put everything on all of the sites and basically let the customers filter it down themselves? Christoph Barchewitz: Yes. Thanks, Anne, that's a really good question. So this is part of the complexity of Southeast Asia because it is not fully up to us. So the principle we try to apply is all brands, all assortments across all markets. That's the ambition level. But then when you go into the next level of detail, we run into the brands very often having different setups. So a given brand may have a distributor in Indonesia, have a subsidiary in Philippines and have no presence in Malaysia. And so in Philippines, we may be able to have trade on marketplace; in Indonesia, we have the distributor trade on marketplace. But for Malaysia, we need to buy in the stock. So these complexities are a big driver of challenges in the region. If you word it more positively, when you build those capabilities of actually operating across multiple geographies, multiple business models and multiple partners for the same brands, that is a moat that is not that easy to crack and to replicate in the market. So we have the ambition of having all stock and all products available, but we run into the degree of restrictions and preferences of the brands that make it different. And then from a consumer perspective, we obviously have different preferences. And even within the same brands, different products, different price points may resonate. So to give you an example, as you know, the big sports brands will be in our top brands, they may be contributing significantly to sales in all markets, but when you double-click into what products are selling, there may be slightly lower price points in Indonesia and in Philippines and higher price points, for example, in Singapore, in terms of what the customer is actually buying, and we need to obviously reflect that in the assortment that we offer. So there's definitely a significant degree of complexity around that, which we think has some structural impact on all players around gross margins and inventory efficiency in the region, but we're not trying to use that as an excuse. We definitely want to do better in how we manage our commercial activity. I hope that gives you some context. Anne Critchlow: It does. But just to be clear, in a particular country, for example, a brand may say that you mustn't show the customer's product for that brand. Is that correct? Or do you just put everything on all of the websites? Christoph Barchewitz: No, it depends on the relationship and the contractual agreement with the brand. So the brand will say, okay, if you're buying this from us, this is only for sale in Malaysia because in another country, we have a local distributor who has an exclusive right to that market. And so you need to work with that distributor in that market to have new products on the platform. So there are these restrictions, and we -- as you can imagine, we're always pushing against those or can trying to partner to kind of maximize sales for our brand partners across the region, and we will be much more comfortable taking inventory risk when we can settle the product across the market. On balance, the vast majority of our assortment is regional. But when you go into the nuances of what sells and the restrictions behind it and the business model of how it is implemented, it is not only a regional assortment. Anne Critchlow: Understood. That's really helpful. I've got a question about social media, but also now agentic commerce. So from the two channels that, in theory, threaten online aggregators, but also two channels that you can work with. So I just wondered what your approach was here? And where you think this is headed for the industry? Christoph Barchewitz: Yes, very exciting topic. I think we -- so one of the big benefits here is we've been at this for many years, and we've seen evolutions of both for the customers they are -- in terms of the platforms they're using, what type of engagement they have. You were obviously trying to be in sync with the customers. And so that has led us to be more active on TikTok, et cetera, et cetera. So in terms of the platforms, we're obviously agnostic, and we're going where the customers are and that's very important. From an agentic perspective, this is emerging, and it's going to be very exciting and interesting. I think we are very well positioned given that we have a long history of making sure that our assortment, the brands we carry, the content that is on our platform is very visible historically on SEO with especially Google. Perhaps, the same kind of applies in this new world. So obviously, we're learning, there are many things where it's a bit foggy and it's not clear where that lands. But I think we feel very, very comfortable that we can adopt this. And again, one benefit we have with our footprint is that by and large, a lot of these things play out first in other geographies. So if you think about the rollout of certain features in some of the global AI platforms, they usually start in the U.S. and then kind of roll out abroad in some cases in China and then roll out into other geographies. And so we can get the insight of what the impacts are and how to work with it and then give an early adopter in our geography. So we feel pretty comfortable that on balance, this is upside for us and not downside. Anne Critchlow: Really interesting. And I've got a question on tariffs, of course. And just an update on tariff impacts, if you would, either in the supply chain or from the consumer perspective. Helen Hickman: Thanks, Anne. We've been consistent in talking about this in previous questions that we're not seeing anything of significance, we haven't in the past, and there's nothing to note now across our relationships with our suppliers or customer sentiment in our region. So obviously, it's an ongoing dialogue with our suppliers, but there's nothing to note on and nothing that -- nothing of wide concern. Anne Critchlow: So second to last question on the competitive environment in various regions, just wondering how that's trending with regard to, say, Shein. And also perhaps the growing importance of secondhand, how does that affect your markets? And then any insight into consumer behavior and sentiment generally would be interesting. Christoph Barchewitz: So yes, Anne, I'll try to cover that. That's a very broad question. But I think -- so on Shein and the broader, let's say, low price on fast fashion side, there isn't really any significant new development. We've moved our assortment upwards quite substantially, and we're definitely seeing more the competition playing out between the different platforms being fashion specific or general merchandise that are offering those lower price point, largely unbranded products. So there's very, very intense competition in Brazil around this, also in Southeast Asia, obviously. So in that sense, nothing new for us, and we don't see any change in the impact to us from that side. Sorry, what was the second part of your question? Anne Critchlow: Just if you could give an insight into consumer behavior generally ANZ versus LatAm, for example? Christoph Barchewitz: Yes. So ANZ's consumer sentiment is reasonably okay. I think we see people focused on big campaigns and big events and maybe sometimes rolling back a little bit in between. So the promotional activity and the competitive intensity around that is quite high. But as you can see from the gross margin, we're able to manage that and very healthy position around our inventory. We know from some of our competition that they may have a bit more overhang on the inventory side and then that obviously drives the pricing behavior. The big campaigns or seasonal sales is just underway at kind of kicking off these days. So we'll see how that plays out over the 4 to 6 weeks. But generally, I would say the consumer is there, but knows there's going to be deals and is kind of looking for those deals, and I think that's fairly consistent. Obviously, we always try to push further on our exclusive product with our own brands and also exclusive third-party brands or lines from third-party brands and kind of differentiated that way our loyalty program is now fully launched in the region, and that's very exciting, and we think this is going to be a driver of getting more of the wallet share from our higher value customers and really getting people who maybe currently are buying, let's say, 4, 5 times a year to give us another 1, 2 or 3 purchases every year. So that's a big focus to feel pretty good about that. And then LatAm, I mean, some of the headline indicators recently have been more negative in terms of consumer sentiment. But then at the same time, when we look at the industry more broadly, we do see some growth. So it may not be clearest of pictures there and the reporting season for Q3 that gives us better visibility on some of the fashion players is underway right now. So I think we see that and maybe to comment on Colombia, that has been in the news from a geopolitical perspective a lot. And certainly, that has a degree of influence on what's happening in the market, but we've been executing very well on that market. And I think as we highlighted also at the Q2, Colombia is growing better or in line with Brazil. So very pleased with that performance in particular. Anne Critchlow: Very helpful. And then the final question from me is just on fulfilled by. If you could talk a bit about the margin structure? And how that basically benefits the gross margin? Because I think as many players fulfilled by is largely logistics and really quite low margin. So just wondering how that works and also how it's progressing? Helen Hickman: Thanks, Anne. So fulfilled by obviously is part of our wider marketplace offering with our marketplace partners, so as you would imagine, we have a higher commission rate with those partners to actually be able to manage their inventory and delivery and fulfillment within our existing infrastructure. So where we see the benefit is obviously we are firstly utilizing some potential excess capacity within our fulfillment center. We then obviously get many more benefits for our customer with regards to more seamless deliveries, especially if they're ordering maybe a retail product and marketplace product, actually, that's the pick and packing delivered at the same time. There's also the efficiency with that with regards packaging. With regards to our sort of profile. So we're most advanced in our Southeast Asia region with regards to fulfilled by offering. It's now very much a growth engine in Australia. The implementation of our OWMS system at the back end of last year actually opened up and facilitated fulfilled by to make it much more easy for our connect business and our brand partners in Australia and whilst it's on our pipeline in Latin America, it's relatively nascent but again, a growth engine for '26 and beyond. Operator: We have no further questions in queue. I'll now hand over for webcast questions. Helen Hickman: So two questions from Dan Curtis on the webcast. First, Netflix recently said Brazil, CIDE tax had a big impact on their results? Does the [indiscernible] face similar learn exposures to that 10% tax on overseas payments? Yes. I mean what I'd say is [indiscernible] has got quite different exposure to Netflix with regards to our mix of payments et cetera, is different compare something like the Netflix licensing where that licensing content from offshore. So it's not something that high on our radar, but we're super confident that all of our cross-border supplier payments are managed within existing intercompany and transfer pricing rules and obviously, we're compliant with all taxable countries. The next question, how do you see an increase in referral traffic from customers via AI chatbots? And if so, do those convert materially better than traditional SEO traffic? Christoph Barchewitz: Yes, that's a good question. And I think we've touched on that briefly earlier. It's still a very small share of our traffic. I think what is very important is that our ambition, especially for our core existing customers is that the starting point for engaging with fashion is our app. And we obviously have now very high app share across the group. And so we want people really to start from the app either because they get a notification from us or they may get an e-mail from us that kind of pique their interest or because the natural go to place is the app. And then obviously, within the app, we want to drive a better and better discovery journey, leveraging AI and letting the customer engage in a somewhat similar but more relevant way than they would be on a generalist AI platform like chatGPT. So I think that's a focus area for us in particular. Then when it comes to acquiring outside traffic and new customers, certainly, this channel will play an important role, and we do see that it is a high intent channel relative to some others. But I think it's very early to say. And I think we also can't obviously tell at this point, what the types of customers are that are coming through this channel, generally, we would expect it to be early adopters probably a little bit more affluent than the typical customer, et cetera. So there will be some bias in that data. So we're monitoring that fully. Helen Hickman: Next we have some questions on M&A. To summarize, are we planning to pursue any external growth opportunities via M&A and what are our debt financing plans? Christoph Barchewitz: Yes. So we're not looking at any acquisitions or anything, at least not of any meaningful size in the context of the group. So -- and that's not a focus area for us. We're very focused on delivering, obviously, this year, profitable EBITDA and then continued improvement next year and improving cash flow situation as well within the balance sheet that we have. And I think we've been very clear around our financing that, obviously, we've managed the convertible liability very proactively over the last few years, given the change in circumstances for the group. And I think captured a very significant discount for our shareholders, and we will continue to manage all of our debt, including some of the smaller facilities we use for working capital bank guarantees and those types of things. And so there's no bigger plans here, but we always look at how we optimize our balance sheet and in particular, manage the seasonality in our business, which, as you all know, is quite strong with significant cash out in Q1 and significant cash in, in Q4. Helen Hickman: That is all the questions. Thank you all for joining today. If you have any further questions, please reach out to the Investor Relations team directly.
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.
Conversation: Marcus Poppe: Good morning, ladies and gentlemen. This is Markus Poppe speaking. On behalf of Daimler Truck, I would like to welcome you on both telephone and the Internet to our Q3 results global conference call. We are very happy to have with us today, Eva Scherer, our CFO. Eva will begin with an introduction directly followed by a Q&A session. The respective presentation can be found on the Daimler Truck IR website. On our request, this conference call will be recorded. The replay of the conference call will also be available as an on-demand audio webcast in the Investor Relations section of the Daimler Truck website. I would like to remind you that this teleconference is governed by the safe harbor wording you will find on our published results documents. Please note, our presentation contains forward-looking statements that reflect management's current views with respect to future events. Such statements are subject to many risks and uncertainties. If the assumptions underlying any of these statements prove incorrect, then actual results may be materially different from those expressed or implied by such statements. Forward-looking statements speak only to the date on which they are made. Now I would like to hand over to Eva. Eva Scherer: Thank you, Markus, and good morning, everyone, and thank you for joining our earnings call for the third quarter of 2025. As the results show, quarter 3 was shaped by a sharp downturn in North America and a slow paced recovery across European markets. Industrial business revenue totaled EUR 10.6 billion, driven by 98,000 units sold. Adjusted group EBIT totaled EUR 716 million. Adjusted return on sales for the Industrial business came in at 6.3% with earnings per share at EUR 0.57. Free cash flow was EUR 24 million, bringing our net industrial liquidity to EUR 5.9 billion at quarter end. In a volatile global environment, we are focused on what we can control, improving structural efficiency through disciplined cost management and targeted resource allocation to have the best value proposition to our customers. At our Capital Market Day in July, we outlined our path to becoming a more resilient and profitable company, and we are executing on this. Product highlights in quarter 3 include the launch of the eActros 400 and the new BharatBenz HX series. The eActros 400 is part of a large electric truck portfolio extension based on the technology of our eActros 600 and further strengthens our market leadership in electric trucks. We call it the second generation of our eActros. It offers more than 40 possible combinations of the basic vehicle, depending on the application and requirements for range, payload and comfort. The new BharatBenz HX series is tailored to meet specific needs in India's growing construction and mining segment even better, offering significant improvements in operational efficiency. Another highlight is our new cooperation with ARQUUS, which aims to develop products and processes to better meet the needs of customers in the defense sector with Mercedes-Benz providing the trusted Zetros and thereby contributing to the future modernization of the French Army's logistics truck fleet. Furthermore, we have signed an agreement with Otokar, which adds cost-effective manufacturing capacity to meet strong demand for the Mercedes-Benz Conecto city bus, further strengthening Daimler Bus' market position. Let me now turn to the developments in our key markets in the third quarter. In North America, the Class 8 market totaled 200,000 units for the first 9 months, representing a 12% decline year-over-year. In the third quarter, the decline accelerated to minus 20% year-over-year. The drop reflects ongoing economic uncertainty and a weak U.S. freight market. Our Class 8 market share held steady at 40% through September, confirming our leadership position. In Mexico, the heavy-duty market declined 45% year-over-year. This was driven by the Euro 6 transition early in the year, compounded by economic weakness in quarter 3. In Europe, the heavy-duty market declined 8% year-to-date, totaling 217,000 units. On the positive side, however, the third quarter saw 6% year-over-year recovery. Our European heavy-duty market share rose to 16.5% year-to-date and 19.1% in quarter 3. This represents an increase from 16.2% in quarter 2 and 14.2% in quarter 1. We have steadily improved our position, supported by strong demand for the Actros L. This confirms that our product investments are paying off. Let's take a closer look at unit sales and order intake in the third quarter. At group level, the book-to-bill ratio was 96%. Unit sales fell 15% to 98,000 units, while incoming orders declined by less than 1% year-over-year to 93,900 units. At Trucks North America, unit sales dropped 39% and incoming orders 29%, reflecting the sharp contraction in the U.S. market. Considering tariff uncertainties, our effort to accelerate deliveries in quarter 2 ahead of potential tariff changes amplified the sequential decline in unit sales. On a positive note, our current order backlog covers the 2025 unit sales guidance. At Mercedes-Benz Trucks, stronger order intake is now converting into higher unit sales, up 8% year-over-year in quarter 3. Volumes rose compared to the third quarter, but were lower than planned due to continued ramp-up issues in our plant in Wörth, Germany as well as a more muted market environment in India and Brazil. Despite tariff uncertainty and a slow paced recovery in Europe, EU30 orders rose by 56% for Mercedes-Benz vehicles with strong demand for our Actros L, leading to a book-to-bill ratio of 102% in Europe. Orders in Germany improved slightly by 5% for Mercedes-Benz vehicles. Latin America unit sales rose by 10%, a 6% decline in Brazil due to a weaker heavy-duty market, high interest rates, inflation and political uncertainty was offset by stronger sales in Argentina and market share gains in the medium-duty segment in Brazil. Order intake for Latin America increased by 6%. In India, unit sales rose slightly despite a market shift towards the 16 to 19 tonne segment, where we have a lower presence and quarter 4 sales pushout due to the VAT reduction, which became effective on September 22, 2025. Trucks Asia delivered around 26,000 units in the third quarter, an 8% decrease year-over-year. This decline was driven by weaker sales in Indonesia. Order intake rose 12% year-over-year, mainly attributable to growth in Japan and Indonesia. Daimler buses unit sales fell 4% year-over-year, mainly due to a weak Mexican market. Order intake was down 12%, driven by softer demand from Brazil. Let's look at our ZEV volumes. In the first 9 months of 2025, we sold over 3,800 battery electric trucks and buses, up from 2,100 units in the same period last year. Order intake for zero-emission vehicles remained flat at around 4,200 units. Our zero-emission vehicle data highlights that the transition to zero emissions depends not just on the right vehicles, but also on achieving cost parity with diesel and a robust charging infrastructure, areas where stronger government support is still needed. The transition has faced headwinds in both the U.S. and Europe. Adoption in the U.S. has slowed significantly and progress in Europe remains below expectations. On a positive note, our zero-emission vehicle range continues to resonate with our customers, achieving a 56% share of the European heavy-duty market in September and bringing our year-to-date market share to 33%, making us the market leader in electric trucks. Now let's have a look at our financial performance for the quarter. At group level, revenue declined 13% year-over-year to EUR 11.5 billion and adjusted EBIT fell 40% to EUR 716 million. From a segment perspective, Mercedes-Benz Trucks and Financial Services contributed positively, while Daimler Buses and Trucks Asia saw modest year-over-year declines. Trucks North America profitability dropped over 60%, driving a 42% year-over-year decline in the Industrial business EBIT to EUR 668 million in quarter 3. Trucks North America revenue declined 33% year-over-year to slightly below EUR 4 million -- to slightly below EUR 4 billion leading to an adjusted EBIT of EUR 257 million and an adjusted return on sales of 6.4%. In addition to lower fixed cost absorption, the profitability was affected by higher R&D spending and expenses related to capacity adjustments. The tariff impact was in a double-digit million range in the third quarter. Pricing remained positive in quarter 3. However, the product mix generated a headwind with fewer Cascadia and Western Star vocational trucks and a higher medium-duty share with lower captive powertrain penetration. Following significant production adjustment, our dealer inventory was reduced by approximately 15% in the third quarter, in line with the overall industry decline. This normalized inventory will benefit us once the market rebounds. Mercedes-Benz Trucks revenue rose 3% year-over-year to almost EUR 4.9 billion with an adjusted return on sales of 6.5% and adjusted EBIT of EUR 319 million. While a significant improvement was anticipated in the third quarter, stronger-than-expected demand for the Actros ProCabin, combined with ongoing supply chain constraints have continued to limit our production volumes. In EMEA, profitability improved on higher volumes, a favorable mix and a release of previously accrued bonus provisions, partially offset by increased R&D spend and selective pricing measures. As expected, in a competitive European market, we remained focused on executing the cost reduction initiatives that we outlined at our Capital Market Day in July. In Latin America, business was impacted by a 7% market decline in Brazil, driven by a significant drop in the extra heavy on-road segment and a mix shift towards medium-duty vehicles with lower contribution margins. Volumes in India rose slightly year-over-year. Looking ahead, we expect demand to pick up following the implementation of a more favorable tax rate as many customers had delayed purchases in anticipation. Trucks Asia reported an adjusted EBIT of EUR 67 million in quarter 3 with an adjusted return on sales of 5.7% on revenues of almost EUR 1.2 billion. The market environment in Asia remains challenging with persistently low demand in key markets such as Japan and Indonesia. Despite weaker volumes and unfavorable regional mix and FX headwinds, the segment delivered a solid performance by maintaining strong prices and exercising SG&A cost discipline. While we expect stronger new vehicle unit sales in the fourth quarter, Trucks Asia's profitability will be impacted by increased headwinds from FX and significant seasonal increase in R&D expenditure. Daimler Buses delivered another strong quarter, reporting an adjusted EBIT of EUR 137 million and revenues of over EUR 1.4 billion, resulting in an adjusted return on sales of 9.8%. The segment maintained its market leadership across its core markets, including EU30, Brazil and Mexico. Adjusted EBIT was slightly lower year-over-year as quarter 3 2024 included a EUR 26 million gain from the measurement and sale of a noncore shareholding -- EUR 26 million gain from the remeasurement and sale of a noncore shareholding. Quarter 3 performance was supported by a favorable mix and strong net pricing. Adjusted EBIT for Financial Services rose year-over-year from EUR 39 million to EUR 48 million. The improvement was resulting from stronger portfolio margins and lower SG&A. These gains more than offset FX headwinds and elevated cost of risk, which remain driven by the ongoing freight recession and macroeconomic uncertainty in North America. As a result, adjusted return on equity increased from 5.7% to 6.5% in the third quarter. Now let's look at our quarter 3 cash performance. Working capital had a negative impact of EUR 121 million, driven by higher inventories at Mercedes-Benz due to ramp-up challenges in our German assembly plant, initial stocking at the new Halberstadt distribution center and the after effects on the North American production network following the fire at our Cleveland plant. Net investments in property, plant and equipment and intangible assets totaled EUR 415 million. As a result, cash flow before interest and taxes for the Industrial business was EUR 202 million. After deducting EUR 156 million in cash taxes plus interest, pension contributions and other items, free cash flow for the Industrial business came in at EUR 24 million. On an adjusted basis, free cash flow was EUR 116 million. Net industrial liquidity was at EUR 5.9 billion at quarter end, unchanged from quarter 2. As in previous years, we expect cash generation to be concentrated in the fourth quarter. Let's turn to the key drivers for the remainder of 2025. Our guidance for the 2 major regions remains unchanged. We continue to expect the North American heavy-duty truck market to land between 250,000 and 280,000 units and the EU30 market between 270,000 and 310,000 units. All segment level guidance KPIs for 2025 remain unchanged. Since November 1, we've been operating under a new tariff environment. Some specifics remain unsolved and a full evaluation of the implications will require more time. For Trucks North America, we remain confident in our ability to mitigate the impact of additional tariff costs for 2025 and expect to land at the lower end of both the 2025 unit sales range of 135,000 to 155,000 units and the return on sales corridor of 10% to 12%. In the fourth quarter, we expect Trucks North America unit sales roughly in line with third quarter levels, but profitability to be sequentially weaker due to an ongoing unfavorable mix, a fading pricing tailwind, increased tariff costs and seasonally higher R&D and SG&A expenses. Full year profitability for Mercedes-Benz Trucks is expected to land at the midpoint of the 5% to 7% guidance range. We expect quarter 4 unit sales for Mercedes-Benz Trucks to be approximately 20% higher than quarter 3, contingent on timely resolution of current supplier challenges. Quarter 4 profitability is expected on quarter 3 level. Trucks Asia profitability in quarter 4 is anticipated to be lower than in the third quarter due to further FX headwinds and seasonality in R&D expenditure despite higher quarter-over-quarter unit sales. Daimler Buses is expected to deliver a significant sequential increase in unit sales in quarter 4, with profitability slightly above quarter 3 levels. For Financial Services, we expect adjusted EBIT in the fourth quarter to be on a similar level as in the third quarter. We confirm our group and Industrial business guidance. Given the heightened uncertainty stemming from the tariff situation in the U.S., we have not yet started our recently announced share buyback. We intend to start the buyback program once we have better visibility, and we remain highly committed to a shareholder-friendly capital allocation policy. As you can see, numerous dynamics are currently at play, many of which are externally driven. That's why we are focused on what lies within our control, enhancing efficiency and delivering value to our customers. Our first -- our results for the first 9 months show that we are on the right track. That concludes our presentation. Thank you for participating. We are now happy to take your questions. Marcus Poppe: Thank you very much, Eva. Ladies and gentlemen, you may ask your questions now. [Operator Instructions] Operator: The first question comes from Nicolai Kempf from Deutsche Bank. Nicolai Kempf: It's Nicolai from Deutsche Bank. Two questions and both related to North America. First one, you probably saw the Class 8 order intake for October and pointing into the right direction. And as you stated, due to the production cuts last month, inventories are coming down. So do you see a bottoming out of this market? And the second one is on tariffs, and I will refrain from asking for a specific number. But just high-level thinking here, are you considering to adjust your final assembly given the tariffs, so moving more assembly to the U.S.? Eva Scherer: Nicolai, thank you for your questions. Two very valid ones. So let me take the first one. So order intake, and maybe let me start also a bit with how the Q3 orders developed over the months in the quarter. So July, August were on a fairly similar level, but then September was quite a bit better than that. And October was then also a bit better than September sequentially. So we do see a positive trend continuing. I mean I have to say it's in a very low market environment that we're operating right now, but we do see that it's slowly picking up. And I also did say during my speech that, that obviously also leads to the fact that our inventories are coming down because we have adjusted our production program now throughout the last couple of months. So we do see that in dealer inventories. What we see, as I said, 15% that's what came -- that's how it came down over the course of the quarter. Within that, we see that there was about a 20% reduction on the on-highway side and then 15% roughly on the vocational side. So on the on-highway side, we actually see even a higher reduction in dealer inventories, and that's now a fairly normalized situation. So we're getting out of these high levels. And on the vocational side, it's also pretty normal that it takes a bit longer to reduce further because we obviously are relying there on body builder capacity, which has gotten better, but there's still a small congestion that we see there. And also, our own vehicle stock has decreased as a result of the reduction of our production program where we now are in a normalized environment. And we are from a production program because of the order development in quarter 3, now fully booked with our planned production program for quarter 4, and we are now filling quarter 1, which is obviously not filled yet, and we have some work to do there. Now let's come to your second question, the tariff implication. And of course, we're talking here about the implication of 232 that has been implemented as of November 1. We have said before that we have a fairly high level of flexibility among our assembly plants in the U.S. and in Mexico. But I cannot tell you at this point whether we will be making any adjustments and if how we would make them because as I also said during my presentation, we need to understand the details of the new tariff scheme a bit better. So what we obviously know is that we're paying the 25% now as of November 1 for the assembled trucks when we bring them across the border from Mexico into the U.S. and we only pay for the value of the assembled truck minus the U.S. content. So that is the situation right now. But then there are obviously a lot of details within that when it comes to deductions and credits. So when it comes, for example, to a 3.75% credit on the selling price of trucks assembled in the U.S., and there are a couple of questions we are still having. So we are obviously in close discussions with the U.S. administration in order to understand that better and also to, of course, discuss mitigation measures. And as part of mitigation measures, we will always look at how we utilize our flexible production network. And of course, we also look for further efficiencies on our side and how we can deal with that situation. But it's really a bit early to tell because it's going to take us some more time to understand how it all comes together and what the final implication will be. We have worked for quarter 4 now with an assumption of what we believe the impact will be. And as I said during my presentation, we are confident that we will be able to compensate the quarter 4 impact within our guidance. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: Eva, Klas from Citi. So just coming back on the tariff comment that you expect to be able to offset the effect with countermeasures during the outlook period. But obviously, the implied margin for Trucks North America into the fourth quarter is now around low single digits. So effectively, are you saying that within the guidance? Because obviously, in absolute terms, your tariff impact from November and December must be sort of 5% to 6% on my math. If I understand that better, Eva, I will start there. Eva Scherer: Klas, thanks for the question. We're having a bit of a bad connection. The last part, I didn't quite understand the -- in absolute terms part about the tariff impact. What was that? Klas Bergelind: Yes. So what I meant is -- I hope this works now. What I meant is to get to a low single-digit margin for Trucks North America implied by your low end at 10%, so low single digit for the fourth quarter margin, that would imply that you have a quite big tariff impact that you can't compensate for. I hope you can hear me. Eva Scherer: Yes. So I mean, of course, in the quarter 4 guidance, the tariff impact is implied. And we have now -- and we talked about this, I think, in previous quarters, we have a tariff surcharge that we're currently using. We do not intend to increase this in the course of quarter 4. So that means the impact from the surcharge is as per our previous planning for quarter 4, but now we have higher tariff costs coming in. So of course, the net impact is bigger. I said before that we expect net tariff impact for this year in a low triple-digit million amount, which is mostly reflected in the second half of the year with the highest impact in the quarter 4. And this is excluding EUR 232 million and then EUR 232 million comes on top now. And yes, this will be a tariff impact now without mitigation, obviously, in quarter 4 because we have just 2 months there. And then, of course, now we're, as I said, working on understanding it all better and see how we will react to it and looking at production footprint and of course, also looking at like what do we produce in the U.S., what do we produce in Mexico, how we can navigate that in the best possible way going forward with the stipulations that we have now in the new regulation. Klas Bergelind: My second one, and I hope you can hear me, is on the guidance for the year. You are reiterating the guidance for the year, but if Mercedes-Benz is 6.5% fourth quarter, Trucks North America, low single digit and Trucks Asia going backwards, I mean the absolute EBIT level, it looks to be at the low end of your guide around EUR 3.6 billion. I just want to sort of understand if you're guiding towards the lower end because that is what I get to. Eva Scherer: Yes. So the profitability, we're towards the lower end for the year. Revenue, you can expect around the midpoint. And then the sales, they're between the midpoint and the lower end, the unit sales, and that's where we expect to be. Klas Bergelind: Perfect. Absolute final one. On orders in Trucks North America, strong in September, but obviously, the mix is tricky. I think you're alluding to that October was also better than September. Is that -- do you think, Eva, any sort of prebuy ahead of Section 232, November 1? Or yes, what -- how do you understand the order trend? Eva Scherer: No, I do not see a prebuy effect implicating October. What we see is, obviously, October, November, these are the periods when some of our customers are also starting then to really order for the next year and planning their capacities. But we do see that happening much less than in previous years because in the past, we also had capacity constraints on the OEM side, and this is clearly not the situation right now because we're in the longest freight recession that the American market has seen in a long time. It's going on for more than 3 years. Historically, usually a freight recession ended after about 1.5 years. And so what we see now, obviously, on the OEM side is the capacities are there. So our customers do not really see the necessity to now already order for the next year in a significant manner. So it's still -- again, it was a positive development in quarter 3, much better than quarter 2 sequentially and October is continuing a positive trend, but it's not a spike or anything that would indicate a prebuy. Operator: The next question comes from Michael Aspinall from Jefferies. Michael Aspinall: Michael from Jefferies here. I'm just wondering if you've had many conversations with customers about how they're thinking about potentially higher prices in the context of your total cost of ownership advantage with the eCascadia? Eva Scherer: Thank you, Michael. I actually had a lot of discussions with our customers during the course of last week because I was at the ATA exhibition and conference in San Diego last week, and we had a lot of discussions. So what I can say, what our customers are saying is they believe we are the best in the market. That's why they like to buy from us because we have the reliability. They see the total cost of ownership advantage overall to be there because it's also for them not only about fuel efficiency, where we're doing well, but it's about the dealer network where we have the strongest in the United States. It's about spare parts availability. It's about service quality that our dealer network provides and then, of course, quality of the truck that they can rely on. And so they're really saying is market has been extremely weak. So they're obviously suffering from this really long freight recession, but they are committed to us. And that is something that became very clear. What we also need to say that, obviously, because of this freight recession and the situation in the market, the ability of price increases at the moment is fairly limited until the market really picks up. And that's something that we need to take into consideration because we have really demonstrated our pricing power over recent years. And we can see that also in quarter 3, we had a net positive price effect in North America. In quarter 4, that will obviously turn a bit because of tariffs, but generally, a really good price position. But now when it comes also into the next year, we do hope, of course, that the market will pick up. And I know we said that a year ago also, but it should -- at one point, we should see a turnaround. But we do not expect to see it at the moment in quarter 1, and it will probably happen more towards the second half of the year. And with the return of the market in the U.S., then, of course, also pricing will be a different situation again. At the moment, as I said before, when I answered Klas' question, with capacities being there on the OEM side, it's always a bit different. But generally, we believe we are well positioned with the eCascadia and the eCascadia Gen 5, which just came out, which is well received by our customers. Michael Aspinall: Great. One more for me then, and it won't surprise you that it's on tariffs. There's been some details of the tariffs announced, but whenever I speak to dealers or anyone else, there are always kind of mentions of negotiations. Are you able to give us any indication as to if you believe the current state of tariffs is the final state of tariffs that will exist kind of -- I mean, I guess as I'm asking, it sounds like a silly question. Eva Scherer: Well, Michael, I didn't bring my crystal ball today. So I'm afraid I don't have an answer. I really wouldn't want to make a prediction on this one right now because I guess nobody knows. Michael Aspinall: One last one then, can you help us with the U.S. content of trucks you're bringing across from Mexico? Eva Scherer: Yes. I mean we talked about that, of course, before also that we're bringing the full powertrain is coming from Detroit. So that's for sure something that we can deduct from a Mexican assembled truck, and then we also have some other U.S. components and material, and that's how we're looking at it right now. Operator: The next question comes from Shaqeal Kirunda from Morgan Stanley. Shaqeal Kirunda: Shaqeal from Morgan Stanley. Can you please tell us a bit more about the mood of North America customers? Like we discussed, ACT order data is improving sequentially but remains on low levels. Are customers more positive than they were 3 months ago? Or is it just seasonality? And then can you remind us on the cancellation policies and delays? Once orders are placed, how easy is it for customers to push those out in case they change their mind? Eva Scherer: Yes. How is the mood? Maybe slightly better. So obviously, one of the questions I asked most last week was when do you think we will see a recovery? And most of them are saying that they hope in the second half of next year, but also acknowledging that we expected that a year ago, the earliest recovery that somebody sees is maybe towards the end of quarter 2. Quarter 1, I haven't really heard much positivity around. So it's still a wait-and-see mood, and we really need to see freight rates getting to a better level there in order to, I think, really see a changed mood and momentum. So yes, nobody is excited about the market. I can tell you that much. And a lot of players in the market are struggling because of that. On your question about cancellations, the one thing is how it is -- how is it contractually and how do you then maintain it? And I mean that's also how we managed it this year. So we have obviously firmly placed orders, but with our large customers, especially in the United States, we also work in the way that they reserve production slots. And then it doesn't make a lot of sense to say you reserve it and now you have to take the trucks because it's about long-term customer relationships that we want to have. And we are the OEM in the North American market that's has the most mega fleets and large fleets in the customer base. And so the customer relationship is most important for us. But also when now over the last couple of months, we've seen some cancellations, it wasn't excessive. So I think that's really not the main problem we have that it's cancellations. And it's also not, as I said, that we're getting an excessive amount of orders now for next year because our customers know we have an order cycle of 6 to 8 weeks. So at the moment, the capacity is there, you're getting a truck. Shaqeal Kirunda: And then can you please tell us about European order trends? I mean I understand we're probably still growing year-on-year, but should we be concerned about sequential declines? And then some of your peers expect the German infrastructure expenditure to kick in by year-end. Do you also see this? And then any update on cost down in Europe, if possible? Eva Scherer: Sure. So yes, European order trend. I mean, in Europe, it's getting better. I mean, I think you saw that with our numbers. Also, we had now a positive book-to-bill also in Europe again, which we're happy about, but it's still not on a really good level. So we have been waiting for this recovery in Europe also for a long time now. And Germany, yes, I mean, we were already very excited in quarter 1 that now it should hopefully happen also with the governmental announcements of infrastructure spending, defense spending. We don't see it yet in Germany from what I'm hearing, nobody is. But yes, it should come at one point. And let's hope that in next year and beginning of next year, we see a bit of movement there. Right now, we don't yet. So we really see Germany order intake with a moderate development, but we really don't see that decisive turnaround yet. And I mean, Europe overall improving slightly sequentially from an order perspective. When I go a bit through the European market, we see a strong order intake in France in quarter 3. So there's higher demand. Spain is also seeing really, really positive order development. We had an exceptionally strong order intake in Poland in quarter 3 and also in the U.K. So this is where we really saw positive impulses. So it's sequentially better, but not a decisive turnaround at this point. And then next year, we do hope that we will see a recovery, and we will give you an update then in March when we also give you our outlook for 2026. On cost down Europe, we're progressing well. I mean we gave you, I think, a lot of detail at our Capital Markets Day. So in all the different areas where we have set our targets, we have now really on a detailed level, defined the measures and the action items, and we're working them through bit by bit. And we are on track to deliver what we said at the Capital Market Day also for 2026, which is a positive impact of a low triple-digit million range for the year. So this is all going as planned, and we're happy with the progress. Operator: The next question comes from Akshat Kacker from JPMorgan. Akshat Kacker: A couple of them, please. The first one on the Mercedes-Benz Trucks bridge. Could you just explain the factors that are driving all the movements there? Volumes are up on a year-on-year basis. I see gross profit contribution is down. There's another bucket that is up EUR 80 million in the quarter. You've also talked about some strategic net pricing actions. Could you just help us understand that Q3 margin better? And why are we expecting Q4 margins to be flattish on Q3? That's the first question. The second one is on CapEx and cash restructuring assumptions as we go into 2026. At the CMD, you've talked about a pickup in CapEx for next year. Could you just give us your updated thoughts on CapEx and cash restructuring for '26, please? Eva Scherer: Sure, Akshat. Thank you for your question. So let's look at the Mercedes-Benz Trucks bridge first. Maybe first, you were talking about this others items, the million. So what we do have there. I mean, these are mainly valuation adjustments for provisions that we have booked there. But overall, when you look at the moving parts in quarter 3 of Mercedes-Benz Trucks, I mean what we obviously see is that we do have cost effects from these ramp-up challenges in our plant in Wörth, Germany because that comes with a lower efficiency if you have missing parts, you also have some issues with quality from supplier parts and really getting a production process running at an efficient level and you have to do rework. So that costs you something. And then we have parallel activities in our old spare parts center and then the new spare part center in Halberstadt, Germany, where you have an impact. And so this is something that will also accompany us during the fourth quarter, but we also had that in the third quarter. R&D, we did have an effect, obviously, in quarter 3 of higher spending versus prior year quarter, but we also will see then a seasonally higher quarter 4 spending in R&D, which is something that we also had. And then there was a positive effect in quarter 3, which will not duplicate in quarter 4, which is provision releases. So as you see, the year is a bit weaker than we planned because markets are not very favorable right now. And that means that also incentive provisions could be released to a certain degree. So we took them down to the current forecast projections. That's something that we will not see duplicating in quarter 4. So in quarter 4, at Mercedes-Benz Trucks, we have a bit higher volumes, but we do still see some mix effects, and we do see that we have these reworks that will still be affecting our productivity and a higher R&D portion that is then leading to a profitability, which will be on a very similar level in quarter 4 compared to quarter 3. And then the second part of your question was about CapEx and cash next year. So as I presented also during the Capital Market Day, we are seeing a peak in CapEx expenditure in the next 2 years, and that is still what we believe. And then from a restructuring perspective, we do see next year that we will have -- I mean, this year, it was the consumption of our restructuring provision that we booked in quarter 2 is very, very limited. Next year, that will be a bit more, but we will then update you in our annual results conference as what the premises are for '26 in detail. Operator: The next question comes from Daniela Costa from Goldman Sachs. Daniela Costa: I have 2 points. The first point is a follow-up on some of the tariff-related debates. But based on what you said, I guess, you're not putting an extra surcharge and you haven't decided on CapEx plans yet. So as we look into the first half of '26, is there still enough time to do a full compensation? Or should we say that like first half '26 anyways, we should be at sort of materially lower profitability and then compensation will take into effect later? And also, does that have -- what happens to Section 232 has any bearing on how you think about the buyback cadence? Eva Scherer: Thanks, Daniela, for your question. So no, it's really too early to say what the effect of 232 in the first half of the year will be. And we are obviously -- the first step is now understanding exactly what all the stipulations in the 232 regulation mean. And again, we're also talking to the U.S. government when it comes to that to understand it better and of course, also talking about mitigation and so on. Once we know it, then we can talk about our pricing assumption, potential surcharges and so on. I mean I said before that, yes, in a low market, where there is enough capacity also, it's -- there are limits to how much you can do with pricing. But again, we're having that discussion. Once we understood what the impact is, then we will look at potential pricing topics and when we could do something and what the implications would be. It's really too early to talk about that. I mean what I can say is, yes, I mean, we're not intending to push through potential full 232 effect to our customers. I mean we're also seeing, and I mean, I talked to you about that the net impact of tariffs for this year, excluding 232 is a low triple-digit million effect. That's -- we've obviously passed on a portion of this to our customers and a portion of it you see in our results. So that's the way to think about tariff effects. And then when it comes to share buyback and implications on explaining CapEx and so on, obviously, we're also -- when we do our budget right now, and we're currently finalizing our budget planning for the next year, it's going to take us another month, 1.5 months or so. And there, of course, we also look at CapEx and we look at the target there for next year. Whole picture comes together with our market assumptions because volume plays a decisive role, as you can see this year with significantly lower volumes, especially in North America, that will then give us a better overview of where we are on free cash flow generation for next year. And what I said about the buyback is, obviously, we need to understand what 232 means exactly. And then we will look at the projections for the next year, and then we will decide on the start of the buyback at this point in time because obviously, it doesn't make sense to start the first tranche of a buyback because you have to also define on the value of the first tranche and the speed of the buyback. And for that, you need some visibility as to how the next couple of quarters are going to look like. And once we know that, obviously, we will update you. Daniela Costa: And the follow-up just on Mercedes-Benz, both sort of for the European and for Brazil. Like, of course, the deliveries you guided significantly up, but I guess that's because of the supply chain or the trucks you didn't deliver because of supply chain issues. But if we think about sort of production rates, are you considering them moving forward up, down, flat, sort of what's the production plan, I guess, that's a bit different to what the deliveries path will look? Eva Scherer: Yes. I mean, in Europe, it's not moving up because we do expect to sell off quite a bit of also new vehicle stock in the fourth quarter, which is something that we usually do because we have a shutdown over Christmas of our German plant. And then, of course, we will also -- we will catch up from that ramp-up issue topic with the supplier parts. And that will then also, of course, also contribute to cash flow with the reduction of raw material and unfinished goods. So that's one portion of the cash contribution we expect in quarter 4. But then the other one is obviously that we sell new vehicle stock that has built up in Europe because we don't see that development there that we saw in North America that inventories also with our own stock levels are down significantly now. So that is the movement there, and that's why the production program in quarter 4 is a bit lower for that reason. And in Brazil, it's a bit lower because of market. So we do see a weaker market in Brazil. Overall, we are holding up quite well. We're winning market share, but the market overall, as I said during my speech, is weakening in Brazil. Operator: The next question comes from Harry Martin from Bernstein. Harry Martin: The first one I have is just on the U.S. competitive position and pricing. I saw that the Class 8 market share went below 40% in Q3. What would you put the main driver of that being down to? But also PACCAR said into next year, they're looking forward to moving away from surcharge pricing. So does this become a competitive disadvantage for you if you're adding a 232 surcharge and the players with domestic production are not going to be doing that competitively anymore? Eva Scherer: First, Class 8 market share. Thanks, Harry, for your question. So what we see also when we look at now the orders of the last couple of months, we see our Class 8 market share holding steady, which is good. We did see for a couple of months earlier in the year that ours was a bit weaker, but that was mainly due to mix because, as I said before, we have -- our customers are the mega fleets, the large fleets, and they've been ordering a bit less than the smaller and medium-sized fleets. So it was a bit customer structure on the on-highway side, but we do not see that we're losing market share in Class 8, and we do believe we are well positioned competitively. And about tariff surcharges, just to repeat what I said already, it's too early to talk about tariff surcharges for 232 because we first need to understand the impact, and there are a lot of discussions and evaluations happening. And so that's really not something I can comment on. At this point, we've had a surcharge for 2 quarters now, and this is still there. And everything else we're currently evaluating. Harry Martin: And then the final question that I have is on next year's outlook. The current consensus has double-digit EBIT growth for 2026. So I wondered how you feel about that? And also what market volume you would need in the U.S. and Europe to be able to hit that level of growth next year? Eva Scherer: Harry, I understand that, that's a very important question to ask, but it's really too early. As I said, we need a couple more weeks to finalize our budget, our market assumptions and all the moving parts before we can comment on the 2026 development. Operator: The next question comes from Alex Jones from Bank of America. Alexander Jones: Two, if I can. The first, just back on Mercedes-Benz volumes. You talked about your Q4 guidance being contingent on supply chain resolution. Can you give us an update on that and how confident you are that, that does get solved in Q4? And then perhaps the second question on Torc, I think press reports during the quarter suggested you were seeking a partner for that business. Can you give any comment there and what you would be looking for in a potential partner, whether that's sort of a strategic help to scaling the business or more from a financial perspective? Eva Scherer: Thanks, Alex, for your questions. So let's start with Mercedes-Benz Trucks volume being contingent on solving supply chain issues. So we do have [Audio Gap] in place. We had the last review 2 days ago. And I think there are good chances that we will get that solved during the course of quarter 4. Of course, it's also always depending on our suppliers. And I mentioned that one reason is also that we have a higher demand for the Actros L with the ProCabin than what we expected and which capacities, then we also reserved for that on the supplier side, which is obviously great that our customers appreciate our new product so much. And you also see it in the significant market share recoveries over the last couple of months in Europe. So this is really a product that's being well received. And now we obviously need to get the production up and running because we also want to be prepared then, of course, for hopefully better markets also next year. But again, we have action plans in place, and we're getting through step by step. So that we can figure that out by the end of the quarter, and we're on a good path. I have to put in one disclaimer. It is obviously also dependent on the Nexperia topic not hitting us. I mean that's something that affects everybody in the market. So far, we've been able to manage it quite well. I think everybody is doing a lot of broker buys, and we're used from the last supply chain crisis and how we can deal with that. And we have also strengthened our supply chain. And at the moment, production is running smoothly. But obviously, this is also something where we just need to be looking at, and it's a watch item. On your second question, Torc, I mean, I can't comment on media speculations. What I can say is we are progressing well with our virtual driver software and we do have trucks on the road in Texas, still with a safety driver in, but we are really moving forward step by step, and we've seen good progress over the last couple of quarters. We're hitting our milestones. And then there are various options for how we will continue with that business, but we do believe we have a great value proposition because we do have Torc as an independent subsidiary that works on the virtual driver. And then we have in our North American business, the part where we have developed an autonomous-ready Cascadia, so a redundant chassis as we call it. And we also see that this is very competitive product right now where we're ahead when it comes to the technology. And that's something where we believe we are well positioned then once the autonomous market starts and once the technology is ready for a market release, we are well positioned on the vehicle side and on the software side and then having, of course, our customers and the market access that, that will put us in a very favorable position. Operator: The next question comes from Miguel Borrega from BNP Paribas. Miguel Nabeiro Ensinas Serra Borrega: First one, just on Mercedes-Benz. I wanted to understand how do you see a 20% increase in sales quarter-on-quarter, but flattish profitability, especially it's a bigger quarter, more operating leverage, perhaps even a better mix with more trucks coming from Europe. Order intake has been very strong lately. So what is the headwind there? Eva Scherer: Yes. I think I answered it already. So we did have a positive impact in quarter 3, also coming from provision releases from an incentive perspective. And then overall, the mix is actually not really better in quarter 4. I mean there are always a lot of moving parts in a global business that is Mercedes-Benz Trucks. And we do also see that pricing is obviously not easy in these markets. We're winning back share. We're being disciplined in pricing. But of course, in a difficult market environment, we already had negative net pricing in quarter 3 that will continue in quarter 4. We have seasonally always a bit higher spending levels in quarter 4 with the cost ramp-up in really all areas. And so that's where we see that coming from. Miguel Nabeiro Ensinas Serra Borrega: And then going back to North America and a little bit more broadly and if we take a step back, given the setup of tariffs at the moment, if we had a favorable market, if volumes do ramp up perhaps in '26 or '27, do you think the midterm guidance for margins of 10% to 14% is still possible? Or do you think the business setting will change so significantly that you may now operate on a different margin range? Eva Scherer: Thank you, Miguel. So that's now really looking further into the future. What I can say is what we have presented at the Capital Market Day, this is our target level, and that's what we stick to, and these are targets for 2030. And of course, with a different tariff environment now, we need some time on mitigation. So that's where, obviously, on a short-term basis, you will see an effect. But we do believe when we look at it on a 5-year basis, structurally, we're well on track. And we do believe that we have a lot of potential as we outlined in our Capital Market Day. Miguel Nabeiro Ensinas Serra Borrega: Yes. I just wanted to understand the margin coming down from 12% to 6% and even lower in Q4. How much of that has been driven by obviously lower volumes, your volumes are quite weak? And how much will be the impact of tariffs going forward? So if we shave, I don't know, 5 percentage points from a weaker market and 200 basis points for tariffs, we can kind of give us the range for a new margin setting. But I just wanted to understand if the 14% is still possible even with the tariffs. Eva Scherer: Yes. I mean, again, when it comes to the future, I think I explained how we think about that. What I can tell you about quarter 3. I mean, the tariff impact was a double-digit impact. And the rest, I mean, obviously, also came from a mix effect, but mainly volume. So that gives you probably an idea. I mean we are operating under significantly lower volumes now in the second half of the year than in the first half of the year. Operator: The next question comes from Hemal Bhundia from UBS. Hemal Bhundia: Hemal from UBS. Just could you remind us the levers that you have available to you in Q4 in achieving the industrial free cash flow target? I understand Q4 is seasonally strong for industrial free cash flow, but any specifics you would like to call out? Is it more driven by inventory or profitability? Eva Scherer: Yes. Very good question, Hemal. Thank you for that. So the free cash flow increase in quarter 4, the biggest increase versus the first 3 quarters of the year is coming from Mercedes-Benz Trucks, and that's something that we see every year. So we always see that year-end Sprint with a very strong seasonality. And it's mainly coming from inventory reduction. Of course, there are always also some movements in receivables and payables, but by far, the biggest chunk is coming from inventory reduction. And within that, and I said it already, it's a reduction of the new vehicle stock because we then also have the shutdown over Christmas. And then it's a reduction of raw materials and unfinished goods because that's where we have very high inventories right now because of the ramp-up issues because we need to get the trucks really finished and out of the door and delivered to our customers, and our customers are waiting for it. So when we talked before about confident are we going to achieve also our sales and profitability targets in quarter 4 during these supplier challenges in Mercedes-Benz Truck, well, our customers are waiting for the trucks. And this is the biggest motivation we have to get it solved. Hemal Bhundia: Understood. And on my second question, on Mercedes-Benz, you mentioned selective pricing. Is that more so much on a geographic basis? Or is it by a certain customer type? Eva Scherer: It's something that we see in Europe because of the market weakness. So we do see that in India and also in Brazil, we still have a more positive pricing development. But in Europe, obviously, it's a competitive situation right now as the market has been down for a while. Operator: The next question comes from Frank Biller from LBBW. Frank Biller: The one question is just maybe you can confirm the dividend payout ratio of 40% to 60% of net profit. That would be helpful. And the other question is on electrification. So there was a huge increase in the third quarter coming from the order intake. Was there a special topic from the pricing side that you have such a big increase? And what is your expectation for the next years to come? Is it speeding up? Or is it more slowing down in these circumstances? Eva Scherer: Yes. Thank you, Frank, for your question. I'll take the electrification one first. So why is the order intake so good? Because we are pretty sure that we have the best product in the market with the eActros 600. We also now launched the eActros 400. I said that we are the market leader in heavy-duty electric trucks. In Europe now, we had more than 50% market share in the third quarter. I think that speaks very clearly for the quality and customer benefit of the eActros. And we do see that our customers see this as a strong advantage and the customers that are buying the truck, they also see already total cost of ownership benefits if they are operating in countries in Europe where they have a toll advantage from a road toll perspective and where they have the access to the charging infrastructure, for example, when they have their own chargers and distribution centers because the public charging infrastructure is really still lacking. And that's what's holding us back. We do believe we've really demonstrated that we did everything we can do by having a very competitive product, and we also see that our price is at the right level. So this -- there's nothing that we're seeing where we're under price pressure, but we see that our pricing is value-based for the eActros, and this is also being accepted. But now the infrastructure topic is the biggest one because if our customers cannot charge their trucks for the routes that they're using, then they also cannot order one. And that is something where we do need now also governmental support, and that's something that we're lobbying for also in the European Commission level. So that's where we have to see how the development will ramp up, but we see that if customers buy a truck, there's more than a 50% chance that it's an eActros and not a competitor product. So that's good. On the dividend payout ratio, yes, 40% to 60% is our ratio. I mean, we're not religious about it. And obviously, we will look at the dividend policy once we have closed the year, and then we will give you. But it's very important to us that we have a strong capital allocation policy. We do generally believe that also stable dividends are important, but we'll give an update once we have decided on dividend payout for next year. Frank Biller: Maybe on the margin side from the electrification. So margins are still positive, but lower than combustion engines, right, yes? Eva Scherer: No, they are not. So when we look at it on a percentage basis, so gross profit in percent of revenue, it's a very similar level. And then, of course, the absolute margin contribution is higher because the price of an electric truck is still quite a bit higher than a diesel truck. Operator: The last question comes from Nick Housden from RBC Capital Markets. Nicholas Housden: Just one left for me. I was wondering if you could just provide us with an update on the vocational market in North America. It's obviously been quite a nice counterweight during the on-highway recession. So just wondering how you're seeing that market heading into 2026. Eva Scherer: Thank you for your question, Nick. So the vocational market has been holding up a bit better over the last couple of quarters than the on-highway market. And I mean, obviously, not as strong as last year, which was an extremely strong year for vocational, and we're gaining market share. The Western Star product range is extremely well received. So we do see that we continue on our trajectory of gaining market share towards our target of 35% market share in 2030. So we are on track there. Of course, also a weaker market for vocational this year than last year, but it's holding up better. Marcus Poppe: So ladies and gentlemen, thank you very much for your questions and for being with us today. Thank you very much, Eva, for answering the questions on this, I would say, quite extensive call. After a short break, the Q&A call for media will start 9:20. Now as always, Investor Relations remain at your disposal to answer any further questions you might have. We're looking forward to staying in contact with you. Have a great day. Thank you, and goodbye. [Break] Thomas Hövermann: Good morning, everyone. This is Thomas Hövermann speaking. Thank you for taking your time, and welcome to this conference call on our third quarter results of 2025. Here in this call, I'm welcoming Eva Scherer, CFO of Daimler Truck. Before we start with this media Q&A session, as usual, the following notes. This call is conducted in English. So please be so kind to ask your questions in English as well. The operator will now explain the procedure for registering your questions. Operator: [Operator Instructions] Thomas Hövermann: And we are already having the first question, Markus Klausen. Markus Klausen: My name is Markus Klausen from Dow Jones. I have 2, if I may. The first one is on the planned share buybacks. Could you give us a rough estimate when they will start in the first or possibly the second half of next year? And the second question is about the margin forecast for this year. Is it fair to assume that the return will be a little bit more on the lower end of the range given the weak performance in North America? I believe you already mentioned this in the analyst call, but the connection was not optimal. Eva Scherer: Thank you, Markus, for your question. Yes, I can confirm the second part with the margin outlook for this year. So it will be more towards the lower end of the range. That is correct. And the first one on the share buyback. I can't give you a timing yet. But as I said on the analyst call also, we are currently finalizing our budget planning for next year. We are working on understanding all the stipulations within the new 232 regulation. And once we have clarity on that, that's when we can give an update on the share buyback. And that's why we haven't started yet because we don't have that clarity yet. Thomas Hövermann: Next one on the line is Benjamin Wagner [indiscernible]. Benjamin Wagner: Yes. Benjamin Wagner, [indiscernible] Frankfurt. Can you give us an update on the Cost Down Europe Savings program? And with a special question, how many of the 5,000 jobs you want to cut have already been cut? And how many of your employees have already moved to the so-called orientation platform? Eva Scherer: Thank you for your question. So what I can say is we are on track with our time line for the Cost Down Europe program, and we're working through the actions step by step. And we are to achieve a low triple-digit million saving amount there next year, as we have also indicated during our Capital Market Day. And on details about headcounts, we do not comment. Thomas Hövermann: Next one on the line is Ilona Wissenbach. Ilona Wissenbach: I have a question about the EU CO2 regulation. The truck makers asked the EU for less stringent CO2 rules. And also Daimler was warning about draconian penalties coming up otherwise and noting that those foreseen now are 10x higher than those for cars. I would be interested what is draconian? Have you assessed and how far you reached the targets and how high the fine would be you still have to face? And environmentalist groups are concerned that if this is watered down that the OEM may be less ambitious to offer e-trucks and perhaps it would also have a dampening effect on demand. Eva Scherer: Thank you for your question, Ilona. So first of all, based on our planning, we can achieve the targets in 2030 because we have the portfolio that enables us to transition to zero emission. And this is clearly demonstrated by our market share. As I said during my speech today, we have more than 50% market share in electric heavy-duty trucks in quarter 3. We are the market leader here in Europe. So this shows we have done our homework. We have spent a lot of money in R&D in order to develop the products needed in order to achieve the CO2 targets. But what we cannot influence is the availability of infrastructure. So that's where we're really asking for support because we need to ensure that our customers can drive the trucks where they need to go based on their route planning, and we need to make sure that then for them, the total cost of ownership works. And that is something where there is some work to do, and we do not see the ramp-up in infrastructure progressing as fast as we need it. And so we are -- what we are wanting is really a link of infrastructure availability with the penalties because otherwise, you're penalizing the OEMs without enabling our customers to run the trucks. And with draconian penalties, I mean, you mentioned it, if you talk about 10x the passenger car penalties, of course, these are huge amounts. And this is why we do believe now is the time because we still have a couple of years to go until 2030 to really make sure that we put everything in place, but that it's also clear that ultimately, when the infrastructure is not there, we should not be held accountable if we have done our homework as an industry and have invested billions of euros into our electric truck portfolio. Ilona Wissenbach: And perhaps if I may, can you a bit elaborate more on the Nexperia chip situation? You said during the analyst call, the production is not affected and you manage it quite well yet. How is the situation? I think you are also depending on Tier 1 suppliers and -- or do you not need that many of those standard Nexperia chips? Eva Scherer: Yes. I mean we need the exterior chips as everybody in the industry, I think. But in trucking, we need less than in the passenger car sector. But of course, also for us, it is a big topic. But our production is currently not affected. And then, of course, we're working on mitigations. We have secured broker buys, and we do hope that we'll get through the next couple of weeks until hopefully, also there will be -- that the situation could potentially be resolved, but we're doing what we can as everybody is and production is running right now and secured. But it's really a situation where week by week, you are working on getting the parts of -- of course, also working very closely with our suppliers, but we're also doing broker buys ourselves to provide our suppliers with the chips because it's just whatever you can get your hands on right now, that's what you do. And we have learned a lot during the last supply chain crisis, and we do have good access when it comes to the supply chain. So everybody is supporting and everybody is cooperating closely to avoid an impact, but we do not have obviously full visibility. It's a week-by-week thing. Thomas Hövermann: We have now Alexander Jungert in line, Mannheimer Morgen. Alexander Jungert: This is Alexander Jungert, Mannheimer Morgen. Just one short question. You were talking about the weak business in the U.S. Are there any effects on sites here like Mannheim or Wörth? Eva Scherer: Thank you for your question, Alexander. I mean, we do have some component supplies from our German powertrain sites into the U.S. And I mean, of course, a low market overall is impacting also our German powertrain plants. But I mean, this is all already considered in the production programs that we have now set up for the quarter 4. Thomas Hövermann: So it looks like that there are no more questions. All right. Ladies and gentlemen, then we have already reached the end of today's conference call. Thank you for participating. The recording of the session will be available later today on our Daimler Truck website. If you have any further questions, please do not hesitate to contact the Daimler Truck Communications team. We wish you all a good day. Goodbye.
Trond Johannessen: Good morning, and welcome to this presentation of Pexip's third quarter results. My name is Trond Johannessen, and I'm the CEO. Together with me here at Lysaker, I have our CFO, Oystein Hem; and our Chief Revenue Officer, Åsmund Fodstad. Together, we will take you through the highlights of the past quarter and our focus going forward. The standard disclaimers apply as usual. First, a brief overview of Pexip for potential new viewers. Pexip was founded in 2012, and currently, we operate in 25 countries across the globe. We are a specialist video conferencing and infrastructure company focusing on interoperability and secure and custom meetings. We do software only, Delivered as a Software or Delivered as a Service. Pexip has unique and established partnerships with the leading companies in our industry. You see some of them on this slide. We complement and enhance their solutions and do not generally directly compete with them. Our customers are mainly large organizations in both the private and public sector that have complex needs when it comes to video collaboration. The financial performance is strong and has been improving over the last quarters. Now to the highlights of the past quarter. Our annual recurring revenues grew with $3.2 million during the quarter, and this leaves us with an ARR base of $122.2 million out of Q3. In the quarter, we had particularly strong performance in our Secure and Custom business area, and the development here is supported by increased public awareness around the need for secure and sovereign IT and communication solutions. In Connected Spaces, our Connect for Zoom product continues to perform well. We also see that our solutions for self-hosted interoperability in high-security private clouds in the U.S. is developing positively. In Q3, we also launched a brand-new product in cooperation with Google that enables Google Meet hardware to connect to Teams meetings with excellent quality. This was not possible before. EBITDA came in at NOK 52 million in the quarter and fresh -- and free cash flow came in at NOK 29 million in the quarter. If we look at our Q3 performance in the context of the last 12 months, we see that the positive trend we have seen over the past quarters continues. Our total ARR continues to grow and is at an all-time high. Year-over-year the growth rate is 12%. Our 12-month rolling EBITDA reached NOK 310 million, which is a 74% improvement since Q3 last year, and this corresponds to a 25% EBITDA margin. The free cash flow in the last 12 months was NOK 303 million. This is 45% higher than at the same time last year. We take this performance as evidence that we are operating in attractive markets with relevant products and a strong market position. Pexip has 2 main solution areas. Pexip Secure and Custom is about privately hosted video meetings that give complete privacy and data control with the desired level of customization. Pexip Connected Spaces is about video meeting interoperability by enabling any meeting room to connect to any meeting platform. First a few words about Secure and Custom. This area grew 30% year-over-year in Q3 and now constitutes 44% of our total ARR base. Here, Pexip provides a video meeting platform that can be used exclusively or alongside, for example, Teams or Zoom in those situations when you need to close the door and have a secure meeting. Our solution includes security features such as tailored user authentication, clear meeting classification labeling and complete control over what data is stored and where. Integrated chat is also an option. The secure meeting can easily be booked through the Outlook calendar or started through a chat session exactly the same way as with Teams meetings. I believe that most large organizations will have more than one video meeting solution in the future, and Pexip is very well positioned as the secure meeting's alternative. AI functionality is clearly in demand also for organizations that use secure meetings. Pexip works with NVIDIA to bring relevant AI features to our customers as added features in Secure meetings. Previously, we have launched live captions. And now in Q3, we introduced translated live captions covering 36 languages. Next up is exporting transcripts to enable video meeting summaries and the like. This will come in our version 3 of the Pexip AI Media Server. A typical use case for AI-based translated live captions would be court hearings where all participants do not speak the same language. On this slide, you see an example of a satisfied customer that used translated captions in a recent court hearing in the U.K. Cleaven Faulkner, Director of the U.K. Military Court Service says, "Today, the U.K. Military Court Service used Pexip's Secure Meetings platform to enable remote participation in the hearing at the Bulford Military Court Center by native German-speaking attendees. Through Pexip, powered by NVIDIA, all spoken content was translated in real time into German, allowing the participants to follow every part of the proceedings. I think it's a pretty good testament to the perceived value and, of course, the observed quality of this Pexip functionality." In our other business area, Connected Spaces, Pexip has the vision of connecting any meeting room to any meeting platform, a vision that now pretty much has become a reality. With Pexip's unique technology, interoperability focus and industry partnerships, we have a market-leading position in this field. The new solutions for Google hardware, Zoom Rooms and Teams Rooms are unique to Pexip and are evidence of the leading position that we have. In Q3, we launched a brand-new Connected Spaces product named Pexip Connect for Google Meet hardware. With this new product that we have codeveloped with Google, all meeting rooms that have Google Meet hardware can now connect to Teams meetings with excellent quality. This was not possible before. The market interest is strong, and we closed $250,000 in new ARR on this product during the month of October alone. This is really no big surprise to us as Google has stated that this is the most requested feature for Google Meet hardware by their customers. Let me show you a short demonstration of how the solution works and looks. [Presentation] Unknown Attendee: Your Google Meet hardware can now dial into a Teams meeting. I've already dialed in 3 Teams users from their Teams application on the laptop. Let's connect the Google Meet hardware as well. Notice how we get a Teams like experience when using Pexip Connect. At any given time, we get the Teams like features seen here as exemplified with profile picture, speaking indicator on the ones speaking without sending video; someone in Teams has clicked raise hand; and at the same time, we maintain most of the screen real estate for those that are sending video. If someone wants to click share from their Teams application, down here, we have Powerpoint live list. Let's go for the top one. Content is being prepared and shared in Teams, which in turn is being projected on the Google Meet hardware as well. Trond Johannessen: I hope you like it. In my humble opinion, it looks pretty good. Moving over to a slightly different use case within Connected Spaces where Pexip is truly unique. In the U.S. government space, various private or government clouds are in use for different classification levels up to top secret. Interoperability solutions are required to enable the use of Microsoft Teams from meeting rooms and organizations using these various government clouds. Pexip works closely with Microsoft to deliver these critical solutions. It is worth noting that Pexip is the only technology partner enabling video devices to join Teams meetings in U.S. government clouds. This past quarter, we initiated 2 different projects within high-security government organizations that now will get access to Pexip's Connect products for the first time. We expect these projects to expand significantly in 2026. So stay tuned. Now I hand it over to Åsmund for a sales update. Åsmund Fodstad: Excellent. Thank you, Trond, and good morning, everyone. I'm proud to say that Pexip's success in Secure and Custom continues with another very strong quarter, ending at USD 2.8 million in ARR growth to USD 53.4 million. It represents a 30% growth year-over-year. Pexip solutions for defense and justice are yet again significant to our growth in this space. In addition, we do see an increased demand for secure collaboration and sovereign IT, especially in Europe, adding several large customers wins and expanding opportunities for regulated privacy-focused solutions in Q3. Let me share with you a recent win with exactly this in mind. The Spanish State Agency for Digital Administration serves as a service provider for the Spanish public sector. To enable secure and seamless communication across millions of users, [ SGAD ] turned to Pexip, the only provider certified by the National Cryptologic Center, CCN. Pexip powers 2 distinct national platforms: Number one, citizen to government communication, a scalable platform that makes it simple and safe for Spanish citizens to connect with public services, of course, without friction or any compromise. Second, intergovernment communication, a highly secure collaborative environment with advanced authentication and data protection. And Pexip was the only provider capable of meeting Spain's strengthened security, scalability and user experience requirements, delivering a modern service to both citizens and public services. Let me move to Connected Spaces. This is the second consecutive quarter with growth for Connected Spaces, ending the quarter at USD 68.8 million despite the one-off reduction of USD 1 million from the change of our partner business model announced back in Q2. Pexip continues to see strong momentum with all our strategic partnerships like Microsoft, Zoom and Google. And as Trond said, we have already seen very good traction with the new Pexip Connect for Google product now in Q4. Pexip maintains a solid pipeline for our Connect portfolio, and we expect continued strong traction into 2026. Let me also share a major win from Q3. As the leader in universal interoperability, Pexip was selected by one of the world's largest banks to extend seamless video collaboration across this highly regulated environment. The bank wanted employees to move seamlessly between Zoom and Teams, this time from virtual desktops or so-called thin clients. Thousands of virtual desktops are enabled with Pexip Connect for Zoom, allowing flexible video communication between the platforms and at the same time, maintaining strict compliance and data protection standards, which is, of course, very important in the financial market. This marks Pexip's first interop for PC clients, demonstrating the company's ability to innovate in new areas for interoperability. And with that, I'm going to hand it over to Oystein for the financial details. Øystein Hem: Thank you, Åsmund. For annual recurring revenue, as stated, we grew 12% overall, driven by strong growth in Secure and Custom of 30%. Connected Spaces is flat year-on-year. However, it's seen modest growth for the past 2 quarters. And the growth came from customers in government, health care and defense in terms of geographies with good contributions from both Americas and Europe. In terms of net retention and new sales, Connected Spaces saw an increase of $400,000, and it's the second consecutive quarter with a slight growth. This is despite the large downsell we mentioned in the Q2 presentation, which impacts the net retention for this quarter, and it shows a positive underlying momentum within Connected Spaces. Most of the growth, as Åsmund mentioned, continues to come from Secure and Custom, which had new sales of NOK 1.6 million and existing customers growing with 1.2 million. In terms of the P&L, revenues grew 16% year-on-year in Q3, helped by strong software sales and the ARR growth of 12%. EBITDA came in at 20% for the quarter, up 12 percentage points year-on-year. On a 12-month rolling basis, revenues grew with 15% and EBITDA is now at 25% if you look on a full year basis. For the quarter, Pexip increased its EBITDA with NOK 34 million compared to the revenue growth of NOK 37 million. So we're continuing to leverage the scale benefits of our software business, enabling us to grow without adding significant costs. In terms of costs, they were flat overall compared to Q3 of last year. Cash-based salary expenses are up NOK 1.5 million. Share-based compensation is down NOK 5 million and other OpEx is up NOK 4 million compared to Q3 of last year. Other OpEx was lower in Q3 of last year, while this year, it came in very much in line with the past couple of quarters. So overall, a fairly consistent development and in line with previous quarters. Looking at cash flow, Q3 had NOK 44 million in operating cash flow, which is up NOK 23 million year-on-year. Investments and leases are stable year-on-year. And in total, we delivered NOK 29 million in free cash flow. We also completed our buyback program in Q3, leading our cash and money market fund position in total to close slightly below Q2 and is now at NOK 526 million. To summarize, revenues are up NOK 37 million, gross profit is up NOK 35 million and adjusted EBITDA is up NOK 34 million and is now at 20% margin. Depreciation is slightly down year-on-year, while net financials is down due to currency fluctuations this quarter going against us. And this resulted in a profit before tax of NOK 33 million for the quarter. And with that, I hand it back to Trond. Trond Johannessen: Thank you. Now a few words about our outlook. As described earlier, we maintain a positive market outlook based on the key trends we see in our markets and the unique technology, strong market position and solid industry partnerships that we have. Our expectation going forward is that we will end Q4 with an ARR in the range of $124 million to $127 million compared to the $122 million we had leaving Q3. This expectation is a reflection of our belief that the positive trend we have seen over the past quarters is expected to continue. Our near-term targets of consistently delivering above 10% ARR growth and above 20% EBITDA margin have been reached over the last quarters. Longer term, we have an ambition to deliver above Rule of 40 performance across ARR growth and EBITDA margin. Last 12 months, we are at 37% on this parameter. Finally, before we go to Q&A, our Q4 presentation will be given on February 12 next year. Now Q&A, and I welcome my friends back in the studio. Øystein Hem: Thank you, Trond. We'll start with a question from the analysts that are with us live. Jørgen Weidemann from Pareto. Do you have any questions for us? Jørgen Weidemann: So first of all, could I ask the U.S. shutdown? Have you seen any effects on that? Or do you expect any effects of that going forward? Åsmund Fodstad: We still have strong momentum in both federal and public sector in the U.S. However, it's hard to really predict what's going on, on the U.S. side. So far, we haven't seen any impact on the opportunities we are working on, but it's hard to predict what's going on, on the U.S. side on a daily basis. Trond Johannessen: Yes. I think the uncertainty is higher than it has been. Some of the projects we are working on are kind of classified as sort of a kind of importance level that enables sort of those organizations to keep on working and those employees to operate as normal. But of course, there might be situations where we see delays, which I think will be the actual effect, not actually business going away, but orders being delayed if there is any effect at all. We have to just wait and see on this, I guess. Jørgen Weidemann: Okay. That's fair. And then considering 2026 is getting closer, could you remind us what you did on pricing this year? And if you see any possibilities of increasing prices into 2026? Øystein Hem: So I think on average, there are some product variations. But on average, we increased our prices with 5% in 2025 and also in 2024. And I think that's a fairly fair estimate for 2026 as well, that decision is still... Jørgen Weidemann: Okay. That's fair. And a final question from me. It seems like the interest in Secure and Custom is still quite high. But could you give us a little color on what you see on sales compared to leads generation as of right now? Trond Johannessen: We normally don't comment on order intake. Of course, we measure our pipeline. And I think what we have said around securing customer mix is that the growth momentum we have seen, we had 27% over the -- last time we reported our year-over-year growth of 27%. This time, it was 30%. It's definitely a level that we think is achievable going forward, whether it's going to be a bit higher, I mean, let's work to make that happen. But there's at least no kind of indication that the growth here will slow down. Øystein Hem: Then we'll move on to Christoffer Bjørnsen from DNB Carnegie. Welcome, Christoffer. Christoffer Bjørnsen: Can you hear me? Øystein Hem: Yes, we can. Christoffer Bjørnsen: Yes. I know this is a video-focused company, but I'm traveling, so I can't really do video today, unfortunately. But I just want to -- first of all, on the revenues, it was pretty strong. We're thinking maybe there's going to be some currency headwinds and so on. So just can you maybe unpack a bit what drove that strong revenue development? Was there any -- I think you mentioned in the report that there were some renewables and some license deals and so on. So maybe unpack a bit the strength of the revenues. Øystein Hem: Yes, happy to. So I think we benefited in terms of revenue recognition this quarter by most of the ARR growth coming on software as opposed to Software-as-a-Service, which accelerates revenue recognition somewhat. So that's the main sort of driver for it. Then we are, as you say, starting to face sort of a bit more difficult comparisons given that we invoice mostly in U.S. dollars and the currency rate is a bit stronger compared to the Norwegian kroner now than it was a year ago. But so far, we've been able to sort of offset that effect by our ARR growth. Christoffer Bjørnsen: All right. That's helpful. And then on the -- you mentioned you've won this bank, which was, I think you said is your the first use case for Connected Spaces or interop on desktop, right? Øystein Hem: Correct. Trond Johannessen: Correct. Christoffer Bjørnsen: So -- that's super exciting. Can you maybe help us understand a bit better? Is this typically something that the customer would do when they have like a new office setting up from greenfield? Or is this also kind of relevant for retrofitting of existing office facilities? And just how much does this expand your TAM essentially because this goes from -- I think I don't know how many more webcams there are in offices than there are meeting rooms, but this sounds pretty exciting. Øystein Hem: No, absolutely. I think there's a -- most common use case for sort of PC to PC video calls is to download another application. So that's -- if you're using Zoom in your normal work life, if you're invited to a Teams call, you will download the Teams application to do that specific call. And that's what we mostly see and what I think will be the most common sort of workflow going forward. For this bank, in particular, their virtual desktop environment made it a lot easier to just have one application than 2. And also the fact that by using one application, they can make sure that they're fully compliant with all types of compliance recordings across all calls, not just the ones that are on their platform. So we're super excited about the opportunity and sort of having the first sort of project live out there. But it remains to see sort of to what extent will this be a common adoption, I think outside of regulated industries, having 2 apps will still be the most common workflow, but excited to see how -- if we can get more traction on this also outside of this one back. Åsmund Fodstad: If I can expand a bit on this. So this is already an existing customer on the room side, now expanding to the desktop and then clients. And again, of course, the main point here is the regulation being able to review all the recordings and what they have with the compliance around that. And that I do think is one thing is bank and finance, but we could see that in different industries also. But again, this is our first win, a large win with this product, and we're excited about the future for this interop solution as well. Trond Johannessen: It clearly speaks to the flexibility of the technology and the way we can work with various types of endpoints and connection points into video and be that interoperability expert even when we're talking beyond the specific room systems that's been the kind of the core business for a long time. Christoffer Bjørnsen: Yes, definitely. It's super exciting. And then just finally, on that headwind to the ARR in Connected Spaces from that shift from fixed to more variable oriented deal structure or pricing structure. Can you just give an update on like that 1 million that end up being like a pure [indiscernible] with no gain from signing new customers up on that new deal? Or just -- and then how do you expect that to develop into the kind of Q4? Øystein Hem: Yes. We have had some minor sort of, call it -- we've reclaimed a small portion of that in Q3, and then I expect to sort of reclaim rest of that throughout the contract period ahead of us. So I would say progressing as planned. Christoffer Bjørnsen: But just -- sorry to be difficult but so -- when is it like base case to be reclaimed? What's the contract period, remind me? Øystein Hem: So that over the next, I would say, 1 to 2 years is my best estimate. But that depends on sort of to what extent -- when those new opportunities close with that new partner or with that part. Then moving on to Markus Heiberg from SEB. Markus Heiberg: So first one, just on the timing of revenue recognition. What do you expect for Q4 relative to ARR to help our modeling going forward? Øystein Hem: So Q4 is usually a fairly strong software quarter. So I expect that this year as well. So my sort of main assumption will be that revenues will grow roughly in line with ARR. And then I would factor in that we are facing a bit more headwinds with regards to the currency, which was extraordinarily good for us in Q4 of last year, whereas this year, it will be more sort of normal. Markus Heiberg: And then on Connected Spaces, can you elaborate on the new revenues that you have? How much of that is from sort of new service attached rooms? And how do you expect that to develop over the coming quarters? Do you expect that pace to increase now with Google? And secondly, of course, Microsoft Teams for Android rooms that are coming? Maybe you can give some more flavor there. Øystein Hem: Absolutely. So native rooms have increased around USD 1 million quarter-on-quarter, this quarter as well, which has been a fairly consistent pace over the past 4 quarters. Then I think it's fair to expect some acceleration of that now with the Connect for Google Meet. And then we're hopeful that with the introduction of Android that we will also get a bigger contribution from Teams. I do think that native rooms, if you look a year or 2 ahead will be a significant part of the Connected Spaces revenues overall. Markus Heiberg: And the final one for me is on the employee side, it's flat quarter-over-quarter. And how should we think about that now over the coming quarters? Trond Johannessen: We do see the scaling effects that was mentioned during the presentation that sort of even with a relatively stable cost base, we're able to grow the business. We are planning for a slight increase in number of employees. We've talked about maybe around 300 being kind of a reasonable figure. So -- but don't expect any kind of major shifts or kind of dramatic increases, but kind of a stable increase to basically mainly, I guess, on the -- to build capacity on the engineering side as we have new products and new solutions in the market and to have sort of enough salespeople in the parts of -- or in the geographies where we have significant traction, for example, in the U.S. Øystein Hem: Then moving on to Halvor Dybdahl from Arctic. Can you hear us, Halvor? Halvor Dybdahl: Yes. Can you hear me? Øystein Hem: Yes, we can. Halvor Dybdahl: Perfect. So just a question regarding the ARR guidance for Q4. The delta ARR seems to be quite in line with Q3, which often is more -- is the seasonally slower quarter, so how should we think going into Q4? And do you have any large contracts announced in Q3 that we sort of have to extrapolate or just some color on that. Trond Johannessen: I think the Q3 was a reasonably good normal quarter, and nothing kind of major that drove within -- in the direction it ended. So kind of across the board, pretty solid. Looking at Q4, the guiding that -- and as I said in the presentation, the guiding that we're giving for Q4 is meant to sort of send a signal that we expect the positive trend that we have seen over the last quarters to continue. It's not meant to give you kind of a decimal figure to put into your spreadsheet. It's meant to indicate that we sort of see the trends that we have seen over the last quarters will continue also in the fourth quarter and hopefully beyond. Øystein Hem: But to add some color to that, I think we did 3.6% in Q4 of last year. Trond Johannessen: Yes, right. Øystein Hem: And if -- from our starting points, we sort of have a range now of 2% to 5%. So our expectation is that Q4 will be a good quarter in line with the previous Q4s. Lovely. Then we move on to Lisa Wimmer from [indiscernible] Unknown Analyst: First, I wonder what is the current progress on the Teams for Android rollout? Åsmund Fodstad: January? Again, I think we said that in the previous earnings call as well. We're dependent on the Microsoft putting this out in the market. We are on track, and we know they are saying Q1 2026. We also know that they are talking to some of their largest customers about this coming. So we're very optimistic about rolling that out in Q1, but it sits with Microsoft for now. Trond Johannessen: I think the official road map says -- say, January or it say Q1. Åsmund Fodstad: Kind of. We don't care. We have heard rumors of January. Trond Johannessen: Yes. Unknown Analyst: Okay. And what do you see in ARR potential for the Microsoft rollout of Teams for the U.S. government potential? And when do you see potential deployment from this contract? Trond Johannessen: I think that's an excellent question. The potential here could be significant. Currently, our current sort of projects are in the sort of hundred thousands kind of dollars ARR. We see sort of potential for going into the millions just with a couple of projects that we're currently working on, and there could be potential beyond that. So the uniqueness of Pexip's technology and the market position we have and the cooperation with Microsoft is really helping us in this area. But to give you a more exact answer than that is a bit difficult. We're kind of working to understand which organizations, which clouds, which deployment situations will be relevant for us here going forward. Åsmund Fodstad: And it's an excellent opportunity to also add some more color working with these large communities, especially on the federal side in the U.S. is long sales cycles. That's one thing. What's going on in the U.S. market currently is kind of hard to predict. And you typically go through proof of concepts, et cetera, et cetera, before you basically get the entire deployment. But we are in a very, very good place, but also hard to say when will it happen and the exact timing on it, which is a couple of components that we are not able to control basically. Trond Johannessen: But it's clearly one of the reasons why we are feeling good about the development in securing customer going forward. Åsmund Fodstad: Yes. Øystein Hem: Thank you. That concludes our Q&A session. Thanks for the attention. Trond Johannessen: Thank you. Åsmund Fodstad: Thank you.
A rough week for tech stocks might signal a loss of investor confidence in artificial intelligence.
It's been a great year for stocks, but in the past few days the bull market seems to have lost some of its mojo.
How to Stay on the Right Side of This K-Shaped Economy On a typical Saturday morning, Joe checks his 401(k) statement over his morning coffee. It's up 25%.
Wall Street heads into the new week on edge after a volatile stretch that saw major indices slide from record highs amid a mix of tepid labor data, tech-sector weakness, and a lack of fresh government economic reports due to the ongoing federal shutdown.
“We've been overdue for a pullback,” argues Patrick Mueller, and foresees a 10%-20% pullback in the next 6 months. However, he thinks the current dip won't last long and markets will climb again soon.
The U.S. jobs market doesn't appear to be crumbling — but it's not getting any better, and probably won't anytime soon.
Inside the financial engineering of the AI build-out: Nvidia, Google and the rest of Big Tech are turning to Wall Street, vendor financing and private credit.