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Operator: " Inge Laudy: " Linde Jansen: " Michiel Declercq: " KBC Securities NV, Research Division Marco Limite: " Barclays Bank PLC, Research Division Marc Zwartsenburg: " ING Groep N.V., Research Division Unknown Analyst: " Operator: Good morning, ladies and gentlemen. Welcome to the PostNL Q3 2025 results. [Operator Instructions]. [Audio Gap]. [Break] Inge Laudy: Good morning, and welcome to you all. We have published our Q3 '25 results earlier this morning. Unfortunately, CEO, Pim Berendsen, cannot join in this meeting due to personal circumstances today. So Linde will do the presentation. And after that, we will open up for Q&A. With that, Linde, I hand over to you. Linde Jansen: Thank you, Inge, and welcome to you all. Let me start with what highlights for this quarter. Let me start with our Capital Markets Day, which we held on 17th of September. There, we presented our new strategy and transition program, Breakthrough 2028, with the related ambitions. We launched our new purpose, connected to deliver what drives us all forward. And we launched our new strategic intent, being to grow our business, create sustainable value, lead through innovation, and make impact that matters. This is based on 4 pillars: Growth, Value, Innovation, And Impact. I will repeat our 2028 ambitions on the next slide, but let me first share the key takeaways for this quarter. The Q3 results came in as anticipated and landed below last year's results. At Parcels, volumes were up 1%. And this quarter, again, volume growth from international customers outpaced domestic growth. The Mail volumes declined by almost 5%, mainly due to ongoing regular substitution, but this quarter was supported by the first batch of the election mail and some other one-off names. The decline in normalized EBIT at Mail led to a year-to-date normalized EBIT of minus EUR 43 million, and this reinforces the urgent need for adjustments in the postal regulation. Good to mention that our cost savings are well executed and bring savings according to plan, both at Parcels and for Mail in the Netherlands. Furthermore, additional efficiency improvements at Parcels contributed to our performance. And emission-free last-mile delivery increased to 33%, which is 5 percentage points better than last year. The last thing to mention on this slide is the reiteration of our outlook for 2025. Before moving on to more details on this Q3 performance, let's do a quick recap of our Breakthrough 2028 program. Our strategy aims at delivering sustainable returns for our shareholders and value for customers, employees, and society as a whole. We truly launched a strategic turning point with our new transformation program, Breakthrough 2028, that drives our financial ambition. A short summary of the strategic objectives of our 3 business segments, which we will create as of 2026: First, E-commerce, where we will grow from volume to value through a differentiated approach and smart network utilization; secondly, platforms, where we capture international growth through asset-light models; and lastly, our Mail segment, where we want to transform to a future-proof postal service. Driven by the e-commerce market growth and our commercial initiatives, we aim to achieve GDP plus revenue growth, targeting at over EUR 4 billion in 2028 with a step-up in normalized EBIT to over EUR 175 million in 2028. A disciplined investment approach will drive incremental return on invested capital with an increase in Return On Invested Capital (ROIC) from 3.4% in 2024 towards our ambition of over 12% by 2028. And our approach towards dividends remains the same, in line with business performance, with 70% to 90% payout ratio while holding on to our aim to be properly financed. That's about a short recap of our Breakthrough 2028 program. Let's now move to the strategic attention points for Mail and Parcels, before I will explain the detailed Q3 financial results. Let me start with Mail. Early October, a next step towards a viable and future-proof postal service in the Netherlands was proposed by the minister. The following adjustments for the USO were proposed: D+2 at 90% quality as of 1 July 2026 D+3 at 92% quality as of July 2027 The consultation period closed last Friday. Without doubt, these adjustments are much appreciated. But at the same time, this proposal is still insufficient to cover the net cost. And therefore, it remains necessary to find a solution, therefore. And we have to keep in mind that the uncertainty in the timelines of the political process persists. In the coming weeks, we are expecting a decision on our appeal on the rejection of our request for financial contribution for 2025 and 2026, and also a reaction of the minister on our request for withdrawal of the USO designation. Together, these will determine our next steps towards a sustainable future of postal service on its path to reach the ambition as set out in our Breakthrough 2028 program. We will continue to make every possible effort to maintain reliable service and remain committed to accessible and financially viable postal service. Then to Parcels. As announced during the Capital Markets Day, that segment will be split in e-commerce and platforms as of 2026. And we will focus on the respective strategies as announced on the Capital Markets Day. The strategic initiatives already started and are progressing according to plan. In Q3, we see for Parcels a continuation of the trends as we have seen in the first half of this year. The price/mix effect was positive. Strong price increases were delivered according to plan. These are largely offset by less favorable mix effects that are more negative than we had anticipated. And that is mainly explained by the increased client concentration within our domestic volumes. With regard to the targeted yield measures, it is important to emphasize that these will come into effect gradually and confirm the strategic validity of our focus on consumer value, while also resulting in a slight loss in market share as anticipated. What is also important to mention that to date, we have been able to mitigate the adverse development in mix effect by own actions. Our flexible operational setup proved our agility and enabled additional efficiency improvements in our network and supply chain that contributes to our performance, on top of the ongoing planned cost savings program. Another focus area is our international expansion, especially in intra-European activities, where we are investing to capture future growth. In Q3, this resulted in the continuation of revenue growth at Spring, with some impact on the performance following our strategic investments. We are ready for the ramp-up in our operations for the peak season that is about to come. Together with our customers, we are putting all efforts in striking the optimal balance between volume, value and capacity utilization. Over to our key metrics. Let's start with the financial KPIs. Revenue in the quarter amounted to EUR 762 million, which is slightly above last year. And we see normalized EBIT at minus EUR 21 million, in line with our expectations. Looking at free cash flow, we see minus EUR 18 million in this quarter, bringing the year-to-date at EUR 98 million comparable with last year. And normalized comprehensive income that includes, for example, tax effects amounted to EUR 23 million minus. I will discuss these results of Parcels and Mail in a bit more detail in a bit. Then the nonfinancial highlights for this quarter. The share of emission-free last mile delivery improved by 5 percentage points to 33%. We have recently started the rollout of over 40 electrical vans in our transport services, so in the first and middle mile. Looking at NPS, we keep our average #1 position in relevant markets and see an improving NPS for the important ‘I receive journey’. And to evidence our innovative power, we have recently concluded successful experiments to explore how robotics can contribute to future parcel delivery, building on the knowledge and experience about the way we have implemented robotics in our sorting centers. Then our out-of-home strategy. That is continuing to gain momentum and the utilization rate being defined as the total amount of parcels, both to consumers and returns, during the week as a function of locker capacity is increasing and is now at 50%, while NPS scores for APL services remain high. Let's move to the financial details of Parcels. Revenue amounted to EUR 581 million, which is EUR 6 million above last year, following volume growth, price increases and mix effects. Overall, our volumes grew by 1%. Volumes from international customers continued its growth and were up 5% compared to last year and domestic volumes were flat. Overall, market share was slightly down as anticipated following our yield measures. We do see further client concentration with increasing share of volume from large players, domestic as well as international, but also platforms and marketplaces. In this quarter, the top 20 accounted for 57% of volume. With that in mind, it's good to see that the total price/mix impact was positive this quarter. Average price per parcel was up by $0.02, supported by targeted yield measures and regular price increases. Price increases have been implemented according to plan. But definitely, the mix effects are more negative than anticipated, driven by client concentration, predominantly within our domestic customer base. Furthermore, it is positive that our cross-border activities continued the trend. We have been seeing for several quarters with revenues at Spring up this quarter, most strongly in our intra-European activities, a promising development as international expansion is one of our strategic initiatives. When looking at costs, it should not be a surprise that in this quarter, we saw a significant organic cost increase. This is mainly labor related. However, we also see EUR 9 million in cost savings in Q3, and they were delivered according to plan. To be more specific, they came from ongoing adaptive measures like, for example, rationalization of services because we stopped parcel delivery on Sunday. Next to that, our flexible operational setup proved our agility and made us achieve additional efficiency improvements in our network, so in depots, supply chain and transport, to mitigate the adverse mix effects. In Spring, revenue growth was more than offset by the mix effects and the planned investments in international expansion. In the quarter, the financial impact from the implementation of U.S. trade barriers was limited, though we do expect some adverse effects in Q4. This brings us to the Parcels bridge, showing the reconciliation of the normalized EBIT from EUR 6 million in Q3 last year to EUR 4 million in Q3 this year. The volume growth contributed to our results, though was more than fully offset by the less favorable product customer mix effects, mainly within domestic. Organic cost increases amounted to EUR 70 million, following wage increases according to PostNL and sector collective labor agreements and indexation for delivery partners. As you can see, the impact from our price increases was EUR 30 million and came in according to plan. Other costs were EUR 11 million better, mainly as a result of the combination of cost savings and additional efficiency improvements in depots, supply chain, and transport, which we managed to deliver to mitigate the negative mix effects. In other results, I want to highlight that this is mainly applicable to Spring, where we see revenue growth being offset by mix effects. Furthermore, we again invested in international expansion, one of our strategic initiatives, which was approximately EUR 1 million this quarter for the expansion of the intra-European activities in Spring. Also good to note is that we continue to focus on further growth in Belgium. There, we also invested further. We invested in our distribution network, also amounting to EUR 1 million this quarter. Moving over to the results of our segment Mail in the Netherlands. There, the revenue amounted to EUR 289 million, exactly the same as last year. The volume decline of 5% this quarter was mainly related to substitution, a structural trend which you are seeing for a long time now but supported by the first batch of election mail and other one-off mailings. Furthermore, revenue was supported by 2 stamp price increases in January and in July of this year. Looking at costs, labor costs were up following the CLAs for PostNL and mail deliverers. However, when looking at sick leave rates, we see a first improvement compared to last year. These cost increases were mitigated by cost savings of EUR 10 million according to plan, coming from further adjustments in our current business model, such as the transition of business mail towards a standard service framework of delivery within 2 days. Altogether, this resulted in normalized EBIT of minus EUR 23 million and year-to-date minus EUR 43 million, as mentioned earlier, evidencing that the current business model for Mail is not sustainable. That brings me to the bridge of Mail in the Netherlands. Here, you see the elements of Mail I just discussed. Starting at the top, you see the stamp prices I referred to added EUR 9 million to revenue. The organic cost increases of EUR 10 million due to wage increases and other inflationary pressures are also visible. And finally, the cost savings of EUR 10 million and a bit lower labor costs related to sick leave were partly offset by lower bilateral results. Let's move over to the free cash flow. Free cash flow was minus EUR 18 million in this quarter compared to minus EUR 68 million in the same quarter last year and in line with our expectations. The delta versus last year is mainly explained by the working capital development coming from anticipated phasing effects and a nonrecurring tax settlement for prior years, including interest, which we paid in the third quarter of previous year. This brings us to the next slide, where you find our balance sheet and development of the adjusted net debt position. Of course, here you see the impact from the impairment in Q2 on our financial position, which in the end is impacting our equity. In the short and long-term debt, you see the EUR 100 million from the Schuldschein placed in June. So that was already the case in Q2, but obviously, you still see there. Movements in Q3 were limited. We ended the quarter at an adjusted net debt position of EUR 572 million. Recently, we launched a new bond with face value of EUR 300 million, a term of 5 years, and an annual coupon of 4%, and we tendered on the outstanding 0.625 percentage notes due September 26. EUR 195 million was accepted for repurchase. Please note that these related recordings and cash flows will materialize in Q4. We continue to manage our cash flow, balance sheet, and net position carefully following our aim to be properly financed. And as a reminder, we reclassified in Q2 part of cash and cash equivalents to short-term investments and adjusted comparatives. It has no impact on adjusted net debt or any other key metric. Then over to the split of normalized EBIT over the quarters. As mentioned before, in 2025, normalized EBIT has to be earned in Q4 even more than in 2024. We are ready for our peak season. Please keep in mind that the impact of pricing will be larger in Q4 than in the other quarters, which also implies that in Q4, pricing will exceed the impact from organic cost increases. When looking at year-to-date results, overall results came in, in line with expectation. For the remainder of the year, for Parcels, you should take into account that announced yield measures are expected to come into effect gradually. And for Mail in the Netherlands, we will see the majority of the election mail coming in, in Q4. In the right graph, you can see the indicative phasing for the savings is not fully divided evenly over the year, with a larger part of savings expected in Q4. Obviously, that is related to timing of some of the underlying measures. Please note that some of the savings are a bit more tied to the absolute volumes, which also explains why the amount of savings is, as usual, expected to be slightly higher in Q4. Then over to the outlook. Of course, we have to acknowledge that the external environment remains challenging and volatile. And as said before, the pace of client concentration due to changing consumer behavior is difficult to predict. We reiterate our outlook for 2025. We expect normalized EBIT to be in line with 2024 performance. Free cash flow is expected to be negative as, for example, CapEx will be above the level of 2024, including around EUR 15 million cash outflows related to the strategic initiatives. I repeat our intention to pay a dividend over 2025. We hold on to our aim to be properly financed, taking into consideration the anticipated improvement in the performance going forward and the progress towards a future-proof postal service. And good to add that normalized comprehensive income, which is, of course, the base for the amount of dividend is expected to follow a pattern that is more or less in line with 2023. In 2024, this includes some incidental positive effects. Well, this concludes my explanation of the Q3 results, and I would now like to hand back to Inge. Inge Laudy: Thank you, Linde, for your presentation. We will now open up for Q&A, and I ask you to limit your questions to two questions per person to set. So, operator, could you please explain the procedure for questions via the lines. Operator: [Operator Instructions] Your first question comes from the line of Michiel Declercq from KBC Securities. Michiel Declercq: I have two, please. The first one would be on the impact of the trade barriers. You mentioned that you expect a bit more impact of that in Q4. Can you give some color on this? Or can, is there some quantification that you can give to this? And the second question would be on Parcels on the price/mix effect. How I understood it at the beginning of the year was that the impact from the yield measures should gradually step in. Now if we look at the first three quarters, we actually see that the average pricing has actually come down. You're quite confident in the fourth quarter that you will see the biggest impact from the pricing. Can you maybe elaborate a bit on why the impact here should be the largest? Is there a big difference compared to last year in terms of surcharges or maybe penalties to your customers if their predicted volumes don't match with the actual volumes? Just why the impact of the pricing should be that much higher in Q4? And if you can quantify what you're looking at? Linde Jansen: Sure. And thanks, Michiel, for your questions. Let me take them one by one. Starting with trade barriers. Well, as I mentioned, so this quarter, we had limited impact. Of course, we do see more uncertainty and increasing volatility in the context of the U.S. trade policy and the responses from the counterparties. Well, it's not a surprise that tariff changes increase volatility and could slow down GDP growth, but could also generate opportunities on the other side, looking, for instance, at our knowledge with regard to customs. But it's, of course, too soon to tell and to say what is the exact impact for Q4. But what we see is that from a materiality point of view, we do not expect the impact to be material. It will be limited also in Q4. And to give some context on it, the direct exposure will be less than, is expected to be less than 1% of our revenue. Then that's on the first question. Then on your second question with regards to pricing for Parcels. I would not say the pricing, what you mentioned, pricing has come down year-to-date. That's actually not the case. What we see is that we, that our pricing has passed as we anticipated. What you see overall is that with the yield measures which we are taking, so we say, and we see that, that's gradually coming in. Obviously, that depends also on when new contracts are being renewed. Not every contract has the same starting date or duration of the contract where we can change that. But clearly, looking at the fourth quarter, also, of course, depending on volumes, when you see when you have made price increases, that obviously has a larger effect in the Q4 with peak periods. And there, wherever we have been introducing higher prices, yes, that obviously then also will have a higher effect, larger effect in Q4 than we have seen in the past quarters, because we have started with that gradually as of Q2. So that is why we expect the Q4 price increases for PostNL to be larger than the organic cost increases for the year. I hope that provides an answer to both your questions. Operator: Your next question comes from the line of Marco Limite from Barclays. Marco Limite: My first question is on the USO. Clearly, you set some scenarios back at the CMD in September, but we have had some more news in October. So, you're increasing prices by a lot as of 1st of Jan '26 on a year-over-year basis. And you're now implementing D+2 from early Jan '26. So my question to you is, do we think that this is enough for you to be breakeven in 2026? Linde Jansen: Yes, to start with, first of all, on the start day of D+2, that's not the 1st of January 2026, but 1 July 2026. And on your question on the developments of the breakeven point, what we highlighted in during the Capital Markets Day is that we had, we would lead to breakeven as of 2028 because that is the point where we move to D+3. At that time, the proposal from the minister was the 1st of January 2028 if a certain quality measure was achieved. That was the point of breakeven, so not 2026. So to respond to your question, we still will not be breakeven in 2026 for the Mail division given the developments, which we've had in the beginning of October because the main change over there was regarding the timing of the move to D+3, which was from 1st of January '28, he moved it more to the front 1 July 2027. And secondly, there were, he proposed reliefs on the quality levels, which were in the earlier proposal 95%. However, it's good to mention that this are just proposals from the minister and really uncertainty around the time lines and the political process really persists. Well, as you know, we've had the recent elections last week. So as I said, these are just proposals from the minister and not yet law, so to say. Marco Limite: Okay. And what is the time line for a possible response on the cash compensation? Linde Jansen: For the cash compensation, well, as you know, is that this proposal from the minister, it is a solution on the, it is a move or a first step towards a more future-proof situation. However, it does not serve or a solution yet for our net cost compensation. And as you may know or remember, we are, of course, still in proceedings on our financial contribution for 2025 and 2026. And there, we have appealed. And yes, we are waiting for the outcome of that. And as I said, on top of that, in the proposal from the minister, we also are looking still for a solution of our net costs in general. Yes. That is now not in our control, but we are awaiting a response on that from our appeal as well as the next steps from the minister. Marco Limite: Okay. And second question very quickly. So, once you achieve breakeven first half '27, sorry, 1st July '27 or '28. But then I mean, if we think about more longer term, once you achieve the breakeven, you raised the bar to the breakeven situation, but then we are once again in a situation where we will be, we have cost inflation, let the volume decline. So on the long-term, let's say, over the next 10 years, once you move to D+3, how can you make sure that the USO is, let's say, forever breakeven at least? Linde Jansen: Well, I think that is, of course, ongoing, what we are doing in Mail is trying to get an optimal network to ensure we are, well, let's say, organized as efficient as possible. I mean we don't have a glass ball, but we will make sure that we will do everything, put all our efforts to make it a future-proof situation. And as I said before, the, let's say, regulation or a solution for net costs is in the end, fundamental for a future viable situation. And that's why these first steps are welcome, but it's not yet enough to cover the full problem. Operator: We will take our next question. Your next question comes from the line of Marc Zwartsenburg from ING. Marc Zwartsenburg: First question is just a check because I think can you remind us on when the D+3 would kick in? Was it on the 1st of July '27? Or is it 1st of January '27? Linde Jansen: Yes. The proposal from the minister, which was done in the beginning of October was for the 1st of July 2027. So that is six months earlier than in the previous proposal from the minister. Marc Zwartsenburg: Yes. And then the quality has moved from 95% to 92%. That’s correct? Linde Jansen: Yes, correct. Yes. Marc Zwartsenburg: Then your Mail volumes, the minus 5% in Q3, there was a little bit of election in there. But as I remind from the earnings call, it was only a few days and not so much volumes. Most of it would be in Q4. So, if you exclude, let's say, the slight tailwind from the election in Q3, but what would have been then the underlying mail volume decline in Q3 would have been something like minus 5%, or minus 6% something like that? Linde Jansen: 5.6%, Marc. Marc Zwartsenburg: Sorry, I didn't get that. Linde Jansen: 5.6%, it would have been. So, looking at the impact from election mail, you see that in quarter three, the impact was EUR 2 million of pieces for this quarter and the remainder of it for the fourth quarter. Marc Zwartsenburg: And why is it only minus 5.6%? Is that just seasonality? Or is it just quite different from the normal trend of minus 8% to minus 10%? Linde Jansen: Yes. I think it's indeed seasonality phasing that is playing part. Marc Zwartsenburg: Okay. So in Q4, we should just assume the normalized, let's say, minus 8%, minus 10% and then add the support from the election. Is that correct? Or is there something seasonal there as well? Linde Jansen: Yes, more or less, yes, that's correct. Marc Zwartsenburg: Okay. And a question on the Amazon news last week for the investments in the Netherlands. Can you share your view on what they're saying because they want to tie their volumes in with what they have when this world wake ups. I know it's sizable client, but the other ones are bigger clients for you. So if volume shifts from your biggest client to your smaller clients and they also have a bit of a policy to do it themselves for a part. Can you show us your view what will be the impact on your Parcel volumes? Linde Jansen: Well, obviously, we are closely monitoring these developments in the market. And well, at this point in time, it's too soon to give some color on the exact implications. But what we see more and more increasingly is we see online stores expanding and getting more and more, which is also happening now with Amazon or they are testing new services and investing in the e-commerce market. And that's obviously also what we are doing. We continue to innovate in e-commerce and expanding our delivery preferences and really carefully look at consumer preferences, for instance, what we do with our out-of-home network. And with that, yes, okay, this is, of course, an event and a news which we closely monitor. And on the other side, it is still volume in the market, and we are just making sure that we continue our strategic intent and moves, which we mentioned during the Capital Markets Day to also reflect on any new or extended customers and platforms. But too soon to tell, too soon to give exact implications for that. Marc Zwartsenburg: Maybe a bit more detail on Amazon, how big is that client for you at the moment in terms of volumes? Linde Jansen: Well, I cannot give their exact color, but it's, as you say, not the largest client. Marc Zwartsenburg: It's a top 5 client, I believe. Linde Jansen: No, no, no. No. Marc Zwartsenburg: Okay. Okay. And then my last question, if I may. You mentioned that there will be more positive impact from price in Q4. You have taken some additional efficiency measures. Is it correct that the efficiency measures, the extra, if I take the flow chart, the now from the original plan and then the bridge to the EUR 11 million, which is showing there as other cost as a positive then the EUR 2 million is then from the efficiency improvements? Is that the additional ones you mentioned? Is that the correct one? Linde Jansen: Well, of course, it consists of pluses and minus. So that's not the, you cannot simply subtract the 11% from the 9% because there are, of course, pluses and minus in there. But what we see is that we have been or are able to put additional efficiency measures in our depots, transport. And there, we see that to counter our mix effects. And that is also something which we will obviously continue for our fourth quarter, which will come on top of the ongoing adaptive measures. Marc Zwartsenburg: Because if I compare the mix effect and the price effect, basically, they are a bit similar to what we've seen in Q2. Yes, shift yet feeding through while it was supposed to yield higher price and a better price/mix on balance, and that's not showing. So I'm just curious how you see that for Q4 because if it only, if the mix effect becomes bigger and the price becomes a little bit bigger, then you still have only a very mild positive price/mix effect, then you should have quite some additional efficiency improvements in Q4 to make your outlook. That's a bit where I'm puzzled. Yes. Linde Jansen: No. Well, yes. Maybe to explain is, as said, so our price increases and yield measures, they are, we are delivering them according to plan. So that is basically what we have, let's say, in control. Looking at the mix effect, where you see that's really depending on consumer behavior, that effect, that mix effect is bigger than we, more negative than we anticipated and to counter that and mitigate that. And obviously, also inherently in yield measures is also part of moving to efficient operations. There, we see the counter effect where we can control or can mitigate that negative mix effect. So yes, correct, the mix effect we anticipated is more. So larger clients getting faster big, so to say, than we had anticipated. And to counter that, we are ensuring that we put additional efficiency measures in place to mitigate that. And to your point on the yield measures coming in, that's really gradually. It's not that from one day to the other, it all hits in. That takes a bit of time. And clearly, also this quarter is, let's say, a mild quarter in the sense that not a lot is happening. So that also is, therefore, the effect of yield measures is gradually coming in and then also, of course, more heavily as such in Q4. Operator: [Operator Instructions] We will take our next question, and the question comes from the line of, please stand by, [Indiscernible] Unknown Analyst: I have a couple of questions. And I'm afraid the first one is a bit of a long one because I think it's important to understand the right context. Last year, around this time last year, you warned us for the fact that Black Friday and Cyber Monday were so close to Sinterklaas . I think you've learned a lot from last year or you got to mention it, but I'm sure that this year it plays as well because Black Friday is on the 28th of November. Cyber Monday is on the 1st of December. Sinterklaas is on the 5th of December. With the improving consumer confidence data we've seen in recent months, this could really be a challenge. How are you dealing with it? Do you see any prebuying that as we saw last year that people try to avoid Black Friday and Cyber Monday and that sort of thing. So my key question is, how do you manage it? And are you seeing prebuying already? For example, what can you share with us in relation to the volumes in Parcels you've seen in October? Linde Jansen: Well, of course, on October, I cannot comment. That's too soon to tell. But on your question with the, let's say, the density of those Black Friday and Sinterklaas , et cetera. Well, I think that's not something new. We have been, we have had this for more years where we experienced this type of density in the holiday or in the peak season, sorry. And so, what you see is that overall, those peaks get more peaky, so to say. So that is not just something for PostNL but is a general market trend. And we are in very close contact with our customers to ensure that we really optimize knowing that these days will be in the way these days will be; that we optimize volume, value and capacity utilization for this peak period, and also take into account, of course, our experiences, which we've had previous year to ensure that we streamline that peak period as good as we can. And clearly, we are very well on time with preparing for that and are really in close contact because with our customers because it's not just PostNL who needs to have that optimal utilization in the peak period, but it's actually for the whole ecosystem. So, all players in the ecosystem benefit from that. And that's why we are in close contact with them and also clearly communicate also to consumers around this. So yes, I can't say anything different that we are fully prepared for it and ready to have this organized in the most optimal way. Unknown Analyst: Have you seen any prebuying activity? Anything noteworthy that the trend was different at the end of the third quarter, for example? Linde Jansen: No, no, I haven't seen that. No. Unknown Analyst: My second question is around international volumes. If I look at the first quarter of this year, then we saw plus 15%, second quarter, plus 10% year-on-year. Now we see plus 5% I can interpret it in 2 different ways. One is that indeed, the value over volume strategy is beginning to show. But I've also heard that new parties have come to the market like Cainiao and Dragonfly, which are especially aiming cheap Chinese volumes as long as well, they are a party in the market. One of your competitors even described them as gold diggers. What is happening there? What is it exactly? Are you indeed more cautious taking on more volume from China? Or is it the competitive environment that is changing? Linde Jansen: Well, I would say, first of all, it's good to note that I think comparing by heart versus the growth of previous year, we already had a higher base. So, the first 2 quarters are not your starting point is different. Secondly, yes, our volume value strategy is clearly something which is what we aim for, and that is also for both domestic and international playing out there. So yes, that is, I think, the combination. Unknown Analyst: Okay. And then connected to that, there have been talks about implementing handling fees on Chinese Parcels. France was the first to announce that they were considering imposing a EUR 2 per item handling fee. And I recently read something that the Dutch are intending to do the same thing, if the French do it as of the 1st of January. Any news there? And how could it impact your business because [Schiphol] is one of the main hubs? Linde Jansen: Yes. Well, let me start. It's too early to provide you with a concrete statement on the impact. But in general, PostNL is supportive of a level playing field in the different European countries. However, well, as you already mentioned, the 1st of January, such a potential additional tax would really result for us in an operational challenge. It's not feasible to implement this well, we are talking about already the busiest period in the year, and it's a very short time frame to implement such a system. And it also can be, of course, disruptive, I should say. So, like with the U.S. trade barriers, where also international postal traffic to the U.S. was on hold for a bit. So that's why we are in conversations with the government on that as well. And so, we would really plea, if it's being implemented for a careful implementation, so to involve all parties and with equal timing for all the EU countries and not to diversify between the different European countries. So that being said, too soon to give a statement on that, and we are actively in conversation to align on the best approach to make this work. Unknown Analyst: And then my final question, that's an easy one, sorry for making your life so hard, nothing personal. But on the APMs, I understood that you're currently at around 1,250 APMs, APLs, you call. Linde Jansen: Yes, that's correct. Unknown Analyst: You were at around 1,100 at year-end last year. When I look back in the annual report, the intention was to increase that number by 500 to 600 a year. I can't imagine that during the peak period, all of a sudden, you're placing 400, 500 or so of the APLs. You have better things to do, I guess. What is the time path going forward? Because at the Capital Markets Day, also you highlighted the importance of APLs just the background of efficiency and that sort of things. Why am I not seeing a stronger pickup? The DHL, for example, is north of 2,000 already. It will be more and more difficult to find the right locations at the longer you wait. Linde Jansen: Yes. Well, we indeed clearly have our ambition towards over 3,000 in 2028. And what we see is that it's also about the size of the lockers which you place. So, amount of lockers is one thing, but size, how many of these lockers are in one APL is we are placing bigger sizes than initially planned. And yes, we are progressing on that. And clearly, you have to deal as well with all the governmental regulations with that, and we are clearly on top of it to deliver towards our ambition for the long term. And as said, we see positive developments in the utilization of the lockers which we place and as said, which are bigger lockers than we initially placed. So yes, that is basically where we stand. Unknown Analyst: So basically, what you're saying is there will be a catch-up in the years ahead. Linde Jansen: Yes. Yes. Operator: Okay. Then we have one last one, a follow-up from Mark, if I'm correct. So that will be then the last one for today. Marc Zwartsenburg: Yes, that's correct. A quick one. You issued a press release on the 5th of September that is asking the minister to withdraw the obligation of the USO. That's 2 days away that the 2 months are done. Should we expect some news flow in the next few days? Or can you help me with the timelines? Linde Jansen: Well, indeed, correct, we asked for within 2 months. But obviously, that is not in our control. So yes, I would say expecting it this month, but depending obviously on the time lines on the side of the government, and that is not something we can control. Marc Zwartsenburg: So could be any 6 months basically or without a date that's how. Linde Jansen: Yes, exactly, exactly. they don't confirm by then and then you get the answer. That's not how it works. Marc Zwartsenburg: And on the appeal of the cost compensation, is there. Linde Jansen: It's the same. It's also depending on there. So yes, you are just basically depending on their side and also on the legal system. So yes. Marc Zwartsenburg: Yes, I thought it was more like a court case thing that at some point, you need an outcome or is it not the case? Linde Jansen: No, no, we haven't received any guidance on when we can expect it. No, not at this point in time. Inge Laudy: Well, then we conclude our Q3 '25 results for now. Thank you all for participating and speak to you soon. Thank you all.
Operator: Welcome to BioNTech's Third Quarter 2025 Earnings Call. I will now hand the call over to Doug Maffei, Vice President, Strategy and Investor Relations. Please go ahead. Douglas Maffei: Thank you, operator. Good morning and good afternoon, everybody, and thank you for joining BioNTech's Third Quarter 2025 Earnings Call. As a reminder, the slides we'll use during the call and the corresponding press release can be found in the Investors section of our website. On the next slide, you will see our forward-looking statement disclaimer. Additional information about these statements and other risks are described in our filings with the U.S. Securities and Exchange Commission, or SEC. Forward-looking statements on this call are subject to significant risks and uncertainties and speak only as of the date of this conference call. We undertake no obligation to update or revise any of these statements. On Slide 3, you can find the agenda for today's call. I'm joined by the following members of BioNTech's management team: Ugur Sahin, Chief Executive Officer and Co-Founder; Ozlem Tureci, Chief Medical Officer and Co-Founder; and Ramon Zapata, Chief Financial Officer. With this, I'll hand the call over to Ugur. Ugur Sahin: Thank you, Doug, and warm welcome to you all as you join us today. As BioNTech has grown, our vision has remained constant, namely translating science into survival. We are building a global immunotherapy powerhouse, a fully integrated biopharmaceutical company with the science, scale, capabilities and the aim to deliver multiple approved therapies and reach patients in need. Cancer remains a systems problem, heterogeneous across patients and variable within individual tumors. We believe the future lies in rationally designed combinations, pairing potent and precise mechanism of action that create biological synergies. To this aim, we have purpose built a diversified clinical pipeline spanning mRNA immunotherapies, next-generation immunomodulators, ADCs and other targeted agents that enable development of potent, personalized precision medicines and novel-novel combinations across solid tumors. Our goal is to address the full continuum of cancer from resected high-risk tumors in the adjuvant setting to advanced and metastatic disease to treatment-resistant and refractory cancer. Our strategy concentrates capital on 2 priority pan-tumor programs that are designed to anchor various combinations. One is Pumitamig, formerly BNT327, a PD-L1 VEGF-A bispecific that unites checkpoint inhibition with vascular normalization in 1 molecule. We believe Pumitamig is particularly suited as a next-generation IO backbone to combine with chemo ADC and other immunomodulators. The other is mRNA cancer immunotherapy that is designed to activate and educate the immune system with precision. Our mRNA cancer immunotherapies have advanced in randomized late-stage trials with focus on the adjuvant setting. Both approaches have disruptive potential and align with our vision. We believe these programs could establish new standards of care and improve survival outcomes. Together, these programs provide breadth, optionality and scalable registrational path across solid tumors. We are investing deliberately scaling clinical development, building manufacturing that ranges from personalized to large-scale production and preparing for commercialization in key markets to reach patients in need. Now turning to how our achievements in the quarter relate to our vision and strategy. We see Pumitamig as a potential standard of care across diverse tumor types, spanning settings already treated with checkpoint inhibitors and those where checkpoint inhibitors have not demonstrated benefit. With our partner, BMS, we are executing a broad registrational program. This quarter, we made significant progress in advancing Pumitamig, taking concrete steps towards our registrational plan. In Q3, we progressed enrollment in 2 global registrational trials in lung cancer and remain on track to initiate the TNBC Phase III this year. This keeps us aligned with our target of first potential launches before the end of the decade. Across the portfolio, more than a dozen signal-seeking studies progressed. Either with chemo backbones to expand into additional indications or at novel-novel combinations with BioNTech proprietory assets. Importantly, we advanced clinical mono agent profiling of potential combination partners, helping to derisk dose, schedule and safety assumptions for future registrational design. These steps, including Phase III recruitment momentum, initiation of new combination cohorts and deeper combination partner characterization are all about informing the next wave of our registrational trials planned with BMS from now onwards. Turning to our mRNA cancer immunotherapy platform. In October, we presented Phase II trial updates for BNT111, our fixed candidate in anti-PD-1 resistant refractory melanoma and for Autogene cevumeran, our fully personalized mRNA cancer immunotherapy in first-line treatment of metastatic melanoma. Our data reinforces our view that adjuvant settings, where tumor burden is low and immune control is most effective represents, where mRNA immunotherapy can deliver the most significant benefit to patients. Ozlem will share details on how this readout sharpening our development focus. This quarter, we hosted our second AI Day. It underscores that we are not only pioneers in new pharmaceutical technologies, but a fully integrated AI-tech bio company with AI tools that enable discovery and development of innovative medicines. We showcased AI-based approaches designed to convert complex dimensions of data diversity into personalized therapy development. We demonstrated 2 distinct strengths of our AI capabilities, addressing inter-patient heterogeneity and intra-tumor variability and driving precision and potency in our treatment approaches. With regard to our COVID-19 vaccine franchise, which is partnered with Pfizer, we successfully launched our variant adapted vaccine for the current season following regulatory approval. With these launches in major markets and with a strong balance sheet, over EUR 16 billion in total cash, equivalents and securities, we have the resources and the flexibility to fund the oncology transition, while maintaining a disciplined P&L. Simply put, we are transforming scientific advances into late-stage programs in our priority oncology program across indications. In parallel, we are building the capabilities and the financial strength to translate positive data rapidly into market opportunities and most importantly, into patient benefit. With that, I will hand over to Ozlem to discuss our clinical execution and near-term data readouts. Özlem Türeci: Thank you, Ugur. I'm glad to be speaking with everyone today. I'll start with a top line status of the programs that are heading our pipeline before moving to specifics. Firstly, with our PD-L1 VEGF-A bispecific antibody Pumitamig, we are executing a broad registrational program in partnership with Bristol-Myers Squibb. Second, for our mRNA cancer immunotherapies, we have recently provided 2 Phase II updates that support and inform our current development strategy. And third, for Trastuzumab-Pamirtecan or TPAM, our HER2-targeted ADC known previously as BNT323 that we developed with our partner, Duality, we continue to progress towards first BLA submission now planned for 2026, subject to regulatory feedback. We are evaluating TPAM as a monotherapy into a randomized Phase III trials, 1 in metastatic endometrial cancer and 1 in breast cancer. For both studies, we expect data in 2026. We have also initiated a signal-seeking trial evaluating the novel combination of TPAM with Pumitamig. For Pumitamig, let me recap the clinical development framework, our refined 3 wave plan that we are pursuing with our partner, BMS. Wave 1 aims to establish Pumitamig in 3 foundational first-line indications, small cell lung cancer, non-small cell lung cancer and triple-negative breast cancer through global registrational Phase III trials. Wave 2 and 3 aim to expand the opportunity of Pumetamic by amplifying its differentiation, and we do this in 2 dimensions: first, through signal-seeking studies in combination with standard of care across tumors that inform our indication strategy and prioritization; and second, through novel-novel combinations, notably with our ADCs that enhance efficacy. We have delivered tangible progress on all these 3 waves in Q3. Regarding Wave 1, in small cell lung cancer, the global Phase III is recruiting and the Phase III dose is locked based on the dose optimization data set with a safety profile consistent with known PD-L1 VEGF chemo experience. In non-small cell lung cancer, the Phase II part of the seamless Phase II/III trial achieved full enrollment and the Phase III portion is recruiting. In TNBC, we remain on track to initiate the global Phase III this year, targeting the PD-L1 low segment, where unmet need is highest. This slide shows additional studies. These are supportive studies for dose finding, setting refinement and regional programs that contribute to the body of evidence supporting our 3 foundational global Phase IIIs. Wave 2 serves as our expansion engine. We now have more than a dozen chemo-based signal-seeking studies across tumor types and lines of therapy. In Q3, we opened new cohorts and continue to mature data sets that will feed into our pivotal planning. This helps to ensure that the next registrational wave is evidence-led and prioritized by benefit risk profiles, patient population size, well-informed study design and commercial opportunity alongside other key factors in our decision matrix. Spearheading this next round of pivotal trials, we are initiating 2 trials in partnership with BMS with registrational intent for Pumitamig in combination with chemotherapy in first-line microsatellite stable colorectal cancer and first-line gastric cancer. Wave 3 elevates the potential of Pumitamig through novel-novel combinations to maximize its clinical impact, reinforce class differentiation and set up a multiyear pathway to sustain the value and the longevity of the drug into the new decade. Here, several combo cohorts of Pumitamig with our ADCs or other novel compounds are already enrolling and have gained momentum in Q3. Initial data over the next year will inform decision-making for our first pivotal combinational regimen. In parallel, we are continuing mono-agent profiling of potential combination partners to set clear baseline for dose safety and sequence. Taken together, Q3 was a quarter of strong clinical execution that strengthened our registrational core, widened our expansion engine and advanced the novel-novel combination rationale that we believe will further distinguish and elevate Pumitamig over time. Let me now highlight 2 Q3 focal points. First, our first-line small-cell lung cancer registrational program and why the recent updates are catalytic. And second, our advances in mono agent profiling for refining our combination strategy. Small cell lung cancer remains a challenging immunologically cold disease in which responses to immune checkpoint therapy tend to be short-lived, resulting in modest gains over chemotherapy alone and low long-term survival. Over the last 18 months, we have built a cohesive evidence base across multiple Phase II studies in first- and second-line small cell lung cancer initially in China and now globally, showing encouraging activity and a manageable safety profile. This quarter, at WCLC, we reported the first global data from our Phase II dose optimization study in untreated extensive-stage small cell lung cancer, evaluating 2 dose levels of Pumitamig plus chemotherapy. All patients irrespective of dose had disease control at 20 mg per kg we observed a confirmed objective response rate of 85% and a median progression-free survival of 6.3 months. 30 mg per kg yielded a confirmed objective response rate of 66% and a median PFS of 7 months. Median overall survival data were not yet mature. Safety remained consistent and manageable with low discontinuation and no new signals beyond those typically seen with chemo and PD-L1 VEGF agents. 2 points are worth emphasizing. First, dose clarity, which is a critical derisking step for any registrational program. The global dose optimization readout allowed us to lock the Phase III regimen at 20 mg per kg every 3 weeks. Second, consistent performance across regions. Earlier China data sets in first-line extensive stage small cell lung cancer showed robust activity and manageable safety. The global Q3 data are consistent with those findings, which further strengthens our confidence in Pumitamig's benefit across patient populations and practice patterns. Together, these results support our ongoing global Phase III ROSETTA LUNG-01 trial, which compares Pumitamig plus chemotherapy against atezolizumab plus chemotherapy in untreated small cell lung cancer. In parallel, in China, we continue with second-line randomized Phase III trial of Pumetamic plus chemo versus chemo alone. This quarter, we expanded our Pumetamic small cell lung cancer program to include novel-novel testing, and we launched signal-seeking studies of Pumetamic plus our B7H3 ADC, BNT324 in both first- and second-line small cell lung cancer. As Phase III readouts and Phase I/II ADC combination data sets mature, we will be increasingly well positioned to select and advance additional regimens designed to establish long-standing presence in small cell lung cancer. This brings me to our strategy for advancing combinations of Pumetamic with other novel agents, one of our key differentiation approaches. The cornerstone is establishing mono agent evidence of activity, durability and safety before we decide to pair with Pumetamic. For our B7H3 ADC, BNT324, our mono agent database has expanded significantly over the last 12 months. B7-H3's broad expression profile aligns well with Pumitamig's expand tumor opportunity. In small cell lung cancer, BNT324 as monotherapy achieved an objective response rate of 56% with deep tumor shrinkage across the waterfall, an unusually strong single-agent signal in this setting. In non-small cell lung cancer, activity was observed in both squamous and non-squamous disease, including an EGFR mutant subset with an objective response rate of 21%. In heavily pretreated metastatic castration-resistant prostate cancer, we observed meaningful tumor shrinkage with BNT324 and a durable radiographic progression-free survival with a manageable safety profile. Recently at ESMO, we reported data for our TROP2 ADC, BNT325 in second-line plus TNBC with an objective response rate around 35%, disease control rate of roughly 81% and median progression-free survival of about 5.5 months. Also in Q3 for our HER2 ADC T-PAM, we saw a substantial expansion of the monotherapy data base by the DYNASTY-Breast02 Phase III trial, our partner DualityBio conducts in China that met its primary endpoint of PFS improvement versus trastuzumab emtansine in pretreated patients with HER2-positive un-resectable or metastatic breast cancer. T-PAM is another promising combination partner with the potential to expand Pumitamig's therapeutic reach into the HER2-expressing tumor spectrum. Taken together, these data provide a clear monotherapy baseline and help us set the bar for add-on benefit from Pumitamig plus ADC combinations. Across these programs, the mechanistic rationale is consistent. VEGF-A blockade can normalize vasculature to improve ADC delivery, while PD-L1 inhibition can convert ADC-mediated cytotoxicity and antigen release into a broader durable immune response, aiming for deeper debulking plus immune control. These represent complementary mechanisms that single agents cannot engage simultaneously. So operationally, we made 2 key advances in Q3, continued mono-agent profiling to refine dose and sequence and codification of our add-on benefit threshold and expansion of Pumitamig plus ADC cohorts across prioritized settings. Of note, our go/no-go decision-making process is driven by a holistic evaluation that goes beyond efficacy signals and safety profiles. We strategically assess market opportunity, unmet needs, competitive dynamics and weigh other key factors to ensure every decision aligns with our mission to deliver transformative benefit for patients. Moving now to our second oncology cornerstone, mRNA cancer immunotherapy. iNeST is individually manufactured per patient to target personal neoantigens. The biology and our clinical experience point to greatest relevance in earlier disease settings, where lower tumor burden allow the immune system to consolidate control. Our ongoing randomized Phase II trials are designed to test that premise in a rigorous way. Off-the-shelf FixVac that includes BNT111 for melanoma, BNT113 for HPV16 positive head and neck cancer and BNT116 for non-small cell lung cancer targets shared antigens and is intended to pair with checkpoint inhibitors and increasingly our next-gen backbones. We continue to advance execution and evidence generation across multiple tumor settings, while keeping optionality around where and how FixVac is best positioned longer term. This quarter at WCLC, we presented results for BNT116 plus cemiplimab as consolidation treatment in unresectable Stage III non-small cell lung cancer. We also presented data at ESMO from 2 randomized Phase II trials in melanoma, 1 with BNT111 FixVac and the other for Autogene cevumeran iNeST. I will briefly walk you through the melanoma readouts and their implications. Starting with BNT111 FixVac in the high medical need population of patients who had relapsed or not responded to PD-1 treatment. The Phase II study evaluated BNT111 plus cemiplimab against a historical control objective response rate of 10% reported for anti-PD-1 treatment in this setting. The study included 2 calibrator monotherapy cohorts to characterize the safety of each agent and its activity on objective response rate. The objective of this design was signal characterization, not cross-arm efficacy claims. In the monotherapy cohorts on progression addition of the second agent was permitted. More than half of the patients in each arm opted for this addition, after a median duration of [ IVA ] monotherapy treatment of around 4 months. The study met its prespecified primary endpoint by rejecting the null hypothesis of an ORR of 10% with statistical significance. The ORR of the combination was 18%, including deep and durable responses. Notably, 2/3 of the responses were complete responses, supporting the depth of activity. Follow-up showed a positive impact on long-term survival. 37% of patients were still alive after 24 months, 21% were free of tumor progression. Safety was manageable, driven largely by expected mostly grade 1, 2 cytokine-related events consistent with the mRNA platform. BNT111 monotherapy also demonstrated objective responses and a consistent safety profile. Taken together, these results support that BNT111 is active in this difficult post-IO setting and provide us useful footing to guide setting selection and optimal combinations going forward. Turning to iNeST. The data presented at ESMO come from our randomized Phase II trial evaluating Autogene cevumeran in combination with pembrolizumab versus pembrolizumab alone in first-line metastatic advanced melanoma. As previously disclosed, the trial did not meet the primary endpoint of a statistically significant improvement in progression-free survival. That said, we observed a numerical trend favoring the combination and overall survival. In the combination arm, 12 months overall survival was 88% and 24 months overall survival was 74% compared to 71% and 63% in the pembrolizumab arm, respectively. Of note, crossover was allowed and patients randomized to pembrolizumab received the combination at progression. For the overall survival analysis, those patients remain in their originally assigned arm, which can dilute the observed treatment effect over time. We observed robust neoantigen-specific T-cell responses in the majority of evaluable patients with multi-epitope breadth and persistence of T-cell clones well beyond induction, indicating that the mRNA therapy is mediating the intended biological activity that we want to achieve. The translational readouts give us 3 actionable insights. First, T cell response breadth correlates with activity. Within the combination arm, patients who mounted a broader neoantigen-specific T-cell response experienced longer progression-free survival, supporting our ongoing efforts to maximize antigen breadth and to target early and low tumor burden disease with still proficient immune cell priming capacity. Second, immune cell PD-L1 matters. We saw a trend of improved overall survival for the combination in tumors, where immune cell PD-L1 was high, while tumor cell PD-L1 did not discriminate overall survival in this data set, supporting that low tumor cell PD-L1 should not exclude tumor types from vaccine PD-1 strategies. Third, signal in IO-insensitive biology. There was a trend of improved overall survival with the combination in tumor mutational burden low patients. Precisely the population that typically gains less from IO. This is consistent with the concept that the vaccine can supply immunogenic targets, when endogenous mutation load is limited and further encourages development in settings such as pancreatic cancer and MSS colorectal cancer with low tumor mutational burden and unresponsiveness to IO. Altogether, these mechanistic insights support our ongoing randomized Phase II trials, both the specific indications we have chosen, which is colorectal, pancreatic and bladder cancer as well as our focus on the adjuvant setting, where tumor burden and heterogeneity is lowest and T-cell proficiency is still high. Now looking ahead, what comes next? We will continue to generate and present new clinical data across our oncology pipeline, data that directly steer late-stage decisions. For Pumitamig, we will share early data from our TNBC program in December, including from our dose optimization cohorts, which are central to defining the Phase III regimen. From our ADC platform, we expect additional monotherapy updates from BNT324 in cervical cancer and platinum-resistant ovarian cancer, from BNT325 in TNBC and from BNT326 in HER2-null and low hormone receptor positive breast cancer. These studies explore indications defined dose and sequence guardrails and set the add-on benefit bar for Pumitamig's novel-novel combinations. For the randomized Phase II trial evaluating Autogene Cevumeran monotherapy treatment versus watchful waiting in adjuvant ctDNA-positive Stage II high-risk or Stage III colorectal cancer, we expect an interim update in early 2026. The efficacy evaluation of the primary endpoint of disease-free survival is projected for the end of 2026, when the data set will have reached the intended maturity. Then later this year, we plan to present data together with our partner, Onco C4 from the nonregistrational first part of the ongoing global Phase III trial evaluating our anti-CTLA-4 antibody, Gotisrobart versus chemotherapy as a second-line treatment for squamous non-small cell lung cancer. Overall, these upcoming data points advance the same theme. Evidence-led prioritization by establishing dose finding and mono ADC baselines to further refine Pumitamig registrational path and leverage randomized setting-specific readouts to position our mRNA immune therapies where they are most likely to succeed. With that, I will now turn the presentation over to our CFO, Ramon Zapata, for the financial update. Ramón Zapata-Gomez: Thank you, Ozlem, and a warm welcome to everyone who has joined today's call. I will begin by reviewing our financial results for the 3 months ended September 30, 2025. Note that all figures are in euros unless otherwise specified. The total revenues reported for the period were EUR 1.519 billion, an increase from the same quarter in 2024, which was EUR 1.245 billion. This increase was mainly driven by the recognition of USD 700 million as part of the BMS collaboration in the third quarter of 2025. For context, in total, we expect to receive USD 3.5 billion in upfront and noncontingent cash payments from BMS between 2025 and 2028. We expect to recognize this as revenue in increments annually over the development phase of Pumitamig. For the third quarter 2025, we reflected USD 700 million in our revenues. Moving to cost of sales. This amounted to approximately EUR 148 million for the third quarter of 2025 compared to approximately EUR 179 million for the same period last year, driven by lower inventory write-downs. Research and development expenses were approximately EUR 565 million for the third quarter of 2025, compared to approximately EUR 550 million for the same period last year. R&D expenses were mainly driven by the initiation of late-stage trials for our immunomodulators and ADC programs and partly offset by cost savings resulting from active portfolio management towards our priority programs. SG&A expenses amounted to approximately EUR 148 million in the third quarter of 2025 compared to EUR 150 million for the same period last year. The decrease was mainly driven by lower external costs, partially compensated by our ongoing commercial build-out. Our other operating results amounted to approximately negative EUR 705 million in the third quarter of 2025 compared to approximately negative EUR 355 million for the same period last year. Our other operating results for the third quarter of 2025 was primarily influenced by the settlement of a contractual dispute. For the third quarter of 2025, we reported a net loss of EUR 29 million compared to a net income of EUR 198 million for the comparative prior-year period. This was mainly driven by the effect of settlement disputes. Our basic and diluted loss per share for the third quarter of 2025 was EUR 0.12 compared to basic earnings per share of EUR 0.82 and diluted earnings per share of EUR 0.81 for the comparative prior-year period. At the end of the third quarter of 2025, our cash, cash equivalents and security investments totaled EUR 16.7 billion, including the USD 1.5 billion upfront payment received from BMS. Our strong financial position empowers continued investments in our late-stage priority programs and preparations for commercialization of our diversified oncology portfolio. Turning to the next slide. We are updating the company's financial guidance for the 2025 financial year. Our previously issued revenue guidance range for 2025 was $1.7 billion to $2.2 billion. And today, we are increasing it to $2.6 billion to $2.8 billion. This is mainly driven by the recognition of USD 700 million from our BMS collaboration. Further guidance considerations, such as those related to our COVID-19 vaccine business, including inventory write-downs from COVID-19 vaccine sales in Pfizer's territories as well as expected revenues from the pandemic preparedness contract with the German government and revenues from our service businesses remain unchanged. Turning to expenses. We are lowering our prior 2025 financial year R&D expense guidance by EUR 600 million to a new range of EUR 2 billion to EUR 2.2 billion. This updated guidance reflects our active portfolio management that has enabled significant R&D efficiencies. As part of that, we follow a rigorous go/no-go decision-making across all development stages as part of the prioritization efforts. This allows us to focus on the programs in our portfolio, which we believe represents the largest opportunities. Consistent with our commitment to disciplined and sustainable growth, we are also improving our full-year guidance for SG&A and capital expenditure for operating activities. We are reducing our full year SG&A expense guidance by $100 million to a range of $550 million to $650 million as a result of ongoing cost optimization initiatives. We are also reducing our full-year guidance for capital expenditures for operating activities to a range of $200 million to $250 million to better reflect our targeted investment in manufacturing. Aligned with our disclosures earlier in the year, we expect to report a loss for the 2025 financial year as we continue to invest in our transition to become a fully integrated commercial oncology company. As Ugur outlined, we continue to focus on executing our strategy around 2 pan-tumor product opportunities, Pumitamig and our mRNA cancer immunotherapies. We currently have multiple ongoing Phase II and III trials across these programs, reflecting our strategy to bring novel combinations to patients. We expect to generate additional meaningful data for these programs in the months ahead. As we advance, we will continue to maintain rigorous financial discipline and remain focused on achieving long-term sustainable growth. Before concluding, I would like to invite you to watch our annual Innovation Series R&D Day event on November 11. During the R&D Day, we plan to provide a deeper dive into our oncology strategy, including plans for Pumitamig and our mRNA immunotherapy candidate. Thank you for your ongoing support and interest as we continue to create value for cancer patients, society and shareholders. With that, we would like to open the floor for questions. Operator: [Operator Instructions] We will now take our first question. From the line of Tazeen Ahmad from Bank of America Securities. Tazeen Ahmad: I wanted to get a sense about how you're thinking about the market opportunity for MSS CRC and first-line gastric cancer. Can you just talk about how your product can be particularly differentiated from what's currently used? Douglas Maffei: Tazeen, thank you for the question. We lost your audio there a little bit. Could you just -- sorry, could you just repeat that question? I just want to make sure we get it correct. Tazeen Ahmad: I wanted to ask a question about the market opportunity for MSS CRC and for first-line gastric. I wanted to get a sense of how you think about the opportunity relative to the competition? Douglas Maffei: Thank you, Tazeen. We got it this time. So that was a question about how we think about the CRC first-line opportunity in gastric and how it compares to the competitive field. So Ozlem, would you like to take that question? Özlem Türeci: Yes, I can take that question. Both indications as CRC and gastric first-line are still high medical need indications. And we think that the combination of VEGF-A and PD-L1 blocking from a biology point of view, has a rationale for development and has the potential of improving the clinical benefit for these patient populations. Operator: We will now take the next question from the line of Terence Flynn from Morgan Stanley. Terence Flynn: I had 1 question and then 1 just clarification. So for BNT323, was just wondering, if you can share any more color on the delay in the BLA filing in terms of the gating factor here? And then on the new R&D guidance, just want to clarify that, that reflects the assumption of some of the BNT327 expenses by Bristol-Myers and that, that was the driver of the change here, if there's other prioritizations that fed into this? Douglas Maffei: Yes. Okay. Thank you, Terence. So 2 clarifications in there. So maybe if we do the R&D guidance first, and I'll direct that one to Ramon. And then Ozlem, I'll direct the BNT323 BLA progress question to you after that. Ramón Zapata-Gomez: Thank you for the question, Terence. I would say that the lower guidance on R&D is not about reducing spending on BNT327. We are updating this guidance to reflect the lower R&D expenses for the year. The reduction is mainly driven by the phasing of certain programs and a deliberate focus on our key strategic priorities, meaning BNT327 as you rightly mentioned. We demonstrate disciplined portfolio management, but I would say it's too early to say whether this represents a structural shift. Depending on the pace of our late-stage programs, including the expanded efforts on Pumitamig, R&D spending will remain at similar levels or increase again next year. I think what really matters is that we continue to allocate resources with focus and flexibility to maximize long-term value and support our key strategic priorities and programs. Douglas Maffei: And Ozlem, would you now like to take BNT323? Özlem Türeci: I can take the second question, Terence. The reason why we -- originally, we guided towards end of '25 for BNT323 BLA submission. This moves now into '26 because we have continued discussions and conversations with the FDA to further understand additional data needs and are generating this information. The plan is still to submit in '26. And in '26, we will also get for this program data from our ongoing breast cancer study. Operator: We will now take the next question from the line of Daina Graybosch from Leerink Partners. Daina Graybosch: Thank you for the question. I have a question on the overall strategy with Pumitamig of Establish and Elevate as 2 steps. And why you're taking that approach versus in some indications doing them simultaneously let's say, in multi-arm Phase III studies with ADC combos and Pumitamig on top of traditional standard-of-care chemo to leapfrog, particularly where you have some early data with the ADC in an indication and the competition is fierce. Douglas Maffei: Thank you, Daina, for that question. So that's a question about our strategy for Pumitamig and the various stages, the various steps to our strategy with Establish and Elevate. So I'll direct that question to Ozlem. Özlem Türeci: You are actually right. We have this 3-wave strategy, Establish, Expand, Elevate. And even though we call it 3 waves these are activities, which are going on in parallel. We have a certain focus on the chemo combination or combinations with standard-of-care because these studies can be simply started much faster, and we have a focus on speed to be really first to market in certain indications. However, there is data generation in combination studies ongoing in these indications with our ADCs, for example, and will come very soon also following this established waves. Operator: We will now take the next question from the line of Asad Haider from Goldman Sachs. Nick Jennings: This is Nick Jennings on for Asad and the Goldman team. Given that the BNT327 Phase III trial in triple-negative breast cancer is initiating this year, could you provide any insight as to what we can expect to see in the Phase II details coming up at SABCS. And is there any new information we can expect that provides additional confidence in the Phase III success? Douglas Maffei: Thank you, Nick, for that question. It's a good one. So just to recap that from Pumitamig the Phase III triple-negative breast cancer, which is initiating and Ozlem, the specific question is whether we can provide any additional details on the Phase II results that we'll be presenting SABCS. Özlem Türeci: So we will present some more efficacy data, safety data and also dose data. Operator: We will now take the next question from the line of Akash Tewari from Jefferies. Manoj Eradath: This is Manoj for Akash. Just 1 question. So we recently saw HARMONi-3 trial in first line and the CLC making some changes to look at primary PFS and OS statistical analysis separately for squamous and non-squamous populations. So considering these changes, do you still think ROSETTA-02 trial in BNT327 plus chemo is sufficiently powered for PFS and OS endpoints in the Phase III portion. Will there be any trial change, any trial-design changes based on these new information? Douglas Maffei: So it's a little hard to hear some of the details on that, but I heard you talking about HARMONi-3 and whether that may have any read-through or effect on the way that we're conducting our trials for Pumitamig. So I'll direct that question to Ozlem. Özlem Türeci: Yes, we are constantly with upcoming new data, reevaluating our statistical analysis plans for ongoing trials, and we'll also look into this specific trial. Operator: We will now take the next question from the line of Yaron Werber from TD Cowen. Yaron Werber: Great. And I had a quick follow-up for Ozlem on BNT323. Just that the need to generate more data to support filing, can you be -- maybe a little bit more explicit? Do you need to generate -- it sounds like you're going to have more data, as you noted, in breast cancer next year. And so is the thought to then file for breast cancer next year. And what was the feedback for endometrial cancer? And do you still plan to file for that? Or maybe just give us better clarity. Özlem Türeci: Yes, maybe I was misleading for the endometrial cancer discussions with FDA, have nothing to do with the ongoing breast cancer study. It's not about generating new data. It's about follow-up data and further analysis. So that pushes the time line a bit into '26, but does not change our submission strategy and our plans for BNT323 overall. Yaron Werber: Okay. And that's for breast cancer. And then what about endometrial cancer? What's the plan there? Özlem Türeci: No, no, no. Endometrial cancer is our first submission. This is what we said all along. Originally, it was planned for '25. We -- this is pushed out to '26 because, as I said, we are in discussions with -- it's in pre-BLA discussions with the FDA and providing further data breast cancer, the breast cancer study, Phase III study is ongoing, will readout later in 2026. Operator: We will now take the next question from the line of Mohit Bansal from Wells Fargo. Mohit Bansal: So again, a question on VEGF PD-1. One key comment we get from KOLs or experts is that with these bispecifics, it does look like that they are better VEGF inhibitors, but it doesn't look like that the PD-1 is -- the component is better. So I mean, how do you think about that? And in the context of these -- this bispecific showing an OS benefit in lung cancer trials, how important it is for PD-1 to be better at this point, given that -- we are seeing good PFS benefit, but OS is kind of on border line. So I would like to get your thoughts on that. Douglas Maffei: Thank you, Mohit. So a question generally around how much confidence we or others have in the bispecific class. And you mentioned that VEGF binding is maybe better, but PD-1, you're saying maybe not as good in bispecifics. And specifically, that OS benefit in lung. So direct that question to -- Ozlem? Ugur Sahin: I can start and Ozlem can take the second part. Is it okay, Ozlem. Özlem Türeci: Yes, sure, please. Go ahead. Ugur Sahin: Yes. Let's start with our confidence. Our confidence is increasing into this drug class. And the confidence is not based on better VEGF better PD-L1s, but what the antibody really does as a bispecific molecule and we are seeing now that this is getting more and more clinical data that this is not only called on PFS, but also have an impact in OS. And maybe, Ozlem, if you would like to add mechanistic understanding how that could also be helpful. Özlem Türeci: Yes. Mechanistically, in principle, our preclinical data, and that was also part of develop of -- preclinical development and selection process for this antibody shows that blocking of PD-1, PD-L1 pathway, as well as the VEGF-A blocking in the respective preclinical settings is robust and it's not inferior to what you would see with the individual antibodies. Having said that, we also think that the fact that we have a PD-L1, not a PD-1 arm here as an additional elements to the mode of action, namely targeting of this molecule into the tumor micro environment. And this, again, is a very good condition to amplify both on the PD-1, PD-L1 side, but also on the VEGF receptor signaling side all the effects on economical and non-economical effects of these 2 targets. So this is the preclinical piece and mode of action piece, but the clinical data has to -- to tell the truth from the data we have across tumor indications. This is not yet Phase III data. We are very confident that the activity has PFS effect in certain important indications and also duration of progression-free survival starts to look good. Operator: We will now take the next question from the line of [indiscernible] from BMO. Malcolm Hoffman: This is actually Malcolm Hoffman for Evan from BMO. Thinking about the guidance range for this quarter, could you quantify how much of this reflects the relatively stronger quarter for COVID versus just general updates for the BMS collaboration and U.K. government agreements. I know you mentioned most of this was tied to the collaboration, but I was curious, if there were any minor changes on the COVID front would be helpful to think about the relative contributions there. I appreciate it. Ramón Zapata-Gomez: Thank you, Malcolm. So let us talk a little bit about the revenues. And I will refer to your COVID-19 question, but I also think it would be helpful for the audience to understand that bit of the BMS revenue. So on COVID-19. So for COVID-19, we continue to see a stable position with a strong market share and stable pricing. U.S. vaccination rates are roughly 20%, which is in line with what we had anticipated. We have always assumed lower volumes versus last year. So overall, the business is performing within our expectations for the year. While the broader market remains uncertain, we continue to lean on our strengths like strong brand recognition, reliable supply and rapid variant adaptation, and we do expect to close the year in line with our outlook. Now if we talk about the BMS revenues, the updated revenue guidance mainly reflects the collaboration with BMS, as you rightly point out. And under this agreement, we will receive a total of USD 3.5 billion in upfront and on continuing cash payments between 2025 and 2028. While the timing of cash inflows and revenue recognition deferred revenues will be recognized in broadly equal amounts over the next 3 years, with the remaining balance recognized together with a final payment in 2028. This will provide a clear and predictable contribution over the next several years. Operator: We will now take the next question from the line of Joshua Chazaro from Evercore ISI. Mario Joshua Chazaro Cortes: This is Josh on for Cory Kasimov. On your and your partner's decision to push Pumitamig into gastric cancer, did you see compelling clinical data, not sure if this is presented or not? Or is this push into this new indication based off your understanding of the mechanism of action? Douglas Maffei: Thanks, Josh, for that question. So it was a question about Pumitamig and our announced decision to move into gastric cancer, what was that based on? Have we seen any data that we can speak to that support that decision. So Ugur, would you like to take that question? Ugur Sahin: Yes. We have emerging data for Pumitamig in gastric cancer and as an indication, which -- for which checkpoint blockade is approved. It's an indication that we have seen responses in combination with chemotherapy and an indication where we see based on the data that we've got in other GI indications. A clear room for improving over standard of care. Özlem Türeci: And also the mechanistic rationale that anti-angiogenic and PD-1 targeting approaches are validated approaches in gastric. Operator: We will now take the final question from the line of Jay Olson from Oppenheimer. Jay Olson: We're curious about your collaboration with Bristol-Myers Squibb. And can you talk about the governance structure and which party makes the decisions for new trials and who leads the new clinical trials when you initiate them? Douglas Maffei: Yes. Okay. Thank you, Jay. Thanks for that question. It's an interesting one about how our collaboration with BMS works mechanically. I can't say that word. So Ozlem, I'll pass that over to you, who makes decisions for [ Auriga ], who makes decisions on clinical development. Özlem Türeci: But it's a classical approach with multiple collaborative arms. We have a JSC in which we discussed all the indications so far or indicate all decisions that are made are based from interest of both partners, but both partners have the opportunity to do combination trials with their products. Yes, regardless whether the other partner is interested to join directly or not. So we have a lot of flexibility in this collaboration aiming really to do all kind of studies and to exploit the pipeline of the other partner as exhausted as possible. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Hello. My name is Dustin, and I will be your conference operator today. At this time, I would like to welcome you to Third quarter 2025 Pediatrix Medical Group, Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our Chief Administrative Officer, Mary Ann Moore. Please go ahead. Mary Ann Moore: Thank you, operator, and good morning. Certain statements and information during this call may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by pediatrics management in light of their experience and assessment of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements made during this call are made as of today, and Pediatrix undertakes no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Important factors that could cause actual results developments and business decisions to differ materially from forward-looking statements are described in the company's filings with the SEC, including the sections entitled Risk Factors. In today's remarks by management, we will be discussing non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in this morning's earnings press release, our quarterly and annual reports and on our website at www.pediatrix.com. With that, I will turn the call over to Mark Ordan, our Chief Executive Officer. Mark Ordan: Thank you, Mary Ann, and good morning, everyone. Also with me today is Kasandra Rossi, our Chief Financial Officer, who is recovering from the flu. We didn't forecast that. Our third quarter results, including adjusted EBITDA of $87 million exceeded our expectations, a confluence of positive outcomes in pricing, collections and expense controls together led to another very strong quarter. 2025 year-to-date results have been strong, and we see no reason to expect a shift from normal seasonality in the fourth quarter. Because of practice bonus variability, our outlook for the full year's adjusted EBITDA is a wider-than-usual range at $270 million to $290 million. Note that we also disclosed in our Q filing that we bought back 1.2 million shares in the quarter. To date, that number is now 1.7 million shares. After Kasandra, I will speak about the big picture about where Pediatrix is today and where we are heading. Kasandra Rossi: Thanks, Mark, and good morning, everyone. This is definitely not my real voice, so please forgive me. Our consolidated revenue decrease was driven by our portfolio restructuring activity of just under $54 million. This decrease was partially offset by strong same-unit growth of 8% and with same unit pricing up about 7.5% and patient service volumes up just under 40 basis points. Pricing was driven by solid RCM cash collections, increased patient acuity and neonatology, an increase in contract administrative fees and favorable payer mix. While volumes reflected modest growth in neonatology, where NICU days were up by 2%. Practice-level SW&B expenses declined year-over-year, also reflecting our portfolio restructuring activity. On a same-unit basis, we saw increases in salary expense, incentive compensation based on practice results and benefits expense. Salary growth for the third quarter was modestly below the ranges that we have seen for the prior 5 quarters that averaged 3% to 3.5%. Our G&A expense increased slightly year-over-year, driven by an increase in incentive compensation expense based on overall company financial results. Other nonoperating income included a net gain on investments in divested businesses of $21 million, with the remaining net increase driven by higher interest income on cash balances and a decrease in interest expense on modestly lower average borrowings at slightly lower rates. Moving to cash flow. We generated $138 million in operating cash flow in the third quarter compared to $96 million in the prior year, driven by higher earnings and increases in cash flow from AR. We also used $21 million of cash during the quarter for share repurchases and used $19 million to acquire several neonatology, MFM and OB hospitalist practices in a single transaction. We ended the quarter with cash of $340 million and net debt of just over $260 million. This reflects net leverage of just under 1x using the midpoint of our updated adjusted EBITDA outlook range for 2025. Our AR DSO at September 30 of 43.1 days were down over 3 days from June 30, but were down almost 9 days year-over-year, driven by improved cash collections at our existing units. Mark Ordan: Thanks, Kasandra. I think that when we release stronger-than-expected results, people go straight to the components of those results and miss the core of who Pediatrix really is. Yes, we employ clinicians and hospitals in an ambulatory setting. And yes, there were strong components of our results that are out of our control, but that fact is hardly unique to us. Let me tell you the combination of some factors that do make us quite unique. At our recent medical directors meeting, we assembled over 250 practice medical directors, OB hospitalists, pediatric intensive care physicians, maternal fetal medicine physicians and the neonatologist. Nobody else could assemble a group of clinicians -- of clinician leaders like we can. This is the nation's largest assembly of practices in these most critical areas. Presenting to the group were our research clinicians who, in addition to their practice work produce more research on neonatology than any other organization, including academic medical sectors. Let me give you some details. Our market-leading position. We have massive clinical scale. Our research activity is supported by our substantial neonatology clinical footprint of over 1,300 physicians and 1,170 advanced practice providers, serving patients in 322 locations across 33 states. We maintain the industry's most detailed comprehensive clinical data warehouse with 37 million patient days and 2 million NICU admissions. We drive industry standards. Our research productivity is evidenced by 1,395 peer-reviewed publications authored by our clinicians and researchers, including 62 publications in 2024. Our active research spans 39 sites conducting 72 clinical research studies. The portfolio is diversified across funding sources, including 16 federally funded studies, 19 industry-sponsored pharmaceutical studies and 7 foundation and international collaborations. As of October 31, we maintained 130 active research applications. We strongly believe that this commitment to research drives higher quality and safety, innovative and branding. Our results are also driven by our commitment to technology, and we view ourselves as the innovative technology leader in neonatology. As many of you know, we have a proprietary Pediatrix developed system called BabySteps to support clinicians as they care from for mothers and the frailest of babies. Let me elaborate. It was designed and curated by our physicians and developed by our technology team to address the needs of the highest-risk NICU patients. It specifically addresses the following: supports clinical decision-making, increases efficiency and accuracy and documentation, provides risk mitigation, including med mal and increases clinician well-being via reduced documentation and cognitive burden. It is constantly updated and evolving based on our quality and research team input. Let me give you a specific example, hypoxic ischemic encephalopathy. HIE is a condition and it may occur when a newborn baby's brain does not receive enough oxygen and blood flow with a high mortality rate in severe cases. BabySteps programming prompts timely specific intervention to assist our physicians in diagnosis and care, improving clinical outcomes. After surveying alternatives, we believe BabySteps is a clear differentiator for us and has no peer in the industry, and we are confident that our hospital partners view that as one of our many strengths. Going forward, we plan to increase our prioritization of enhanced technological support. Our clinicians don't just work in hospitals. They and we as an organization, are true partners to these hospitals. We don't just put up a sign to attract this very rare group of clinicians for our hospital partners. We have the largest and I believe, the strongest recruiting team in these areas, ensuring we welcome the finest clinicians in our critical fields. Our results include an increase in acuity. Why? Because we lead more Level 3 and Level 4 NICUs than anyone else and with the support of our research and quality teams and many others of pediatrics, we provide more support in these fields than anybody else possibly could. This all results in miracles. I speak with and spend a great deal of time with our clinicians, and it is not at all uncommon for me to hear about 22-week-old babies being discharged home. Stop and think about what that means to have an organization that is at the forefront of such amazing care to the frailest patients anywhere and likely does this more than anyone else. Our strong results to a great degree results from our focus on 4 areas of concentration. And while we restructured our portfolio to further that focus, we continue to build strength around the country in pediatric surgery, neurology, cardiac intensive care and other highly specialized areas. All of what I've described is to further our reputation as a leader in this immensely critical and vital field so that hospital systems know they could not internally do what we can do with that partner. I spoke in May about a portfolio of NICU, MFM and OBH operations we were planning to add. Very happy to report that we did this on schedule and quite successfully welcoming great clinicians and providing a significant hospital partner with the support they needed. We expect to see more of this going forward. And even on our personal note, many of my administrator colleagues are clinicians or former clinicians and many of us are not, but I will assure you that what unites us is an unwavering dedication to the support of our clinicians so that by extension, we live up to our simple charge, take care of the patients. We have a lot happening here, and I'm grateful to and proud of the work that my colleagues are doing. I will end by returning to our results and outlook. While we have had a combination of positive factors to propel our strong results, we don't view it as a being at a peak. While we are certainly in the midst of significant health care headwinds, we all know that, we still see many opportunities to strengthen our operations and our results, and we are working hard to enable a very strong future. Operator, let's now open the call for questions. Operator: Our first question comes from the line of A.J. Rice from UBS. Albert Rice: First, obviously, you're sitting on a large cash balance. Your leverage is about as low as we've seen it. Any updated thoughts on capital deployment? I know you've been fairly cautious up to this point. Any thoughts about being more aggressive on the share repurchase? Or is there other development or acquisition opportunities that are interesting? Mark Ordan: Well, a few things. One, as we said, A.J. we have fairly aggressively been buying back shares, and we're very pleased that, that's come at the same time as the results that we've been posting. We are looking at many different opportunities, both inside and possibly outside the company, nothing to detail at this moment. We announced at our last call that we had welcomed a colleague, a long-time colleague of mine, Greg Neeb, who is working with me at looking at ways that we can really expand what we do, both internally and possibly externally. As you know and anybody who's been listening to these calls, we do favor low debt, especially at a time when we have the kind of headwinds that we have. So we'll continue to be cautious, and we look forward to reporting other opportunities as we move forward. Albert Rice: Okay. Maybe one other follow-up. Obviously, the restructuring of the portfolio has been a great success in terms of improving the operating performance of the company. I wonder -- we haven't asked you a while. Has it changed the dynamics of the company in the marketplace as you talk to new practices about potentially joining with you? Does it give them pause that you did the restructuring? Or has it changed the competitive landscape in any ways? Mark Ordan: No, I think actually, on the contrary, I think that both new practices, people -- practices that we've welcomed in, as I mentioned before, and our existing practices see, if anything, just an obvious increase in concentration of our efforts because we have, in that sense, a smaller footprint. So our team is so focused on working with our hospital partners and working with our clinicians that I think it creates a much better environment than we had before. Also think about our recruiting efforts and our recruiting team, we're able to really focus on our areas of need, and that makes them also much more effective. I think in every way, while we obviously would -- it's always sad to say goodbye to terrific clinicians, we felt that this concentration makes us stronger in just about every regard. And as I mentioned, we still have very important areas in some of these subspecialties. And if a hospital system needs that kind of support, we'll work with them to figure out how to provide it. Our recruiting team can help us, can also help our hospital system partners. Operator: [Operator Instructions] Our next question comes from the line of Pito Chickering from Deutsche Bank. Kieran Ryan: You've got Kieran Ryan on for Pito this morning. So I wanted to start and see if you can maybe break out the different buckets of the strong pricing in the quarter. It sounds like it's a lot of the same stuff you saw in 2Q around collections acuity, admin fees and some payer mix. So any color you can provide on how that kind of split out in 3Q and your thoughts on the durability and how those factors look as we go into next year? Kasandra Rossi: Sure. This is Kasandra. So on the price -- on the strong pricing, over 1/3 of that was from strong RCM collections activity. And we did see some of the factors we saw in the prior quarters on acuity. Acuity made up about 20% of that pricing increase. And we have also continued to see some contract administrative fees from our hospitals increasing by about 10%. Payer mix, which had really been stable really last quarter from the increases or the favorability we saw in 2024. We actually did see a bit more favorability on that in the quarter of about 10%. So that really is the bulk of what made up a really strong pricing quarter. And as you know, many of these things are variable. So we would anticipate, like we had mentioned, payer mix continuing to be a bit stable. I think acuity has been strong in the last few quarters, but that, again, is also variable. And we've made it very clear that on the contract admin fees, it's tough to get some increases. We have had some success, but we don't see that becoming any easier with some of the pressures that hospitals are facing. And for the collections, I think I see 2025 as a reset year. Obviously, we've been talking a lot about our transition, and that has gone extremely well. And I think we are at a place where we have hit our stride there. Kieran Ryan: That's helpful. And then I guess just going back to the guidance. I appreciate the commentary on the spread and the seasonality. I was wondering if you could kind of maybe just parse that out a little bit -- a little bit more on the seasonality as well as any other factors that you'd note between the high end and the low end, particularly maybe on volumes because I mean you may have a pretty big office space comp this quarter. Mark Ordan: There's nothing on volumes. We're working on several things in the fourth quarter as the company normally does towards the end of the year, and that could create some variability there. We'll report back later if -- of course, if anything materializes from that. But that's the reason to have a slightly wider than normal, nothing else. Operator: And our next question comes from the line of Jack Slevin from Jefferies. Jack Slevin: Congrats on the really awesome quarter. Mark, I just want to dig in a little bit on some of your comments about the longer term and sort of where you can drive things. Just wondering if you can unpack those a little bit? And then maybe more specifically, as we think about a key topic for some investors has been these enhanced subsidies on the exchange plans and what that might mean for your business, not asking necessarily for you to comment on what seems to still be a period of uncertainty in Washington, but more just wanted to hear if you've had any conversations maybe on the OB side or things that you're hearing in MFN that might sort of give a lead on sort of where expecting mothers could be leading, even if they're facing premium step-ups next year, if it's something that they might be looking to sort of retain coverage on? Mark Ordan: Well, look, we've commented on it last time and I continue -- we certainly hope that the exchange credits continue. They seem to be beneficial. We're not able to pinpoint the effect that, that's had on us, but we think it's -- obviously, it's a positive for us. So again, we're hopeful. We haven't seen any change. I think the world is waiting to see what happens there. In terms of our outlook and our future, we -- I know it sounds boring. I think I used this word on our last call. We do believe that by being laser-focused on the needs of our hospital systems, that provides additional opportunities. I personally am involved with many discussions where people haven't had the results internally that they'd like to have and are looking for a partner that can specialize in these important areas. And I think at a time like this, our financial strength will inevitably provide additional opportunities. We are able to invest with hospital partners and do things that other people can't do. So that's where we see strong potential going forward. And at time like this, with the headwinds that we've seen and other companies were not financed the way we have been, there could be opportunities there as well. So we think we're in a good position that way. Jack Slevin: Got it. Okay. That's really helpful. And then maybe one just piggybacking on A.J.'s question around the capital allocation. Would just love to hear sort of if you can go back over some of the details on the deal that you completed in the quarter and sort of how that's going to feather its way into the business and into the numbers? And then secondly, just thinking about what the environment looks like out there as far as deals at the hospitals, as we expect hospitals to have a couple of years of headwinds here. Are there any acceleration of conversations for some of those practices to sort of pull their way out of hospitals or for hospitals to look to monetize? Mark Ordan: Well, no, there's no, I haven't -- we haven't seen a change in tone with hospitals trying to monetize that. We do see -- we're very fortunately partners with hospital systems that are actually strong in this environment and are growing in this environment, and we look for ways to grow with them. As far as the acquisition that we made, it wasn't material, so we didn't break out the details of it. We tend not to. We do -- we have acquisitions that take place over the years. The reason we highlighted it was that it was a hospital system that easily could have taken these units in-house and felt that we could do a better job. But -- and we think that, that's our calling part. So we are in the midst of and intend to continue to push for that to be very forward thinking with our hospital partners and say, hey, if you're growing, you need help, why would you possibly not work with us. And as I mentioned my pride and appreciation for my team, when they do, they realize that there's a group of people, a big group of people that are pulling 24/7 for them. And when I talk about our quality initiatives and our research initiatives, we bring those positives to our hospital system partners. They couldn't do this internally. So in an area when you think about the frailest patients of all the things that we do reduce risk. And if you're a hospital system, why wouldn't you want to be partners with a group that can reduce risk within your 4 walls. So we think that's a very compelling point. And by the way, it seems like a lot of them do, too. Operator: There are no further questions. I will now pass the call back over to our CEO, Mark Ordan, for closing remarks. Mark Ordan: Great. Well, thank you very much, everybody, for your support, and we look forward to updating you on our future progress. Have a great day. Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.
Operator: Hello, everyone, and welcome to the Ryanair Holdings plc H1 FY '26 Earnings Release. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Michael O'Leary, Group CEO of Ryanair Holdings plc to begin. Please go ahead. Michael O'Leary: Thank you, Nadia. Good morning, ladies and gentlemen. Welcome to the H1 results conference call. I'm joined by the entire team here in London and on other phone lines. We published the results this morning, Neil and myself have done a 30-minute Q&A on the website. So I would direct you to the ryanair.com website for that while you're there, book a low-fare flight. Quick couple of comments. One, as you see, I'd prefer to deal with Q2 because the H1 was distorted by the very ridiculously strong Q1 and the weak prior year comp. But if you look at Q2, so traffic is up 2% because of the Boeing delivery delays. They have improved in the last couple of months. We've now taken 23 of the 29 aircraft that they should have delivered to us at the start of the summer. That gives a little bit of headroom to increase traffic growth this year from 206 million to 207 million. So we should get growth of about 3.5% this year. Fares in Q2 were up 7%, very strong recovery. That is the recovery of last year's 7% fare decline, and we think we will continue that through the remainder of the year. I caution, we do have slightly stronger prior year or tougher prior year comps in the second half when we began to repair the OTA boycott or the impact of the OTA boycott was less significant. So the fare growth in the second half won't be as strong as it is in the first half. But overall, on the year, we're pretty confident now we get back all of last year's 7% fare decline, maybe a little bit above that, but it won't be much. Much more important, as always, unit costs well under control, only up 1% in the second quarter despite significant cost inflation on air traffic control and a little bit on the engineering side. Clearly, the lower hedge cost this year playing a significant role in that. And as a result, Q2 profits are up 20% to EUR 1.72 billion. Taking forward, in kind of themes I would give you that we want to cover in the call, Boeing are doing a much better job. I think they asked us to take those -- could we take the aircraft through August, September, October. We said didn't -- there were no use to us at that stage, but we would work with them. We would take those aircraft if they could deliver them. They've delivered 23 of the 29 aircraft in the last 3 months. We get 2 more in November and then the final 4 will be delivered in January, February of next year. So we will have all 210 Gamechangers in the fleet by the end of March next year or in advance of summer '26, which puts us well on track, I think, for traffic growth to 215 million, 216 million passengers in FY '27. And that will be the first year since the MAX groundings that we're not dealing with Boeing delivery delays in the spring or disruptions to our summer schedule. So we think that will lead to strong traffic growth and hopefully maintaining pricing and profit recovery into summer '26. The good news this morning is we've taken advantage of our recent fuel weakness. As you know, we were 85% hedged out to March 2026 or for this year at $76 a barrel, down from $84 a barrel last year. Today, we're able to announce that we're 80% hedged for FY '27 at just under $67 a barrel. That will be a very significant 10% saving on our fuel bill, will save us about EUR 600 million next year, which I think will enable us to incentivize and stimulate growth, but also fund what will be another painful increase in emissions ETS taxes and viral taxes in Europe, where Europe continues to damage its own competitiveness by taxing only intra-EU travel, whereas all the extra or the non-EU travel or people arriving to and from Europe are exempt from these egregious environmental taxes. Balance sheet continues to strengthen. We paid back the EUR 850 million bond in September. We have the final EUR 1.2 billion bond we will pay in May, and then we will be entirely debt-free with a fleet of 640 aircraft. We have hedged, and I think the treasury team has done a wonderful job start this year, the dollar was about 1.08 to the euro. It weakened in recent months with some of the Trump spectaculars to 1.24. And we've now hedged the first 50 of our 150 firm MAX 10 aircraft orders at 1.24, which is about a 15% euro cost saving -- euro saving on CapEx on those first 50 aircraft, and we're looking for opportunities to extend those CapEx hedges. And you can only do that with the kind of strong balance sheet Ryanair have. The real underlying, I think, story, though, is here that Europe capacity continues to be constrained and will remain constrained out to 2030 because of manufacturer delivery delays, Airbus fleet still largely grounded repairing engines, a program that won't be completed until 2028 or 2029. And therefore, I think as we add capacity next year, there's a reasonable prospect that we would grow traffic, but we'll see modest fare increases coming through the system. The one negative in Europe is Europe is continuing to fail on competitiveness. We've had the Draghi report, now it's 14 months old. He pointed to a whole series of areas where Europe can and must be more competitive. von der Leyen has committed herself to delivering on that competitiveness agenda and then done absolutely nothing for the last 14 months. All of Europe's airlines are calling for 2 competitive initiatives. One moved the ETS environmental tax emissions trading system tax rates in line with CORSIA, which is what the non-European airlines are paying. It is indefensible that Europe is harming itself by having these excessive environmental taxes, move ETS in line with CORSIA, and it would result in dramatic improvements in competitiveness and also lower fares for consumers traveling on intra-EU air services. And then second, reform Europe's broken ATC services. We need the protection of overflights during national ATC strikes. We cannot have a single market if it can be shut down every time some air traffic control union wants to go on strike. It isn't much of an ask. The legal mechanism already exists because in Spain, Italy and Greece, they already protect overflights during ATC strikes and they ground the domestic flights. But as we all know, in France, they protect a disproportionate amount of the domestic flights and cancel all the overflights. This is unsustainable and von der Leyen should take action. I think with what is a very impressive new Transport Commissioner, Tzitzikostas. He wants to reform, but everything ties in the dead hand of von der Leyen's office. So she should stop talking about reform and competitors and start delivering it, protect over flights and then fix staffing on the first wave of ATC staffing on the first wave of flights, which, again, Germany, France and NATS in the U.K. are inexplicably short staffed. It's inexcusable. The airlines we roster standby pilots and standby cabin crew. ATC, they just allowed the system to fall over and they cut capacity. It's not acceptable. Air traffic control fees have gone up 14% this year, and we're still getting a s***** third rate, third world service. And if von der Leyen can't deliver competitiveness, frankly, she should leave and be replaced by somebody competent who can deliver competitiveness in Europe. Other than that, I think the good news is we're seeing a sea change in environmental taxation at national level. Governments in Sweden, Hungary, Italy, Slovakia and regional Italy are all abolishing their environmental taxes. And we are switching an enormous amount of capacity away from high-tax economies like Germany, France and the U.K., where Rachel Reeves is increasing APD by another GBP 2 in April. And moving that capacity to Sweden, Hungary, Italy, et cetera, where governments are get it, they're abolishing the environmental taxes and they're also incentivizing traffic growth. So we want to reward those countries that are incentivizing growth and penalize those countries like Germany, France and the U.K. who are incentivizing tax increases and damaging growth. And that will continue. But I think the fact that countries like Sweden, the home of Greta Thunberg and flight shaming 5 years ago are now have worked out. They're abolishing the environmental taxes, gives us hope and I think some degree of optimism that the way forward is not penalizing Europeans. It is abolishing those taxes and allow airlines like Ryanair to invest heavily in new engine technology. Our new MAX 10s will carry 20% more passengers, but burn 20% less fuel per flight. So a 40% reduction in fuel and emissions on a per seat basis. Other than that, there's also some other government and competencies, the Irish government, which was elected last year on a program to abolish the Dublin Airport cap 12 months later, nothing done. We have a do-nothing Prime Minister and a do-nothing Deputy Prime Minister, both of whom have been sitting on their arses for the last 12 months, talking about passing legislation despite the fact they have a 20-seat majority. They're now talking about legislation might be moved by the end of 2026. Ireland and growth cannot wait for these do-nothing politicians. They have a 20-seat majority, they should pass the legislation scrapping the cap at Dublin Airport before the end of 2025 and allow the airlines, Ryanair and the other airlines to get on with growing traffic at Dublin Airport, the way we're growing, and we're adding aircraft in Shannon and Cork. So there's always some stupid government and some incompetent politician holding back the growth. But thankfully, there's better politicians in Sweden, Italy, Hungary, Slovakia, all of whom are working closely with Ryanair to abolish taxes and allow us to grow strongly. I think we're looking forward particularly with the improvements Boeing have made in the deliveries, the quality of the deliveries. Kelly Ortberg and Stephanie Pope are doing a terrific job. They have got -- they've gone up from rate 38 to rate 42 in October. We think the FAA will increase that to rate 46 in March, April next year. They are gradually catching up on the delivery delays. They are pretty confident that they'll certify the MAX 7 even with the current government shutdown in Q2 next year, the MAX 10 in Q3, which will be about 6 months in advance of our first 15 MAX 10 deliveries in the spring of 2027. So we have the 29 aircraft delivered this winter that enables us to grow to 215 million passengers in FY '27. The first 15 MAX 10s coming in the spring of '27 will enable us to grow to about 225 million passengers by FY '28. And then we are off and running on what I believe will be an 8- to 10-year program to grow from 207 million passengers this year to over 30 million -- 300 million passengers by 2034. Currently, we're making a profit of approximately EUR 10 per passenger. I think it's reasonable to suppose that, that profit will rise from EUR 10 towards EUR 12 or EUR 14 profit per passenger over the next 10 years. There will be 1 or 2 curveballs in the middle of that. We are a cyclical industry. We have a strong balance sheet. We will have 0 debt in May of next year. And I think we are poised for very strong growth, particularly if the European economies continue to lag in growth, people will get more and more price sensitive and will switch to Ryanair from high fare competitors elsewhere. So I have never been more excited about, I think, the growth outlook for the next 4 or 5 years. I think we have a number of challenges in moving politicians to a competitiveness agenda. But within that, Ryanair is going to grow strongly and profitably, I think, for the next 4 years up to 2030. And with that, Neil, I want to hand over to you, anything you want to highlight in the P&L or on the balance sheet? Neil Sorahan: Yes. I'll maybe just focus again on a couple of things in the quarter and in the half. Firstly, as you already pointed out, costs put in an excellent performance, up just 1% on a per passenger basis. That was down to our strong fuel hedging, which very much helped offset double-digit increases in ATC and environmental costs. We're still guiding modest unit cost inflation for the full year. What's modest, it remains somewhere between 1% and 3% on a full year basis, probably a little bit higher than the 1% that we had in the first half in the second half of the year. We have extended our hedges into FY '27, as Michael said. We've also extended our OpEx hedging into next year at 1.15 compared to 1.11 on the euro-dollar. So we're locking in significant price savings next year, and that will go a long way to help offset a jump up in our environmental ETS next year somewhere from about EUR 1.1 billion this year to somewhere between EUR 1.4 billion and EUR 1.5 billion next year. Balance sheet, rock solid, BBB+ rated, 610 unencumbered aircraft and in a very strong position now to be debt-free by May of next year, which I think is a great place to be. Also, we're locking in euro savings on our MAX 10 CapEx moving forward with a 35% hedge in place where we've hedged 35% at a firm order, that's 150 aircraft at 1.24. Buyback moving along at a nice pace. We're pleased with the pace that the brokers are moving at. They managed it well through indexation. So we're just over 35% of the way through that, and that will run out to the back end of 2026. And then finally, the last thing I'll point to business as usual, but we've announced an interim dividend this morning of EUR 0.193, which similar to last year, will be paid at the end of February. And that's all I wanted to touch on, Michael. Michael O'Leary: Okay. Thanks, Neil. With that, Nadia, we'll open up to Q&A, please. Operator: [Operator Instructions] The first question goes to Harry Gowers of JPMorgan. Harry Gowers: First question just on the Q3 fares, maybe you could provide us with what you're currently tracking for the quarter? And if you've seen any changes strengthening or weakening around that number in the last few months? And then second question on the online travel agents, that clearly, the fare comparatives are normalizing into the Q3 versus last year. I was wondering if you think you're still getting like any actual realizable uplift or specific tailwind from those official partnerships? Or is this just like fully past us now and we're back to a more regular kind of pricing cycle, just fully dependent on supply/demand in any quarter? Michael O'Leary: Yes. Thanks, Harry. I mean I wouldn't want to split out where we think we are on Q3 fares because so much of it is dependent on the close-in bookings at Christmas, over the Christmas and New Year period. But October is strong, up on last year. November is a little bit weaker, slightly down on last year's fares and Christmas at the moment is booking strong ahead of last year on fares. I think all I want to -- I wouldn't want to go any further than give you the kind of -- we have moved from being hopeful to being now confident that average fares will recover the full 7-year fare decline from last year in this year's numbers. We're up 13% average fares in the first half of the year. We have tougher prior year comps in the second half of the year. So you won't see, I think, 7% fare increases in Q3 or in Q4. But I think rounded out for the full year, we're pretty confident now we will be up -- average shares will be up 7%. Maybe we might get to 8% if we have a strong Christmas. But again, we need to see how those close-in figures book. And I think that is what leads us with a reasonable degree of confidence to see a strong profit recovery this year, but we can't put a number on it yet because it's so heavily driven by Christmas and the New Year holiday bookings. The new aircraft from Boeing will gives us the capacity to add a few extras there over that Christmas-New Year period. That's why we've been able to bring the traffic up from 206 million to 207 million this morning. On the OTAs, the big impact on us on the OTA boycott last year was through the first half of the year when you lost the people who I kind of complacently thought would be price sensitive. Therefore, they'll book the holidays directly with us. They didn't. A lot of them moved to the tour operators last year to the Jet 2s and the easyJet holidays. They've come back to us in the first half of this year. You see that reflected. We have weak prior year comps and a strong H1. We see some of those kind of tour operators, easyJet, Holidays Jet 2 (sic) [ Jet2 Holidays ] talking about a bit more price sensitivity in their bookings through the first half of the year. And it's because that traffic -- the OTAs have moved that traffic back to us. They need our low fare access. And so -- but that's not a key feature into the second half of the year. The OTAs are a lot less impactful in Q3 and 4. And therefore, we didn't have the same decline in airfares in Q3 and 4 last year. We've got much -- we have a tougher prior year comp, which is why we think, again, the second half of the year, you won't see 7% fare increases. It will be a little bit less than that. But overall, in the round, we'll come out at fares up about 7% on the full year. Eddie, do you want to add anything to that on Q1, Q2 or OTAs? Edward Wilson: No, I mean like what we've said, there sort of covers it off about what has happened, like slightly less in terms of fares in November, but Christmas, we're happy with how it's booking. So nothing really to add there at all. And I think we are through that sort of tail end of the OTAs, and I don't think there's going to be any further uplift. I just think it's, as you say, much tougher for our competitors out there on the prior year comparable. Operator: The next question goes to James Hollins of Exane BNP Paribas. James Hollins: I'll start one for Neil, actually. Just on the ex-fuel unit cost performance was only up 2%. I think noticeable was the EUR 30 million Q2 decline year-on-year in marketing, distribution and other. I'm assuming that's all lower distribution costs -- sorry, lower disruption costs. Or am I missing something else within that particular line? And secondly, Michael, clearly, using this platform as ever to get your point across on EU, progress on overflights, et cetera. Maybe just give us an update on what this new transport minister might be able to achieve? And secondly, whether there's any update on the sort of comedy baggage regulation they're looking at? Michael O'Leary: Okay, Neil. You okay if we have -- Tracey come in after? Neil Sorahan: Yes, sure. On the marketing line, I think you're particularly referring to some of that's down to lower EU261, lots of disruptions, but keeping them below the 3 hours. Equally, we've got up to 60 million people a week coming through on social, which is keeping our marketing costs way down. A little -- some of it's a bit of timing. We will do a bit more marketing over the Christmas period. And then offsetting that somewhat would be higher input costs for the onboard spend, which is going particularly well from an ancillary perspective. Michael O'Leary: Okay. Thanks, Neil. And on its commissioner Tzitzikostas, who's the Transport Commissioner, has had a really impressive start. One of the most notable things is they finally moved on the infringement proceedings against Spain over the crazy Spanish bag fines that were levied only on the low-fares airlines in Spain, but not on the high-fare airlines. It's clearly illegal. It's in breach of EU Regulation 1008/2008, which guarantees the airlines' freedom to set prices free from government interference or regulation. He does want to reform ATC. But like I think a lot of commissioners, he's frustrated. They're all expressed frustration at how little comes back out of von der Leyen's office. There is a real dead hand of Germany incompetence at the top of the European Commission and either she should deliver reform and deliver reform and competitiveness or go, preferably be replaced with someone who can actually do something. I would like to say we should get an Irish politician there given it was Peter Sunderland, who originally deregulated air travel. But given the lack of action from the Irish politicians on the Dublin Airport [ mad ], Dublin Airport cap, I wouldn't be recommending any of our Irish politicians either. At the EU Parliament, as is it won't is -- we elect a bunch of clowns, and we should be not surprised in a circus that they come out with crazy ideas. One of which is now that everybody should have the right to bring 2 free bags onboard an aircraft. We have politely pointed out that there isn't room on board the aircraft for 2 free bags for 189 passengers. That does seem to be a detail that they've missed. We've also pointed out that actual bag, one of the greatest things here that limiting people to bringing one free bag on board, and that was the wheeling judgment, the ECJ judgment in 2014, we do allow half the passengers who are priority boarding to bring a second carry -- free carry-on bag. That's about as much capacity as the aircraft has. But what the European parliament now part of this is that the commission under Tzitzikostas is looking for a reform of EU261. There talk about bringing compensation up from 3-hour delays to 4-hour delays, which does make sense. The parliament then pushes back with some ridiculous suggestion like 2, 3 bags on board. What that would do is they create huge queues at Europe's airports as everybody starts struggling with 2 bags through airport security. A bit like you have in American airports where you take forever to get through security because they're all bringing 5 and 6 bags attached to their persons through the airport. It would also mean inevitable flight delays because bags that don't fit in the aircraft would have to be taken away at the gate and put in the hold of the aircraft. You have more aircraft missing their slots and you would just gum up the whole system. But of course, a bunch of lunatics elected to the European parliament wouldn't worry about the day-to-day details of how people move. They only work about 3 days a week anyway and wouldn't be all that sensitive at the best of times to efficiency. This is why in America innovates, China replicates and Europe f****** regulates. And why Draghi has pointed 14 months ago, we need to get more efficient in Europe. And the best starting point would be stop issuing new bulls*** regulations invented by idiots in the European Parliament and start making Europe more efficient. If you really want to deliver efficiency for consumers of air travel in Europe and competitiveness, abolish environmental taxes or at least bring them into line with CORSIA and fix air traffic control. The European part will be much better off waste spending its time reforming air traffic control or protecting overflights in a single market than they would designing new and hopelessly impractical and unimplementable regulations, allowing passengers to bring 2 free bags on board an aircraft where there isn't room for the bags and they don't fit. Operator: The next question goes to Jaime Rowbotham of Deutsche Bank. Jaime Rowbotham: Two from me, both on growth. The first one on fares. Obviously, great to see you're making back what you lost from the OTA issues. But on an underlying basis, the pricing is broadly flat. And that's, I think, the scenario you're implicitly guiding to for this winter when the comps normalize. So as we look ahead to next summer, you're growing in Poland, Italy, Ireland, you'll shrink in Spain, Germany, France. But overall, you'll grow seats at about 4%. It looks like the industry will do 3% to 4% again as well. That being the case, I was a bit surprised to hear you talking about modest fare increases coming through the system, especially as you hinted that Ryanair will likely be passing some of its fuel cost decline on to stimulate growth. So would it not pay for us to tread quite carefully when thinking about the direction of your pricing next summer? Second one, you've announced EUR 25 million of annual investment today to accelerate cadet and first officer recruitment for the next 3 years. You've also talked previously about setting up 1 or 2 in-house engine maintenance shops. Is there any update on that project? Have you chosen the sites? And are there any other non-aircraft investments for growth that we should have on our radar? Michael O'Leary: Thanks, Jaime. I'm going to ask Eddie to deal with the growth question. I might ask Tracey McCann to come in on -- Tracey will come in on the EUR 25 million, on the first officer and on the engine shops update. Eddie, growth in 2026. Edward Wilson: Yes. I mean if you look out into the summer of next year, I think, just close to 75% of our growth will be in Italy, Poland, Albania and U.K. I mean like we've -- if you look what's happened in Italy, we've opened 2 new -- we've got bases in Trapani. Tirana base will open. We've got additional aircraft, 3 additional aircraft going into Modlin, 3 additional aircraft going into Krakow. And then you see as we begin to -- like it's not good to say that we're not growing in Spain. We're not growing in regional Spain. I mean regional airports in Spain are underutilized by about 70%, but we continue to grow in Malaga and Alicante where we will have -- probably we'll have 20 aircraft in both of those bases next year, and that'll be pretty much maxed out on early morning slots. We continue to grow places like Madrid, so it is getting more patchy and Barcelona is full. But yes, the way this is playing out in terms of you look at our competitors and their sort of cost inflation, and that's going to drive fares up while the gap between us and our competitors widens on a unit cost basis, and that gives us the opportunity to take advantage of what we believe will be like fares at least rising to some extent, the bias is going to be towards that. And we continue to grow, as I say, 75% of it across Italy, U.K., Poland and Albania and then a smattering of one aircraft increases across a wide range of bases where we're continuing to get low-cost deals. But like I could have allocated those 29 aircraft 3x over based on the appetite that's out there for particularly the stability that Ryanair brings and the longevity into those markets. Michael O'Leary: And I would just add to that point. I mean if you look at the non ex-fuel unit cost inflation in our competitors, whether it's easyJet, Wizz, Lufthansa, Air France-KLM, they are really struggling to contain unit costs. And that, I think, puts pressure on the next year to get fares up to cover these unit costs. The legacy carriers are also facing a much bigger penalty in terms of the withdrawal of the free ETS allowances. It has a much bigger impact on Lufthansa, Air France and IAG. And I think the pressure on fares is going to be upwards for the next year or 2. We have a much better unit cost discipline, and I think our fares will trend up behind them despite the fact that we've already banked up to EUR 650 million in fuel cost savings next year. Tracey, do you want to touch on the first officer recruitment issue and the progress on engine shops? Tracey McCann: Yes. So attrition rates are probably at the lowest we've ever seen. So we probably slowed down our recruitment this year of cadets probably to about 500. We should be up at about 1,000. So given the long lead time for promotions to captain been about 4 to 5 years, we're commencing recruitment now for then peak years for the MAX 10 deliveries. So there'll be a carry cost of about EUR 25 million per annum up to 2030. Michael O'Leary: And shop progress? Tracey McCann: So just on the engine shops, we're close to selecting our first MRO shop. We will open 2. So that will allow us to do 200 engines in each shop. The selection period is ongoing. There's nothing in our CapEx for this year, but we will probably start paying something next year, but we're close to announcing something on that very shortly. Michael O'Leary: We're in advanced discussions with GE and CFM on spares packages, and we would hope to have announcements of those, if not, before Christmas, maybe early in the new year. Operator: The next question goes to Jarrod Castle of UBS. Jarrod Castle: I was quite interested to hear you say that you think the profit per pax could go as high as EUR 14 at least over the next few years. And you've given some commentary on pricing and costs. But just some color on what gives you that confidence, assuming we've got like a stable GDP environment. There's no downturn, I guess. And then you've obviously spoken about a number of countries, Germany, France and I saw some comments on the U.K. But it does look like you're still continuing to grow in the U.K., which I think is about 1/5 of your capacity. And if I'm not mistaken, you're going to grow in summer by the sounds of things. So why is it still attractive to you? And what are your thoughts on the upcoming budget on the '26? Michael O'Leary: Okay. I'll maybe ask Eddie do the second half of the question on U.K. growth this year. Remember, the APD increase, that doesn't come in until April of '26. So -- but it's coming. Just on profit per passenger. If you go back to the kind of the broad brushes or my favorite back of the envelope, the real driver, I think, of our industry in Europe for the next 4 or 5 years is capacity constraint. We've gone through 25, 30 years where there was new airlines being set up, low fares airlines, the legacies were setting up low fare subsidiaries, everybody had new aircraft deliveries. There is very little capacity growth across Europe this year, next year or for the next 3 or 4 years. Nobody has any significant aircraft orders with the possible exception of Ryanair. Wizz had some orders and they've -- they're desperately trying to defer those orders now, which means their profits implode because all their profits come from [ Mizigel ] or Ponzi like sale and leaseback profits being recognized in the P&L, but that's an aside. So I think the demand for air travel remains strong. Yes, there are economic challenges in countries like Germany, France and the U.K. where the economies are not doing well, particularly in the U.K. post-Brexit. But people are not willing to forgo the travel. The kids, midterm -- we've just come through the midterm school break last week, very strong traffic flows, very strong bookings at high yields. Easter, summer holidays, Christmas, we're seeing strong demand for travel. I think, if anything, strong demand for travel with -- in Ryanair because we have such a pricing advantage over every other airline in Europe. Wherever we allocate the capacity, we are filling strongly. And I think that was reflected in this morning's bookings even into the remainder of October, November, December or November, December, where forward bookings are about almost 1% ahead of where they were this time last year. And we see that continuing. So I was asked earlier this morning, one of the interviews, if we saved EUR 650 million on fuel next year, will we pass that on in the form of lower fares? I think -- and my answer was, I think we can, but I don't expect to have to because I don't see -- if you look at the kind of cost inflation or ex fuel unit cost inflation in Wizz, easyJet, Lufthansa, Air France-KLM, it's high single digit, low and mid-double digits in the case of Wizz. Those guys have no future unless they constrain capacity and get airfares up for the next year or 2. And I think we will be the beneficiaries of that with a much more disciplined unit cost control. And I keep go back to Slide 4 in our presentation. If you look at the comparable unit cost advantage we have over every other airline in Europe, I think there's a reasonable prospect that we will see modest fare increases over the next 2 or 3 years plus or minus any unforeseen events, but modest fare increases, mid-single digits. And in Ryanair's case, most of that flowing through to the bottom line. Now we will have labor cost inflation in the next couple of years. I think ATC will continue to be out badly controlled by government. But overall, we will be -- we're moving into a decade where we're going to start taking aircraft at 20% more seats that burn 20% less fuel per flight. We're looking at a much more operating efficiencies coming through. And I think that justifies a reasonably modest growth in profit per passenger from EUR 10 to EUR 12 to EUR 14, I think, over the next 5 years to 2030. But then I'm one of like hopeless optimist, which is why I'm employed in the airline industry. Eddie, U.K. growth impact of APD. Edward Wilson: Yes. I mean, notwithstanding the sort of background of continuous APD growth in the U.K. The way we look at in terms of route development is not just season by season, but there's a continuous carousel of airports that we do deals with. And like if that -- if you've got airports even in a tough market like that, that are willing to share the investment with you in terms of lower cost, well, then we're going to reward that with extra capacity. And we've got extra aircraft going into places like Newcastle, which has gone from 0 to 2 aircraft based and 3 aircraft based now. Birmingham has got an extra aircraft. Liverpool has got an extra aircraft, Birmingham, Manchester, Stanford. All these places have extra aircraft going in because they're willing. We're in there for the long term. We're lowering costs there and incentivized for additional traffic. So it doesn't always go coterminous with the market as you make those investments, and it's going to put even more pressure on [indiscernible]. Michael O'Leary: Neil, anything you want to add there on U.K. growth or impact of APD? Neil Sorahan: Not particularly. I think we're -- Eddie and yourself have covered that off fairly well. On the profit per pax, I suppose just to reiterate, it won't go in straight line. There will be years where we'll be up and years where we'll be slightly down. Michael O'Leary: Okay. Michal Kaczmarzyk here as well, who's the CEO of Buzz. I might just add, I guess, help us to just to give you maybe his insight into growth in Central Europe, Poland, in particular, the charter market in Buzz. Michal, anything you want to add on growth in those non-tax economies like Poland and Central Europe? Michal Kaczmarzyk: There are good taxes. True. I mean Poland and CEE are performing very well. Demand is strong. We have now 80 aircraft allocated in the region. The Poland is the biggest part of the market with 44, offering more or less 40 million seats with the most attractive destinations in CEE. We have very strong brand recognition there at Ryanair, but also supported by our local structure bus generating over [ 3,500 ] direct jobs in Central Eastern Europe, supporting another 20,000 airport handling and so on. We make a lot of significant investment in the region through our hangars facility, but also crew training centers. We completed recently the biggest crew training center in Central Eastern Europe with 3 -- sorry, 4 full motion simulators. It's located in Krakow. We'll be able to train over 300 crew per day. We developed also our Warsaw ops center, focusing now on covering Central Eastern Europe, but also serves as a backup for Dublin ops center. So there is a lot of capacity still we can allocate in Central and Eastern Europe. The only -- the constraint is the number of aircraft we can allocate there. And we are in the good shape to take a lot of market share in the next 2, 3 years. Michael O'Leary: And there was talk last year of with moving aircraft back from the desert and basing aircraft in Central and Eastern Europe. Are you seeing much of Wizz in those markets? And how is the -- what's the -- Albania, where we're opening a base in Tirana, which is currently a Wizz base. How is the Tirana expansion base going head-to-head with Wizz? Michal Kaczmarzyk: So aircraft allocation -- I mean the Wizz aircraft allocation from the desert to Central Eastern Europe, I would say it's too late. I mean after pre-COVID, we increased in Central Eastern like 40%. We took their capacity or even pass capacity from the region to the region. So now we are the biggest in Poland, the Baltics, Croatia, Slovakia. We have the local structure there where we are able to compete in terms of cost level. There is no cheaper airline than past now in the region. Also with the highest fleet utilization ratio in the industry, over 6 hectares per aircraft per day. So the new base launch next summer will be Tirana for us, with quite significant capacity of Wizz. But what I mentioned, we are absolutely not afraid of that because our local structure there guarantee us the lowest cost. Once we deliver the lowest cost, we are able to deliver the lowest fares there as well. Michael O'Leary: Thanks, Michal. Eddie, anything you want to add on growth there before we... Edward Wilson: I mean just touch on the point there, you talk about Wizz and what's happening out there, where their policy or their growth strategy is to go back to Central and Eastern Europe. And certainly, what we pick up from the airports is that those that are incentivizing us to grow is that we're there for the long term. And you can see even cancellations in [indiscernible] from Wizz before they've even started back there. So some of that has been replicated. And you hear a lot of noise, but not a lot of lot of action that even extends to places like Italy, where we're doing almost 1,200 frequencies a week and you've got less than 100 frequencies a week from Wizz. So -- but I think airports recognize Ryanair is in for the long term, do a deal with Ryanair, get the cost down and you have the traffic for the long term rather than looking at these other short-term deals that are available [indiscernible]. Operator: The next question goes to Stephen Furlong of Davy. Stephen Furlong: Just on Boeing, last week, they had the results, and I thought they were pretty vague on the certification. They just said 2026, maybe the deliberately were for the MAX 10. I mean a little bit more work on the 10 and the 7 and hardware and software modifications, although they did say it was pretty straightforward. So just might talk about that, what exactly they're telling you. And then you mentioned labor. Could you just remind us what's the timetable for CLAs? I think most of them are in 2027 and stuff that would be great, the contract labor agreements. Michael O'Leary: Yes. I mean I think it's one of this -- I give Boeing more credit. The new management team is doing much more credit. The old management team would give us all sorts of pie in the sky, to be here tomorrow, next week and then miss targets all over the place. The new guys are much more cautious. They don't want to make promises they can't deliver. And I think that's the sensible place for them to be in. But you look at what they have delivered, they've got FAA approval to go from rate 38 to rate 42 in October. They're now talking about going to rate 46 in March, April next year. That doesn't really affect us. I mean we'll have finished our -- the Gamechanger deliveries at the end of February. But at least we have all 29 aircraft in for summer 2026. There is a risk at the moment with the government shutdown that certification, they're pretty confident talking to us. And actually, we get this on the other side from talking to EASA, who are involved in. EASA are very impressed with the work that the Boeing of the management team and the work that they're doing. And we get a lot of very positive feedback from EASA. So I think they're right to be somewhat cautious to underpromise and overdeliver. But we have a reasonable headroom there. At the moment, they're talking about MAX 7 being certified by -- in Q2 next year, MAX 10 in Q3. That could slip to Q4 or to Q1 of 2027, and we would still get our 15 deliveries in the spring of 2027. Now clearly, we'd be one of the lead operators of the MAX 10. I wouldn't have any issue with that. The sooner we can get them, the better. So -- but they're telling us and have gone in writing that they will meet our delivery date, the first 15 delivery dates, the first contracted 15 delivery dates in the spring of '27, they will meet. That's what gave us the confidence in the treasury function to go out and start hedging the U.S. dollar on those firm deliveries. And we're looking for more opportunities to extend those hedging. So I think Boeing were right to be a little bit cautious in their public commentary, but all of the delivery on the ground in terms of quality of what they're delivering to us and the timeliness of what they're delivering to us now has been nothing but impressive for the last 3 or 4 months. Now they clearly don't need any screw up along the way. But in Stephanie Pope who, is sitting on top of the production line in Seattle, there's somebody who's there every day. You can pick up the phone and call her. She gets back to you. She's really is well on top of it, and I would be very supportive of the work she's been doing. Maybe I'll add over -- so timetable on CLA, Eddie, while most of our labor contracts run out to -- our rates -- come up for renewal in April '27. Edward Wilson: And there's a couple of labor contracts that will be up 2 or 3 on the pilot side and again, a similar number on the cabin crew side. But like a lot of what we're -- it's not always just about pay. I mean, if you look at the disruption that's happened against the background of ATC and Ryanair's ability allow its people to actually deliver sort of a stable working environment underpinned by the continuation of the plan for roster, which will be a key part of any discussions on the CLA. And we've seen also over the last number of years, one of the dividends of doing local labor contracts is that people now not only are in the right -- most people are in the right place where they want to be, and it's relatively easy in terms of how they're paid, the local bureaucracy administration and labs have made a huge investment with that in terms of -- it's so much easier now. It's easier than it's ever been in Ryanair's history for people in far-flown basis to get the smart things done, how do I get my time off, how do I get my payroll queries, and that's all done through sort of a platform called Ryanair Connect. So there's lots of things like pilots and cabin crew more than ever value given the disruption that are there -- the disruption that is driven by ATC to have a stable working environment. I mean like this August, for example, we had our lowest cancellation level ever, completely different from the previous season. A lot of that, again, is about recovering on the day. So we'll be talking with our union partners in terms of the renewal of agreements. We will try to do long-term stable agreement, but underpinned by superior working conditions that I think are increasingly becoming more valuable. So it's not all just about one. Michael O'Leary: Touch on the Spanish CLA? Edward Wilson: We just concluded the Spanish CLA for the cabin crew, which was one of the last ones post sort of unionization. There were some bumps in the road, but actually was signed there last week, now we ratified by the local labor authority, and that's for cabin crew. That's very welcome. That goes out to 2030 into that deal. And that sort of sets somewhat of a benchmark for where we're going to go with the new deals that are going to come up, particularly on the cabin crew side. Michael O'Leary: And Darrell, you want to add anything to that on the CLA side and Chief People Officer? Darrell? Okay. Maybe Darrell's not on the line. Look, as you rightly say, Stephen, the labor contracts run out to April '27. That will [indiscernible] kind of is timed to meet the deliveries of the MAX 10s. And there's no doubt we're going to get a productivity gain out of those MAX 10 aircraft, not so much from the extra seats, but from the fuel consumption on the engines, which is dramatic. We are willing, I think, to share some of that productivity upside with our people. I think they -- but Darrell and his team have started those kind of discussions around 2026 and 2027. We have, as Tracey has already said, record low attrition. I mean we have almost no pilots and no cabin crew attrition at the moment. People are happy where they are. They're being well paid. They're in the basis they want to be in. Clearly, the Gulf carriers, which would historically have been a kind of the valve that would have recruited a lot of our pilots they don't have any capacity growth either at the moment. So things have never been more stable. But I think we will be seeing productivity gains coming over the next couple of years, and we are certainly minded to do deals with -- as long as we can do sensible deals. Will we do unsensible deals? No, we won't. I mean we've taken strikes in Belgium in the last 12 months. We've taken an occasional strike in Spain. We're happy to take strikes where people don't want to be stupid. We'll take strikes and we will face them down. But I think there is some upside coming in the next couple of years. And certainly, we will want our people to be at the front end of that. And if we can conclude new pay deals in the next -- either from April '26 or for April '27. And if that results in a step-up in labor cost, it's something I think we'd be willing to fund and finance. So watch this space, and we would hope to make progress on that over the next 6, 9, 12 months. Operator: The next question goes to Alex Irving of Bernstein. Alexander Irving: Two from me, please. First on ancillaries. Really good to see that robust growth continuing on from Q1. What's driving that? Is it product innovation? Is it pricing decompressing 2 years into 1 as you reinstate the OTAs and flat unit ancillaries at this time of last year? And then related to that, what do you expect for unit ancillary sales over the coming years? Second question is on CapEx. You've previously spoken about peak CapEx of around EUR 3 billion in FY '30, '31. You talked about locking in some of the dollar weakness and some of those gains into your future CapEx budget. What are your latest expectations for peak CapEx? When and how much, please? Michael O'Leary: Thanks, Alex. So maybe I'll ask Tracey McCann to take the ancillaries question. And Neil, you might come in and do CapEx, our peak CapEx. Tracey, ancillary? Tracey McCann: Okay. The ancillary growth, 3%. A lot of that is driven what we said from dynamic pricing. So we're starting to get better pricing on seats, better pricing on bags. We also have our order to seat service, which is increasing our onboard spend. And so probably fall back a little bit, you're going to be faced with the same thing on the comparables in the second half of the year. So maybe not as strong as the first half and probably about 2% per annum, I would say, beyond this year. But again, a lot of it is driven by what the labs team are doing in-house in driving them increments we can get on pricing. Michael O'Leary: Okay. Neil, do you want to touch on CapEx? Neil Sorahan: Yes, Alex, there's not a lot to add at this stage. We're only 35% hedged on the firm, the 150 aircraft. We haven't done anything on the options yet. The CapEx that we've guided in the past doesn't include engine shops. So it's a little bit premature to start changing numbers at this point in time. I prefer to wait until the engine shops agreed and then come out and refresh the numbers at that point in time. Michael O'Leary: John Norton here, Head of Trading. John, do you want to add on -- sorry, go ahead, Neil. Neil Sorahan: No, that's pretty much it. Michael O'Leary: John, do you want to add anything on CapEx on the treasury or currencies? John Norton: Yes. Thanks, Michael. Yes, look, we've got a nice layer in place there on the CapEx [indiscernible] for the MAX. I mean when you look at it at the start of the year, where euro dollar levels were down at 1.02, 1.03 in January. And then when you also factor in when the contract was signed and it was at 1.08. We have that nice space in place now to take us forward. Now we'll just look for opportunities when we see them just where markets going forward to build on that. Operator: The next question goes to Dudley Shanley of Goodbody. Dudley Shanley: Two questions. The first one, Michael, you were on CNBC this morning. And I think if I'm listening to you correctly, you said the consumers seem to be a little bit more price sensitive at the moment. How are you seeing that coming through your business? Is that just a temporary thing? And then the second question was to do with capacity constraints. Just what are you watching on that kind of 3- to 5-year view that it will remain as constrained? I know some people have been talking about the likes of aircraft from people like Spirit and think that's been shifted over to Europe. What do you watch? Michael O'Leary: Thanks. I mean where do we see consumer price sensitivity at the moment, I think, is the fact that forward bookings without any price promotion at the moment are running close to 1% ahead of where they were this time last year. And this time last year, we were actually coming off the kind of OTA pricing down 7%, lower fares. At the moment, fares are up in the first half of the year, 13%. We think that will be a little less in the second half of the year. And yet we're -- pricing is coming -- running against us or forward bookings are running against us. If anything, we're kind of slightly closing off cheaper seats to try to restrain forward bookings because clearly, we want to keep as much capacity we can for the closer-in bookings, particularly as you run up against Christmas and the New Year. In markets where we are expanding capacity, regional Italy, very strong. A new thing we've identified recently in Italy is Alitalia -- seem to have a number of their aircraft fleet grounded, particularly in the domestic market as the shortest spares. And we are expanding -- seeing very strong loads. Okay, the prices are lower in domestic, Italy, domestic Spain, that kind of stuff, but strong growth. And I note there is clearly a bit of consumer price sensitivity there. I'm campaigning aggressively against Rachel Reeves putting up APD or doing any more damage to the U.K. economic growth. But in a kind of slightly bizarre screwed up way, the more she damages economic growth and confidence in the U.K., the more people will switch away from paying higher fares to BA and others on to Ryanair. So I think that all augurs well for our growth over the next couple of years. Capacity constraints, what do we look for? I mean the only thing you can really look for is Boeing and Airbus orders. And they are -- the most recent one was Turkish, which I think was kind of preannounced by Trump when he was sitting with Erdogan at some meeting in Ankara. And even Turkish, which has announced an order for, I think, 200 or 250 narrow-body 737s, but they have no engines. They're now complaining that they can't get a deal out of the engine manufacturers. I mean in our day, when we order aircraft, you're Boeing, you go sort out the engines. But we wouldn't buy, order an aircraft unless it has engines attached. The market has moved so aggressively in favor of the engine manufacturers. People are now kind of ordering aircraft but with no engines and then kind of being price takers when they go to do deals on aircraft. Really, I don't see anything -- I mean if some of those aircraft appear out of Spirit, I think the chance of those appearing in Europe are 0. Airlines in Asia or in the Middle East and would be much more aggressive and willing to pay much higher lease rates than airlines in Europe. I see no demand among Lufthansa, Air France-KLM, IAG for capacity growth. They're all playing the same game. They've consolidated. They want to control capacity. If any, they'll keep shaving capacity so they can get air fares up. Wizz has canceled or desperately trying to -- well, IndiGo, not Wizz are definitely trying to postpone those Airbus orders into the mid-2030s, which by the time you've added 5 or 6 or 10 years of escalation, those already expensive aircraft will be even more expensive. And all easyJet is doing is upgauging from an A319 to 321s at their fortress airports, Gatwick, Paris, Switzerland. That makes sense. It's a sensible thing to do. But as we track across Europe, as Michal has said in Central Europe, we don't see Wizz anywhere. In fact, as Eddie has mentioned, most of the big incentives we'll get -- growth incentives we're getting from airports are from Wizz customer airports who are shooting themselves that Wizz is going to go bust in the not-too-distant future. I think there's a reasonable prospect and are getting Ryanair to come in there and kind of, if you like, almost as the insurance policy against a Wizz collapse. Now I don't think Wizz will collapse. But I mean, as a competitor, we wouldn't pay any attention to them at all. I mean the idea that they're going to close one of their desert bases in Abu Dhabi, noteworthy that they haven't closed the one in Riyadh, and they're going to move that capacity back to Central and Eastern Europe, well, [ whoopty doo ]. We haven't seen them yet. I think they've expanded their definition of Central and Eastern Europe to the stands. Apparently, most of the stands are now in Central and Eastern Europe, if you go by the Wizz definition. Meanwhile, we're charging in on top of them in Albania. They were competing with us in Italy and in Austria where 2 or 3 years ago, they disappeared. So we have a reasonably benign kind of map across Europe where most airports want us to grow there. And increasingly, countries want us to or incentivizing us to grow by abolishing environmental taxes. And that is Sweden, Albania. I don't go through the list again. One of the areas where airports were growing fastest in next year would be in Bratislava, where we had a 3 aircraft base. An hour up the road, the Austrians have failed to abolish their stupid environmental tax, which was less than EUR 160 million a year. Vienna has put up its fees by 30% since COVID. And all of the airlines, including now Ryanair are taking aircraft out of Vienna and putting in Bratislava. We had already announced an increase in our Bratislava base in 3 to 5 aircraft next year. And then about 3 weeks later, Wizz announced they're going to open 2 or 3 aircraft based in Bratislava, which is wonderful. Because in order to be able -- the only thing we could do to respond to Wiz arrival in Bratislava is put up our airfares there. So they'd be somewhat competitive with Wizz who come in there with fares that are about 40%, 50% more expensive than Ryanair. And the outcome will be exactly the same as it was previously in Vienna or in Italy. Wizz will lose, we'll win and the people of Bratislava will be left with the lowest fare airline, Ryanair, delivering all of that growth. But in Slovakia, there's a new transport minister, a new government, they've abolished environmental taxes. They've cut ATC fees by 50%, and the airport is incentivizing growth. Meanwhile, Rachel Reeves is over here in the U.K., considering whether she further increases APD, taxes the rich and follows the Marxist-Leninis North Korean growth model, which consists of taxing the s*** out of everything that moves with the result that nothing [ broken ] moves in the end. But to the extent that the U.K. economy suffers, I think more and more English people we can take will start fleeing to Ryanair and away from high-fare airlines like easyJet and BA. Operator: The next question goes to Conor Dwyer of Citi. Conor Dwyer: First question is for you, Michael. You were talking about how ETS credit prices should come in line with CORSIA, which would obviously be quite material if that did happen. But how much of this is hope and how much you think this might actually change? Is there a political will for this? And then the second question for Neil, on the cost per pax. It was obviously up 1% in the first half of the year, and you're talking about a bit of acceleration to the back half of the year, I think. You've got quite a strong fuel hedge position for that. So I'm just wondering where are you expecting some nonfuel cost pressure in the back half of the year? Michael O'Leary: Thanks, Conor. I mean talking about moving ETS to CORSIA, somebody has to leave the campaign. We've been calling for this for about 2 years. We didn't have the support of the flag carriers in A4E, Lufthansa, IAG or Air France-KLM. But they're now much more badly impacted by the withdrawal of free ETSs because they haven't grown for the last 10 years, most of their traffic was covered by free allowed ETS allowances. As Europe unwinds those free ETS allowances, they're getting much more hit or the cost impact on them is much more severe. And lo and behold, they're all now campaigning for moving -- well, if we're not going to abolish ETSs altogether, at least move in line with CORSIA, it is utterly indefensible that Europe taxes the s*** out of Europeans traveling within Europe. And yet the Americans, the Gulf carriers, the Asian carriers, all land and take off in Europe. They account for 53% of European aviation CO2 emissions and yet pay nothing. So I think the fact that A4E is now unanimous on this, I mean, how much of it is -- I'm much more optimistic that we will see some movement on that. Now we still have the dead hand of Ursula von der Leyen to deal with. But ultimately, I think you can even embarrass an incompetent German into -- I can actually do something on competitiveness. The Draghi report is 14 months old. She's done absolutely nothing. And I think if we build ahead of steam there, there's a reasonable prospect that Europe through the fog of failure will ultimately want to do something other than spend hundreds of billions on defense, but to make its economy more efficient. And air travel is clearly one of the ways of doing that. It would be material. It would be result in a dramatic or a significant reduction in airfares. Remember, passengers are paying these ETSs. It would result in a significant reduction in airfares. But at least it would mean that everybody in Europe is paying the same fair share as the non-Europeans. -- whereas at the moment, the Europeans paying all of the taxes, the non-Europeans getting completely free ride and useless Europe in the middle of it or useless von der Leyen sitting in the middle of it, terrified of Trump or taxing the non-Europeans. And so I think it's a call whose time has come. I also believe, and again, I'm one of life's great optimist, that actually, we will embarrass her into doing something about air traffic control or at least defending and protecting the single market. She was the one who was singing most vociferously during the Brexit negotiations that the single market is sacrosanct. We will do everything to defend the single market unless, of course, a couple of French air traffic controllers want to go on strike. So I think ultimately -- and I am much more motivated. Commissioner Tzitzikostas is really a guy who wants to get things done. He wants to deliver change. I think he really does want to transform air travel in Europe. He's from Greece. Therefore, they're very sensitive to making air travel more efficient. And I am very hopeful that him, together with the unanimity out of the A4E airlines, we will see some movement in Europe on ETS in the next year or 2. Neil, unit cost per passenger? Neil Sorahan: Yes, sure. Conor, a couple of bits and pieces. Firstly, I would expect that air traffic control charges will go up again in January this year. The service is just so abysmal that they have to put it up again. I think you'll see some of that marketing spend. I talked about some timing in there. Some of that will catch up into Christmas and into the stimulation for the advertising ahead of the summer. We're starting to see the Boeing compensation unwind. So that will have an impact on the maintenance line where some of those maintenance credits went. And then with the heavy maintenance at the back end of the year. Tracey also talked about we're going to start recruiting up on the cadets. That will kick off probably in the January time frame. So we'll be ramping up on the cadet side, but we'll also be ramping up as we always do ahead of the summer of 2026. So that tends to be back-ended costs in there, which is why I'm kind of been keeping the 1% to 3% unit cost inflation. Operator: The next question goes to Savanthi Syth of Raymond James. Savanthi Syth: Just on the first one, another question on the unit cost. But given you have hedging in place for next year and clarity around the Boeing deliveries, I was wondering if you could provide any kind of early thoughts on how we should think about fiscal year '27 unit costs? And then maybe a second question, just on the debt side. Usually, airlines that even have kind of good balance sheets find some value in having debt and being involved in that side of the financial market. So kind of was curious is the 0 debt view just ahead of kind of -- you do have the MAX CapEx -- MAX 10 CapEx, engine shop, other opportunities. So is that kind of a temporary 0 debt view? Or do you have a different kind of philosophy on the debt side? Michael O'Leary: Yes. Thanks, Savi. I mean I think on the hedging, I mean, I'll ask Neil to come back in and correct me if I get something wrong here. It's too early yet. We haven't done the budgets for FY '27. So I wouldn't get into unit costs at this stage other than we banked EUR 650 million in fuel cost savings with the fuel hedging. So that's a good strong start. I think the 2 critical elements on the hedging is we've hedged 80% of FY '27 fuel at just under $67 a barrel. We've made good progress on the currency hedging on OpEx. I'll ask John to come in -- John Norton to come in on where are we on the OpEx hedging for FY '27? John Norton: Yes. So we reached 80% of FY '27 at a level of [ 150 ]. So... Michael O'Leary: Where were we in the prior year? John Norton: So [ 1.11 ] [indiscernible] Michael O'Leary: Okay. So we've hedged away OpEx and a little bit of saving as well. And then clearly, it's not material in FY '27, but we've started to hedge the fixed orders on the MAX 10. So the hedging is locked down. We have the 29 aircraft will be delivered by Boeing. And I think that's much more critical here into FY '27. We have certainty now that we'll be able to deliver the headline traffic growth. And that's what drives ultimately the airfares and what drives the ancillary revenues. On the debt side, we're in this kind of artificial period. We have this kind of 2-year interregnum from '25 to '27, where in reality, we don't have a lot of CapEx. We could -- and we have -- we're coming up to -- in May next year, we have the 1.2 million bond. I mean we raised that coming out of COVID at less than 1%. So the cost of refining that bond that currently would be somewhere close to or close to about 3%, which isn't -- it's not a lot of money, but we don't need it at the moment. And therefore, collectively as a Board, our view is we should demonstrate to the market that we can pay down these bonds. When we start getting into '26 or '27, I think we would reserve the right to start. We would probably go back to the bond market as we get into the heavy CapEx again on the MAX 10. But we do so coming off with a strong balance sheet, BBB+ rated and say, look, we paid out back $4 billion worth of bonds post-COVID. And so I like -- we like the sense of we're not trying to be 0 debt for some kind of bulls*** philosophical reasons. We would expect to be -- to raise debt as long as we can raise debt cheaply, but only when we move into a period of heavy CapEx, which is where we'll be in '28, '29, we only take 15 aircraft in '27, we get another 15 aircraft in '28, but then we move up towards closer to 50 aircraft in '29 and '30. And so I would be of the view, you will see us pay down the last bond in May. We will try to build up gross cash of somewhere between EUR 3 billion and EUR 4 billion out of that. Other than that, we'll return the surplus cash to shareholders in dividends and buybacks. But then as we get into the heavier CapEx in '27, '28, '29, I think you'll see us go back to the bond market. Like there's nothing here. We have no principles here in terms of being -- having debt or being debt-free. It's just because of this kind of slightly strange -- it's the first time in 30 years, we go through a kind of a 2-year period with very little aircraft CapEx, pay down the debt, and then we can always refi again in '28, '29 from our position of strength. I don't know if you want to add anything on that on the debt. Neil Sorahan: Yes, I'd agree with that, Michael. I mean it's very much down to a cost decision at the moment. The cheapest way to fund ourselves is out of our own cash resources. And that's why we've decided to repay that bond out of our own cash. We've got nearly EUR 1 billion in dry powder in the form of our undrawn revolving credit facility. And as we've done in the past, we'll be opportunistic when we go back to the bond market. We'll go back at the time of our choosing and not just because there's a bond maturing and we have to roll it over. And I think that's how we will lock in the lowest cost ultimately long term for the group. So as Michael said, it's not just we have to be debt free. It's just it's going to fall that way for a period of time, and then we'll be back in the markets again. Michael O'Leary: And again, I would draw the point, as you look forward in terms of unit cost going forward FY '27. You look at our competitor airlines across Europe, the so-called low-cost airlines, they have huge net debt on their balance sheet, aircraft leasing costs, financing costs. And those costs are rising into the -- for the next year or 2. We will have 0 financing costs. We own 650 aircraft completely unencumbered. And it is another point of difference between us and the competition. It's also one of the reasons why they need to get airfares up in the next year or 2 to as their financing costs are rising and they have a huge leasing obligations. And why I think our underlying airfares may well rise into '27 and '28, whereas our unit costs will be well under control. Operator: The next question goes to James Goodall of Redburn. James Goodall: I just got a couple of follow-ups. So firstly, just on the MAX 10 deliveries. Do you know how many deliveries to other airlines are in front of you in the queue? I mean it looks like various airlines like United, Alaska, they've been pushing back some MAX 10 deliveries from '26 to '27. So I'm just trying to gauge the risk profile to you if the program gets pushed back any further, which I guess seems lower now given the deferrals from those airlines, but I would love your thoughts there. And then secondly, just following up from your comments around forward bookings being up 1 point in Q3. Does that forward book load factor level differ between the peak and the shoulder periods in Q3? And I guess, what does the higher book load factor level mean for you in terms of pricing strategy in the late market? Michael O'Leary: Okay. Thanks, James. Eddie will do the forward bookings. Let me touch on the MAX 10s. I mean, yes, one of the reasons why we're growing increasingly confident we'll get our first 15 deliveries in '27 is we are not delaying our MAX 10 orders. United who were the lead customer, I think, has delayed them. One stage they were talking about canceling the MAX 10s. We offered to step in and we take any MAX 10s they wanted to cancel. But it has helped, I think, Boeing to catch up with their production. I understand there's about 2 airlines in front of us. I think WestJet is one, Alaska might be another who are still ahead of us in the queue. Their due deliveries in middle to late 2026. Not sure whether they'll get them or not around. I think there's a reasonable prospect that the lead customer is likely to get the first MAX 10 deliveries in probably Q3 or Q4 of '26. We have about 6 months of headroom there before we get our first aircraft. And I would be reasonably confident we will take them. I don't think we'll be the lead operator. I don't think we'll get the first MAX 10 aircraft, but we might be second or third in the queue. And to those -- to my mind, it made no sense for United or some of those others to postpone the MAX 10s because you postpone them into the late 20s or early 30s, you're just paying a couple of more years of escalation. I would rather take the aircraft as quickly as I can get them. We don't have escalate -- well, we have -- we built in our price -- the price is averaged over the lifetime of the deliveries between 2027 and 2034. I want those aircraft as soon as I can possibly get them. I would happily take an aircraft -- any aircraft that has 20% more seats and burns 20% less fuel, will be an economically much more efficient and an environmentally much more efficient aircraft to operate here in Europe. And I would take as many as I can get as soon as I can get them, which is why we stepped in when United stupidly announced that they wouldn't maybe take theirs. I said, well, we'll take anything that United wants to cancel. They finished up not canceling and just postponing. I think we're about third or fourth in the queue, but it will be a reasonably short queue. I think the first deliveries will take place in Q3 or Q4 of '26 and our first 15 are in the spring of '27. Eddie, do you want to talk about forward bookings through November, December, maybe into Q4? Edward Wilson: Yes. I mean in Q4, we're only about 10% booked, so very little for Q4, so very little visibility there. If you look forward to, say, November has required some price stimulation, but we're happy with load factors. If you look in December and January, I mean, we've learned as well from previous years in terms of trimming our schedules as well there, particularly as we get into the -- beyond the first 10 days of January and also doing some trimming around the early December as well. So look, we're about 76%, 77% booked for November. Like our bookings are ahead of where they're marginally ahead of where they've been for each of those months, both November -- like November, December and January, comfortable with what we're seeing, but November is the one that needed a little bit of needed price stimulation to get there. But looking, we don't have to dig too deep, but we're ahead. And so we're happy, but you do have limited visibility. And like really like with 10% of bookings for Q4, you have no real visibility whatsoever. Operator: The next question goes to Muneeba Kayani of Bank of America. Muneeba Kayani: I just wanted to follow up on your outlook for the fourth quarter. Why are you saying there's no Easter benefit because there is the earlier Easter and a couple of days will fall into the end of that. So just wanted to understand your thinking around kind of the base effects into the fourth quarter. And then just on EU ETS, what sort of increase should we be expecting in fiscal '27? Because it looks like hedging levels on that are just 11% right now and the prices have gone up. So how much of those fuel savings could be offset by the ETS costs going up? Michael O'Leary: Okay. I'll ask Thomas Fowler, who's the Director of Sustainability, maybe take the ETS question for you, Muneeba. Let me deal with the outlook. I mean, yes, Easter Sunday next year is on the 5th of April. So the first weekend of the school holidays will fall into the last weekend in March. But it's not significant. We will get a little bit of a bump. But I think at this point, we're better off just to say, look, there will be no Easter benefit in Q4. If we get a little bit in the last 2 days of March, great. But really, most of it will flow into April. It's really only when you get an Easter on the end of the 31st of March or 1st of April, you see the first -- as we did 2 years ago, the first half of Easter was in the prior year Q4. Almost all of the impact of Easter next year will be in Q1. There will be a couple of days in March. And if we get a little bit of a benefit out of that well and good, but there's certainly no point in going out now, we have 2 days of Easter in March next year, what can you do? We bug all visibility in Q4, and we won't have any until we get out to the Q3 numbers in February. And we -- that's all we're trying to communicate now, Muneeba. And now I'll turn to optimistic Tom for the ETS outlook for FY '27, and you won't touch on '28 yet, unless we [ hear ] from Ursula von der Leyen in between now and then. Thomas Fowler: I think Neil alluded at the call [indiscernible] outlook. We think the ETS and SAF costs go from EUR 1.1 billion this year to somewhere between EUR 1.4 billion and EUR 1.5 billion next year, depending on the outturn of where the pricing is. Obviously, it is higher. Prices are higher going into next year, and we have to unwind the final loss of the free allowances. So somewhere between EUR 1.4 billion, EUR 1.5 billion for FY '27. Neil Sorahan: Thomas, is it worth pointing out that's the last big step-up as well that we're going to have? Thomas Fowler: Well, the last step of velocity allowance is, obviously, fair pricing changes, Neil, yes, like we hopefully won't see step up at that level the following year until mandates increase on staff in 2030. We do see the mandates grow a bit in the U.K. literally to 2030. But obviously, given it's only -- it's a portion of our business, we don't get the full impact of that through the line. Michael O'Leary: And again, sorry, and it calls into question. If Europe is serious about being competitive, this bulls*** tax needs to be rolled back. We need to bring it in line with CORSIA. And it's one of the reasons this unwinding of the free ETSs while Lufthansa, Air France, IAG are now much more vocal about the need to have a fair and level playing field on environmental taxes in Europe. We can't just be taxing ourselves to debt in Europe and exempting the Americans, the Gulf, the Asians and everybody else. It's simply insane only the Europeans would sign something that stupid and self-defeating. And therefore, I think the more we can -- the more and louder we campaign, the more likely we are to see some progressive reforms and pushing back on this bulls***. Operator: The last question goes to Ruairi Cullinane of Research RBC Capital Markets. Ruairi Cullinane: Yes, first question, a follow-up on the previous one. So it sounds like you're not focusing lobbying efforts on sustainable aviation fuel mandates. Would you like to see any changes there to rules in the U.K. or EU? And then I wondered if you'd be willing to comment on whether the U.K. has diverged at all from the Q2 fare trends you've reported or 3Q booking trends? Michael O'Leary: Sorry, Ruairi. Just speak up, you're very faint there on the -- I got the first half with the SAF. What's the second question? Ruairi Cullinane: Yes, the second question on the U.K. Has the U.K. diverged at all from the Q2 fare trends you've reported or Q3 booking trends that you've seen across the group? Michael O'Leary: Okay. Look, SAF, I'm not a believer -- sorry, I'm a believer in SAF, but I mean, there is simply -- the volumes will not be there to meet the EU 6% mandate by 2030 or the U.K.'s insane 10% mandate. You have the oil majors at the moment going back from the production of SAFs under pressure in the White House. I think the -- I think I join and I support the call of all the A4E airlines in Europe. We need to move these mandates to the right -- we may get to 6% or 10% by 2035, but I think there's no prospect of getting there in 2030. And I would be surprised even if the oil majors don't produce the SAF, there's nothing we can do to supply it. These are just another example of European -- British and European lack of competitiveness. The environmental agenda, there's a war in Ukraine, Trump in the White House. There is no, I think -- what is the word, there is no significant where -- if anything, the whole environmental agenda is moving backwards. We need competitiveness in Europe. And if the Swedes who were the home of the original environmental tax and flight shaming and all, if they worked out that Greta was wrong and they're abolishing their environmental tax, then surely the rest of the dodos in Europe will do likewise. So I think there is, I think, very little prospect of those SAF mandates being met in 2030. I don't think as an industry, we should abandon SAF, but we do need a much more either Europe and European governments should use some of the environmental taxation, this astonishing the SAF or the ETS taxation to incentivize the production of SAF or move the SAF mandates to the right or further out into 2030. There's nothing we see divergent in the U.K. Sorry, I'll let that to Eddie. Eddie wants to answer that question. U.K., Q3, fares and... Edward Wilson: I mean, as I said, like in November, required price stimulation. And even though -- if you look at U.K. leisure, U.K. leisure for us is about 1/3 of all of our seats out of the U.K., like where we've got -- you do see some price pressure there. But just in November, a lot of capacity has gone in there in the market. I think it's causing a lot more pressure for our competitors. It's a very small part of it. If you look at the rest of the U.K., our city to city, our ethnic traffic to the U.K. and Ireland and all that, that's in line with the rest of the network. That's only a slight call out there in terms of U.K. leisure, I would say. And a lot of it would be focused in the region, a lot of capacity within post-COVID. Some of that went to our competitors' way in terms of holidays last year. I think they're feeling more of the pain, but we're getting to those factors. Ruairi Cullinane: But are you seeing any divergence in U.K. traffic in [ U3 ] compared to non-U.K. or EU traffic in... Edward Wilson: I mean the only call that I would have is some of the U.K. leisure in November. And it's a very small part of our business, and the rest of the U.K. is as robust as the rest of the network Europe. Michael O'Leary: Okay. Ruairi, does that answer the question? Ruairi Cullinane: Yes. Michael O'Leary: Good. Okay. Any other questions, Nadia? Operator: We currently have no questions. Michael O'Leary: Okay. Listen, folks, thank you very much. I think we've done, what, 1 hour and 25 minutes. We appreciate your time on the call. We have extensive roadshows on the road, Ireland, U.K., Europe, North America for the remainder of this week. If you'd like a meeting on a one-on-one, please contact us either through Jamie here, our Head of IR or through the Citi, Davy, Goodbody. Thanks to Citi, Davy and Goodbody for arranging and facilitating the roadshow, and we look forward to meeting you all at some stage over the remainder of this week. If anybody wants to come visit us in Dublin after that, please feel free. As long as you fly Ryanair, we'll be happy to meet you. And otherwise, I think we are reasonably cautiously optimistic on the outlook, if not for the next 12 months, but I think for the next 4 or 5 years, keep focusing on the fundamentals. Capacity is going to remain constrained in Europe. We are doing much better deals with airports across Europe. Governments select -- are increasingly reversing these environmental taxes. And therefore, I think there's a reasonable -- I'd be reasonably cautious that we're going to see controlled growth certainly to 250 million passengers by 2030, 300 million passengers by 2034. And there's a prospect plus or minus the occasional unforeseen event that profit -- net profit per passenger will over that period of time, although lumpily move from EUR 10 towards EUR 12 towards EUR 14 per passenger. And we hope you'll all join us for the ride and see where it goes over the next 4 or 5 years. Thank you for your time. Look forward to being here this week, and thank you very much. We'll wrap it up there, Nadia, please. Thank you. Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Welcome to Knorr-Bremse's conference call for the Financial Results of the Third Quarter 2025. [Operator Instructions] Let me now turn the floor over to your host, Andreas Spitzauer, Head of Investor Relations. Andreas Spitzauer: Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzauer, Head of Investor Relations. I want to welcome you to Knorr-Bremse's presentation for the third quarter results of 2025. Today, Marc Llistosella, our CEO; and Frank Weber, our CFO, will present the results of Knorr-Bremse, followed by a Q&A session. Once again, the conference call will be recorded and is available on our homepage, www.knorr-bremse.com in the Investor Relations section. It is now my pleasure to hand over to Marc Llistosella. Please go ahead. Marc Llistosella Y Bischoff: Thank you, Andreas. Ladies and gentlemen, welcome to our Capital Market call for the third quarter '25. Let's start with the key takeaways for today on Page 2. We are reporting a strong quarter today. In uncertain times, we continue to focus on our earnings by using our financial flexibility, keeping strict cost control, plus staying close to customers and driving our service business. Knorr-Bremse benefits from dominant market position in both divisions, a diversified revenue generation and ongoing stringent execution. RVS is in strong shape. It posted strong organic growth and continuously increased its profitability quarter-over-quarter by the implementation of BOOST. In addition, RVS performance underlines the great potential of the rail industry in total. As a consequence, we are expanding this successful division with the acquisition of duagon. Coming to CVS, one thing is clear. The development of profitability is the most important indicator of our success and our truck colleagues delivered. Despite an extremely challenging North American truck market, CVS managed a slight margin expansion, an extraordinary achievement, which is based on the benefits of our cost and efficiency measures, well supported by a more resilient aftermarket business. The BOOST program overall remains the centerpiece of our strategy and is fully on track. Regarding our BROWNFIELD measures, we are well on track of the sale of the last assets we have in the SELL-IT program. These assets within rail generates roughly EUR 300 million in revenues and is clearly dilutive. Looking at Greenfield, our clear path of additional growth and accretive business expansion for Knorr-Bremse. In the field of subscription-based and data-driven services, we recently acquired Travis Road Services. Together with Cojali’s highly attractive services, we want to strengthen the less cyclical activities in the Truck segment, striving for a leading position in Europe and later beyond. Last but least, we confirm our operating guidance for 2025. Let's now have a closer look at our Duagon acquisition on Chart 3. Duagon itself, a Swiss-based company, is a leading supplier of electronics and software solutions for safety-related applications in rail being active in Europe, North America, China and India. We are convinced that Duagon is an excellent strategic fit for Knorr-Bremse's existing portfolio. Beyond strengthening the RVS segment, the acquisition also unlocks substantial synergies in electronics. For example, in braking and door systems where we are already global experts. Furthermore, the products will enhance the global operations of 2 key KB business units, Selectron and KB Signaling. As trains and rail world networks become increasingly digitalized, the acquisition enables both the Railway Electronics and Signaling technology units to fully capitalize on the rapidly growing market. For KB Signaling, which is expanding its North American business globally, Duagon offers additional opportunities for international growth. The accretive transaction reinforces KB2's Boost strategy and marks another milestone on its transformation journey. By integrating Duagon, Knorr-Bremse strengthened its position in high-growth digital markets and increases the revenue share of the RVS segment overall currently from 55% to even beyond, driving sustainable value creation. The acquisition fulfills all of the M&A guardrails, which were given by ourselves, which we set more than 2 years ago and follow for the time being. We welcome all new colleagues to the team and look forward to a successful future. Let's now have a look at the market situation for trail and rail and truck. Overall, the demand in rail is our least problem within the KB Group. Underlying demand remains robust across all regions as evidenced by a strong order intake and record order books for RVS and its customers. We expect this momentum to continue in the coming quarters, resulting in a full year book-to-bill ratio well above 1. The only exception in this is the freight market, which continues to face some challenges. Also here, we see a low concentration on the North American market. The market development in China itself remains pleasing on a high level this year, which is quite supportive for our profitability as well. Truck markets show a mixed picture. As you're all aware of and as you have already heard from our customers and peers, truck production rate in Europe moved higher in the past quarter, but currently, we are observing a slight softening in market momentum, including some postponement into next year, which also corresponds to the perceptions of our truck OEMs. The North American market is in a very challenging time. Truck production rates declined significantly in the third quarter and a near time recovery appears unlikely. Therefore, we lowered our expectations regarding truck production rate for the second half of this year as the usual autumn recovery has also been significantly weaker this year compared to the previous years. Our North American customers are still taking single days off and slowing down production lines in their factories so far. They are acting rationally and only adjusting their workforce as they know that markets can catch up quickly, especially in North America once a recovery starts. As a result, we have reduced our North American workforce by around 15-plus percent in the recent months, help yourself, then helps you got. At the same time, we are using the current situation to consistently implement our structural measures. The better than originally expected development in Europe cannot compensate fully the weaker-than-expected development in North America. Nevertheless, every crisis presents opportunities. We should benefit via operating leverage from a lower fixed cost base when the crisis in North America comes to an end, which it will happen. With that, I will hand over to Frank, who will give you -- walk through the financials in detail. Frank Weber: Yes. Thanks, Mark, and hello, everybody. Thanks for joining us today. Please turn to Slide 5, and let's have a look at the good financials of the third quarter. Order intake achieved a strong result at almost EUR 2 billion. The market-driven decline in truck was overcompensated by the strong rail order intake and led to a more than 5% organic growth. Knorr-Bremse generated revenues of EUR 1.9 billion organically with nearly 3%, a slightly higher figure year-over-year. Our operating EBIT margin was positively impacted by both divisions, driven in particular by our portfolio adjustment, the strong aftermarket performance, our operating leverage and the respective cost measures and of course, by KB Signaling. As a result, the operating EBIT margin improved by 100 basis points year-over-year. With a 13.3% operating EBIT margin, we delivered the best profitability within the last 16 quarters for Knorr-Bremse. Our free cash flow in quarter 3 amounted to EUR 159 million and converted once again into more than 100%. We are proud of our global teams maneuvering KB so successfully through a rather challenging '25. Let's move to Slide 6. CapEx amounted to EUR 78 million, which represents in relation to revenues 4.2%. Spending in absolute numbers decreased by EUR 2 million. This development is fully in line with our strategy to optimize CapEx spending following our lowered target range of CapEx to revenues of 4% to 5%. We expect some higher CapEx spending in the running quarter as usual. A pleasing development saw once again our net working capital, which decreased significantly year-over-year, respectively, by 7 days versus prior year. Including KB Signaling, we are at the level of EUR 1.6 billion and 72 days of efficiency. The continuous improvement in net working capital is based on the ongoing success of our Collect program, including improvement basically in all major net working capital ingredients, especially the lower level of inventory supported the improvement of working capital by more than EUR 160 million year-over-year. Free cash flow amounted to EUR 159 million. This is only a slightly lower figure compared to the prior year, driven by the unfavorable development of FX. On a 9-month view, free cash flow even increased by more than EUR 70 million. Quarter 4 will be the strongest quarter, as always, following our usual seasonal pattern. Cash conversion rate in the third quarter amounted to a strong 104%. Despite the acquisition-driven higher capital employed, our ROCE nicely increased from 18.6% to 21%, which is an increase of 240 basis points. ROCE remains a high key priority for us, and we expect to further grow it in the future, primarily driven by a higher profitability. Let's take a closer look at the RVS performance on Slide 7. RVS once again delivered a very strong quarter in terms of order intake, reaching nearly EUR 1.2 billion. This corresponds to an organic growth of 6%, driven by solid operations and contributions from KB Signaling. Global Rain demand overall remains strong. For the current quarter, we expect that RVS should be able to post an order intake between EUR 1 billion to EUR 1.1 billion. Our book-to-bill ratio stood at 1.12, which means RVS book-to-bill ratio at or above 1 for 16 quarters in a row. As a consequence, order backlog increased by around 8% and 12% even organically, reaching again a new record level with almost EUR 5.7 billion. The high order backlog and the good quality of it provides a strong basis for the rest of the year as well as beyond. Let's move to Slide 8. Revenues in quarter 3 amounted to EUR 1.05 billion, an increase of almost 6% year-over-year following a bit of a weaker organic growth in quarter 1 and quarter 2 and even despite significant FX headwinds. Our aftermarket business developed also very nicely in Europe, North America and APAC. From a regional point of view, revenue growth was fueled by Europe and North America. In Europe, both OE and aftermarket business grew nicely. In North America, it increased aftermarket and OE business despite FX headwinds. The APAC region saw a very stable aftermarket development, while OE slightly declined. China only slightly decreased year-over-year in both OE and aftermarket. We are pleased about that stable development in China, especially in high-speed local business and the aftermarket. There are still no signs of a better metro market. We improved our operating EBIT margin by 100 basis points to 17.0%, which is already beyond our midterm guidance for next year. This superb improvement is driven by the positive aftermarket development, operating leverage, our BOOST measures as well as the positive contribution of the Signaling business. In the current quarter, we expect a book-to-bill ratio of around 1. The EBIT margin of RVS should be flat quarter-over-quarter. On a full year level, the operating margin is expected to be at around 16.5%. Let's continue with the Truck division on Chart 9. Order intake in CVS amounted to EUR 783 million below our initial expectations at the beginning of the quarter due to the missing pickup in the North American truck market after the summer break. On the other side, organically, orders increased by 4%. On a year-over-year organic level, this growth was driven by Europe and the APAC region, which recorded slight organic growth, while North America was significantly down, hit by the sharp downturn in the U.S. market. Order intake in the current quarter should be rather flat quarter-over-quarter, supported by Europe and the APAC region. The North American market remains very difficult to fully assess at this point in time, but we expect no improvement of the market dynamics until year-end. Book-to-bill reached 0.94 in the past quarter. Our order book of more than EUR 1.7 billion at the end of September is 7% below the previous year's level, but at the same time, it is only 2% organically lower. Let's move on to our CVS division on Chart 10. Revenues declined to EUR 833 million, which represents minus 9% year-over-year. This development is solely driven by the divestments of GT and Sheppard as well as the negative translationary FX impact from the U.S. dollar and the renminbi, especially. In organic terms, the development was stable, which represents a solid performance in such a challenging environment. OE business in CVS decreased as expected in North America and South America, predominantly driven by lower truck production rates and FX. Europe recorded good and the APAC region even significant growth. Our aftermarket business performed much better than OE in the past quarter. The OE business grew in Europe and China, but the strong market decrease in North America could not be compensated by aftermarket growth. In addition to the sale of Sheppard and the strong euro exchange rate compared to the U.S. dollar, the low truck production rate had a particular negative impact on our performance, especially in the U.S. In the current quarter, we expect that CVS total revenues should be flat to very slightly increasing compared to the third quarter. Coming to the bottom line. Operating EBIT of CVS amounted to EUR 87 million in the past quarter, down around 4% year-over-year. Given the massive market headwinds and unfavorable FX, a very resilient number. The profitability was impacted by lower OE volumes and an unfavorable regional mix, which could be more than compensated by benefits from our Boost measures, a higher aftermarket revenue share, solid contributions from our portfolio adjustments as well as a recovery from tariff burdens. As a result, we were able to increase our operating EBIT margin by 50 basis points year-over-year to 10.5% in such a tough environment. For quarter 4, profitability should slightly improve quarter-over-quarter, well supported by cost measures and a good aftermarket development with a foundation of stable markets in Europe and North America. Overall, we are confident to further fight ongoing market challenges with our long-term BOOST program as well as our short-term measures in North America, our robust pricing and our resilient aftermarket business. On a full year basis, CVS should be able to reach an operating EBIT margin around the same level as last year. With that, I hand over to Marc again. Marc Llistosella Y Bischoff: Thank you, Frank. So let's have a look on our guidance for 2025 on Slide 11. To make it very short and crisp, basically confirm all KPIs of our guidance shown on the chart, just another 3 months to go. Please bear in mind, however, that due to the stronger euro and the weaker truck market in North America, the lower end of our revenue guidance is more likely to be achieved. Our countermeasures are having a positive effect on the other side on the EBIT margin outlook, meaning that the midpoint represents a very, very realistic expectation. Free cash flow is also being affected by the stronger euro, but we are also comfortable to reach the midpoint at least of the guidance. Having said so, we are ready for the next year to go. We had a very, very busy year 2025. And we are very confident that with our self-healing activities, which had impact -- an impact of a reduction of workforce, for example, only in trucks from 15,000 over the last 18 months to now 12,000 people, we are ready for the lift of next year. And the 10% to 10.5%, which we are aiming for the year 2025 compared to the results of the years in '23 and '24 have a much higher value because we are ready to go for the next year based on a much better fixed cost base. Thank you very much. Operator: [Operator Instructions] And the first question comes from Sven Weier, UBS. Sven Weier: It's Sven from UBS. The first question is around -- in the past couple of years, you've always given kind of indications for the year ahead. You didn't do this time. Is the reason because you feel quite happy with where consensus sits? Or do you refer that simply to lack of visibility that you have, especially on the truck side? That's the first question. Frank Weber: Thank you very much, Sven. So in the past years, there have been mixed feedbacks to us giving an outlook already in October for the next year. Some were saying, why are they doing this? And others have been highly appreciating it. So this time around, we decided not to do it. Why? Because as you rightfully said, we are totally fine with where the consensus currently sits for next year, I would say. This is it. And of course, markets are also a bit of less predictable these days, especially when it comes to the truck market, I would say, and especially the region of North America. But that's the answer to it, Sven. Sven Weier: Yes. And it's fair to say that when I look at current consensus, probably the risk is more on the downside on truck, but maybe on the upside on rail. So that could be a bit of a wash from today's point of view at least Andreas Spitzauer: Yes. Nothing to add, Sven. Sven Weier: The follow-up, if I may, is just on truck margins, right? I mean you will be around 10.5%. And I guess it's probably fair to say that reaching the 13.5% next year is really tough to say the least, but we know that, of course. I just wonder, I mean, how prepared and how far are you ready to go to reach that target within the foreseeable future, let's say, in terms of additional measures that you take? I mean, you talked about this in the past, right, where I think there are still some very obvious areas such as R&D, but still seems extremely high for the truck business and the way it performs at the moment. But at the same time, it also seems a bit of a no-go zone for me. So are there any sacred cows in terms of your willingness to achieve the target? Frank Weber: Yeah, thanks, Sven. Let me put this a bit into a broader perspective. When we gave the midterm guidance some 3 years ago, obviously the market assumptions, even though we were not at all anyhow aggressive looking at the market, because we always wanted to make it kind of a self-help story at all, were significantly different, especially when it comes to the U.S., but also when it comes to Europe. The market expectations back then were based on 22 levels. And so that was the starting point to it. We feel totally fine with a long-term view on truck that the margin of 13.5% is definitely not out of reach and is a targeted number that we have on the plate if the market turns out to be more favorable than it is today. Given the current situation, look at the quarter 3 alone, U.S. is minus 28% in truck production rate. We only declined 13% in revenues. I think a great sign of resilience. And with all those measures that also Marc mentioned With our adjustment of the current fixed cost structure that we are doing under BOOST plus the footprint reallocation going into the strategic future, where we are also touching quite a lot of global footprint facilities, we are right on track, I think, with a weaker market to achieve around 12% of return. So as a first step, I would see us moving up from this 10.5% levels with a disastrous market, with better fixed cost structure into a world of the 12-ish, and then strategically into above 13% return level. I also mentioned to you many times, Sven, that maybe the 15% that we had in the all-time high, one or two years at CVS is maybe not achievable anymore, but the 13.5% is strategically a perfect fit for the profitability target of this company. And R&D, let me remind us all, is not a no-touch area for us. We had a certain range of products that hit the market recently and are still going to hit the market, so we have a certain time where we have high R&D spendings, but we have also told you that going into the future we see our 6% to 7% range of R&D for the group, rather to go down to the lower end of that range towards the 6-ish number over time. So we're heavily working on prioritizing our R&D, but we will not be penny-wise pound-foolish, and spoil our future by cutting some of the R&D costs in innovation and customization for our customers. Sven Weier: And did I understand this correctly, Frank, that with the measures that you have put in place now and even without the market really recovering, you could go from 10.5% to 12% and then the rest will come from a market recovery? That's the fair summary? Frank Weber: This is, in a nutshell, a fair summary. Operator: The next question is from Akash Gupta, JPMorgan. Akash Gupta: Thanks for your time. I have a couple of questions on M&A that you announced in the last couple of quarters. The first one is on this Travis Road Services, which is quite an exciting area to expand into. The question I have is that can you talk about the synergies with the rest of the portfolio, and can this allow you to accelerate your aftermarket spare parts revenue or directionally to acquire this company was purely based on an ecosystem that you have within you with expertise that may help growing this business? So that's the first one. Marc Llistosella Y Bischoff: Going into the services in a stagnating market, as the truck industry is, is also following the digitalization of the industry. And the more we are setting up now a platform, which is now fulfilling most of the end customers' requirements, is for us a massive access point to future and current profit sources. This market is completely different in their business ecologic and also in the logic. Here, managing mobility as a service is more and more in the up run to do. So the insurance of making assets working and the truck is an asset nothing more, nothing less. That is something where we are more investigating in the future. With our first step in 2022 with Cojali, we stepped into this business. Why did we do that? It was one part of that was, of course, to ensure that our parts will be then delivered to the customer. But this is a multi-brand. In fact, the brand is not relevant. It's a service to end customers. And that makes us a much, much wider scope and gives us a wider access to profit sources, which currently were not reachable. So to make it very short, whether this is going to break path from Knorr-Bremse or not, for this kind of businesses and services, it's not that relevant. It's a side effect. The more effect is, as you know, in platforms, the more you can cover with a platform, especially if it is directed to the customer, the more you have a control, the more you have access to profit sources, which so far were not reachable for us. What I mean with that, we are now currently having, with this acquisition, a real decisive part in our chain of pearls. The chain of pearls is 12 to 14 buckets. And now we are covering, with this acquisition, 12 of the 14 buckets. There's one more to come, and that's exactly what we are now targeting in the next 2 months to come. And then we would be the only one in the market who is covering it from A to Z, from number #1 to number #14, which is extremely exciting because that gives us a completely different picture on the Truck business. Akash Gupta: And my follow-up is on acquisition of Duagon's electronics business. I think one thing which caught my eye was that you are giving 2026 revenues and margin. Normally, either we get this year's expectation or previous year reported. So maybe if you can talk about what sort of growth we are expecting in this business, and if the business doesn't reach to EUR 175 million revenues next year, would there be an implication on selling prices? And the background of this question is that in Knorr, we have seen in the past that the company bought assets with some projection that didn't materialize. So just what sort of safety net do you have this time around? Marc Llistosella Y Bischoff: I would ask you for one thing in terms of fairness, Mr. Gupta. You take the acquisitions before 2022 and you take the acquisitions after 2022. So when you give me any evidence of failing on our predictions in any form of acquisition which we have done after 2022, I'm very happy to discuss it with you. For the acquisitions before 2022, I cannot take any form of responsibility. Of course, I can explain to you endlessly that a lot of these investments were not leading anywhere but to, I would say, dilutive business. In Cojali, we bought a company which is completely exceeding. We bought it to a company value of roughly EUR 400 million. Now we have an estimate of over EUR 1 billion. That is a fact, and then we can give you the numbers for that. The next acquisition, which we did one KB Signaling in the rail business, and this business was coming out so far extremely positive. It came out extremely positive in EBIT margin, and it came out also extremely positive in terms of revenue. So all our predictions were even overrun. Now the last acquisition was Duagon and also the Travis. And in the Duagon, we are very, very comfortable that we are not -- we are targeting the 16% because this business is also very, how you say, taking into place what we are already having with Selectron and also KB Signaling, it's a perfect fit. It's additional. It's not a new adventure. In fact, it's like a mosaic that we are parting now putting the -- all the pieces together to a one picture. So having said so, we are very, very absolutely convinced that with Duagon, we have another asset in the class of KB signaling, what we did last year. And we are very confident that the numbers which we have foreseen are absolutely realistic. I would even say they are conservative. You can see the business is already generating a very, very reasonable, very healthy profit line. And then coming to your question, which was a little bit provocative, when you compare it with all the acquisitions done before 2022, none of these businesses had a real profitability proven in the past. In Duagon, we have a profitability record, and we have also a return record, which is proven. Now it is on us to make it and to lift it. And a growth record... Frank Weber: And they also have a growth record, which we expect to be close to double digit. Marc Llistosella Y Bischoff: I think for Akash, it's more important the profitability than only the growth. Growth without profit is meaning this. And that, I think, is the main difference. The past was very, very much driven by growth, growth, growth. And the question of profitability was like it will come. This is completely different to 2022. We are first ensuring that every form of acquisition has to be accretive, either immediately like KB signaling or very short-term minded. That means within 12 to 24 months. Anything else is not touched. Operator: And the next question is from Vivek Midha of Citi. Vivek Midha: Hope you can hear me well. My first question is on CVS. It's in a similar vein to Sven's question, but just looking to better understand the mechanics. You mentioned 15% reduction in the North American CVS workforce and also broadly lowering the fixed cost base in that division. So should we think about these layoffs as permanent layoffs? I'm interested in understanding how much impact there's been from structural cost savings versus more temporary measures such as furloughs. In order to understand how the margins can improve when the volumes come back. Frank Weber: Yes. Of course, there's always a flexibility that we keep in the plants, looking at the normal market times of around, I would say, around 10% in some countries, even more kind of flex workers, temp workers, what have you, basically in the field of blue collar, not so much on the white collar side, but on the blue collar side, of course, in order to breathe through certain market conditions, that's clear. So the 15% that also Marc mentioned does include, to some extent, also the blue collars, of course, directly affected and indirect workers in the plant areas. But the thing is that also on the white collar side, we did more than 10% of cost reductions, and that's directly impacting the fixed cost, and that's why this is sustainable and is lowering the breakeven point quite significantly for that business going into the future. So it's a mixture of both, but it has a sustainable effect because the white collar had -- white collar reduction had a similar dimension like the blue collar reductions. Marc Llistosella Y Bischoff: I would like to add to Frank's comments. The company is always quoted to have 32,500 people employed. This is not the case. We have currently 30,520 people employed. The target is very clear. Whatever happens to the revenues, whatever happens to anything else, this number has to go down because what -- for the last 22 years, the revenue per employee was not moving up. I have never seen this in my life, and this is exactly why we're addressing it. It has to move up in terms of truck above EUR 300,000, and it has to move up to EUR 250,000 to EUR 260,000 for RVS. There is a difference in the structure. This is explaining why there is a difference. So far, we are below these numbers. And that means as long as we have not reached these numbers, there will be no longer substantial buildup of workforce, whatever the revenue is bringing or not. So we have a very clear target and very clear line. We want to reduce, number one, the breakeven. This is very clear. This is not for discussion, whether the market is up or down, the breakeven has to be target, number one. In the last years, we had a breakeven in derailment, I would say, for the last 24 months, we are really pressurizing down this kind of breakeven. What is the most part of this breakeven by 60% to 70% is the personnel expenses. The personnel expenses were highest in 2024. Even the numbers were fine, but this was not even noticed by others. We have noticed it. So we have to bring down the personnel expenses significantly in truck. We had reached a number which was close to 22%. Now by the last month, we're in the reach of 19%. And the target is to be below 20%. In terms of RVS, we have reached a number of exceeding 27.5% personnel expenses cost, and that has to be brought down to 25%. With that, we will improve significantly our breakeven. And with that, we will be more and more independent from the ups and downs of the market. And as you rightly described it, the self-healing has to be done and has to be proceeded. So to your question, do we have to then expect when the market is going up to see significant upscaling of workforce? The answer is a clear no way. Number two on this is we are now starting an AI campaign and initiative where exactly the white collars are addressed yes, and we want to do repetitive work more and more by digital AI agents. And that's exactly what we started with our initiative where we have now settled the first start in Chennai, where we are focusing AI experts to bring us substantial and also long-term lasting solutions to make sure that for repetitive work, we are not hiring people. So in short words, no, we are not estimating to have higher people. Second, we are breaking down absolutely our breakeven, and we have very clear targets and very clear KPIs how to lead that. Vivek Midha: Fully understood. My second question is a bit of a mid to long-term question around RVS. So you've done a 17% margin in the third quarter and guiding for a similar margin in the fourth quarter. That's above your midterm target for the division. So my question very broad is where next do you see for the division over the midterm and long term? I appreciate you maybe want to give a fuller answer to this at some point in the future, but interested in some early thoughts. Frank Weber: Yes. Thanks, Vivek. I mean I refer a bit, of course, to the question or the answer to the question of Sven. We are totally fine with the consensus as it stands for next year. There, the margin is on that level or even slightly above the 17%. This is, I think, a number that's totally fine for the Rail division. This is, as we also said quite a few times, not the end. We have plenty of measures in place, some already started to implement with also strategic, as I said before, footprint reorganizations so that margin beyond the 17% -- 17%, 18% is reachable for the Rail division, we are aiming strategically to go towards 19%. Somehow, this is the idea of the business, and that should post a very great profitable growth for this business. Now it's out. You also said so before, I think, last year. Operator: The next question comes from William Mackie from Kepler Cheuvreux. William Mackie: So my first question, Marc, to you really is to go back to the M&A that you've undertaken around service and the efforts to expand specifically in CVS. I just wonder if you can talk a little to how the development of competitive tension evolves as you push into the aftermarket in the heavy truck industry, that's somewhere, I guess, many of the OEMs, as you well know from your past lives, are also looking to expand and capture value. So how does that balance evolve in your mind between the existing installed base, supporting it, capturing the data and leveraging that for your benefit rather than -- and avoiding too much competition with your OEMs? And then the more simple question is that you have an exceptionally strong balance sheet and great cash performance. Looking forward, you've talked to capital allocation and guardrails, but just a little bit more flavor on how you see the pipeline evolving and where you can enhance your string of pearls to strengthen the business? Marc Llistosella Y Bischoff: Okay. I'll come with number 2 first. because it's not limited to CVS when I speak about potential acquisition candidates in the near future. As you can imagine, we started with Brownfields, yes, Boost was mainly Brownfield, help yourself, then you will be helped. That's what we have done. We are on our way. By the way, Boost is not finished by next year. Boost is a continuous improvement process and program now, which will last for years to come. And this is why I made so much emphasize on the breakeven on the personnel expenses on the ratios. This has to go through now with everybody. So coming to the Pearls, the platform business itself has one very important criteria. It has to be brand independent. The more you are captive, the more you limit your brand, you limit also your platform and your reach. And what we do now together with Cojali and Travis and also with the other things to come, by the way, all of them will not exceed the range what you have seen so far. So there will be midsized to small size cap, but there it is more to capture and to occupy the place than to say, "Oh, I have already the biggest in this area. And here, the problem or the competition for the captives like our customers, they are very, very centered about and around their brand. For them, it is nearly impossible to have a multi-brand approach. The multi-brand approach makes us independent. And this is why I said it's not important only to sell our pets and our brake disks via this channel. For us, it's more important to see the movement of everything what is going in this domain. And here, we have an access now where we are, especially for the second life cycle of trucks. After 3 years, the warranty is over. And then 70% to 75% of our customers are leaving the captive service facilities. And this is not only in Europe, this is also in America. So they are going to independent dealerships. And these independent dealerships have one big strength. Their strength is they are flexible, they are agile and especially they're not brand dependent. And this is where we are stepping in. So we are not really going into competition with our customers and clients in the first 3 years, we are going more for the last 7 years, which the trucks normally last in Europe or in America, it's 8 years more. So together, it's between 11 and 12 years before it will be getting to markets which eventually are a little bit different. So this kind of span we are then addressing -- this kind of span we are addressing. And there we know by ourselves that the use take, the take quota for original parts, spare parts is getting significantly lower than in the first 3 years. And this market is highly interesting, highly competitive. But what we're aiming here is to be like a spider in the net. Whatever you move, we notice and hopefully, we will participate. And I must say it's a very good -- I'm very proud of the team because they came up with that over the last 2.5 years, and they have now formed something like ally a platform strategy, which could make us very, very, very profitable in this regard because in this kind of services and platform, you have completely different propositions on profitability. William Mackie: My follow-up relates to the CVS business. Congratulations on the continual evidence of the strong muscle memory and cutting costs at Knorr-Bremse in CVS in the face of weaker markets. I noticed the gross margins were relatively flat year-on-year actually. My question goes to the general pricing environment for CVS, perhaps specifically in North America. In a market where you've seen falling volumes, how effective have the teams been in passing through prices to mitigate cost-related headwinds from tariffs or other factors or just to be able to maintain the underlying gross profitability? Marc Llistosella Y Bischoff: So the American team is very close to the market. The American team is, by the way, even more agile when it comes to swing so to lay off people is much, much faster. It's much more efficient than we see it in Europe, especially in Germany. They are closer to the customer, much closer. And in America, we have a customer which is also very, very much involved into aftersales business and that is in this regard specifically per car. So what we see is that we are very close in cooperation with our customers here. They understand when we have to increase the prices, and they understand also the pressure we are running through and going through. One thing is for sure, the American, North American truck market is by far the most profitable market in the world. Yes. The American market is a protected market that has to be very clearly mentioned. You don't see there a lot of Asians really coming in. And the market itself is very settled, saturated and also allocated. So you have players, you don't have new players. So here, it's very clear that it is a very mature market with extremely interesting margins. The European market is more competitive with much lower margins to have, yes. The margins here are roughly in average below 400 basis points below, not only for the OES, but also for the OEMs. The truck market in Asia is completely different, highly competitive, very low margin and very difficult to have a leading position to be defended because there's always a new player who is attacking you. So our focus in terms of profitability is very, very clear in the North American market. It's very, very clear also the European market. And for expansion in terms of growth and also in technology and trying out, that is the Asian market itself. You know it also by the content per vehicle, which is a fraction in China to North America, it's a fraction. So everything what in America and Europe is coming up with digitalization and any form of redundant systems, safety systems, that is the market where we are in. So it is playing in our favor because here, we can't be replaced quite easily. Here, we are not just a commodity. Here, we are a differentiating factor. So that is what plays in our cards in these 2 markets and which makes us very, very learning in the Asian market. So long story short, the team is very ready to go with that. They're very qualified. We are very technical, instrumented and technical-based salespeople. So that means they're not just salespeople on the commercial side, but mainly also on the technical side. We have a good differentiation to our competitors, and we are seen also as a leading force here when it comes to marketable market innovations. Operator: And the next question is from Ben Uglow of Oxcap. Benedict Uglow: I had a couple. First of all, on the RVS margin improvement, the 1 percentage point. I mean, historically, that is a very big number, a big gain. And I guess my question is, Frank, maybe could you give us a bit more detail of what's in that 1 percentage point? How much of this is simply just due to OE and aftermarket type mix? And is there any significant regional variation in there, i.e., have we seen one region doing better? And the reason, obviously, why I mentioned this is in the past, your China margins were higher, et cetera. So I just wanted to understand the basis of that improvement. Frank Weber: Good to hear you again, Ben. Thank you. I missed the beginning, maybe 100 basis points you talk about rail, right? The quality of... Benedict Uglow: Yes. Frank Weber: Clear, I mean, I would say regional difference is China is stable as expected, rather a bit of operating leverage, so to say, with a bit of headwinds on the FX side. So it's not China driving it. Europe has gained growth and operating leverage and North America supported by signaling. So this is from a regional view it. So all that in Europe and North America basically being a bit of a weakness on the rail freight side in North America, which goes hand-in-hand with what we see in the truck market in North America. So that's it, I would -- how I see it from a regional point of view. Of course, aftermarket share, which is the big when it comes to the sales channel mix has supported us in that improvement of profitability. We are now running at a level of around 55% of aftermarket share globally, which is an improvement compared to last year. So that is a good driver. And the third element is the continuous boost measures that we are implementing more and more. Those 3 drivers are basically the bit of positive America, Europe, aftermarket and the cost measures. Benedict Uglow: Understood. That's helpful. And then -- and I guess a question for Marc. Trying to sort of understand what's going on in the North American truck market at the moment is extremely difficult. And a lot of companies are making all kinds of different statements, I would say. In terms of your customer conversations, in terms of your kind of day-to-day dialogue with truck OEMs, how would you characterize those conversations over the last sort of couple of months? Is it just getting better -- sorry, is it just getting worse? Or are things even changing at the margin? The reason why I ask this is different companies are talking about a better line of sight on tariffs. Some companies even talking about EPA 2027. So I wanted to know from your point of view, how are those conversations? Marc Llistosella Y Bischoff: What we see is a normalization. Most of our customers are very conservative, as you can imagine. They supported the current government massively. Some of them even paid. And there -- then after the enthusiastic in the first 4 months of this year, there came a certain form of irritation for another 4 months till August. And now we are in a phase of frustration and frustration in the sense of standby. Nobody wants to move, nobody wants to make a mistake. For example, this morning, we have been informed that Mr. Xi Jinping and Mr. Trump came to conclusion when it comes to rare earth. This came for all of us a little bit by surprise. The markets developed already this week based on that. On Saturday, we had the first signals that they come. Exactly 10 days before, we had in the press and also the Capital Markets was predicting a massive friction between the superpowers. And this kind of erratic or nonpredictable movements lead in truck industry to stand by. They won't cut, they won't increase. They will just wait. The consumer confidence will be for them eventually more important. The container traffic will be -- freight movement will be more important. Currently, we see not only the trucks hammered by that, but also the freight trains. We see that it is -- this is an impact on both industries, not only on the one industry. And we would say the worst is behind us because uncertainty is even worse than bad news. You know this better than me. The uncertainty is now, I would say, the fork is clearing up. And with that, we could imagine, but we are not paying on that. Don't get me wrong. We are prepared for it, but we're not paying on that, that we can eventually see in the next quarters to come a massive release and a massive improvement on the sentiment. And we are very confident to see this message because someone wants to be in the midterms. We know the midterms next year in November, and we know it's -- the economy is stupid, and we know this has to run and everybody will do everything to make it run in America. And now we are a little bit more confident than we have been eventually in August. Frank Weber: Just a minor addition from my side, Ben, also looking at the interest rates, I think the light signals currently being set, talking to the fleet customers directly, our sales guys, of course, on a daily basis. They are also saying, okay, whatever the kind of fleet age might be, and whatever the right theoretical point towards a new buy of a truck would be, if I don't have the money, it's too costly for me to borrow money. And I think this is also the right signals that the Fed is maybe currently sending towards any recovery. Operator: The next question is from Gael de-Bray, Deutsche Bank. Gael de-Bray: I have two questions, please, two of them relating to RVS. The first one is on the share of aftermarket, which apparently dropped in Q3 pretty substantially compared to H1, 50% or so in Q3 versus 57% in the first half. So it appears that there's been a big sequential decrease in aftermarket revenues for RVS in Q3. So I guess my question is what's been driving this? And then the second question is around the growth dynamics in broader terms for RVS. I mean RVS has enjoyed very strong commercial dynamics with orders continuously surprising on the upside over the past few quarters, even over the past couple of years now. However, at the same time, RVS revenue growth has come a bit short of expectations this year with Q3 -- I mean, this was again the case this quarter. So could you elaborate on the lead times and whether one could expect to see finally some acceleration in organic revenue growth next year? Frank Weber: Yes, you're welcome. So first, let me start with the aftermarket. I mean the bigger chunk was there in the first and second quarter, driven by also some signaling replacements and aftermarket growth momentum that we have seen. And if I'm not mistaken, it was you, Gael, who asked me the questions at the quarter 2 call, why the signaling business is so strong in profitability. So it was rather a bit of exceptionally high in quarter 1 and quarter 2, that aftermarket share driven by the signaling business and where I said already in July, it will come down quite naturally, not sustainably, but naturally come down in the second half of the year '25. That is the reason. So number one question, KB Signaling, major driver to it with exceptional situation quarter 1, quarter 2. Second question, rail demand going forward, as Marc also said right in the beginning, is the least issue that we are currently seeing. We have in plenty of jurisdictions support programs out there, fueling the demand quite sustainably. EUR 1 trillion package in the U.S. the bipartisan infrastructure law. We have the German stimulus program. We have Brazil investing EUR 15 billion; Italy, EUR 25 billion over the years to come, Egypt, Turkey, what have you. So all these, so to say, programs leading to a fueling of the market growth that we kind of see between 2% to 3% as a basis should be going up with all those programs above those numbers. And we are totally fine, so to say, to reach our 5% to 7%, let me put it this way, CAGR of organic growth for the rail business over the years to come. And by the way, this is not a different number from what we said some 3 years ago as the situation in rail is noncyclical. We said back then it's 6% to 7% over several years. One year, it's 10%. The next, it's maybe 4%, then it's 7%. So something around that is what we see the lead time. Second element of your second question is very different. I mean, it depends on the product itself that we are selling ultimately a brake system, you would have at least when the design phase is finalized, you have a lead time of 12 to 18 months for more sophisticated product like a brake system, brake control unit. When it comes to a door system, it's after the design phase kind of 6 to 9, maybe 12 months, 6 to 12, let's put it this way. And towards a more simple product, HVAC system, it's 3 to 6 months. So it takes always the design phase of the train, then add these additional lead times, this is what we are looking at on a regular basis. Sometimes you have also project pushouts from one of the other customers. This is then a bit of irregularity in the market. But in a normal market, I would say those are the lead times. And with that order book that we are having, we're so pleased, so to say that we couldn't even afford much more order intake in order to get them all, so to say, produced within the next 12 months. We are, I would say, fully booked basically. Operator: And the last question is from Tore Fangmann from Bank of America. Tore Fangmann: Just one last from my side. When we look into the truck market, I think a few of the OEMs have now opened the books for '26 from September onwards. Could you just give us any indication on how your discussions with the truck OEMs are going right now? And any first idea of how this could mean into like the start of Q1 and the Q2 of '26? Frank Weber: Thanks, Tore. Nothing spectacular, I would say, sometimes it's what I recall since quite some time that after summer break, internal news in big corporations flow a bit hesitant at first and then towards October, November, basically, the sales guys come up with a good or with a rather bad news, so to say, towards their supervisors. This is what we usually say. That's why we also said a bit, we see a bit of a softening in Europe because some orders in the EDI system, then you just -- if you only have 2 more months to go, you rather shift into the new year into January and February, you realize you can't get them done in December anymore. So Christmas is coming like a surprise kind of and then you shift a bit orders into January, February, but that's the usual thing that happens basically each and every year. We don't see anything special this time around. I think we have to, in North America, see what -- how many days around Thanksgiving, the plants on the customer side will be closed down and what they do with the Christmas break. But as we also said, we expect a rather flattish market quarter 4 compared to quarter 3, maybe tiny little bit less truck production rate there. But nothing spectacular in the discussions with our customers. And what we see is what Paccar and Volvo announced, I think, is pretty straightforward. Nothing more to add on our side. Marc Llistosella Y Bischoff: Yes. Just to add from my -- for the Capital Markets, relevant whether we perform or not. And we are performing exactly to what we predicted. We performed in '24 to our predictions and announcements. We perform now to our predictions and announcement in '25. And now give me a reason why should you not believe that we are performing exactly as we planned it for 2026 with 14-plus percent EBIT margin. I wouldn't see it because the pattern certainly gives my words more gravity than anything else. So I don't see the doubt. Whether the truck is with currently 44% of revenue share, whether this is now coming up or not, as I said at the beginning, I don't believe independence of market. I believe in your own abilities to play with the market. So that it's more important whether your costs are under control than whether the market is going up by 2% or going down by 3%. It is our absolute obligation that for next year, the 14% has to be achieved. And we are doing everything on the cost situation and our -- what we can address. What we can't address, we can't address, we can hope. For markets, you can only hope. For costs, you can do. And what we do is we do what we do. And for the last, whatever it was, 16 months, we did it and we did it as predicted. We did it as announced and now you can say, yes, what makes us think that in the next 11 quarters or 12 quarters, you will do what you announced. Sorry to say, I can only offer you the past. For the last 12 quarters, we did always and overfulfilled what we announced. And I can give you absolutely our understanding and our obligation is to do the same in the next year and the same is in the fourth quarter. Whether the market is bad or good, sorry to say, with this, we will not have an excuse, then we have to overcompensate. If left is going wrong and right is going right, we have to overcompensate it because overall, the result is 13% we wanted to reach in 2025. This is what to go for, 14% plus. That is the target for '26. That's what to go for. Whether the market is good or bad, no excuse, we have to reach it. Thank you. Andreas Spitzauer: Okay. Thank you very much for your time. If you have further questions, please reach out. And yes, we wish you a great afternoon. Thanks a lot. Marc Llistosella Y Bischoff: Thank you colleagues.
Operator: " John Kasel: " William Thalman: " Lisa Durante: " Julio Romero: " Sidoti & Company, LLC Liam Burke: " B. Riley Securities, Inc., Research Division Unknown Analyst: " Operator: Good day, and welcome to L.B. Foster's Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ms. Lisa Durante, Director of Financial Reporting and Investor Relations. Please go ahead. Lisa Durante: Thank you, operator. Good morning, everyone, and welcome to L.B. Foster's Third Quarter of 2025 Earnings Call. My name is Lisa Durante, the company's Director of Financial Reporting and Investor Relations. Our President and CEO, John Kasel; and our Chief Financial Officer, Will Thalman, will be presenting our third quarter operating results, market outlook and business developments this morning. We'll start the call with John providing his perspective on the company's third quarter performance. Will then review the company's third quarter financial results. John will provide perspective on market developments and company outlook in his closing comments. We will then open up the session for questions. Today's slide presentation, along with our earnings release and financial disclosures were posted on our website this morning and can be accessed on our Investor Relations page at lbfoster.com. Our comments this morning will follow the slides in the earnings presentation. Some statements we are making are forward-looking and represent our current view of our markets and business today. These forward-looking statements reflect our opinions only as of the date of this presentation, and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information, except as required by securities laws. For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We will also discuss non-GAAP financial metrics and encourage you to carefully read our disclosures and reconciliation tables provided within today's earnings release and presentation as you consider these metrics. So with that, let me turn the call over to John. John Kasel: Thanks, Lisa, and hello, everyone. Thanks for joining us today for our third quarter earnings call. I'll begin with Slide 5, covering the key drivers of our results for the quarter. We continued a favorable trend in the third quarter, posting modest sales growth for the second consecutive quarter with sales up 0.6% over last year. Like the second quarter, the growth was achieved in the Infrastructure segment, with sales up 4.4%, led by 12.7% increase in steel products. Rail revenues, on the other hand, remained soft, declining 2.2% from last year due to continued planned downsizing of our U.K. business and timing of rail distribution sales. But it's important to note that these results included positive revenue gain in our rail growth areas, starting with a 9% increase in friction management and approximately 135% increase in total track monitoring. Turning to profitability for the quarter. Adjusted EBITDA was down $1 million with lower margins in both rail and infrastructure, partially offset by lower SG&A expenses. Speaking of SG&A, we remain focused on our strategic execution to leverage our cost base with containment measures reducing the SG&A percentage of sales to 16% for the quarter. Net income also declined year-over-year to $4.4 million compared to $35.9 million last year. As a reminder, improving profitability allow us to release a $30 million tax valuation allowance in last year's third quarter. The major highlight of the quarter was our exceptionally strong cash generation with cash provided by operations totaling $29.2 million. These funds were used primarily to lower our net debt to $55.3 million at quarter end, with gross leverage improving to 1.6x compared to 1.9x last year. In line with our capital allocation priorities, we also repurchased approximately 184,000 shares of our stock, representing about 1.7% of outstanding shares. Finally, the increased level of orders and backlog in the quarter sets us up for a strong finish to the year in Q4. The trailing 12-month book-to-bill ratio remained positive 1.08:1, and the backlog at quarter end stood at $247.4 million, up $38.4 million or 18.4% over last year. The elevated backlog is expected to translate into Q4 sales growth of approximately 25%, with both segments expected to make gains. I'll revisit our financial guidance to cover the market outlook after Will runs through the financial details for the quarter. Over to you, Will. William Thalman: Thanks, John, and good morning, everyone. I'll begin my comments on Slide 7, covering the consolidated results for the quarter. Reconciliations for non-GAAP information and other financial details are included in the appendix of the presentation. Net sales grew 0.6% year-over-year, driven by 4.4% growth in infrastructure, with steel products up 12.7%. Rail segment sales remained softer, down 2.2% versus last year. Gross profit was down $1.7 million with the decline due to the lower rail sales volumes, coupled with unfavorable sales mix and higher manufacturing costs within infrastructure. The gross margin was 22.5%, down 130 basis points compared to last year's high point in the third quarter. We remain focused on what we can control in the short term with containment measures reducing SG&A costs $2.2 million compared to last year. The SG&A percentage of sales improved 170 basis points to 16%. Adjusted EBITDA was $11.4 million, down 7.9% versus last year, with the decline driven by lower margins, partially offset by lower SG&A, both adjusted for restructuring and legal costs incurred last year. Cash provided by operating activities in the quarter was $29.2 million, favorable $4.4 million versus last year due to lower working capital needs in the Rail segment. Third quarter orders were up 19.6% year-over-year, with a favorable trailing 12-month book-to-bill ratio of 1.08:1. The backlog improved 18.4% year-over-year with the increase realized in the Rail segment, which was up 58.2%. I'll cover segment-specific performance for the quarter and the favorable developments in orders and backlog later in the presentation. Slide 8 provides a reminder of our typical business seasonality and the related financial profile by quarter. Normally, sales and profitability are strongest in the second and third quarters. However, 2025 phasing is skewed a bit due primarily to timing of rail distribution orders with deliveries deferred to the fourth quarter. As a result, combined Q2 and Q3 sales and profitability as a percentage of the full year are lower than we would typically see with the expected sales shift through the fourth quarter. We're in the cash generation period of our year and as evidenced by the exceptional operating cash flow in Q3. We expect this favorable trend to continue in Q4. Over the next couple of slides, I'll cover our segment-specific performance in the quarter, starting with Rail on Slide 9. Third quarter revenues were $77.8 million, down 2.2% due to order delivery timing, primarily in Rail distribution, coupled with lower demand and revenues in the U.K. Rail product sales were down 5.9% due to softer rail distribution and transit product demand in the quarter. Technology Services & Solutions sales were also down 5.3%, including the decline in the U.K. business. Within TS&S, our total track monitoring sales were up 135.1%. Also, global Friction Management sales were up 9% as this growth platform continues to perform well. Rail margins of 22.8% were down 40 basis points, driven primarily by softer sales volumes as well as the weakness in the U.K. Rail orders increased 63.9% versus last year with all business units improving. Most notably, rail products orders were up $9.6 million, while TS&S orders were up $25 million with a large multiyear order awarded in our U.K. business. Rail backlog levels increased $51.6 million versus last year, led by Rail Products up $34.5 million or 59.9%, which supports our growth expectations for Rail in Q4. Turning to Infrastructure Solutions on Slide 10. Net sales increased $2.5 million or 4.4%. The improvement was realized in steel products with sales up $1.9 million on improved protective coating and threaded volumes. Precast sales were also up 1.4% over last year. Despite the sales growth, gross profit declined $1 million with margins down 260 basis points to 22% -- the decline was due to unfavorable sales mix and higher production costs in the precast business, including $0.6 million of higher start-up costs at our new Florida facility. Infrastructure net orders declined $14.9 million due primarily to the cancellation of the $19 million Summit Protective coating order in Steel products. Solid gains in Precast Concrete partially offset the impact. Infrastructure backlog totaling $107.2 million is down $13.2 million from last year due to order cancellations. Shippable backlog for infrastructure is up approximately $6 million over last year's comparable level adjusting for the order cancellation. Next, I'll cover some of the key takeaways from our year-to-date results on Slide 11. Net sales for the year-to-date period were down 5.7% due to lower sales volumes in rail, which were down 16.1% driven by timing of demand for rail products, coupled with the reductions in the U.K. Infrastructure sales were up 11% on stronger precast concrete volumes. Year-to-date gross profit reflects the impact of lower rail sales volumes with the results down $7.3 million and margins of 21.6%, down 60 basis points. Selling, general and administrative costs decreased $6.6 million from the prior year with lower personnel, professional service and legal costs as the primary drivers. Adjusted EBITDA was $25.4 million for the year-to-date period, down $0.9 million or 3.5% from the prior year despite the more pronounced decline in sales. I'll mention here that the effective tax rate continues to be elevated due to our not recognizing a tax benefit on U.K. pretax losses. We made some progress reducing this impact in the quarter, and we expect a lesser impact in future quarters with an improved outlook for the U.K., coupled with overall improving profitability. Of course, the higher rate is not reflective of our cash tax requirements, which remain low at approximately $2 million for 2025 due to available NOLs. Cash flow provided by operations was $13.4 million, favorable $15.1 million compared to last year on lower working capital needs within rail with the growth deferred to the fourth quarter. And orders were up 10.1% with both segments realizing increases on improving demand. I'll next cover liquidity and leverage metrics on Slide 12. The chart reflects net debt levels of $55.3 million, down $10.1 million compared to last year and down $22.9 million during the quarter. The gross leverage ratio improved to 1.6x at quarter end. We've demonstrated our ability to manage our leverage levels through choppy conditions and remain prudent in our overall capital allocation approach. Our capital-light business model translates into significant cash generation, and we continue to deploy these funds along our priorities, which I'll now cover on Slide 13. Maintaining our financial flexibility with reasonable debt and leverage levels remains our top priority. Depending on working capital cycles, leverage typically cycles up to a high point around 2.5x before declining toward our longer-term goal of 1.0 to 1.5x. We manage our leverage while also returning capital to shareholders through our stock buyback program, which is also a high priority. We've repurchased approximately 461,000 shares thus far this year, representing approximately 4.3% of outstanding shares. We have $32 million remaining on our authorization through February of 2028. Since the inception of our repurchase program back in early 2023, we've repurchased approximately 896,000 shares, representing just over 8% of the outstanding shares. We also continue to invest CapEx at a rate of approximately 2% of sales to maintain our facilities, drive operating efficiency and bolster our growth platforms. And lastly, as part of our continuous strategic planning and portfolio management process, we routinely evaluate potential tuck-in acquisitions that would complement our current portfolio, primarily in the precast concrete space. In summary, we have multiple levers available to drive shareholder value, and we remain prudent in our approach. My closing comments will refer to Slides 14 and 15 covering orders, revenues and backlog trends by segment. The consolidated book-to-bill ratio for the trailing 12 months improved sequentially to a favorable 1.08:1, led by growth in orders in Rail. The Rail segment ratio improved to 1.18:1 compared to 1.06:1 at the end of the second quarter, driven by the increase in order rates over the last year. The infrastructure ratio declined to 0.94:1 due primarily to the Summit order cancellation in Steel products in Q3. And finally, on Slide 15, it's clear that the greatest improvement in our backlog was achieved in our Rail segment with a 58.2% increase year-over-year. I'll again highlight that the gains were realized across the segment with Rail Products up 59.9%, friction management up 28.7% and TS&S up 77.7%, including the multiyear order secured in the U.K. business. And while the infrastructure backlog was down 10.9% due to the longer-term order cancellations, current demand levels remain improved for both precast products and steel products business units. This positions us well for a strong finish to 2025. Thanks for the time this morning. I'll now hand it back to John for his closing remarks. John? John Kasel: Thanks, Will. I'll begin my closing remarks covering current market developments on Slide 17. First, I'll address a couple of macro headline topics, tariffs and the federal government shutdown. As previously mentioned, our supply chains are primarily sourced from within the United States with some minor exceptions from certain electronics and other components sourced outside the U.S. As a result, tariffs have not had a significant impact on product costs or our ability to secure the materials needed to serve our customers. With respect to the recent U.S. federal government shutdown, at the moment, we're not seeing significant adverse impacts on business activity. Of course, federal funding programs support several of our business lines. we're monitoring project and delivery time lines for potential delays, which could have an adverse impact on Q4. As Will mentioned during his review of orders and backlog, we've seen improved demand levels broadly across the rail business. The federal funding support began to release back in the second quarter, translating into improved rail order rates and backlog levels. The timing of orders and deliveries primarily in the rail products pushed the expected growth in rail to Q4, but we have the backlog in place to deliver the expected growth. More to come on this topic in a minute. Rail friction management sales are up 12.3% year-to-date, and backlog is up 28.7%, reflecting the increased demand for these solutions that improve safety and operating ratios for our customers. And outside North America, the multiyear order secured for our U.K. business is a positive sign that prospects for improvement in our demand in this market are trending in a favorable direction, albeit at depressed levels currently. Turning to the Infrastructure segment. Our precast backlog remains solid at nearly $86 million, up 4.9% over last year. Precast has also benefited from government funding programs and highway and civil construction projects are supporting demand levels in our key regional markets. We previously mentioned the commissioning of our precast facility in Central Florida. While demand levels is soft in this market now, we remain bullish in the long-term prospects for Birocast wall system solution. Turning to Steel Products. Third quarter sales were up 13% overall, but the overall business mix improved substantially with the recovery of our pipeline coatings business, which was up 77% over last year. With the renewed interest in energy investment in the U.S., we believe we are a favorable recovery trend for this product line, and we expect growth rates to expand further in the fourth quarter. In summary, drivers of improving demand in our key end markets remain intact as evidenced by our backlog, which we expect to deliver a strong finish to 2025, which I'll now cover starting on Slide 18. Our updated guidance for 2025 anticipates extraordinary fourth quarter of growth and profitability expansion. At the midpoint, fourth quarter adjusted EBITDA is expected to be up 115% on 25% sales growth. We have 2 major areas that support this position. First, in the third quarter, sales only grew modestly despite a $20 million higher backlog at the start of the quarter. This was due primarily to order delivery timing for the rail distribution product line. Second, the backlog at the start of Q4 is up $38 million versus last year compared to $32 million sales increase expected at our midpoint of our guidance. Simply said, we have the backlog available and manufacturing capacity to deliver the expected sales growth contemplated in our guidance. Of course, adverse weather conditions and unforeseen customer delays can always impact deliveries and the federal government shutdown and turmoil in Washington raises the risk of unforeseen disruptions, including those caused by funding delays. But we remain optimistic about a strong fourth quarter for both segments. The 2025 financial guidance reflected on Slide 19 represents a solid sales growth with substantial profitability and cash flow expansion compared to where we were in 2021 when we kicked off our strategic reset. While we're falling short of the 2025 sales goals we set for ourselves, we are striking distance of the EBITDA margins despite the weak rail demand at the start of 2025. In fact, the revised guidance implies that adjusted EBITDA margin would be well above the 8% target for the last 3 quarters of 2025. And while the free cash flow outlook is slightly lower than our previous guidance due to the deferral of rail deliveries to the fourth quarter, the $17.5 million midpoint represents a 6% yield at today's stock price. So in conclusion, I'm very proud of the L.B. Foster team and what we have accomplished in a short period of time. Let me assure you, we are all focused on delivering a strong finish to 2025 and carrying positive momentum into next year. Thank you for your time and continuing interest in L.B. Foster. I'll turn it back to the operator for the Q&A session. Operator: [Operator Instructions] And our first question will come from the line of Julio Romero with Sidoti. Julio Romero: Wanted to start on the guidance. Can you maybe talk about your guidance and hitting the implied fourth quarter sales and EBITDA guide? And does that embed any assumptions with regards to the ongoing government shutdown ending by a certain time or any other assumptions about funding impacts to your customers? John Kasel: Thanks, Julio. Thanks for the question. As I mentioned in the script in the presentation, the actual government shutdown, which is going on today, it's going on now for, I guess, over 30 days. We are not seeing any immediate impact, significant impacts from that at all. Much of the funding that is out there is ready to roll. The good news is it's flowing. Now if this continues into end of the fourth quarter into next year, it's a different story. But the good news for us is we've got plenty of work. If you look at our book-to-bill ratio of 1.8:1, where we're standing, the orders that we picked up moving into Q4 we're very, very -- we're in really good shape related to having activity. More importantly, we have our supply chain that's locked in with us. Our partners, CIPCO, SDI to name a few, are also ready to drive what needs to happen and get this product out in the marketplace moving into Q4. So it's going to be a big quarter, Julio. In fact, it will be the largest quarter we've seen since pre-COVID. But we're excited about it. And we feel that we're blessed to be in a position like that today. So we would like to have seen more things happen in Q3, but that's not the way the role -- the year has rolled together. As I have shared with you in the market, it was really about H1 versus H2. And the second half of the year was going to be strong for us, and it will be strong before the year is over. So we're sitting in good shape here first week of November to hit these guidance as we laid out in the presentation today. Julio Romero: Excellent. And good news to hear that some of that funding is flowing already. I guess maybe just asking another way, worst-case scenario, it does go on through '26. I mean, do you still confident in hitting the sales and EBITDA guide even in that scenario with respect to the impact to your customers? John Kasel: Yes. As far as '26, I really can't talk about that. I don't know. I do know that we're sitting in really good shape right now, and the bidding activity is as strong as we've seen it for the entire year. So I really can't comment on 2026. I will tell you, I think the momentum that we have right now will continue into Q1 though. Julio Romero: Got you. Okay. It will take into Q1. Perfect. And then I wanted to turn to total track monitoring. It was really impressive to see the sales growth of 135% year-over-year, implies a pretty nice number there. Can you help us unpack the drivers of that sales growth and help us think about the sustainability of total track monitoring sales going forward? John Kasel: Yes. Well, it's all 3 of our strategic growth platforms, right? So you mentioned TTM, which is condition monitoring, the impact that we're having through moving our Wild product in the marketplace, the conversions between Mark II as well as the adoption of what we're doing related to the wilds and the acceptance by the customers has been fantastic. FM has had a fantastic quarter as well. In fact, they're pulling together they'll have the best year that we've seen. So another huge strategic growth initiative for us where the customer is really looking for that product. And then precast, our third leg of our growth and strategic focus, really had a strong quarter, building up backlog, and we're going to have a fantastic finish to the year. Our buildings part of that is going to have an exception year, probably the best year we've seen since we've owned that business line. So all three of them are performing very well. This is really the tale of rail products and movement from Q1 to really Q4 as it relates to the deferral and starting the year with Doge and moving the projects, the government-type projects and the funding type of transit authorities and the other freight lines into Q4. So the good news is it's here and it's happening this year, and we feel very good about where we're sitting right now. We're very blessed, as I mentioned earlier. Yes, absolutely. It's been a dynamic year for sure. Julio Romero: Absolutely. And last one for me would just be on the free cash flow guidance. Does the push out in the rail side imply you may see a more heavily weighted first half '26 free cash flow than usually do from a seasonal perspective? John Kasel: Yes, for sure. And well, first of all, thanks for mentioning because we're pretty pleased with the cash generation in the quarter. The $29.2 million is really indicative of what L.B. Foster has done. If you look at the past few years, this is what we do, and we generate cash. So I know the shareholders are excited about that. More importantly, we're excited about it. This is something we really focus on. But with the rail deferrals and rail distribution specifically moving to the fourth quarter, we will see some movements in working capital and payables moving to next year. So we'll have some impact on that. Operator: And that will come from the line of Liam Burke with B. Riley. Liam Burke: Good morning John Will, you saw nice growth in total track management and friction management. You talked about that on the earlier discussion. Your margins got hit by unprofitable product mix with contribution from U.K. and volume, which is what it is. But how much offset in profit margin did you get from total track management and friction management? Is it measurable? John Kasel: So yes, I think it was. But I mean, there's -- but not measurable. I mean, there's a piece of it that I think Bill can bring you into the details with. But I mean, overall, Will, do you want to add a little color on... William Thalman: Liam, yes, the overall profitability in the quarter for the Rail segment, the margins in Rail Products, even though the sales were down, margins were up a tick in Rail Products because of the sales mix and some of the overall pricing initiatives and things that we have within Rail Products. Friction Management volume was up, but the profitability was flat year-over-year at a margin level. That's due to sales mix again. We feel really good about the progress that was made, especially in the first half for friction management. But for this particular quarter, it was flat on a year-over-year basis. And then on a combined basis, TS&S, there was a deterioration in the margins because of the U.K., but we did get a bit of an offset within the total track monitoring portion because we had solid sales growth in total track monitoring. That's a product line that contributes on the overall favorable mix for margins within rail. So we got some lift there. So I would say that overall, it was a bit of an offset, but not a significant offset. As we mentioned, the big impact was the decline that we realized within the U.K. business because of their challenges over there. Liam Burke: Great. Thank you, Will. And your acquisition emphasis is on precast concrete. How has that potential or opportunity pipeline looked on precast -- potential precast acquisitions? John Kasel: We have a process. We have an actual group of people that are looking at those things. We're specifically looking at precast, as you mentioned. We're specifically looking in the south part of the U.S., but we're also very focused on getting our Tennessee wrapped up to the volumes we want to see in our Florida, as I mentioned in the script. We're done commissioning. We're building product, and we're starting to see a nice flow of production orders rolling through there now. So -- but we are keeping in mind what's going on related to precast, maybe opportunities for us into '26 and beyond related to maybe some acquisitive growth. But our organic opportunities, Liam, as I mentioned to you in the past, are something that we're feeling very good about for a period of time here, and we want to make sure we perform on those as well. Operator: [Operator Instructions] And our next question will come from the line of Justin Bergner with GAMCO. Unknown Analyst: So a lot of moving pieces this quarter. I guess maybe to start, I understand the pushback, particularly in Rail Products from the second and third quarter to the fourth quarter. But given that your sales guide and corresponding EBITDA guide is kind of tweaked to the lower end of the prior range, is that because some of the rail products is pushing beyond '25 into '26? Or are there certain parts of the business that are tracking a little bit lower for the full year '25 than you expected? Quarter? John Kasel: I think it's more about what we have or capacity, and we're just being realistic to what we feel we will get out in the marketplace and in terms of revenue for us by the end of the year. Our activity -- if you look across the board, Justin, sorry, we are -- we've got plenty of work. I mean all of our operating centers are at capacity right now. So I think we're just trying to be realistic to what we can do and hit the expectations. Unknown Analyst: Okay. Got you. So if you can't get back to your initial sales guide level at the midpoint because you're kind of trying to get product out the door capacity, what will sort of come through in the early part of '26 that might not have come through in '25? John Kasel: Well, first of all, on the revenue side, keep in mind, we're really getting after SG&A, too, right? So we may not necessarily get to the guidance that we had originally on the revenue side, but we're managing our cost and managing our costs very effectively because with more rail distribution, that will have some pressure on margins. So we're being very mindful of what we have right now, and we feel we're going to have some very nice leverage with that additional sales that we're seeing going into Q4 with the 25% sales growth. And as far as what's going to happen in '26, I'm looking for a much better start to next year than what we saw this year with all the turmoil that we had in Washington. So like I said earlier, Julio, we're busy quoting. There's a lot of projects that are on the radar right now. And even though we have a government shutdown, everybody is pretty excited about, I think, the opportunities that's in front of us. Unknown Analyst: Okay. Maybe just a couple of questions on the order book. So the multiyear order in the U.K., how does that contrast with the business that you're deemphasizing? A little more color there. John Kasel: Good question. So first of all, U.K., we keep talking about that. We've got a good group that's really focused on simplifying the business, being able to perform in the market conditions that are presented to us today, which are very challenging. But we're continuing to just right size the business. They're really focused on what it is that we do and how we can add value and make sure that we get paid. So we have a good, very good operating team that's really focused on that today. So we're very selective in the orders that we're accepting, and we're going after. And this is one of the orders that has been a good business for us in the past. It's been where we're treated a little different. We're looking at a little different. We're higher in the pecking order, if you will, as far as performing and getting paid. And it's a 6-year deal. So it brings some stability to our business over there. Because at the end of the day, that business is very important to us. It's our technology for our rail side. With the acquisition of 2 and 2 plus that we made back in 2015, that is where we bring our condition monitoring and a big piece of our TTM is through that business over there as well as our expansion plans that we have in Western Europe. It's very exciting for us, taking friction management and other products that we have into that part of the geography. So order like this just helps give us some stability not just next year, but for many years to come for us to be able to continue to perform and also take that technology innovation and keep bringing that into North America. Unknown Analyst: Okay. Last question. The cancellation, how longer term was that? Kind of what were the circumstances around that? John Kasel: You're talking about the Summit order? Unknown Analyst: Yes, the Summit order. John Kasel: Yes. So we didn't cancel it. Our customer canceled it. So we're an in-line coater of AIPCO, right? So I was just out there meeting with the people that run that operation. It's pretty exciting what's going on there right now. In fact, our entire coating business, when you look at what's going on there as well as our operation in Texas. So that's been on the books for multiple years. It's been on the backlog for SICO as well for multiple years. And it came to a point in time where that thing probably has to be completely rebid because it's been sitting on their books. So AICO basically has gone back to the people at the Summit and said they're taking off their books and they notified us. And then when they notified us, we took it off at the quarter. So it still may be out there. It may be resurrected. It may come back to AIPCO. Keep in mind, we're not the sales arm, right? We get the orders AsIos the arm orders, and we're a tolling in-line quarter for them. So as they move the orders in and out, we have to move accordingly, and that's what happened with that order. Unknown Analyst: Okay. But prior to it being canceled, how far back were you kind of budgeting it to be? John Kasel: Back or Forward. When was it going to be delivered? Unknown Analyst: Yes. John Kasel: Well, we were hopeful it would continue at some point this year or into next year, but we have plenty of work and plenty of work for the SICO. So we just keep it out there in front of us. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. John Kasel for any closing remarks. John Kasel: Thank you, Sheri. Thank you, everybody, for joining us today. Thanks for your I think the balance of the year is really something that we're looking at as an opportunity as well as excitement here as our company. And hopefully, you have appreciation of that. A lot of times when we head into Q4, it's about winding down the year and you kind of -- the year ends basically in November, you don't have a lot going on. This is different. It's exciting for us. It's one of the things that we're really trying to transform the company is moving from just a construction materials company to innovation technology company. And we believe by continuing to drive that strategy, our quarters will start filling up and look different and the seasonality will continue to change. And we're hopeful that Q4 is representative of that. So it's something that will continue into next year, and we won't have those big tailoffs at the end of the year. So I find this to be encouraging what we're doing, what our strategy is working. We're going to have pulled together, if you look at our guidance, a very good year year-over-year. And more importantly, our team here at L.B. Foster, all the way up to our Board of Directors is laser-focused on making this happen, and we're doing it safely. Give you an example, the rail business had no recordable injuries in quarter 3. And I think that's just tremendous that we're really focused on getting work out, but we're doing it the right way and really driving the right culture that's sustainable for all shareholders because it's not about just profits today, it's about the journey to profitability to the future. And I think we do that extremely well. So thanks again for your time today, and we look forward to catching up with you next year. Happy holiday season to you and your families. Take care. Be safe. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Welcome to the Ares Management Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded on Monday, November 3, 2025. I will now turn the call over to Greg Mason, Co-Head of Public Markets Investor Relations for Ares Management. Greg Mason: Good morning, and thank you for joining us today for our third quarter 2025 conference call. I'm joined today by Michael Arougheti, our Chief Executive Officer; and Jarrod Phillips, our Chief Financial Officer. We also have a number of executives with us today who will be available during Q&A. Before we begin, I want to remind you that comments made during this call contain certain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in Ares or any Ares Fund. During this call, we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our third quarter earnings presentation available on the Investor Resources section of our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. Note that we plan to file our Form 10-Q later this month. This morning, we announced that we declared a quarterly dividend of $1.12 per share on our Class A and nonvoting common stock, representing an increase of 20% over our dividend from the same quarter a year ago. The dividend will be paid on December 31, 2025, to holders of record as of December 17. As we have in the past, we expect to announce an increase in our quarterly dividend level beginning with the first quarter of next year. Now I'll turn the call over to Mike, who will start with some comments on the current market environment and our third quarter financial results. Michael Arougheti: Thank you, Greg, and good morning. We appreciate you joining us. Ares generated another outstanding quarter of financial results, reflecting the broad-based strength of our investment platform, our leadership in many of the fastest-growing private market segments and the continued strong fund performance that we're providing to our investors. Our third quarter results included strong year-over-year growth in management fees of 28%, FRE of 39% and realized income of 34%. We raised more than $30 billion of new capital in the quarter, which was our highest quarter on record. Year-to-date, we've raised over $77 billion and over the last 12 months, we've raised over $105 billion, up 24% from $85 billion in the comparable prior year period. Our gross deployment was even stronger, totaling over $41 billion invested in the quarter, 55% higher than the second quarter and 30% above our previous high in the fourth quarter of last year. As a result, AUM increased to more than $595 billion and fee-paying AUM increased to $368 billion, both up 28% year-over-year. We're experiencing significant growth across nearly every major investment strategy as demand from both institutional and individual investors continues to increase. Investors are seeking durable income above what they can find in the traded markets as well as differentiated private market solutions in asset classes like infrastructure, real estate, secondaries and global private credit. As a result, based on our continued strong fund performance and the strength and breadth of our fundraising channels, we now expect to meaningfully exceed last year's $93 billion. We continue to see strong fundamental credit performance and solid growth metrics across our portfolios. Our net realized loss rates remain very low and are consistent with our cumulative average annual loss rate of just 1 basis point that we've generated in our direct lending strategy over the past 2 decades. We're also seeing the transaction market starting to rebound across many of our investment groups and believe that we are well positioned for new deployment opportunities with nearly $150 billion in dry powder. And our firm-wide investment pipeline remains at elevated levels near our record pipeline that we discussed 3 months ago. Our fundraising continues to benefit from our strong and diverse product lineup of approximately 40 funds in the market. We're seeing continued high demand for our private credit strategies from both institutional and individual investors and accelerating interest in areas outside of private credit. During the quarter, we held the final close for our third infrastructure secondaries fund. We noted on last quarter's call that we believe the fund would hit its hard cap of $3 billion in the final close. Due to investor demand, we increased the hard cap and closed on $3.3 billion in equity commitments, which resulted in the fund being over 3x larger than its predecessor, including $2 billion in related vehicles, we believe that this $5.3 billion pool of capital is among the largest ever raised in the infrastructure secondaries market. The market opportunity for deployment is strong and building as GPs seek solutions and LPs seek liquidity. And even with the significant upside in this fund, we estimate that 35% of the fund could be committed by the end of the year. Also in the infrastructure sector, we anticipate additional closings this week, marking the first official close of our sixth infrastructure debt fund, which would bring the total to $5.3 billion in capital, inclusive of related vehicles and leverage with $2 billion raised post quarter end. Notably, the team has already committed $2.5 billion of capital across North America and Europe. We're seeing significant momentum across our entire infrastructure platform, which includes debt, core and opportunistic equity, data centers and secondaries. Over the past 12 months, including the commitments to infrastructure debt early in the fourth quarter, we've raised over $10 billion across our various infrastructure products. We had another strong quarter in our credit strategies, raising $19.3 billion with particular strength in our perpetual capital funds. In alternative credit, our open-ended core alternative credit fund raised over $1 billion in its semi-annual subscription on September 30, bringing total AUM in the fund to over $7.4 billion. We believe that this is the largest non-rated asset-based finance fund in the market, and we've now raised 3 out of the 4 largest institutional ABF funds in the non-rated market. Also at quarter end, over $3.4 billion of LP commitments in Pathfinder II, representing more than half of total fund commitments elected to extend the reinvestment period for another 2 years, providing additional investment capacity for our Pathfinder series. Our leadership position could further widen next year with the launch of our third alternative credit fund in January. Also within credit, we held the final close for our inaugural specialty healthcare fund with $1.5 billion in total available capital, including anticipated leverage. Within real estate, we're also seeing positive fundraising momentum. Our fifth Japan industrial development fund is targeting a significant first close in the first quarter of 2026, and we anticipate our 11th U.S. value-add real estate fund could hit its hard cap of $2.6 billion in the first part of next year, significantly exceeding the $1.8 billion raised in the prior vintage. We believe our real estate business is benefiting from its strong track record as certain LPs are rotating away from other real estate managers to Ares. Last week, we also held a final close for ACOF VII, bringing total commitments in the fund to $3.8 billion. The final close was above our most recent expectation as we believe both ACOF VI continued top quartile performance and ACOF VII seed portfolio and strong pipeline provided some late-stage momentum. ACOF VII turned on its management fees on November 1. As we look to next year, we see continued strong demand for our institutional funds. In addition to the funds in the market I mentioned previously, we anticipate good momentum into the final close for our third special opportunities fund, which has closed on over $5.9 billion, and we expect a number of new funds in market, including our seventh special situations fund in Asia, our 10th real estate secondaries fund and a new large global fund in our digital infrastructure business based upon our global seed portfolio, just to name a few. And in late 2026, there is potential for the launch of our fourth U.S. senior direct lending fund. The strength of our institutional fundraising this quarter was matched by continued momentum in our wealth business. August marked a new monthly record for equity capital raised across our semi-liquid funds surpassing $2 billion and fueling our highest quarterly equity inflows in our history at $5.4 billion. Year-to-date, through the third quarter, we've raised over $12 billion in gross equity capital in our semi-liquid wealth strategies, up more than 70% year-over-year, and our market share for the third quarter exceeded 10%, ranking us #2 in industry fundraising per industry data. Our results reflect the enhanced scale, diversity and durability of our global wealth platform. Approximately 40% of third quarter inflows came from outside the U.S., including strong demand from Japan following our first dedicated product launch there. We also saw early momentum in our sports and infrastructure offerings, which are expanding our reach across RIAs and family offices and key geographies such as Canada, the Middle East and Asia Pacific. The third quarter was also a record fundraising quarter for our diversified non-traded REIT, driven by our industry-leading 1031 Exchange program and the highest quarterly common stock raise in over 2 years. We remain the market leader in the 1031 Exchange space with over 20% market share, and we recently closed on the largest transaction in history, approaching $100 million in size, which underscores our ability to execute complex exchange opportunities at scale. We continue to see strong inflows this quarter and remain confident in the long-term growth of our wealth business. Just last month, we raised our 2028 AUM target for semi-liquid wealth products from $100 billion to $125 billion, reflecting both our current run rate and the strength of adviser demand across geographies and channels. With 8 semi-liquid products gaining momentum, we believe that we're well positioned to meet evolving investor needs for durable income, diversified equity growth and tax advantaged real asset exposure that can protect against inflation. Our wealth distribution footprint continues to expand, yet of our 80-plus partnerships, about half currently distribute only one product, highlighting significant white space for multiproduct expansion. We're also deepening engagement across the RIA and IBD channels, where we see meaningful opportunity for private markets adoption. We believe the secular shift toward private markets and wealth portfolios is still in its early innings. Our ability to innovate, deliver strong investment performance and broaden access globally positions us well to lead this transformation. And now let me say a few words about our market outlook and recent investing activities. Overall, we're excited about the breadth and quality of the opportunities and the positive tone in the market. We're seeing a pickup in underlying activity that should support strong M&A volumes in the fourth quarter and into 2026. Credit markets are open, bankers are reporting stronger new transaction activity and the potential for lower short-term rates should encourage sponsors to take advantage of improved financing conditions. Bid-ask spreads are narrowing as multiples have increased and as financing costs have declined. As a result, we're seeing higher quality companies able to access the markets on acceptable terms. Historically, declining rates have driven increased deployment activity and accelerated growth in our fee-paying AUM. We're also seeing lower rates benefiting our real estate strategies where valuations are starting to improve, transaction activity is increasing and supply-demand balances are improving, particularly in logistics and multifamily. We also continue to see robust opportunities to support the energy and data center needs for the digital economy as demand is significantly outstripping supply and data center vacancy is running at historic lows. In the past several weeks, we've announced several very large infrastructure transactions and are drawing on our expertise across the platform to support these attractive investment opportunities. And lastly, before I turn the call over to Jarrod, I want to provide an update on an important industry initiative that Ares is leading. Last month, Ares and 8 other managers launched a new program called Promote Giving, where all managers committed to donate a portion of select fund performance fees to charitable organizations to support global health, education and other causes. The Ares Pathfinder series of funds has been at the forefront of this initiative. And to date, our funds have already accrued over $45 million in pledged charitable contributions with half coming from employees. This new industry initiative, coupled with the significant growth in and impact of the Ares Charitable Foundation is a testament to the culture of our firm and our core values. And with that, I'll turn the call over to Jarrod to provide additional details on our financial results. Jarrod? Jarrod Phillips: Thanks, Mike. Good morning, everyone. As Mike stated, our business continued its acceleration in the third quarter with 20-plus percent year-over-year growth in both AUM and FPU, translating into robust management fee and FRE growth and culminating in 25% year-over-year growth in after-tax realized income per share of Class A stock. We see broad-based positive momentum across our businesses as we continue to attract significant capital in the institutional and wealth channels, source differentiated new deployment opportunities and ultimately seek to deliver attractive risk-adjusted investment returns for our investors. Now let me walk through a summary of our quarterly results. Management fees were a record $971 million, representing a 28% year-over-year increase. Along with the significant final close of our third infrastructure secondaries fund that Mike discussed, we generated $29 million in catch-up fees during the quarter. Excluding all catch-up fees, management fees increased at a 21% annualized rate compared to the second quarter due to the strong net deployment and a 21% annualized run rate increase in FPAUM during the quarter. While we anticipate that catch-up management fees will return to more normalized levels next quarter, the pipeline for new deployment remains elevated. We have $81 billion of AUM not yet paying fees that is available for future deployment and $4.6 billion of development assets not yet stabilized that could generate over $770 million in additional management fees. Other fees were up modestly over the second quarter, largely due to a small amount of leasing fees from our new Japan data center development fund. Fee-related performance revenues totaled $85 million in the quarter. The most notable contribution was the annual payment from our open-ended core alternative credit fund. As a reminder, this fund crystallizes FRPR annually in the third quarter for the prior year period. So this year's crystallization represents 2024's AUM and returns. As Mike mentioned, this fund continues to increase its AUM. This gives us good insight into 2026's potential FRPR, which assuming continued performance of the fund has the potential to be larger at this time next year, simply due to the growth in AUM. As we look to the fourth quarter, we anticipate approximately $125 million in FRPR from the credit group, which would bring total FRPR year-over-year growth to approximately 17%. This anticipated growth reflects the strong net additions in our FRPR eligible funds and solid credit performance, which more than offsets the 100 basis point decline we saw in base rates. I would note that our fourth quarter payments are based on total returns for the year and could be impacted by changes in market values into year-end. Within real estate, our diversified non-traded REIT is on a trajectory that could enable us to generate a small amount of FRPR in the fourth quarter, assuming continued performance at the current annualized level as the fund is above its high watermark and approaching its 5% hurdle rate. We now believe we're positioned to generate FRPR from our diversified non-traded REIT next year, dependent on the market backdrop and fund performance. To put the potential FRPR in perspective, hypothetically, if we had started off 2025 at our high watermark and just needed to exceed the 5% annual hurdle, we estimate that the diversified non-traded REIT would have been able to generate approximately $30 million in gross FRPR or about $12 million of net FRPR at the current annualized level. Based on a continuation of its current performance trajectory, our industrial non-traded REIT could also exceed its high watermark in 2026. Compensation and benefit expenses increased 4.6% quarter-over-quarter, reflecting headcount growth and higher performance expectations, but it increased at a slower rate than our non-Part I management fees, which grew 7.6%. This excludes both Part I and FRPR, which remain at fixed ratios on associated revenues. Excluding supplemental distribution fees, which increased $4 million over the previous quarter due to record fundraising in the wealth channel, G&A expenses also grew at a slower rate than management fees. We expect that G&A expenses should not grow more than 50% to 75% of the rate of management fees on a long-term basis, and we expect continued improvement in that percentage as we scale various strategies. Fee-related earnings of $471 million for the quarter increased 39% year-over-year. FRE margins totaled 41.4% in the third quarter, up slightly from the second quarter. But as expected, the integration of GCP continued to temporarily compress margins in the third quarter. We expect full year FRE margins to be at or slightly above 2024 levels, including the impact from GCP. Given the expense reductions and growth in revenue we expect in GCP throughout 2026, next year is expected to be a better year for margin expansion, and we expect to be closer to the top end of our 0 to 150 basis point annual margin expansion guidance. Turning to our performance-related balances. We experienced very strong market appreciation across our investment portfolios this quarter and net accrued performance income on an unconsolidated basis also increased 9.2% to $1.2 billion at the end of the quarter, of which over $1 billion is in European-style waterfall funds, with the remaining $180 million in American-style funds. We currently expect more material amounts of these potential American-style performance fees could be recognized in 2026 and beyond. With respect to our European-style funds, we continue to expect $500 million in total net realized performance income across 2025 and 2026 combined. From a timing perspective, it is difficult to be precise on the specific quarters, but we anticipate we will see approximately $450 million over the next 5 quarters, including $200 million in Q4 and early Q1 combined. Realized income totaled $456 million for the quarter, a 34% year-over-year increase. During the quarter, our effective tax rate on realized income was 8.6%, which is in line with our range of 8% to 12% for 2025. As you can see in the earnings presentation, we continue to generate strong performance across our strategies with nearly every composite reporting solid quarterly and annual returns. In credit, our primary strategies have generated double-digit returns ranging from 10% to 23% over the last 12 months. And that strong performance continued in the third quarter. Quarterly gross returns were 7.2% for our APAC credit strategy, 5.6% for alternative credit, 4.8% for U.S. junior direct lending, 4.2% for opportunistic credit, 2.6% for U.S. senior direct lending and 2.3% for European direct lending. As we've scaled our direct lending funds, we've generally seen performance as good, if not better, than the predecessor fund. In real estate, we continue to see improvements in rent growth and property values. Our Americas real estate equity composite is up 9.1% on a gross basis over the last 12 months, and our diversified nontraded REIT has generated a net return of 7.9% for the first 9 months of the year. In our secondaries group, APMF continued its strong performance with gross returns of 14.7% over the last 12 months. I'll now turn the call back to Mike for some concluding remarks. Michael Arougheti: Thanks, Jarrod. Before wrapping up the call, I want to provide some thoughts about current credit market conditions. Due to several high-profile bankruptcies or instances of fraud in the news, there have been many questions and concerns about what this could mean for a credit cycle and private credit players like Ares. Based upon the strength that we're seeing in our portfolios and what we're hearing from our peers and general credit trends, these events appear to be idiosyncratic and isolated and not the sign of a turn in the credit cycle. From our vantage point, our credit portfolios also remain healthy, and we've not seen any deterioration in credit fundamentals or changes in amendment activity that would indicate a turn in the cycle is coming. Within corporate credit, over 93% of our credit exposures are senior debt. Our loans on nonaccrual at our publicly traded BDC, Ares Capital Corporation, are 1% at fair value and 1.8% at cost, a decline from the second quarter and 100 basis points below ARCC's historical average. From a fundamental standpoint, we continue to see healthy year-over-year double-digit EBITDA growth across our U.S. direct lending strategies and interest coverage ratios are improving. Loan-to-value ratios remain conservative and near historic lows at roughly 42% in the U.S. and 48% in Europe. This means that our corporate borrowers would have to lose on average more than 50% of their enterprise value, resulting in a total loss for the private equity sponsor before we lose $1 of our principal. Within our asset-based finance strategy, we're materially underweight nonresidential consumer assets, which represent less than 5% of our entire ABF portfolio, while the broader industry is closer to 1/3 of their portfolios. Our alternative credit strategy has negligible exposure to subprime consumer assets at less than 1% and its total auto exposure, which is mostly prime, is about 1% of our ABF AUM. Our nonaccrual rate in alternative credit is essentially 0, and we're not seeing a material change in loss curves relative to our underwritten estimates. Our credit team operates with an open source investment model focused on identifying attractive relative value across different asset classes. This means that we're never forced to invest in any particular subindustry. Over 90% of our investments are either sourced through proprietary channels or via limited processes. These investments are directly structured, allowing us to embed collateral protections using our own downside analysis. Looking at the bigger picture, we believe that Ares would benefit if a credit cycle were to occur as we have in past cycles. Performing for our investors is always our top priority, and we take pride in our historical track record of performance during previous credit cycles where we've generated higher returns than the peer average and the comparable traded credit markets. This outperformance has enabled us to be front-footed and accelerate our growth during these periods. For example, during the GFC, from the end of 2007 through the end of 2010, ARCC had no aggregate net realized losses for that 3-year period and generated 540 basis points of annual incremental return above the bank loan index with an annualized return of 11.2% over that 3-year period versus a 5.8% annual return for the leveraged loan index. The combination of higher spreads, credit outperformance and the ability to raise capital from institutional investors during the market dislocation enabled us to increase our management fees at a 27% CAGR. We executed a similar playbook again during 2020 and 2021 through credit outperformance as exemplified by ARCC's lower nonaccruals and net realized losses versus peers. When we combined our credit outperformance with our deployment of our significant dry powder, our management fees at Ares increased again at a 27% CAGR from year-end 2019 through 2021. We'd expect to see strong growth again if the credit cycle were to turn for a few key reasons. First, typically more than 85% of our annual revenue is generated by management fees and our management fees and fee-related earnings are generally insulated from credit losses. As an asset-light third-party asset manager, we have minimal direct exposure to loans and bonds, and we do not use significant amounts of leverage. At the end of the third quarter, we had a corporate investment portfolio of over $2.6 billion with approximately $331 million in credit assets compared to our $368 billion in fee-paying AUM. Second, when a credit cycle does occur, investors understand that it is often providing a superior vintage for returns as capital is scarce. For Ares, in every vintage year that was originated during the last 2 recessions from 2008 to 2009 and 2020 to 2022, we generated returns that exceeded our 20-year averages for both our U.S. senior and junior debt loans and nearly all were 100 to 500 basis points better. In order to outperform, a firm must have capital to invest when others retrench. On that point, Ares possesses among the highest, if not the highest amount of credit dry powder among our peers. Our ability to provide flexible capital and accelerate deployment has been key to our outperformance in previous cycles, along with our deep underwriting processes, significant diversification, strong restructuring teams and emphasis on investing in cycle-resilient businesses and industries. Our experience tells us that the small potential for loss management fees should be more than offset by new management fees from deploying a small portion of capital already raised and not yet paying fees. So maybe now to conclude. We believe that the credit markets remain healthy and private credit spreads continue to offer meaningfully better risk-adjusted returns relative to traded credit markets, where spreads are near historical tights across investment grade, syndicated bank loans and high yield. Private activity is increasing, spurred by the need for DPI, prospects of lower rates and continued healthy cash flow growth. And when we enter the next credit cycle, we believe that Ares with its balance sheet-light management fee-centric model will be well positioned to outperform and even potentially accelerate growth for the reasons that I cited. We continue to actively invest in growing and expanding our investment teams across products and geographies. And when combined with our significant fundraising efforts, we're better positioned than ever before to provide a broad range of investment solutions to our investors around the globe. I'm excited to see how 2025 wraps up, and I believe that we have very strong momentum heading into next year. Finally, we understand that we are now the largest eligible financial company, not in the S&P 500 Index. And when that time comes, we believe that entry would be beneficial to our shareholders. As always, I'm just so proud and grateful for the hard work and dedication of our employees around the globe, and I'm also deeply appreciative of our investors' continuing support for our company. And I think with that, operator, could you please open the line for questions? Operator: [Operator Instructions] Our first question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: Lots of good color on credit. So I actually was going to ask you guys something on a different topic, which is about real estate and maybe real assets broadly. It feels like there's a number of green shoots across the real estate market, as you pointed out. So maybe you could expand a little bit how you envision your franchise position in case LP appetite starts to normalize and resume in the real estate channel across both the institutional base as well as your wealth clients. Michael Arougheti: Thanks, Alex. I think as people know now, our real estate business is global, and I think we are the third largest institutional real estate manager in the market. That gives us many of the benefits of scale that we've experienced over the years in other parts of our business in terms of origination, the ability to invest in portfolio management, access to financing. And I think most importantly, our transformation to a fully vertically integrated platform. And so when you look at the business today, which, as I think we've talked about before, is largely concentrated in industrials and multifamily as our 2 highest conviction sectors. We now have the ability to develop through to asset manage the entirety of the business, and that's a highly, highly differentiated skill set. As you mentioned, there are tailwinds occurring in real estate. We are coming out of a period of pretty meaningful supply constraint in the market, which has supported values and rent growth across the portfolio. And as we begin to see rates come down, that's usually pretty constructive for real estate transaction volumes. We're already beginning to see that. If you were to look at our real estate deployment quarter-over-quarter, Q3 versus Q2, we deployed about 51% more than we did last quarter. And if you were to look at year-over-year deployment in real estate around the globe, we're about 78% higher year-on-year. So we're already beginning to see the green shoots materialize. And I think given our position, I think we'll be a pretty big beneficiary of that increased transaction volume. Operator: And we'll go next to Steven Chubak with Wolfe Research. Steven Chubak: So I also appreciate the color, Mike, on credit performance trends and the historical perspective. I too am going to ask on a separate topic of fundraising. Just the momentum you've seen is quite impressive, especially given the small contribution from campaign fundraising this past year. So as we look ahead to next year, just given a more meaningful contribution or anticipated contribution in campaign fundraising, the near-record transaction pipeline you cited, how are you thinking about the outlook, especially versus a tough 2025 fundraising comp? And how will that mix of deployment potentially evolve as we look ahead to next year? Michael Arougheti: Yes. Thanks, Steve. It's a good question. We came into this year giving you all commentary on 2 fronts. One, that we felt given what we saw in the world that we might be able to surpass our prior record of $93 billion. And here we are now after 3 quarters, expressing high conviction that we, in fact, will. That's obviously a function of outstanding underlying performance that's supporting continued investor demand. But I also think it just reflects the continued investment that we're making in our global distribution, both wealth and institutional. Interestingly, when we came into this year, it was in the absence of the large flagship credit funds that we made the prediction that we could beat our record. And I think what that's demonstrating is the diversity of strategies is actually resonating with investors. We had over 40 funds in the market this year institutionally, and absent the large flagships, we've been able to put forward the type of results that we are. As I mentioned in the prepared remarks, I think next year, you're going to see us tying up some of our large funds that are currently in the market, opportunistic credit, some of our real estate funds, and then we will give way to some of our flagship credit funds again, like our Pathfinder series and potentially our senior direct lending fund. Lastly, I would just mention, and it's really the combination of wealth, but also just the way that the product portfolio has transformed to include open-ended funds, SMAs, broad global strategic partnerships, investments in growing our insurance business to name a few, the floor for annual fundraising just continues to be raised year in and year out. And so unlike 10 years ago, where we saw much more volatility year-over-year, we go into any given year now just with a much higher level of conviction around what that base number could be. So we're pretty excited about next year. Obviously, we'll know more when we get into the year and we see what the market looks like and what our LP allocations are, but we don't expect this to slow down. Operator: We'll go next to Craig Siegenthaler with Bank of America. Craig Siegenthaler: Can you guys hear me, okay? Michael Arougheti: Yes. Craig Siegenthaler: Perfect. My question is on the potential for lower yields in private credit, driven mostly by lower base rates. So how do you think investors will react to lower yields if the Fed continues to cut? So could we see softer private credit fundraising if they pivot to other asset classes? Or do you expect some of that record cash and money market funds on the sidelines to provide a new source of flows? Michael Arougheti: It's a good question, Craig. I would say in terms of investor appetite, and I've talked about this before when we've been in transitioning rate environments that -- the investor appetite for private credit exposures is not an expression of desire for absolute return. It's about relative return relative to the traded alternatives. And when you look at where private credit spreads are, both high-grade and sub-investment grade, they're still offering a significant amount of excess return relative to the loan market, the bond market and the IG market. If you look at private credit spreads today, they're probably 225 basis points in excess of the traded alternative, and that's kind of right in line with what we've seen historically. If you look at the numbers that are coming through real time in wealth in October and November, we're just not seeing any negative investor reaction to a shift in base rates. I'd also highlight that if you were to go look at the disclosures in ARCC, the business model is just not that sensitive to a decline in rates. Our historical experience has been that when rates are coming down, 2 things happen. One, credit spreads typically widen, and we've actually seen a modest widening already taking place within the private market. And then two, transaction activity tends to pick up dramatically and deployment increases and fees go up. So when you look at the impact of lower rates generally on the business, it tends to be a net tailwind, not a net headwind. Operator: And we'll go next to Patrick Davitt with Autonomous Research. Patrick Davitt: Just touching on the point you just made on spread, obviously, had some wobbles in the bank loan market, had some deals pulled and reprice, which theoretically, to your point, I think should be good for direct lending dynamics. So curious if you're seeing any sign that banks are getting more conservative, so potentially less competitive. And through that lens, kind of how the new origination spreads track through 3Q and looking so far in 4Q? Michael Arougheti: Yes. I think Kort and team did a good job talking about our positioning on the ARCC earnings call, and we've tried as best we can globally to maintain a broad exposure to all parts of the private credit market from lower middle market through to upper nonsponsored/sponsored with really deep industry capabilities, not to mention all of the great work that we do in our ABF business. And so when we're looking at the bank behavior at the top end of the market, it's just less relevant to us than it is to, I think, other players who haven't made the investments in that core middle market origination. I would say right now, we're not seeing a meaningful pullback in risk appetite, but we are seeing spread moderation in our market. We probably saw 25 basis points of spread widening in the third quarter, and that may persist and continue. As volumes pick up and the supply/demand in the market gets back to stasis, that's generally a good thing for spreads as well. So even if we're in an environment where banks are still taking risk when transaction volumes pick up, we tend to see more price stability. I think the good news for us is if it happens, we can go in and take share. And if the banks continue to drive volumes into the loan and bond market, obviously, that's a big boon to our liquid credit business, and we tend to participate there. So I've always felt like we were well hedged against that behavior at the upper end of the market. Operator: And we'll move next to Bill Katz with Cowen. William Katz: I joined a couple of minutes late, so I apologize if this question is a bit redundant. And maybe just to change topics a little bit. I was wondering if you could give us an update on the GCP transaction. It seems like the integration is going very well from Jarrod's comments on the margin opportunity into next year. But wondering if you could talk a little bit about the growth opportunity, whether it be on the infrastructure side or the real estate side. It seems like still pretty fertile areas as well. Michael Arougheti: Jarrod, do you want to handle that one? Jarrod Phillips: Bill, great to hear from you. GCP is going very, very well, as I mentioned in my prepared remarks. We're really excited about a number of different phases of that transaction. You highlighted what I mentioned in the prepared remarks around our expense synergies, but you also highlighted there in your question, 2 of the things we're pretty excited about. One is the expansion of the real estate platform. And as Mike mentioned, that took us to one of the 3 largest alternative real estate managers in the marketplace today. That gives us advantages of scale. It's helping us to build out our vertically integrated real estate platform. And it's making us a player globally in a number of different geographies that we didn't have a presence before. The second piece and probably the most exciting piece is the opportunities in data centers. This is something I've talked to a lot of you about in the past, and we've talked to the market about pretty extensively, but we're very excited with the land that we've banked and the opportunity set that we have there. Not all data centers are necessarily created equal. And what we've looked for and what we've banked are urban adjacent sites that will provide low latency to the -- to those urban centers and be very attractive to cloud computing and be a beneficiary of AI, but not necessarily dependent on AI. So these are really high-quality sites that investors are looking forward to. And the ability to put them either into single site funds like we did with our Japanese data center or to put them into funds that are co-mingled with a number of different sites in them is really exciting as we see that market demand on the fundraising side for these properties and these high-quality properties and the ability to grow off of that. Right now, we have about $6 billion in the ground that we're going to be able to develop and manage, and that will be leading our next series of funds. And that's not to mention some of the smaller things around the edges like the self-storage business, which we see meaningful tailwinds and a lot of growth opportunity. So really across the growth front from GCP, it matches the profile of what we're trying to do as a business, which is continue to grow at that 16% to 20% FRE that we set out for you and the 20% plus RI targets that we've set out. And this fits beautifully in that, and we're very excited to have them on board. Operator: And we'll go next to Brennan Hawken with BMO. Brennan Hawken: I wanted to touch on wealth and fundraising. Mike, you spoke to the floor being higher in fundraising and it looked like you had a nice acceleration on the wealth front. You also spoke to offshore being particularly strong. Was there anything in particular in the quarter that caused the pickup in fundraising on wealth to be particularly noteworthy? Or is this just a building pace that you expect to continue to see strengthen? Michael Arougheti: Sure. Yes, we're super excited about the progress that we've made in wealth. I think as folks know, we have 8 semiliquid products, all of which are growing nicely. We continue to add distribution partners and deepen our relationships with our existing platform partners as well. It was a very strong quarter, obviously. As you can see, Q4 is shaping up to probably be our second highest quarter on record relative to this quarter. We've seen $1.3 billion of equity in October, another $1.6 billion in November, and then we'll see how December shakes up, but Q4 is shaping up to be a pretty strong quarter. I would highlight 2 things that probably elevated the Q3 numbers slightly relative to the run rate going into Q4. Number one is we meaningfully launched our efforts in the Japanese market, and we saw a very high demand in Q3 as we onboarded our platform partners there. I think we'll continue to see demand coming out of that market, but we won't get that big pop. And then two, as some of these new funds are coming online like an ACI or an SME, you tend to see a little bit of front-loaded demand as those funds are getting seeded early in their distribution life cycle. So I think Q4 is going to be really strong. My sense is it's shaping up to be the second highest, but it will probably fall short of Q3 just because of those the few things I mentioned. Operator: And we'll go next to Ken Worthington with JPMorgan. Kenneth Worthington: Can you talk about the acquisition of BlueCove and liquid credit and how it fits into the insurance capabilities and your operations there? Michael Arougheti: Yes. Thanks, Ken. It's a good question. We didn't talk about this a lot, but Ares started our partnership with BlueCove in 2023. We made a minority investment and began to spend time with the company, took a seat on the company's Board, began to actively collaborate with the platform in our insurance business and our quantitative research group. We watched AUM go from about $1.8 billion to $5.5 billion. And so while still relatively small for Ares, we're seeing some pretty significant growth in demand. I think this is a very interesting complement to our existing actively managed loan and bond business. And they have a very interesting systematic IG capability, which, to your specific question, I think, will be a meaningful value add to our affiliated insurance platform as well as our third-party clients. Our expectation is that the full acquisition will close in Q1, but that you're going to begin to see meaningful synergies as we introduce our global investor base to their capability sets that we're super excited about them. Operator: We'll go next to Michael Cyprys with Morgan Stanley. Michael Cyprys: I wanted to ask about asset-based finance, big market opportunity, but comprised of many different types of assets, as you noted, including some smaller niche areas. I was hoping if you could talk about how you go after this market opportunity in scale and talk about how you're expanding your sourcing funnel from partnerships to flow agreements, acquisitions and how that sourcing funnel might evolve and look 3 to 5 years from now as compared to today? Michael Arougheti: Yes, I appreciate the question. Look, we've got one of the largest, if not largest, businesses in the non-rated part of the market. And as we've talked about, we just feel that the opportunity to lead there gives us high profit, high margin, really durable alpha and the ability to deliver differentiated performance to our investors. That's not to say that we're not focused on the IG part of the market, about 50% of our business continues to be in the rated side of the business, but we think that we need to be balanced between the IG and the non-IG part of the market. Depending on where we are, that's obviously going to drive sourcing differently. We have close to 100 people in that business now. They are doing everything from calling directly on specialty finance companies and aggregators, building relationships with banks to have flow agreements across the asset waterfront and in some instances, acquiring minority or control positions in asset aggregation platforms themselves. Unlike some of our peers, we've probably been less focused exclusively on platform acquisition. We've done it, but it's not the core way that we're thinking about sourcing. I think we'll continue to do it in situations where we see durable demand from our clients for a certain asset type where we think that we want to lock in flow. I think the bank conversation is continuing. The combination of SRTs, portfolio purchases and forward flow agreements continues to be a big driver of deployment there. And when you look at the gross deployment trends in the business, we're just seeing a significant uptick as we head into the end of the year. If you look at Q3 versus Q2, we had nearly doubled the deployment in that part of the business. And if you look year-over-year, it's well in excess of 30% and the pipeline in that business, particularly going into Q4 and Q1 is significant. So I think the momentum continues. And as I mentioned, we'll be coming into the market with our next vintage fund early in the new year. Operator: We'll go next to Ben Budish with Barclays. Benjamin Budish: I was wondering if you could unpack the deployment in the quarter a little bit more. I think the sequential step-up was quite a bit larger than I think a lot of folks expected. You talked about the pipeline sort of remaining near your all-time highs. Was there anything that stood out this quarter? Should this be a number that is repeatable in upcoming quarters? You talked about again, a very robust pipeline, a lot of opportunities in the next few quarters. But just curious, if anything stood out, anything unusual that may not be repeatable in the near term? Michael Arougheti: Yes. No, I don't think there's anything special other than as we've talked about. The transaction market is coming back to life. It's a combination of just strong economic fundamentals, decline in rates or at least a forward trajectory of declining rates and a general pro-business deregulatory tone coming out of the current administration and I think is bringing capital into the market. What I've been so pleased with, if you look at the deployment, it's been very broad-based across each of our businesses. We don't have one asset class or one geography that's really driving the deployment. There have been quarters in prior years where we've seen, for example, direct lending, carrying a significant amount of weight, but when you look at the distribution of the deployment, it is very broad-based, and I would expect that to continue. Operator: Our next question comes from Brian McKenna with Citizens. Brian Mckenna: So you had a great outcome in the quarter for a direct lending portfolio company. It was actually an underperforming asset that was previously on nonaccrual status. The investment got restructured, became an equity owner. You actually sold it in the quarter for $260 million and generated a 15% IRR on the investment. That's probably more than what you would have generated if the loan had performed. So how critical is your portfolio management and workout capabilities to get outcomes like this? And then can you just remind us of historical recovery rates within your direct lending business? Michael Arougheti: Sure. I'm glad you highlighted because, again, when we spend time talking about how you create value, we're trying to anchor people on the loan-to-value statistics within the portfolio. And the reason that's so important, and this is a perfect example is if you were sitting in a capital structure at 40% loan-to-value and they're 60% of the equity below you, that gives you a significant amount of optionality to capture or recapture all or a portion of that equity value when a company or an asset underperforms. And if you go back and look at our 30-year history, we've actually had 100 basis points plus of positive impact to our returns because of that phenomenon. Now in order to do that, to your question, you need very deep, very experienced portfolio management and restructuring teams. I think we probably have the largest capability in the market. Last I checked directionally, we probably have 65 people doing that business in the U.S. and maybe 35 or 40 people doing that business in Europe. So our portfolio management team is probably larger than most people's entire teams that are competing with us in private credit. I think this is going to be critical, you're going to see dispersion of return when we hit a cycle. In order to capture this upside, you need not just portfolio management capability, but you need dry powder. And so as we've talked about, we're always making sure that we're going into any potential cycle with enough liquidity to actually capture that option value. In terms of recovery rates, if you were to look historically U.S. direct lending, and we look at this kind of on an MoIC, meaning front to back, what did I recover? It's about $0.93 -- 93% in U.S. direct lending and 95% in European direct lending. Operator: And we'll go next to Brian Bedell with Deutsche Bank. Brian Bedell: Maybe just to come back to the comments you had at the opening, Mike, about the credit cycle and the idiosyncratic instances of fraud. We have had a few just in a very short time frame in the industry. Do you think there's anything structurally going on in the industry aside from a credit cycle that is creating these fraud events? And is this something that could be a concern for retail investors? I guess what kind of questions are you getting from your financial adviser partners regarding this? Michael Arougheti: Yes, it's a good question. To be honest with you, it's a little bit of a head scratcher because everything that we're seeing tells an opposite story. And when you look at bank earnings, when you look at the top 5 banks in the country, they showed no meaningful increase in loan loss reserves. When you look at the card companies, you're not seeing any meaningful pickups or spikes in delinquencies and charge-offs. So there's this kind of growing narrative about credit concern. But when you look at all of the data from the largest pools of capital, it just -- you're just not seeing it. So it is altogether possible that it's just idiosyncratic and coincidental. And I think we have to allow for that possibility. The other thing, and it's just -- it is possible that as the cycle progresses and deal flow is picking up, you have a lot of people that kind of want to participate in the growth in private credit. And it is altogether possible that some of the smaller players or new entrants or the banks are taking risks or distributing risks that otherwise wouldn't be taken by some of the incumbents. If you look at our ABF business, for example, we have a list of things that we think are always interesting, sometimes interesting and never interesting and trade finance is kind of at the very top of the list of things that we just categorically avoid for some of these reasons just in terms of collateral monitoring and the opportunities for fraud. So it could be a little bit of just an indication that there's growth in the sector and people are looking for ways to compete and maybe taking risk they shouldn't or taking risk that they don't understand. But I don't think that, that is a read across to the industry. And I think that's important. This industry is fairly well concentrated in the hands of the largest platforms, 65% and growing of the assets that get raised and deployed are in the hands of the large incumbents that I think are focused on the right types of risks and the right types of structures. And so when you see these types of things pop up, obviously, it's noteworthy. It's getting a lot of attention, but I just don't -- I don't see anything in our numbers or the adjacent numbers that we see that would indicate that it's anything more than kind of coincidental at this point. Operator: Thank you. I will now turn the call back to Mr. Arougheti for any closing remarks. Michael Arougheti: I don't have any other than we're obviously really excited with the performance that we had this quarter. The momentum in the business continues, and we're looking forward to giving you all the update on our Q4 performance on next earnings call. So thanks for joining us today. Operator: Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available through December 3, 2025, to domestic callers by dialing 1(800) 839-4992 and to international callers by dialing 1 (402) 220-2686. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website.
Operator: Good day, and welcome to the Cipher Mining Third Quarter 2025 Business Update Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to turn the call over to Courtney Knight, Head of Investor Relations. Please go ahead. Courtney Knight: Good morning, and thank you for joining us on this conference call to address Cipher Mining's business update for the third quarter of 2025. Joining me on the call today are Tyler Page, Chief Executive Officer; Greg Mumford, Chief Financial Officer; and Edward Farrell, Senior Adviser and former Chief Financial Officer. Please note that our press release and presentation can be found on the Investor Relations section of the company's website, where this conference call will also be simultaneously webcast. Please also note that this conference call is the property of Cipher Mining and any taping or other reproduction is expressly prohibited without prior consent. Before we start, I'd like to remind you that the following discussion as well as our press release and presentation contain forward-looking statements. These statements include, but are not limited to, Cipher's financial outlook, business plans and objectives and other future events and developments, including statements about the market potential of our business operations, potential competition and our goals and strategies. Forward-looking statements and risks in this conference call, including responses to your questions, are based on current expectations as of today, and Cipher assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. Additionally, the following discussion may contain non-GAAP financial measures. We may use non-GAAP measures to describe the way in which we manage and operate our business. We reconcile non-GAAP measures to the most directly comparable GAAP measures, and you are encouraged to examine those reconciliations, which are filed at the end of our earnings release issued earlier this morning. I will now turn the call over to our CEO, Tyler Page. Tyler? Rodney Page: Thanks, Courtney. Good morning, everyone, and thank you for joining us today. I'm Tyler Page, CEO of Cipher Mining, and I'm pleased to welcome you to our third quarter 2025 business update call. The third quarter was truly transformative for Cipher as we made huge strides on our strategic pivot into the high-performance computing space and set the stage for what is, without question, the most exciting earnings update in our company's history. This quarter, we executed a pivotal transaction with Fluidstack and Google, which firmly established our credibility in the HPC space. Following that groundbreaking transaction and leveraging that success, we've now taken another major step forward. I'm thrilled to announce today that we've executed a second landmark HPC transaction, this time with Amazon Web Services. Partnering directly with one of the largest and most innovative companies in the world underscores Cipher's emergence as a trusted leader in next-generation compute infrastructure and confirms our full-scale transformation into an HPC data center developer. Our first HPC deal with Fluidstack and Google established not only Cipher's credibility as a data center developer for the world's most demanding tenants, but also the desirability of more remote areas of Texas for next-generation data centers. We have been talking to investors for over a year about this thesis and saying that we thought the market would evolve in our direction. Our second long-term lease this time with Amazon proves that neither we nor West Texas are one-hit wonders. Our second lease space is the world's largest hyperscaler directly on a 15-year lease at very attractive terms. This is not a fluke and will not be our last HPC deal. Under the agreement, we contracted 300 megawatts of gross capacity, and the project carries approximately $5.5 billion in contract revenue over the initial 15-year term. The capacity will be delivered in 2 phases beginning in July 2026 and completing in Q4 2026, with rent commencing in August of 2026. Given the strength of the lease we have secured, we believe that we will utilize debt financing to fund the majority of construction costs at the site and any remaining construction obligations will be funded from cash on hand with no need for further equity fundraising. With these milestones, Cipher has officially arrived as a leader in the HPC revolution, harnessing our sourcing expertise, energy assets, best-in-class team and operational excellence to power the world's most advanced computing workloads. Continuing with that momentum, we're proud to announce today that we've secured ownership in a joint venture to develop a 1-gigawatt site in West Texas. We expect to own approximately 95% of the JV once a turnkey HPC lease is executed, assuming standard lease and development terms. We are calling the site Colchis, which refers to the mythical home of the Golden Fleece and was a land of legendary wells located at the edge of the known world. For the past 1.5 years, conventional knowledge in the traditional data center industry has been that hyperscalers would not venture outside of major metropolitan areas and that our sites were at the edge of the world. But we have now conclusively proven those incumbents wrong. We will continue to do so at Colchis. This is the most significant addition to our development pipeline to date. This site features a fully executed 1-gigawatt Direct Connect Agreement with American Electric Power, providing dual interconnection capability and targeted power availability in 2028. The transaction also includes options to purchase up to 620 acres of land adjacent to the existing substation. The Colchis site checks every box for a premier HPC development opportunity, ample acreage, large-scale power capacity, availability of diverse fiber routes and dual interconnection capability. We have already begun to have early-stage discussions with potential tenants for the site. The execution of this transaction once again demonstrates our team's sourcing expertise and ability to secure some of the most attractive large-scale sites in the world. Cipher is one of the few companies in the world that can combine boots on the ground expertise working directly with landowners to source best-in-class sites with a deep technical sophistication needed to serve hyperscalers. This unique and powerful combination makes Cipher exceptionally well positioned to bridge the growing gap between the limited supply of suitable sites and surging large-scale tenant demand. The announcements we shared today are the results of years of hard work and the strong execution and momentum built over the past quarter. I'd like to take a moment to reflect on some of our third quarter successes. At the forefront of these highlights is our recent transaction with Fluidstack and Google, a transformative 10-year 168 critical IT megawatt AI Hosting Agreement that first positioned Cipher as a major developer in the HPC space. Under this agreement, Cipher will deliver 168 megawatts of critical IT load at our Barber Lake site in Colorado City, Texas, supported by up to 244 megawatts of total capacity. This project represents approximately $3 billion in contracted revenue over the initial 10-year term with options that could extend total contract value to roughly $7 billion over 20 years. Notably, construction is already underway at the site, and we are on track to deliver the full 168 megawatts of critical IT capacity by September 30, 2026. Importantly, Google is backstopping $1.4 billion of Fluidstack's obligations to support project financing and will receive warrants representing roughly a 5.4% pro forma equity stake in Cipher. Cipher will retain full ownership of the site and is in the process of securing debt to fund construction. We will provide more details around that construction financing in the near future. We believe and have now proven that Barber Lake was just the beginning, the first of several projects to capitalize on our team's sourcing expertise, proven development capabilities, strong industry relationships and unmatched construction track record. We look forward to continuing to partner with leading technology companies to secure HPC leases at our growing pipeline of sites. This expansion is well supported by our successful $1.3 billion convertible offering completed this quarter. This was the largest digital infrastructure convertible issuance to date and was roughly 7x oversubscribed, demonstrating investor confidence in our strategy and pipeline. The strong demand allowed us to take advantage of favorable market conditions, securing a 0% coupon and further strengthening our balance sheet. Greg will discuss the convertible offering in further depth later on the call. The Amazon transaction, the Fluidstack and Google transaction at Barber Lake, the addition of significant new capacity at Colchis and our successful convertible offering, all represent major milestones in advancing our HPC strategy. Together, these achievements expand our business model, secure substantial future capacity and strengthen our balance sheet, all positioning Cipher to capture the tremendous demand we're seeing and play a critical role in building the next generation of AI infrastructure. As we scale and expand our business model, our bitcoin mining business continues to generate meaningful cash flow. The company surpassed expectations this quarter and is now operating approximately 23.6 exahash per second of self-mining capacity. The same disciplined foundation we established in the bitcoin mining space, delivering 5 data centers on time and on budget will fuel our successful expansion into HPC. I'd now like to provide a brief overview of our energy portfolio, which highlights our execution across business lines and the strength of our pipeline going forward. On the mining side of the business, this quarter, we brought Black Pearl fully online, which grew our operational mining capacity from 423 megawatts to 477 megawatts across Odessa, Alborz, Bear, Chief and Black Pearl. In doing so, we exceeded our previous hash rate projections and achieved a total self-mining hash rate of approximately 23.6 exahash per second. In addition, our fleet efficiency stands at an extremely impressive 16.8 joules per terahash, making us among the most efficient miners in the industry. Our proprietary software, which allows us to dynamically curtail our data centers has proven to be a critical advantage in optimizing for profitability, maintaining low power prices and monetizing older rigs. This area of expertise is expected to remain a key competitive advantage in the future and in fact, maybe an increasingly valuable aspect of the business as the HPC landscape continues to evolve. Importantly, our current mining operations are fully funded, and we do not anticipate further investment in that side of the business as we prioritize our pipeline toward HPC. As discussed, this was a monumental quarter for Cipher in that we grew our contracted AI hosting capacity from 0 last quarter to 544 gross megawatts this quarter across 2 transactions with world-class partners. Behind that, we have a robust pipeline of 3.2 gigawatts of future capacity that spans from 2025 to 2029 and beyond. While we are extremely proud of our mining production, market dynamics, scarcity of energy capacity and frenzied demand from tenants has made it clear that the best use of our extensive pipeline of sites is for HPC workloads. We are in ongoing discussions on our pipeline with leading partners and look forward to prioritizing all of these sites for HPC development. Let's now turn to a review of our current operations on both sides of the business. At Barber Lake, we are constructing a data center for our industry-leading partners, Fluidstack and Google. Construction at the site is well underway. Ground has been broken, and both engineering and procurement are progressing smoothly. We've secured the necessary labor force and locked in most of the long lead time equipment, putting us in a strong position to meet all key construction milestones on schedule. We are firmly on track to deliver the full 168 megawatts of critical IT capacity by September 30, 2026. The lease is anticipated to commence the following month in October 2026. Note that we still retain 56 megawatts of current capacity at Barber Lake. These additional megawatts allow us to pursue an additional colocation agreement, potentially prioritizing different deal elements or to deploy our own compute at the site. Our team is carefully assessing the merits of all potential options to maximize the value of the remaining 56 megawatts in Phase 1. In addition, we maintained an MOU on an additional 500-megawatt upsize at the site, which would come online in 2029 to 2030. Given the site's ongoing development potential and live deal discussions, we look forward to providing further updates as things progress. Turning to our current mining operations. Slide 9 has a production summary across our 5 operational mining sites. Odessa is still the most significant part of our portfolio, representing approximately 56% of our bitcoin production in Q3. As of September, the current operating hash rate at the site is approximately 11.3 exahash per second using approximately 207 megawatts. Odessa's fleet efficiency stands at roughly 17.6 joules per terahash. On this page, we also provide the observed all-in electricity cost per bitcoin at our 5 sites. Moving down the page, Black Pearl began contributing significant cash flow to the business in the third quarter. The first 150 megawatts at the 300-megawatt site are currently mining approximately 10.1 exahash per second, exceeding prior guidance and contributing approximately 36% of production this quarter. Fleet efficiency at the site stands at an extremely impressive 13.9 joules per terahash. Lastly, we provided a combined overview of our joint venture data centers of Alborz, Bear and Chief. The 3 sites have a total power capacity of 120 megawatts and generate approximately 4.4 exahash per second. We own 49% of the JV sites and our portion recently generated roughly 9% of our overall bitcoin production in the third quarter. Let's now shift to an update on our development portfolio. Slide 11 provides an overview of our next to energize site in Andrews County, Texas called Stingray. The site features 100 megawatts of front-of-the-meter capacity, all necessary regulatory approvals and 250 acres of land adjacent to the transmission assets. In the third quarter, we continued development of the substation for the site and secured long lead time items, including transformers and high-voltage breakers. The site is on track to energize in the fourth quarter of 2026. Slide 12 outlines additional capacity spanning 2027 and beyond. Reveille located in Cotulla, Texas is on track to energize in Q2 2027. The site is fully approved for 70 megawatts, and we have initiated development of the substation. Given both Stingray and Reveille have secured interconnect approvals and established energization time lines, we've engaged with multiple prospective tenants and are in ongoing discussions to secure the most attractive lease agreements for these locations. Our 3Ms, Mikeska, Milsing and McLennan are all currently undergoing final interconnection approval processes and load studies have been completed at all 3 sites. The interim Oncor FEAs have been signed with Oncor for Mikeska and McLennan and the required deposits have been paid. We're targeting up to 500 megawatts of capacity at each of these sites. In addition to interconnection rights, our purchase options also include significant land parcels at each location, all of which are well suited for HPC data center development. We are confident these sites will be in high demand as development progresses. Last on this page is Colchis, which, as mentioned, is our latest site acquisition and the most substantial addition to our pipeline to date. The site features a fully executed 1-gigawatt Direct Connect Agreement with American Electric Power, providing dual interconnection capability and targeted power availability in 2028. The site is roughly 80 miles southwest of Abilene and around 80 miles southeast of our Barber Lake facility. As mentioned, the site is extremely well suited for HPC given its ample acreage, large-scale power capacity, availability of diverse fiber routes and dual interconnection capability. Last quarter, we discussed our strategy to position Cipher ahead of the curve in anticipation of the evolving AI data center landscape. Since then, we have executed 2 landmark HPC transactions as well as our most significant pipeline addition to date. With the industry moving even faster than we had anticipated, we are more confident than ever that Cipher is among the best positioned companies in the world to seize the near-term opportunities created by the growing power shortfall. Simply put, we are just getting started. I will now turn it over to our new CFO, Greg Mumford, for a review of our third quarter financials. Greg Mumford: Thanks, Tyler, and good morning to everyone on the call. I'm excited to join today's call as Cipher's new Chief Financial Officer. It's a privilege to be part of such an innovative company that's playing a key role in the evolution of digital infrastructure and high-performance computing. I want to start by expressing my gratitude to Ed Farrell for his leadership and many contributions over the past 5 years. Ed has built a world-class finance organization and leaves behind a strong foundation that positions Cipher well for its next phase of growth. The company is fortunate to have his continued guidance as a senior adviser during this transition period. As I step into this role, my focus will be on maintaining a disciplined approach to our financial strategy, broadening access to new funding sources and optimizing our overall cost of capital. We'll continue to take a thoughtful approach to capital allocation, ensuring we're maximizing sustainable long-term growth and driving value for our shareholders. I'm excited to work with Tyler, the leadership team and our talented finance organization to build on Cipher's strong momentum. To begin, I'd like to remind everyone that today I will be discussing our performance for the third quarter of 2025, which ended on September 30. I'd like to highlight that this quarter was marked not only by strong execution as we officially expanded into our HPC hosting and grew our pipeline, but also by disciplined capital raising that positions us to sustain and accelerate that momentum moving forward. During the quarter, we completed our second convertible offering, an upsized private placement of $1.3 billion of 0% convertible senior notes due 2031. This transaction reflected strong investor demand and confidence in Cipher's long-term strategy. The notes were issued with an initial conversion premium of approximately $16.03 per share, representing a 37.5% premium to our stock price at issuance. We also entered capped call transactions that increase the effect of conversion price to approximately $23.32 per share, substantially reducing potential dilution to our shareholders. The net proceeds from the offering were used to fund the cost of entering into the capped call transactions and will be used for construction at our 2 currently contracted HPC sites to advance our HPC strategy across our now 3.2 gigawatt development pipeline and for working capital and general corporate purposes. Importantly, this financing bolsters our balance sheet and reflects our disciplined approach to growth. We're very pleased with the market reception and believe this transaction positions Cipher well to capture the significant opportunities ahead in HPC and digital infrastructure. Let's now turn to a review of our financials, beginning with our sequential financial performance outlined on Slide 14. In the third quarter, our hash rate increased by 40%, driven by the energization and ramp-up of our Black Pearl facility, where Phase 1 of the 150-megawatt front-of-the-meter site came online in June. Black Pearl began the quarter contributing approximately 3.4 exahash per second and ramped up to approximately 10.1 exahash per second during the quarter. This led to a 35% increase in production as well as an increase in our electricity cost per bitcoin given Black Pearl is a front-of-the-meter site. The higher cost per bitcoin was also driven by an increase in network hash rate over the quarter. Moving down the slide, we reported $72 million in revenue, up 65% from $44 million in the prior quarter. This growth was driven primarily by the increase in bitcoin price and the increased production from Black Pearl. For the quarter, we reported a GAAP net loss of $3 million or $0.01 per share compared to a net loss of $46 million or $0.12 per share in the prior quarter. We are proud of the substantial quarter-over-quarter improvement in our results, particularly given that bottom line performance was impacted by higher depreciation expense. This depreciation expense reflects the assets placed into service at Black Pearl, including the deployment of latest generation rigs as well as the upgrade at Odessa completed in Q4 2024. Additionally, the bottom line continues to be influenced by changes in the fair value of our power purchase agreement at Odessa. These expected fluctuations reflect movements in forward power prices and the decaying time value of the remaining contract term, which extends through July 2027. As Ed has previously noted, the true benefit of this contract lies in its provision of long-term, low-cost fixed price power for our Odessa operations. This quarter, as part of the execution of our HPC lease at Barber Lake, we granted Google warrants as compensation for their commitment to backstop the lease payments from our tenant Fluidstack. These warrants are recorded at fair value and as a result, this quarter, we recognized a $32 million gain in change in fair value of the warrant liability. Excluding noncash expenses, such as the change in fair value of our power purchase agreement, share-based compensation, depreciation and amortization, deferred income taxes, the change in the fair value of the warrant liability and nonrecurring losses, we reported a third quarter adjusted earnings of $41 million or $0.10 per share, up roughly 34% from $30 million last quarter. Cash and cash equivalents increased significantly, driven by the $1.2 billion of net proceeds from our most recent convertible financing. Let's move on to Slide 15 and take a deeper look at the results of our operations. For the quarter, we mined 383 bitcoin at Odessa and 246 at Black Pearl, bringing our total production to 629 bitcoin mined in total across our wholly owned sites. This production generated $72 million in revenue at an average price of roughly $114,400 per bitcoin. This compares to the 434 bitcoin mined in Q2 2025 at an average price of $99,700 per bitcoin, resulting in $44 million in revenue. G&A expenses, which include IT, corporate insurance, professional fees and other public company costs decreased slightly both sequentially quarter-over-quarter and year-over-year. Depreciation and amortization expense totaled $60 million, up from prior periods, driven by the deployment of the new mining rigs over the last 12 months. Our oldest rigs in the fleet will be fully depreciated in Q4, but those rigs can remain productive and continue to generate attractive returns when deployed strategically. We recognized a small unrealized gain on our bitcoin holdings this quarter compared to a $17 million gain in Q2, reflecting a modest increase in the spot price at quarter end. We finished the quarter holding approximately 1,500 bitcoin in treasury. On our non-GAAP reconciliation, we reported a GAAP net loss of $3 million. Adjusting for $44 million in noncash and onetime items results in adjusted earnings of $41 million for the quarter, up from $30 million in the previous quarter. Now let's turn our attention to the balance sheet. On Slide 17, total current assets at quarter end were $1.4 billion, up from $220 million last quarter, driven primarily by the net proceeds of the $1.3 billion we received from our convertible offering. In addition, we held $170 million of bitcoin. As we have discussed in depth on our previous earnings calls, we actively manage our treasury, neither selling nor holding every bitcoin mined, and we remain disciplined in our approach to capital management. I'll quickly cover some additional balance sheet line items as of September 30. PP&E totaled $650 million, up 37% from $474 million. This increase is primarily related to equipment deployed at Black Pearl. Deposits on equipment of $8 million, down from $183 million last quarter, is primarily related to the reclassification of rigs at Black Pearl from deposits to in-use property and equipment. At the end of the third quarter, our equity interest in the Alborz, Bear and Chief JVs stood at $42 million. Moving down the balance sheet. Derivative assets were up primarily due to the inclusion of $90 million of capped calls associated with the new convertible note, which raises the effective conversion price of the convertible debt and effectively minimizes potential dilution to shareholders. Current liabilities increased this quarter due to the short-term classification of the Google warrants associated with the Fluidstack lease at Barber Lake. Lastly and importantly, I want to highlight that short-term borrowings remain at 0. We continue to manage the balance sheet conservatively, ensuring we're well positioned to meet any capital needs. Before we conclude, I'd like to thank everyone for joining today's call. We're proud of the tremendous progress we've made this quarter and the transformative growth we've achieved as we continue to expand our business lines, grow our pipeline and strengthen our balance sheet to support that growth. As always, we remain firmly committed to disciplined execution, capital efficiency and delivering long-term value for our shareholders. Thank you for your continued support, and we look forward to updating you on our progress in the next quarter. At this time, I will pause, and Tyler and I would be pleased to take any questions. Operator: [Operator Instructions] Our first question comes from Paul Golding with Macquarie. Paul Golding: Congrats on the announcement and all the progress on HPC. I wanted to start off with a question around the deal itself. 300 gross megawatts, Stingray, you have on track for energization, 100 megawatts in '26 and Barber Lake, you have 56 megawatts after the Fluidstack deal. How should we think about the distribution of power to deliver the 300 megawatts as well as maybe pricing across liquid and air cooled since you're delivering both. It looks like averaging out the deal is about $1.7 million per critical megawatt on my back of the envelope math. If you could just talk through some of those deal points on pricing as well as how you plan to deliver that capacity across your fleet. And then I have a follow-up. Rodney Page: Sure. Thanks, Paul. Thanks for the question. So let me start with the framework that the ink is still drying on the deal we signed with AWS. So there's some element of finalizing basis of design involved in giving you the exact numbers that will be represented. So they are taking 300 gross. We are recutting an existing air-cooled 150 megawatts. So there will be a quick time to market with the first phase of that build. The second build, we are still finalizing design and some of the debates that are happening are between speed to market, so speed to availability of the compute versus optimizing for highest critical IT load possible. That's not finalized yet. So I'd say that in general, if the whole site ends up air cooled, the PUE will be in line with the design we've got at Barber Lake, which shakes out at about 1.4, 1.45. Depending on the balance of what might be used with more of a liquid cooled approach, we could improve that by having the second phase have a higher -- or sorry, a lower PUE, a more efficient PUE. So still shaking out exactly where those numbers will be. As far as cost goes, which you referenced, it would be in line with, again, Barber Lake, what we've done in the past, we would expect the cost per critical IT megawatt to be in line with that estimate. Paul Golding: And you... Rodney Page: If not better, because we do have some infrastructure in place already that was bought in a cheaper market. Paul Golding: Got it. Appreciate that color. And then you also mentioned debt financing as a majority of CapEx sourcing and then cash on hand. Are you able to give any more detail around financing plans in terms of you're already developing the Fluidstack capacity. So is this cash on hand from prepayment deposits? And is there any kind of backstop here to help support project financing and going to market for that? Rodney Page: Let me give some high-level framework for that, and then Greg can chime in if he wants to talk about any specifics. So, 2 different structures. Obviously, the first deal is with Fluidstack and Google. That structure looks similar to one that's been out there in the market. Fair to say, we'll be looking to pursue our debt financing options for that in the coming days and weeks. And I would expect, depending on where the market is, those structures are not too dissimilar. So that's how we would envision probably how that shakes out. On the AWS lease, that is a direct-facing hyperscaler lease. I think it's the first of its kind among anyone that has converted from bitcoin mining to do a long-term 15-year direct-facing hyperscaler lease. That should be very financeable. As far as the sort of equity support for whatever shakes out in the final terms for that financing, keep in mind, we upsized the convert we did recently quite a bit. The market was so favorable that it went up all the way up to $1.3 billion offering. So we already have a fair amount of excess cash on hand. And by all estimates, we've got -- that should support what we would anticipate to be the equity piece of the financing to build the structure related to the AWS lease. Greg, would you give any other further color? Or is that enough, do you think? Greg Mumford: Yes. I mean, Tyler, I think you said it right earlier, is that we're not prepared to give specifics on the financing that we're looking at for the Google, Fluidstack deal, but we are exploring opportunities, and we'll be hopefully updating the market in short order. As it relates to the AWS deal, we think that there's going to be a lot of opportunities in front of us to explore different types of project or construction level financing, and we're going to work through those options and make sure that we're making the right decision. Operator: Our next question comes from Greg Lewis with BTIG. Gregory Lewis: I guess the first question is around the additional sourcing of power. Congratulations on that. It seems pretty tough. Tyler, as we think about and you're talking about things accelerating and kind of what's possible, could you kind of ballpark, how things are progressing and what you're seeing at ERCOT, you have the different -- the Ms that you've referenced 500 megawatts. When did those get in the queue? Obviously, we have some power coming online in '26. Just kind of an overall update on how we should be thinking about availability of power from that growth pipeline that you have. Rodney Page: Sure. So let me give some color as it relates on the sites that are awaiting final ERCOT approval. So a lot of this shakes down to -- so first of all, they've been in the queue for a while in all load studies and everything have been submitted. A little bit on the timing expectation shakes out to the sort of business operating model of the particular transmission distribution service provider you're working with. So in the case of Colchis, we're anticipating a 2028 energization. We have already paid a [ kayak ], so construction and advancing construction payment to assist with the work that the TDSP has to do. That's with AEP, and AEP is confident moving forward with that construction based on an expectation of having that site energized by 2028. So then that's where we are there. I mean, construction will be progressing on the AEP side, and we are in live discussions while they await that final approval from ERCOT. At Mikeska and McLennan, we have signed interim FEAs. So that's a requirement of the TDSP there, which is Oncor. So -- in those cases, again, the deposit is paid, but the construction will likely begin on the Oncor side once that final ERCOT approval is in hand, which we're anxiously awaiting. And then Milsing, we have not paid a deposit yet, again, working with a different TDSP there. Their process works a little bit different. So that's kind of the overall picture. And as far as ERCOT goes, it's hard to make any prediction with exact specificity. But given the progress in anticipation of where we think those sites will be available on the feedback from the TDSPs, we're confident in the time lines we've given. Gregory Lewis: Okay. Super helpful. And then on the optionality of the 56 megawatts, I think you mentioned potentially maybe offering your own AI cloud services. Could you talk a little bit about how we're thinking about that in terms of just bringing on another customer, maybe there's an option that could be extended? Just how we should think about that 56 megawatts? And maybe around the timing, is this something we want to kind of have buttoned up in the next 12, 18, 24 months? Or hey, it's out there and time is on our side? Rodney Page: So the answer is it depends. I think we've had a lot of questions and interest around the idea of owning and operating our own GPUs and then selling the compute to an offtaker. I think in general, we have been progressing slowly on that front because we want to make sure we're getting the best risk-adjusted returns for the megawatts we've got. So obviously, you can produce numbers that are higher on the revenue side if you're selling compute, but you're taking on a whole bunch of risks, much larger financing risks, GPU life cycle obsolescence risk, et cetera. I do think a key to making that business very attractive would be to lock up a long-term offtake with a highly credible counterparty for the compute. So we've seen those deals. We're looking at them. Candidly, I think the numbers we signed on our lease with AWS are better. I think we will probably both make more in terms of profits and with much, much, much less risk. So it still remains to be seen from our perspective what the best use of a megawatt is to make the most money, but we're in very active discussions in exploring all available business models. And obviously, as we sign up new 1-gigawatt sites, we're going to have a lot of optionality as things progress. As it relates to the specific 56 megawatts, I'm highly confident we will have some sort of deal there pretty soon. There is a lot of interest, both on using that capacity to operate our own GPUs and sell compute as well as have it leased on a colocation basis. It's fair to say that this market is literally getting more frenzied by the -- certainly by the week, if not the day. So rental rates on leases are going up rapidly. The level of interest is overwhelming. And so from our perspective, we're spoilt for choice. We've put ourselves in a very advantageous position. And so depending on which deals we think will produce the best risk-adjusted returns, that's how we'll proceed. But I do think the 56 megawatts there as well as the 100 megawatts at Stingray, the 70 megawatts at Reveille will all be taken up. If this market level of interest continues, we will not have an available megawatt. We have multiple parties interested in all those sites and locking them up as soon as possible. Gregory Lewis: Okay. Congrats on the AWS announcement. Operator: Our next question comes from Andrew Beale with Arete Research. Andrew Beale: Can I just ask, what are you thinking about the design of Colchis? And what do you think the likely CapEx of that as the greenfield will be per megawatt? And just thinking about ERCOT approval, can you talk about what getting the Google, Fluidstack and AWS leases does in helping your approvals at the other sites, such as the 3Ms. And how much difference partnering with AEP makes on that approval front? Rodney Page: Yes. Thank you very much for the question. So predicting the budgetary cost at Colchis is a little bit challenging only because that's going to be -- number one, again, that's another one. The ink is still drying on the acquisition. We're beginning to have exploratory conversations with folks that are interested in colocation there just given the size of it. But what we would do, I guess, I'd say in the interim would be we'll be deploying the CapEx for the minimum requirements at the site. So fiber, substation, land, water sourcing, et cetera. I would say I expect our build costs to be in line with what we've done at other sites if we are building the same colocation type access, which has generally been, call it, $9 million to $11 million for critical IT megawatt. Now that said, there could be inflation, prices could change, supply chains, et cetera. I don't have any reason to believe that the cost would be different per megawatt other than just the passage of time and those factors. So we will be able to give more details in the coming months and quarters. I think that candidly, with an expected availability of power in 2028, given the size of Colchis, we hope to find a partner before too long just because that's a tremendous construction time line and obligation, and so we'll have to get moving on it. But I have no reason to believe the cost would be any different. And then -- sorry, remind me of your second question again. I got lost there. Andrew Beale: Just about -- I mean, signing these leases with Google and AWS. I mean how does it help your 3Ms [ and other ] approvals? Rodney Page: Thank you. Yes, there's huge benefits to these partnerships. I think, again, up until a few months ago, I can't tell you how many times we heard no one's ever going to sign at those sites. No one's ever going to sign with a former bitcoin miner, at least not a traditional hyperscaler. That discussion is now over, obviously. And it probably won't be for us. It will be for others as well as other deals get signed across the ecosystem. I think every deal adds incremental credibility. We deserve a lot of credibility, anyone that got to know the quality of our team, their experience, the things they've built in the past. And just looking at Cipher's own track record, if you took the word bitcoin out and just said our team has delivered 5 data centers on time and on budget in this exact geographical region, there would be no reason to doubt what we say. It's just the traditional bias from incumbent industries against the word bitcoin. So I think every deal adds credibility with everyone, deals beget deals. And I talked about this a fair amount about striking our initial deals focusing on the quality of the counterparty and setting our business up as a franchise such that we can extract the most value from the entire pipeline we've got. And I'm happy to say that that's exactly what we're seeing. So every conversation gets a little bit easier, and we have a lot more credibility on new leases with regulators, with transmission distribution service providers. And truthfully, that [ kayak ], I mentioned in the case of Colchis, which is actually scheduled to go out shortly, that's what matters to ERCOT, right? So having more credibility and having money invested in the space and being a credible counterparty makes a transmission distribution service partner want to move forward on your project and spend their own money because they're more likely to get paid and the same on the ERCOT side. So all these things beget more success, and that's probably the biggest reason for optimism around here these days. Operator: Our next question comes from Michael Donovan with Compass Point. Michael Donovan: And congrats on the progress. I guess just in terms of supply chain, what are you seeing in terms of constraints for long lead assets? Rodney Page: Yes. So I mean, listen, I think we've talked about this over the years that we often work backwards in terms of what the long lead time items look like when we try to come up with a time line. And as a high-level generalization, that keys off of getting your substation in place. And then downstream from there on the HPC side, it matters a little bit in terms of basis of design for the particular site, which is driven by tenant requirements. But as a broad generalization, if they want backup gens to be there to provide the necessary uptime, those tend to be the next gating item in terms of time line. I'd say we have a great track record. Our team -- keep in mind, like our construction team comes from places like Vantage and Whiting-Turner and Google and Meta, very experienced in dealing with procuring all the items necessary for these data centers and have relationships up and down the supply chain. To give you a sense, I think back of the envelope in terms of Barber Lake, over 85% of the equipment, I think, is secured, including all long lead time items. So this is a process in each build spec and will continue to be that way. Generally, our risk now and anyone's risk now signing these deals is, of course, delivering the construction, financing whatever you're building and then delivering the construction on time. Our team has an excellent track record of that. I have no reason to expect we won't have the best performance of anyone in the space in terms of on-time delivery. The supply chain is kind of a moving thing, but I think we're really well positioned. And on the builds we've got, we feel very confident on our time lines, which are aggressive. Michael Donovan: That's helpful, Tyler. And then I guess my second question is a bit more esoteric. So I'm hearing discussions about sites being linked up to, let's say, you have a 500-megawatt site here, 500-megawatt site there to link them up to deliver 1-gigawatt campus for a specific workload. Are you hearing more of these types of discussions? And could we theoretically think of the 3Ms coming together for one large 1.5 megawatt or gigawatt campus? Rodney Page: I think it depends on how the market evolves. So there's no doubt that a lot of the hyperscalers seek sort of redundancy of data centers in the same geographical areas close together. I would say, look, we have a concentration of data center sites now a dozen basically in West Texas. I think that -- I don't think of like the 3Ms as being geographically close enough, at least in today's construct to think about linking them. I think it's beneficial that they're not like way far away. But I don't know that that's necessarily how folks would think of them. That phenomenon definitely exists, but I'm not sure I would group our sites in that manner. I think there's a lot of other efficiencies of scale of having workforce in that geographical area, et cetera, that it's great to have things concentrated, but we don't have sites that are necessarily 10 miles away or something like that. They tend to be a little bit further. Colchis, for example, is about, I think, 80 miles away from Barber Lake. I mean I'll say at a high level, we have -- those customers do like to have a conversation about potentially constructing their own availability zone, but we're not far enough along to say exactly like it would be these sites that would be like dedicated for that one tenant. Michael Donovan: Okay. Appreciate that, Tyler. The last one, I promise. So great progress at the edge of the earth. What are we -- what should we think about outside of Texas? Rodney Page: So great question. We are always looking at opportunities. We just happen to love Texas, and it seems that we always find the best opportunities. I do think that part of it is that there's a lot of things. Business is great in Texas. It's a great place to do business. It also has a history of risk takers and entrepreneurs that want to speculate on early-stage opportunities. I think it echoes oil and gas somewhat in that there are folks that will speculate on grid interconnections and take a risk on being able to get something. And maybe Cipher's secret sauce, to be honest with you, now that we've originated 12 sites down there is that we have a team that has demonstrated excellence at sourcing these sites from what I'll call kind of grid wildcatters or people that are early-stage investors and an interconnection opportunity, but are not prepared to develop the site at a high level that would be ready for an end user like a hyperscaler. I would argue that Cipher is basically the only firm. Maybe we have a handful of competitors, but I think we certainly do it best in that we can speak very credibly with that audience that originates these sites and at the same time, go have an all-day technical meeting with our entire construction and operations team with a hyperscaler and impress them as well. And so bridging that gap between, let's call it, early-stage speculation on grid opportunities and then delivering that to the highest quality end user we have in-house. And honestly, that's why I believe we're a tremendous growth stock opportunity. We're not just a basket of assets. The point being we're not going to stop developing these sites. Now to answer your question more directly, however, because I was just saying how wonderful Texas is, yes, we are looking at sites, particularly in PJM. Historically, we've looked at sites all over the world. Often, the economics haven't gotten to a position we like to be in. We do have a relentless focus on risk-adjusted returns here. And so often, things are either too risky to justify the investment or perhaps the price is too high. They're too mature. There's not enough risk that we feel like we can quantify better than others. So we are looking at PJM. That's a market we would like to expand into and stay tuned. I hope that we'll have announcements in the future. Operator: Our next question comes from Mike Colonnese with H.C. Wainwright & Co. Michael Colonnese: And congrats on the 2 big HPC deals here. Really great to see. I can appreciate the expected delivery time lines you provided with regards to the 2 contracts. But how should we think about the revenues layering in over the course of 2026 and beyond from the 2 agreements? Rodney Page: Yes. So the full delivery of the Fluidstack, Google deal is expected to be completed at the end of September next year, and so rent begins in October of '26. Amazon is, again, getting finalized, but it begins in August of next year. And then there'll be stages, though. The second stage would be closer to year-end of next year. Michael Colonnese: Got it. And then more of a high-level question, Tyler. In your view, what has changed for counterparties that has accelerated the pace of deal announcements we've seen in the space over the past month or so? It feels like the level of urgency from hyperscalers, neoclouds and some others has really picked up from where we were just a few months ago. So it would be great to get your thoughts there. Rodney Page: Yes. I mean, it's fair to say that in my 25-year professional career, I have never witnessed anything close to what is going on in the market right now. You asked why? I don't know. I listened to the podcast like everyone else and hear the CEOs of hyperscalers talking about a shortfall. My sense is that if you are a big, diversified cloud provider, it is easier to predict your capacity needs for the traditional cloud business out several years. I think the thing that has snuck up on everyone is the just meteoric rise in demand for AI. And what is happening now is not only is that demand off the charts, there's a scramble because those folks underestimated how much they need quickly. And of course, there's a little bit of a race between them. So right now, discussions are beyond -- every discussion starts with we want megawatts that are available right now. It has now become, we want anything in '26, and that's now become, we want anything in '27. Literally week-over-week, the tone changes and gets more excitable and in higher demand. And look, lease rates are going up, as you would expect in a market like that. I'm very happy with where we put our markers down to have the best possible anchor tenants in the world for our business. I think we have now some pricing strengths on our side to improve economics and improve deal terms. Again, the first 15-year long-term lease directly with a hyperscaler in our space, not only a hyperscaler, the biggest hyperscaler demonstrates just the balance of power coming to those with the scarce assets, which we very strategically arranged over the last few years. So I don't know if that level of frenzy can continue forever, but we do feel a little bit like the tip of the spear here just with what we get insight into. And I've been saying it for a while now, but the demand is just off the charts and only seems to get more off the charts. Operator: Our next question comes from Joseph Vafi with Canaccord Genuity. Joseph Vafi: Congrats on all this great progress and welcome on board, Greg, and congrats, Ed, on your retirement. Just a couple here. Just maybe just the most updated thoughts here, Tyler, on your behind-the-meter agreement and what comes next here for Black Pearl given that site and its unique power procurement and the expiration of that deal and then overlay on top of that, obviously, everything going on in the HPC environment. And how does that site evolve from here? Rodney Page: Joe, do you mean Odessa? You said Black Pearl, but our behind-the-meter PPA is at Odessa. Joseph Vafi: Yes. I'm sorry, yes, Odessa... Rodney Page: Yes, okay. Just wanted to make sure... Sorry for the before the market call. So yes, at Odessa. So for those -- just as a reminder, we have a PPA at an extraordinarily cheap price for electricity for 207 megawatts at our Odessa bitcoin mining facility that runs through the end of July 2027. That contract is extremely valuable. It is way in the money. We're carrying it at a decent value on our balance sheet. And that's because the price is fixed and so cheap for a while. It's fair to say that in these conversations that are frenzied for more power available now, we get a lot of interest in saying, "Hey, would you ever think about converting that site?" I think where we're sitting right now is that given our extraordinarily cheap cost of power there, mining bitcoin is a fantastic business there. HPC over time could be interesting there, but we're not in any rush given how strong our contract is and just what that implies for bitcoin mining economics. I think it's fair to say it could be a really good site. It is colocated with a natural gas generation facility that is owned by Vistra. And as things evolve, again, in relation to a question I answered earlier, as our credibility grows in the space, I think it's fair to say that more big names across the spectrum will look to Cipher to provide their data centers. So there is the possibility that something happens there, we would have to coordinate with our power provider Vistra and coordinate with a potential tenant. But we're not in any rush just given that the economics are locked in at very favorable levels there for another year and 3 quarters. Joseph Vafi: Sure. And then just really quickly, I may have missed it, but this deal with Microsoft. Is it going to be at one particular site? Or is it going to be distributed? I just don't know if I saw that in the press release. Rodney Page: So we haven't done a deal with Microsoft yet. I know it's confusing today because I think... Joseph Vafi: I'm sorry. Yes, I'm getting them all confused today. There was another one, yes, Amazon. Sorry about that. Rodney Page: But with -- no, that's fine. Amazon is at one large site that to convert from a bitcoin mining facility to HPC. Joseph Vafi: Right. But you haven't said who -- which site it is yet, I guess? Rodney Page: Yes, it's at the Black Pearl site. Operator: And our last question comes from John Todaro with Needham. John Todaro: Congrats on the lease. The time line seems pretty quick on getting that Black Pearl site for AWS delivered. Just wondering kind of if I'm missing something or the confidence in being able to deliver that? And then I have a quick follow-up. Rodney Page: Yes. So confidence is very high. Again, a lease like this is the result of a lot of deep technical meetings with their team. Keep in mind, at that site, we have built 150 megawatts to an extraordinarily high level of building quality. That is not like our other sites where we had a more limited time line and we may have used like a containerized solution. That -- it was always built with a long-term eye towards being convertible. I'm happy to say that, again, most of that site is immediately reusable on Phase 1 for 150 megawatts. So that's what drives that aggressive time line on the Phase 1 and the Phase 2, again, that's just relying on the conversations we've had, talking -- going through a procurement exercise and scoping out a supply chain time line. So I think we can easily meet it. But that aggressive time line is largely based that we're reconfiguring a site that was just built to a very high standard. John Todaro: Got it. That makes sense. And then my last one, just when you're procuring a site like Colchis, who are you competing with? Like, obviously, you're signing the major hyperscalers. Are they looking to build out some of their own sites at this point, too? Or is it mostly, I guess, maybe other bitcoin miners you're competing with? Rodney Page: Yes. So that's a great question. And again, I sort of alluded to this earlier, but this is, I think, the underappreciated growth equity aspect of our company, which is doing deals like that requires real local knowledge and understanding. Like this is like dealing directly with, by analogy, a wildcatter, right, typically. The hyperscalers are much more used to -- first of all, they're big institutions that move -- they're not quite as nimble as we are. But second of all, they're used to Jones Lang LaSalle bringing them a pretty deal deck for a completed data center or a site that is very polished and ready to present to them. They are not going local to understand the local requirements and dealing with whatever hairy situation there might be on some of these deals. We're, I would argue, certainly the best, if not the only company that has extremely high levels of credibility with that crowd for getting deals done, but also the ability to talk to hyperscalers. So there's this -- there's like layers of capital that come to a traditional commodities production business that just don't exist here. So we don't see as much competition from them at that level, and that's really part of our value. Operator: Thank you. That's all the time we have for today. I'd like to turn the call back over to CEO, Tyler Page, for closing remarks. Rodney Page: Well, thank you, everyone, for joining today. I want to call out Ed Farrell. Ed Farrell has been my right-hand man since day 1 at Cipher. We've had many internal thank yous and congratulations on his retirement and transition to senior adviser from Chief Financial Officer. But I wanted to take this opportunity to give a special investor thank you. As one of the largest shareholders of Cipher, I want to say thank you for all of us for the hard work he's done. I can tell everyone that's a shareholder, we would not have made it here without him. He's been amazing, and it's very exciting to get the company to where it is today on the back of his hard work. It's hard for me to believe that I'm not going to be able to walk around the office and have [ obscure ] godfather references anymore. I'm not going to be able to hear from him -- or I'm not going to be able to tell him rather that the Don needs to hear bad news right away. And I think every time I run into an obstacle that frustrates me, I'm not going to have Ed here to remind me that Tyler, this is the business we've chosen. But we are in great hands with Greg Mumford, our new CFO. And when we think about all the capital raising and optimization we've got to do going forward, we are in excellent hands. So thank you to Ed on behalf of all shareholders, and we wish you a fantastic retirement. Thanks, everyone. We'll talk to you soon. Operator: Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Thank you for standing by, and welcome to the Krystal Biotech Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to hand the conference over to your host, Stephane Paquette, Vice President of Corporate Development. Please begin. Stephane Paquette: Good morning, and thank you all for joining today's call. Earlier today, we released our financial results for the third quarter of 2025. The press release is available on our website at www.krystalbio.com. We also filed our earnings 8-K and 10-Q with the SEC earlier today. Joining me today will be Krish Krishnan, Chairman and Chief Executive Officer; Suma Krishnan, President of Research and Development; Laurent Goux, Senior Vice President and General Manager for Europe; and Kate Romano, Chief Accounting Officer. This conference call will and our responses to questions may contain forward-looking statements. You are cautioned not to rely on these forward-looking statements, which are based on current expectations using the information available as of the date of this call and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. A description of these risks, uncertainties and other factors can be found in our SEC filings. With that, I will turn the call over to Krish. Krish Krishnan: Thank you, Stephane. Good morning, and welcome to the call. It gives me immense pride to realize that we're now in a position to help so many DEB patients within and outside the U.S. I would like to thank the entire team at Krystal for their contributions. In Q3, VYJUVEK launch continued to build momentum and the updated U.S. label clearly strengthens long-term outlook in the U.S. We're now launched in Germany, France and Japan. We successfully negotiated pricing in Japan, and we believe the outcome bodes well for our payer conversations in Europe. We are looking forward to our readout in CF this quarter, and we're accelerating enrollment across our pipeline, including KB801 for NK. We are initiating a new clinical program for Hailey-Hailey disease. It is a rare genetic disease of the skin that is a strong fit with our HSV-1 gene delivery platform and our commercial footprint. Suma will share more about this program later on the call. Financially, we're strong and well positioned to execute on our strategic growth plans and deliver value to shareholders. Moving now to our 3Q results. We are pleased to report another quarter of revenue growth with net VYJUVEK revenue coming in at $97.8 million. The patient pausing impacts due to summer holidays that we observed earlier last quarter were mitigated by patient adds and early traction in Europe. Net VYJUVEK revenues reported here does include a contribution from Europe following our launch in Germany in late August. This brings total net VYJUVEK revenues since launch to over $623 million. Gross margins were 96% for the quarter. Gross to net dynamics were stable as with prior quarters. I'm happy to report continued acceleration in new reimbursement approvals in the U.S. Our team added over 40 new approvals since our last earnings call update, bringing the total number of reimbursement approvals in the U.S. to over 615. This is now our second sequential quarter of reimbursement approval acceleration and a reflection of our field team's efforts as well as the ongoing sales force expansion. Our expanded field force is now fully hired and being deployed as training is completed. Full impact is expected in early 2026. We're also happy to report continued expansion of our prescriber work, reflecting increased penetration into the community setting with the total number of prescribers in the U.S. now exceeding 450. I would like to highlight a recent milestone achieved in the U.S. which was the FDA approval of our updated VYJUVEK label. This label update expanded the VYJUVEK eligible patient population to include DEB patients from birth and also provided patients with full flexibility in how they choose to dose VYJUVEK. This change reinforces VYJUVEK's leadership position as the most flexible and convenient corrective therapy for DEB and should serve as a tailwind for adoption and compliance in the future. Compliance to weekly therapy continued the trend we reported in previous quarters coming in, in the low 80s as more patients achieve durable wound closure and more mild and moderate patients come on to therapy. While the revised label change should have a positive impact to compliance in the future, we, as always, continue to expect some quarter-to-quarter waviness in the U.S. revenues as we build on our long-term growth trajectory. With that, I'll now hand it off to Laurent to share his excitement in Europe. Laurent? Laurent Goux: Thank you, Krish. It is my pleasure to share an update on our progress in Europe. Our first European launch in Germany is off to a good start. Since launching in late August, we have seen widespread interest and demand across the country. Based on available aggregate level data, we estimate the number of patients prescribed VYJUVEK in Germany to be approximately 20. Just as importantly, we are seeing broad prescribing patterns across the country with prescription from over 10 centers to date. This breadth of prescribing is particularly helpful given the requirement for patients to start therapy in a health care setting. By growing the number of centers prescribing VYJUVEK, we can help patients to start therapy closer to home and avoid potential single center patient visit bottlenecks. Based on current trends, we expect continued steady growth in patient inclusion in the months ahead. We are also making rapid progress outside of Germany. In September, the Autorité de Santé, also known as HAS, the French HTA body, approved early VYJUVEK access under the post-marketing authorization Accès Précoce 2. And last month, we formally launched VYJUVEK in France. Importantly, the relevant authorities in France are also allowing VYJUVEK to be dispensed outside the hospital setting. This is the first time a gene therapy has been approved in such a setting in France, a tremendous milestone to our local team and patients across the country. Last month, HAS also appraised VYJUVEK under the Amélioration du Service Médical Rendu or ASMR classification system, a key initial step for pricing and reimbursement discussions in France. VYJUVEK received an ASMR III designation. This designation, which was only granted to 11% of the new drugs reviewed in 2024, acknowledged the added clinical benefit of VYJUVEK and may open up the possibility for EU [ priority list ] pricing in France. Finally, I'm also proud to report that VYJUVEK was granted the Prix Galien in Italy under the Advanced Therapy Medicinal Product category, a prestigious award recognizing excellence in scientific innovation to improve the state of human health. This award is an important acknowledgment of the innovative and transformational nature of VYJUVEK and a helpful touch point as we start to engage with the relevant stakeholders in Italy. With these recent achievements, we are excited about the long-term growth trajectory in Europe and maximizing VYJUVEK access to the thousands of DEB patients in the region. I'll now hand the call back over to Krish. Krish Krishnan: Thanks, Laurent. As I mentioned before, we have now also launched VYJUVEK in Japan. This summer, we were approved by the MHLW for the treatment of patients. And late last month, we successfully completed pricing negotiations with the Japanese authorities and launched VYJUVEK. We're very pleased with our pricing in Japan, and that is a testament to the clinical benefits achieved by DEB patients treated with VYJUVEK. Our core Japanese team has been in place for over a year and is now fully staffed to support the VYJUVEK launch. Our Japanese medical team has also been active for over a year, mapping key centers and patients, which will be the early focus of our launch. Although we expect contribution from Japan in 2025 to be modest, it will be another important revenue growth driver in 2026. Finally, I wanted to highlight one more contributor to the long-term growth of VYJUVEK. In addition to our direct VYJUVEK launches in the U.S., major European markets and Japan, we've started contracting with regional specialty distributors to support the commercialization of VYJUVEK in rest of the world markets. We have executed agreements in place with multiple leading distributors covering key markets in Central and Eastern Europe, Turkey and the Middle East and expect to add more in the year ahead. Health care infrastructure and access vary significantly across rest of the world markets. But even after accounting for this variability, we estimate that a global distributor partner network could help bring VYJUVEK to thousands more DEB patients around the world and supplement our exciting growth strategy in the United States, Europe and Japan. With that, I'll now hand it off to Suma to touch on recent pipeline progress. Suma? Suma Krishnan: Thank you, Krish. I would like to start today by acknowledging the hard work of our development team here at Krystal. In recent months, we have dramatically transformed the scope and ambition of our clinical stage pipeline, expanding our clinical programs in respiratory and oncology and starting up new studies in ophthalmology and dermatology. These are all important achievements, none of which would be possible without the outsized contribution of each Krystal team member. Our team also achieved another important milestone in recent weeks, a platform therapy designation from the FDA. This designation granted for our HSV-1 gene delivery platform and currently applicable to our KB801 program could significantly accelerate the path to approval, providing us the opportunity for more frequent interactions with the FDA and as well as the chance to leverage manufacturing and nonclinical safety data from VYJUVEK in our filings. The FDA may also consider previous inspectional findings related to drug manufacture. The platform technology designation is applied for on a program-by-program basis and is currently only granted to KB801, although we intend to apply for this designation for additional programs to ultimately secure the designation and associated efficiencies of our entire pipeline. I'm also excited to report that we remain on track to deliver multiple exciting readouts in the months ahead. We expect our next readout to come from our cystic fibrosis program, KB407. With the backing of the CFFTDN, we have expanded our clinical trial network and are now very close to study completion. We look forward to announcing interim data before year-end, including molecular data from null CF patients to assess the ability of the HSV-1 to deliver full-length wild-type CFTR to the lung. On success, we would expect to immediately move to a repeat dosing study, which should enable assessment of functionality including longitudinal FEV1. With our now expanded trial network and without the requirement for bronchoscopies, we expect a repeat dosing study would enroll quickly, enabling a potential FEV1 data readout next year. Our KB408 program for AATD lung disease is also moving ahead well. Having already confirmed successful delivery of functional AAT in our single-dose study, this program is in repeat dosing, and we expect to be able to provide an interim data update in the first half of next year. Together with KB407, this will serve as a robust data set, demonstrating our platform capabilities in the lung. In ophthalmology, strong enrollment is providing us with greater clarity on the timing of our first readout. Based on current rates, we expect to complete enrollment of our Phase III trial evaluating KB803 for corneal abrasions in DEB patients by end of the year. Enrollment in our randomized placebo-controlled study for KB801 in NK is also progressing well as we continue to onboard new sites globally, setting us for a potential data-rich in 2026. I would also like to share a quick update on our work in oncology, which is increasingly focused on the development of inhaled KB707 for the treatment of non-small cell lung cancer, or NSCLC. As we shared at ASCO over the summer, NSCLC is an indication where we have seen early evidence of monotherapy efficacy even in heavily pretreated and checkpoint inhibitor failed patients. Building on that readout, we were recently granted an end of Phase II meeting with the FDA to discuss potential development pathway for inhaled KB707. Based on FDA's feedback, we now expect that a single Phase III study evaluating inhaled KB707 in combination with chemotherapy versus chemotherapy alone in patients with advanced NSCLC could be sufficient to support a potential registration in combination for second-line NSCLC. In support of this potential registration pathway, we have opened a new cohort in our ongoing Phase I/II KYANITE-1 study to evaluate a fixed dose of inhaled KB707 in combination with chemotherapy. Enrollment in KYANITE-1 is ongoing. Our current expectation is to report interim data from KYANITE-1 in the second half of 2026, at which point, we would also be able to provide an update on registrational study plans and potential for Phase III initiation. Finally, I'm also happy to introduce today a new addition to our clinical pipeline, KB111 for the treatment of Hailey-Hailey Disease. Hailey-Hailey Disease is a genetic blistering disease of the skin linked to the mutation in the ATP2C1 gene and low expression of its encoded calciumtransporting ATPase. HHD is a rare disease with a prevalence that's not well understood. The most common estimate of prevalence is one case for 50,000 patients, although underreporting is possible. HHD is characterized by painful rash and blistering in skin folds with a relapsing remitting course that is exacerbated by heat and sweat. Patients often report debilitating symptoms of pain, itch, burning, body order as well as infections, resulting in severe negative impacts on quality of life, psychological distress and intimacy issues. There are no specific therapies available for treatment of this disease. Building on our experience and clinically validated HSV platform for skin delivery, we designed KB111 to deliver ATP2C1 directly to skin cells, increase ATPase levels and hopefully change the course of this terrible disease. As with VYJUVEK, KB111 is formulated for a topical administration directly to the lesions of HHD patients. We have already confirmed in preclinical studies that KB111 can efficiently transduce skin cells, resulting in functional ATPase expression and last month, cleared our IND. We expect to start an intra-patient randomized, double-blind, placebo-controlled multicenter study evaluating KB111 in HHD patients in the first half of next year. With strong execution across our pipeline and now the added benefits of the platform designation for KB801, we are well positioned to make rapid progress with multiple readouts in months ahead. With that, I'll hand the call over to Kate. Kathryn Romano: Thank you, Suma, and good morning, everyone. I'd like to provide some highlights from our third quarter financial results reported in our press release and 10-Q filing earlier this morning. VYJUVEK net product revenue for the third quarter was $97.8 million. This marks sustained growth as compared to the prior quarter, including the early sales from our German launch. Gross to net revenues remained consistent with prior quarters. Cost of goods sold was $4.3 million and gross margin was 96% for the quarter as compared to 93% last quarter. Note that the increase in gross margin this quarter was the result of U.S. product manufacturing process optimizations and the benefit of lower cost batches after FDA approval of this optimized process. While we expect these manufacturing efficiencies to continue benefiting our U.S. operations, the optimized process has not yet been approved for products sold outside the United States. As ex U.S. sales grow over the coming quarters, we anticipate gross margins will normalize towards historical levels until the optimized process is approved for products sold outside the United States. Research and development expenses were $14.6 million and general and administrative expenses were $37.6 million. Operating expenses for the quarter included noncash stock-based compensation of $13.2 million. You'll note on Slide 13 that we are revising our full year non-GAAP R&D and SG&A guidance to $145 million to $155 million compared to our prior guidance of $150 million to $175 million. This represents both a reduction and narrowing of the range to better reflect our performance so far this year as well as our continued confidence in our ability to execute with discipline for the remainder of the year. During the quarter, we released a majority of the valuation allowance that was previously recorded against our deferred tax assets, reflecting our confidence in Krystal's future profitability. This release resulted in a onetime noncash tax benefit that increased our reported EPS. We also benefited from the reversal of the Section 174 R&D capitalization requirement under the One Big Beautiful Bill legislation. This reversal was also nonrecurring. Net income for the quarter was $79.4 million, which represented $2.74 per basic and $2.66 per diluted share, reflective of these onetime benefits. And finally, our balance sheet continues to be a key point of strength for Krystal. We ended the third quarter with over $864 million in combined cash and investments, and we remain well positioned to support our commercial launches globally as well as our significant pipeline programs in the upcoming quarters. And now I will turn the call back over to Krish. Krish Krishnan: Thanks, Kate. As we close today's call, I'd like to emphasize our excitement for the path ahead at Krystal in 2026. With launches in Germany, France and Japan, VYJUVEK has now truly gone global, providing us the opportunity to dramatically expand the number of patients benefiting from VYJUVEK therapy in the months ahead. The hard part of a global VYJUVEK launch is now behind us, and Krystal's focus in 2026 is on our clinical pipeline. We have our first readout in CF before year-end. We're working towards readouts in 801 for NK and KB803 for eye lesions in DEB patients by midyear, and we shall update once enrollment is complete in these programs. These programs, along with KB111 for Hailey-Hailey fit neatly within our core global commercial capabilities. At the same time, we recognize the significant optionality that HSV-1 provides as a redoseable non-integrating large-capacity gene delivery platform and the potential upside opportunities that exist in large market indications. We will continue to invest in these programs with the same operational discipline as we have in the past to ensure that we maximize the value that we believe exists in our pipeline and platform before entering into partnerships for these programs. Thanks for listening, and I'd like to now open the call for Q&A. Operator: [Operator Instructions] Your first question for today is from Alec Stranahan with Bank of America. Unknown Analyst: This is Matthew on for Alec. Congrats on the quarter. Maybe just 2 from us. On the ex U.S. launch, I guess, whether your focus is on expanding the breadth of prescribers or depth of prescribers that have already made some prescriptions? And then maybe on the optimized process that led to better gross margins. Just curious what was sort of optimized in this process and whether you can speak to time lines for this optimized process to be expanded to ex U.S. markets? Krish Krishnan: Thank you, Matthew. In terms of your first question on ex U.S. launch, breadth of prescribers versus depth, I mean our focus -- I mean, you know our objective in Europe is primarily to accelerate getting a patient to meet the physician as soon as possible because the first clinical visit has to be in the physician office. Now purely logistically, that's a lot easier if you start focusing on centers of excellence, as you heard from Laurent, to begin with and -- but at the same time, slowly spreading out into the community. On the question about optimized process, this is essentially moving to a larger bioreactor, which got approved in the U.S., and we're working towards an application in Europe. I'll ask Suma to comment on the timing. For the approval in Europe with respect to the optimized path. Suma Krishnan: I mean we have already started the process. We have filed the scale-up. I mean it's pretty straightforward because we have a lot of data from the U.S. So we expect, hopefully, sometime next year to have the optimized and scaled-up process approved. Operator: Your next question is from Roger Song with Jefferies. Jiale Song: Great. Congrats for the quarter. Also related to the question on ex U.S. launch. So I understand the contribution in 3Q, probably not too much from Germany. But just curious about your expectation moving into next year, maybe 4Q and next year, how should we think about ex U.S. versus U.S. revenue contribution and when on -- if you will give us some breakdown later on? And also related to this ex U.S. launches, how should we think about the pricing? I understand you need to negotiate on top of the list price and then how this will change over time, particularly with the U.S. MFN policy. Krish Krishnan: Great, Roger. Thanks for those questions. Look, the only requirement, as I mentioned in the prior response, is to start in a healthcare setting. But in spite of that, we think Germany is off to a really good start with like 10-plus centers starting to prescribe. But the only point I'll make with respect to the EU launch, I would expect it to be a steady launch upwards as opposed to expecting any kind of bolus early on in either country, whether it be Germany or France. But the demand and the physicians and the patients are pretty excited, I would say, both in Germany, France and Italy is starting to go that way, too. With respect to pricing, look, we know Germany affords free pricing for the first 6 months. And then internally, we'll make a determination to start accruing for the next 12 months, depending on how pricing is proceeding. Negotiations are proceeding in France. Obviously, we start accruing from day 1. So it's very country specific. But I will say, based on the ASMR rating, based on the pricing we got in Japan, I think it bodes well. It remains to be seen, but I think the efficacy and the debilitating nature of the disease, I think that message, we're doing a really good job of conveying that, and it's being received well by these authorities in different countries. Operator: Your next question for today is from Ritu Baral with TD. Ritu Baral: I have been getting a lot of questions on NK timing. And specifically, Krish, could you take us through sort of what the gating aspects of getting that trial up and going is? How many sites and how difficult it is to open those sites? Has enrollment -- formal enrollment actually started? I think there's a lot of focus on the rapidity of getting to data and what that says about the overall NK population prevalence? And then I have a quick follow-up on CF. Krish Krishnan: Got you. On NK, I will just say, look, I think we have started to enroll patients in the study. Maybe Suma, you could add some color on how we're proceeding. Suma Krishnan: Absolutely. I mean we have quite a few sites up and running. We are actively adding additional sites. So really intend not just in the U.S. but globally because there's a lot of NK patients in Europe and the rest of the world, and we want to make this a global filing. So as you know, it takes a little while to get them up and running for the global studies, but we are right in the process. I think we will have most of our sites all completely signed up and ready to go hopefully by end of the year. And as you know, we are enrolling patients. This is one of our top priority projects. So we are excited to see the progress on this particular trial. Krish Krishnan: And I will add, Ritu, our internal timing target is to announce some kind of interim data by the middle of next year. Ritu Baral: Got it. And can you say what percentage of sites do you have -- the percentage of planned sites that you have up and running at this point? Suma Krishnan: I mean we have quite a few sites. I mean, within the U.S., we got most of the academic sites up and running. We have a few more to go, but I think we should have most of the U.S. sites up and running by end of the year. Ritu Baral: Got it. And then for CF, can you tell us how many null patients that you plan to provide data on by the year-end update? And sort of what constitutes success on molecular response? What aspects of molecular response will you be reporting? And what's success in null patient? Krish Krishnan: Yes. We're -- Ritu, thanks for that question. We are looking at a minimum 3 null patients, primarily focused on molecular correction because it's a single-dose study. Suma, anything else? Suma Krishnan: Yes. I mean, obviously, we are bronching these patients, these 3 null patients after the drug is administered. And the biopsies, we will take across the different -- across all the different areas of the lung, and we will look for expression of CFTR by immunofluorescence across, and we will see what kind of expression we are expecting to see robust expression. I mean, based on our NHP primate study, I mean, we -- hopefully, if we can recreate that, we see expression all the way up to 28 days. We see full length molecular CFTR expression across all of our biopsies, we think we feel pretty confident. Nobody is able to today show full length expression of CFTR. So hopefully, we can break that cycle. That's our goal. Ritu Baral: Could you report as like percentage of normal and sort of what threshold could result in FEV changes at a later time point? Suma Krishnan: I mean we know that you don't need much, right? Even these patients don't produce any CFTR. So even if we can produce anywhere between 5% to 10% of CFTR expression, I think that's pretty robust. So again, our intent is in these multiple biopsies across the lung, we will -- hopefully, we want to show expression in most of these biopsies and that give us some confidence that, yes, we can express and we have enough molecular correction. So especially in the null patients don't produce any CFTR. Operator: Our next question is from Gavin Clark-Gartner with Evercore. Gavin Clark-Gartner: On NK, what makes you confident that you don't need to test any different doses and why the one that you picked is the right dose? And somewhat on this topic, do you think you need 2 efficacy studies for approval or may be sufficient? Suma Krishnan: So the confidence for the dose comes from our animal studies. I mean we clearly see expression. We have a clear pharmacokinetic profile. So we know how long the expression lasts. So that has guided us into the dosing regimen in the clinic. Yes, we feel pretty sure that we just need one efficacy trial because this is, again, a rare disease. It meets the regulatory guidance for what the requirement is. So based on our study and the way we have powered the study based on our animal studies and what oxalate studies have achieved, we have powered it to hopefully see clinical significant improvement from placebo. So that's the goal of this study is successful, than we expect this to be the registrational trial. And obviously, we have the platform technology, and we have guidance on what we need from a CMC perspective. So we are -- I think you're aligned. So that's something that's positive for this program. Gavin Clark-Gartner: And is there any commentary you can provide on the safety you're seeing in the ocular DEB study or even the NK study on a blinded basis? Suma Krishnan: I mean, so far, we have not seen any adverse events of concern. Operator: Your next question is from Sami Corwin with William Blair. Samantha Corwin: Congrats on the progress. I also have one on NK. Could you remind us if you're excluding patients that have had a prior ocular HSV infection? And if you think a prior HSV infection could impact the efficacy or safety of treatment? And then in terms of the initial data set, what exactly will we see in that? Suma Krishnan: Regarding to your first question, no, we do not exclude patients that have prior infection. The only requirement is they should not have an active infection. That's the only exclusion criteria. I mean -- what are we going to announce? Yes, data said, this is a randomized 1:1 placebo-controlled study, 8 weeks. So we look at complete healing. We're using -- I mean, complete healing with an independent reader. So if you see complete healing at 8 weeks against placebo, then that's a win, just exactly like Oxervate. Samantha Corwin: Got it. Great. And then just one question on VYJUVEK. Could we expect some guidance or full year revenue guidance for VYJUVEK early next year? Krish Krishnan: No. because we have so many launches and the distribution you see it, it will take us some time to kind of get comfortable with how the different launches are going in different countries. So fortunately, Sami, we will not be guiding on revenue for 2026. Operator: Your next question is from Josh Schimmer with Cantor Fitzgerald. Alexa Deemer: This is Alexa Deemer on for Josh Schimmer, and congrats on a great quarter. So can you please provide some more color on the contribution of U.S. and ex U.S. sales in the third quarter for VYJUVEK? More specifically, what was the percentage breakdown from the U.S. versus Germany? Krish Krishnan: Yes. Look, the decision not to break down in this particular quarter was somewhat accounting auditor driven and the goal is to establish a consistent long-term practice on segment reporting. And if you follow that thought, we will be starting to break down geographies at some point in 2026. It's just that now it is so modest contribution relative to the overall net revenues of the company. Alexa Deemer: Okay. Got it. And can you provide any more specifics on how U.S. sales were in the second quarter versus the third quarter? Krish Krishnan: Yes. Definitely, I would say that the U.S. was a bit lower than what we saw in 2Q, but not to the extent like based on my comments from the last quarter, definitely, reimbursement approvals were on an uptick. And so overall, we ended up getting to a number that was higher than Q2. Operator: Your next question for today is from Andrea Newkirk with Goldman Sachs. Morgan Lamberti: This is Morgan on for Andrea. With 615 reimbursement approvals, what do you attribute this growth to? Are you seeing more patient adds from the community setting? And then how are you thinking about the path to 60% penetration from here? Krish Krishnan: No. Great question, Andrea (sic) [ Morgan ] . Look, like I mentioned maybe last quarter or the one before, it was taking us a bit longer to pull through a start form as we are getting patients more out in the community and physicians who are not -- who are far away from a center of excellence. And by just increasing the size of the sales force, I believe we have turned that issue around. We saw some acceleration last quarter. We see a continued acceleration this quarter. We expect that to go forward as more reps are being trained and out into the field. In terms of 60% market share, look, that's a number around 720. We reported 615. So we're maybe a quarter or 2 from hitting that number if you just do a simple math on that metric, which -- so we feel really good about the way the launch is going and how we've been able to reverse this or 1 quarter of deceleration in RA. Operator: Your next question is from Yigal Nochomovitz with Citi. Unknown Analyst: This is Jon Kim on for Yigal. Maybe just 2 quick ones from us. On KB408, can you just talk a little bit about your expectations there, whether you're expecting a significant uptick in AAT with repeat dosing versus a single dose and what sort of boost you'd be expecting to see or would you want to see? Krish Krishnan: Yes. Obviously, we're expecting an uptick, but we're not particularly talking right now about how much of an uptick. Suma Krishnan: I mean we are doing repeat dosing of A1AT -- I mean, of 408, and we'll be collecting bronch and lavage samples. So that's something that's ongoing. So once -- so we will show repeat dosing and expression of A1AT. Unknown Analyst: Got it. And can you speak on whether opening up more sites is also a priority for that program to continue enrolling patients given that there are quite a number of AATD programs ongoing right now? Suma Krishnan: I mean, right now, we have a couple of sites that's open because remember, again, these sites have to be able to do bronchoscopy. In case of 408, it's a little more complex because it's not just biopsies. They also need to take lung lavage fluids out to measure the A1AT and the protein levels. So there's only a few sites that are capable of doing this. So we have those sites. We have the patients. So hopefully, once we finish that cohort with the repeat dose administration in A1AT levels, then we hope to have a meeting with the agency to potentially talk about a path forward. Operator: There are no further questions in queue. Thank you. We've reached the end of the question-and-answer session and today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Greetings, and welcome to the AMG Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Patricia Figueroa, Head of Investor Relations for AMG. Thank you. You may begin. Patricia Figueroa: Good morning, and thank you for joining us today to discuss AMG's results for the third quarter of 2025. Before we begin, I'd like to remind you that during this call, we may make a number of forward-looking statements, which could differ from our actual results materially and AMG assumes no obligation to update these statements. Also, please note that nothing on this call constitutes an offer of any products, investment vehicles, or services of any AMG affiliate. A replay of today's call will be available on the Investor Relations section of our website along with a copy of our earnings release and reconciliations of any non-GAAP financial measures, including any earnings guidance provided. In addition, we have posted an updated investor presentation to our website and encourage investors to consult our site regularly for updated information. With us today to discuss the company's results for the quarter are Jay Horgen, Chief Executive Officer; Tom Wojcik, President and Chief Operating Officer; and Dava Ritchea, Chief Financial Officer. With that, I'll turn the call over to Jay. Jay Horgen: Thanks, Patricia, and good morning, everyone. It has been a landmark year for AMG with record net inflows in alternative strategies and near record levels of capital deployed in growth investments across both new and existing affiliates. Our third quarter results reflect the building momentum in our business with a 17% year-over-year increase in EBITDA and a 27% growth rate in economic earnings per share. In addition, our organic growth profile continued to improve in the third quarter, driven by alternative strategies with $9 billion in firm-wide net inflows, bringing our year-to-date total net inflows to $17 billion which represents a 3% annualized organic growth rate. Through the third quarter across both organic growth and new affiliate investments, AMG has added approximately $76 billion in alternative assets under management, representing an increase of nearly 30% in our total alternative AUM. This increase includes $51 billion in net inflows into alternatives. Today, our affiliates manage $353 billion in alternative AUM contributing 55% of our EBITDA on a run rate basis and including sizable contributions from 2 of AMG's largest and longest-standing Affiliates, Pantheon and AQR. Both firms continue to capitalize on the tailwinds in their respective areas by leveraging their scale, innovative cultures and differentiated expertise which are collectively driving strong ongoing organic growth for AMG. These elements are continuing to have a meaningful impact on our business profile and earnings. And as you know, we expect each affiliate to be a double-digit contributor to AMG's earnings this year. Given the substantial increase in our alternative AUM, the significant growth and margin expansion at AQR and Pantheon, the positive contributions resulting from capital deployed in growth investments and the positive impact of our ongoing allocation of capital to share repurchases, we anticipate a meaningful increase in our full year economic earnings per share in 2026. Looking ahead, we have expanding opportunities to further invest in growth by investing in new and existing affiliates and by investing in AMG's strategic capabilities to magnify our affiliates success. Our new investment pipeline remains strong with active ongoing dialogue with prospective affiliates operating in both private markets and liquid alternatives. Our investment model continues to resonate with the highest quality partner-owned firms seeking a strategic partner that can enhance their long-term success while also supporting their independence. And our strategic capabilities, particularly in capital formation, increasingly differentiate AMG and our dialogue with prospective affiliate partners. We recently announced a strategic collaboration, which highlights the value of AMG's capital formation capabilities in the U.S. wealth channel. Brown Brothers Harriman, a globally recognized 200-year-old firm with considerable scale, chose to strategically collaborate with AMG to develop innovative products and deliver structured and alternative credit solutions to the wealth channel, a very strong statement on AMG's value proposition. Also in the third quarter, we announced the sale of AMG's minority stake in Comvest private credit business. AMG invested in Comvest to provide a combination of growth capital and strategic capabilities that accelerated the growth of its credit franchise. We were pleased that AMG's strategic engagement ultimately resulted in a positive outcome for all stakeholders, including AMG shareholders. The significant return of capital, nearly 3x our purchase price highlights the underlying value of our affiliates managing alternative strategies. Having committed more than $1 billion across 5 new growth investments so far in 2025. We continue to actively expand AMG's participation in areas of secular growth. We have an excellent capital position, which was further enhanced by the significant proceeds from the sale of our interest in [indiscernible] and Comvest. And given our ample financial flexibility and our distinct competitive advantages, we have an outstanding opportunity to further increase our earnings growth by continuing to make growth investments and return capital to shareholders. Finally, it has been an extraordinary year for AMG in terms of both organic growth and new affiliate investments, laying the groundwork for accelerating EBITDA and earnings growth in 2026. As we continue to execute our strategy, building upon more than 3 decades of successful partnerships, we are confident in our ability to continue to generate long-term earnings growth. And with that, I'll turn it over to Tom. Thomas Wojcik: Thank you, Jay, and good morning, everyone. AMG's activities over the course of this year illustrate our strategy in action. As we evolve our business mix more toward alternatives, our business is generating strong organic growth in both liquid alternatives and private markets. And we continue to invest in both our affiliates and in AMG's own capabilities to support future growth opportunities. This year, we have entered 4 new investment partnerships with alternative firms squarely aligned with long-term secular growth trends. We also announced a strategic collaboration to bring structured credit products to the U.S. wealth marketplace with BBH Credit Partners highlighting the strength of AMG's capital formation capabilities. And we engage strategically with our affiliates across a range of business initiatives, including new product launches, building out adjacent capabilities and supporting 2 of our private markets affiliates and their sales to consolidators. Taken together, these strategic actions and many other elements of our unique model drove significant earnings growth and cash flow generation, which we have invested and will continue to invest for growth. Fueling the execution of our strategy and the forward evolution of our business, while simultaneously returning capital through share repurchases and further delivering value to our shareholders. In the third quarter, AMG delivered $9 billion in net client cash inflows and $17 billion on a year-to-date basis, representing an annualized organic growth rate of 3% thus far in 2025. Our strong organic growth this year reflects rapidly growing client demand for liquid alternative strategies and ongoing momentum in private markets fundraising. In the quarter, our affiliates generated $18 billion in net inflows in alternatives, more than offsetting $9 billion in outflows in active equities and highlighting the advantages of AMG's business profile that is increasingly weighted toward high-growth alternative asset classes. In liquid alternatives, our affiliates value proposition continues to resonate with clients. With $14 billion in net inflows, AMG posted the strongest quarterly net flows in liquid alternatives in our history, driven primarily by tax aware solutions, and supported by positive contributions from a number of affiliates. Client demand for tax aware strategies remains substantial. And AMG's Affiliates offer highly attractive products. And more broadly, AMG's diverse group of affiliates managing liquid alternative strategies is well positioned to deliver excellent risk-adjusted returns for clients and attract new flows over time. Our private markets affiliates raised $4 billion in the quarter, mainly driven by another strong quarter at Pantheon and positive contributions from EIG and Abacus demonstrating the diversity of our affiliates offerings across private market solutions, credit, private equity, real estate and infrastructure. The ongoing fundraising momentum of our private markets affiliates reflects investors' conviction in their specialized investment strategies, along with the impact of ongoing secular growth trends. Looking ahead, the management and performance fee potential across our private markets affiliates, including some of our most recent new investment partnerships, which are not yet reflected in our results, represents a significant source of upside for the long-term earnings profile of our business. As we continue to form new partnerships with growing high-quality independent firms, such as our new investments in Northbridge, Verition, Montefiore and Qualitas Energy this year and our strategic collaboration with BBH Credit Partners, we are broadening our exposure to fast-growing specialty areas within alternatives and further diversifying our business. BBH's taxable fixed income franchise has delivered top quartile performance across strategies and market environments. Our strategic collaboration will bring the firm's industry-leading structured and alternative credit expertise into the U.S. wealth marketplace. As high net worth clients and their advisers continue to drive demand for alternative strategies, credit remains a core focus. And the return characteristics and scalability of structured credit make this area uniquely attractive. BBH is one of the industry's longest tenured and most active players with a differentiated structured credit investment track record across the full capital stack, and in combination with AMG's product development and distribution capabilities, we see significant opportunity to build unique investment solutions to meet growing demand. AMG provided excellent alignment with BBH's goals for a number of reasons. The complementary strengths of our respective businesses, access to significant seed capital, the permanent nature of our model and strong cultural connectivity across our firms. The strategic collaboration will accelerate the expansion of BBH structured credit franchise and will further enhance AMG's position as a leading sponsor of alternative strategies for the U.S. wealth market. The rapidly growing demand in U.S. wealth for distinctive alternative products is one of the most visible mega trends in the asset management industry today. And AMG is uniquely positioned to benefit. AQR has been a leader for more than a decade in developing and delivering excellent investment solutions to U.S. wealth clients and its innovation and tax aware strategies continues to drive rapid adoption. Pantheon was one of the earliest innovators in limited liquidity vehicles in private markets and product development and flows are accelerating across its product line. Our collaboration with BBH Credit Partners speaks to the success that AMG has seen thus far in driving growth in alternatives in the wealth channel, and we see significant opportunities ahead. As clients increasingly look to AMG as the industry's leading entry point to access the differentiated alternative investment capabilities of independent partner-owned firms, AMG's footprint in U.S. wealth is well positioned for rapid growth. Importantly, the success that we are having in the U.S. wealth channel is resonating not only with clients and existing AMG affiliates but also with new investment prospects as accessing this attractive market requires scale and is difficult, if not impossible, for many independent firms to do on their own. As we continue to invest in new partnerships with alternatives firms, we look forward to collaborating with additional affiliates to broaden their reach and expand their platforms. AMG's business has continued to evolve in 2025, driven by our focus on allocating our resources and capital to areas of secular growth. As we execute our strategy, we expect the contribution from alternative businesses to further increase, enhancing our long-term organic growth profile and earnings profile, and we are excited about the opportunities ahead. With that, I'll turn the call over to Dava to discuss our third quarter results and guidance. Dava Ritchea: Thank you, Tom, and good morning, everyone. It has been an exciting year for AMG. In 2025 to date, we have committed approximately $1.5 billion in capital across growth investments and share repurchases, and we continue to be in a strong position to execute on future growth opportunities and return capital to shareholders, given our significant cash generation and strong balance sheet. I will start by walking through the results for the quarter then will discuss the positive impact of recent capital activity on our forward earnings power and conclude with a discussion on our balance sheet. In the third quarter, we reported adjusted EBITDA of $251 million, which grew 17% year-over-year. This included $11 million in net performance fee earnings and reflected a full quarter contribution from Verition and Peppertree's final contribution. Fee-related earnings, which exclude net performance fees, grew 15% year-over-year driven by the positive impact of our investment performance and organic growth in our alternative strategies, partially offset by outflows from fundamental equity strategies. Economic earnings per share of $6.10 grew 27% year-over-year, additionally benefiting from share repurchases. Now moving to fourth quarter guidance. We expect adjusted EBITDA to be in the range of $325 million and $370 million based on current AUM levels, reflecting our market blend, which was up 1% quarter-to-date as of Friday and including net performance fees of $75 million to $120 million, bringing expected performance fees for this year to between $110 million and $155 million. This guidance includes a full quarter contribution from Montefiore, a full quarter contribution from Comvest's private credit business and no impact from our announced investments in Qualitas Energy and BBH Credit Partners, which are expected to close in Q4 and Q1 2026, respectively. We expect fourth quarter economic earnings per share to be between $8.10 and $9.26, assuming an adjusted weighted average share count of 28.9 million for the quarter. Looking further ahead, we anticipate a meaningful increase in our full year adjusted EBITDA and economic earnings per share in 2026, mainly driven by strong organic growth and our capital allocation strategy, and I'll describe each of these further. Organic growth in our existing business is having a meaningful impact on bottom line earnings. Strong organic growth in alternatives including record inflows and alternatives year-to-date is driving growth in AUM, having a positive impact on our aggregate fee rate relative to the prior year and incrementally expanding margins at some of our largest alternative affiliates. Furthermore, the approximately $1.5 billion committed to growth investments and share repurchases, combined with the sale of our stakes in 2 of our private market affiliates is expected to substantially increase our earnings in 2026. Additionally, we believe there is incremental upside to our earnings potential over time as we strategically engage with each of our 5 new partners in the next phase of their success. This combination of organic growth in our existing business and new investment activity has led to strong year-over-year earnings growth so far in 2025. And underpins our confidence in our 2026 earnings profile. Importantly, most of this earnings growth is in fee-related earnings delivered by products with longer expected duration. Finally, turning to the balance sheet and capital allocation. We repurchased approximately $77 million in shares in the third quarter, bringing year-to-date repurchases to approximately $350 million. We are increasing our full year guidance for repurchases and now expect to repurchase at least $500 million, subject to market conditions and capital allocation activity. Our balance sheet remains in a strong position with long-dated debt, significant capacity from ongoing cash generation and access to our revolver. Additionally, we received pre-tax proceeds of approximately $260 million from the sale of our stake in Peppertree, which closed in the third quarter and will receive approximately $285 million in proceeds from the sale of our stake in Comvest. Given our ample financial flexibility, which is further enhanced by the proceeds from these affiliate transactions, we are well positioned to continue to invest in growth opportunities and return capital to shareholders. We continue to employ a deliberate, strategic and disciplined approach to allocating our capital and investing in the ongoing growth of our business. We have a diverse, unique set of opportunities available to us, including investments in new affiliate partnerships and alongside existing affiliates, and in AMG capabilities. Through our capital allocation framework, we selectively engage in opportunities that align with our overall business strategy and that we believe will create significant long-term value. And looking ahead, we are confident in our ability to continue to generate substantial value for our shareholders. Now we are happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Bill Katz with TD Cowen. William Katz: Jay, maybe one for you. I think the theme coming out of today's call is just the franchise momentum both from a de novo perspective as well as incrementally through inorganic. A, maybe I was wondering if you could just maybe delve a little bit more into BBH, how that sort of rose? Did they seek you out? And then just as you look at the pipeline looking ahead, how should we be thinking about activity level into next year after a really strong 2025? Jay Horgen: Great. Bill, and thanks for your questions. I will -- let me take the first one just on the momentum. Tom, I'm going to ask you maybe to talk about BBH and then maybe you can send it back to me and we can talk about pipeline. So check them all off. So yes, thanks, Bill. I think I agree with your setup. It has been a landmark year for AMG, an output of our strategy, as you've heard us talk about it over the last 6 years, both inorganic and organic, our flow profile, which is driven by alternatives. It's been improving for some time now. This quarter is our second significantly positive quarter. It is building and we feel good about the continued strength of it. Our strategic engagement with affiliates, collaborating with them to magnify their long-term success is generated meaningful results at places like Pantheon, AQR, Artemis, Garda and many others where we're working on business development initiatives to enhance their value. It's been, as you've seen, one of the most active years for us in terms of new investment activity, near record levels of capital deployment. We've announced for new investments and a strategic collaboration with BBH, which Tom will talk about in a moment. We've had two stake sales from -- two consolidators in Peppertree and Comvest. So it's just been an extraordinarily active year for us. Maybe looking at where the business stands today, alternatives contribute 55% of our EBITDA on a run rate basis. We're working hard to increase that to more than 2/3 in just a few years from now. We think that will continue to sustain our organic growth and also we see good opportunities to make those new investments. And finally, as we have been committed to disciplined capital allocation, it has resulted in $350 million of repurchases this year. You heard Dava say that we've just updated our guidance to at least $500 million for 2025. So it has been an extraordinary year in terms of both new investments and organic growth. And that lays the groundwork for accelerating EBITDA and earnings growth in 2026. So maybe, Tom, if you would mind, give us a bit more detail on BBH. Thomas Wojcik: Yes, happy to. Thanks for your question, Bill, I think Jay provided a lot of very good context in terms of our strategy overall. And really, when we think about the BBH strategic collaboration, it aligns very well with a number of different elements of our strategy and key themes and areas that we're really focused on like alternatives and like the growing opportunity for alternatives in U.S. wealth. Over the course of the past couple of years, you've heard us on earnings calls and some of our meetings talk about this repositioning that we've gone through in our U.S. wealth business really to just focus that organization on the opportunity and alternatives. We've built a new affiliate product strategy team. We've channelized our sales force to address both RIAs and the wire house opportunity. And we're partnering very closely with affiliates like Pantheon to build, seed and distribute differentiated investment solutions to U.S. wealth clients. So in a lot of ways, the strategic collaboration with BBH is both a recognition of the success that we've had to date in going through that change to our U.S. wealth platform and the opportunity and the success that we're seeing, but also the next chapter in terms of opportunity to build on that success with a great partner like BBH. BBH is one of the most respected and trusted brands in financial services globally, and we're very excited to work closely together with them. You asked how this came together. And effectively, I would say we found each other. They had an opportunity that they were thinking about in terms of an excellent structured credit franchise. We had a strong view on structured credit as an opportunity in U.S. wealth and there was a real complementary opportunity for us to come together and try and build something together. We do think that BBH choosing AMG to be their strategic collaboration partner is a very strong statement on our value proposition in U.S. wealth. And I mentioned some of this in my prepared remarks, but we think AMG was the right partner for them for a number of reasons. As I mentioned, the complementary strengths of our respective businesses there in terms of underwriting, pricing, risk management around structured credit and on our side, product development and capital formation resources, access to significant seed capital that we underwrote as part of this collaboration. The permanent nature of our model and also, very importantly, really strong cultural connectivity across our firms. We spent a lot of time together, got to know one another very well. And I think we have a shared vision for where we can take this. So collectively, we're really excited about the collaboration. We think it will materially accelerate the expansion of BBH structured credit capabilities and also further enhance AMG's position as a leading sponsor of alternative strategies for the U.S. wealth market as we continue to build momentum in that area. So Jay, maybe back to you on the pipeline. Jay Horgen: Yes. Great. I'll just say one thing. It was very validating and rewarding that our capital formation capabilities, and that's an area, which, as Tom just mentioned, we've invested heavily in repositioning it. It was a centerpiece of this strategic collaboration with BBH and we do think it will allow us to drive more product in the wealth space around alternatives. So we're very excited about that. Turning to the pipeline, Bill. So I know you heard me say that already that it's been near record levels of deployment from our perspective. We continue to see opportunities to invest for growth in new and existing affiliates. Our pipeline reflects this opportunity set. And maybe just giving a bit of color at a high level, we stay -- we're staying focused on areas of secular growth, both within private markets and liquid alternatives. Importantly, we are interested in businesses where AMG's strategic capabilities can add value and firms that would like to have a strategic partner. So that has increasingly become a part of the dialogue and part of our differentiated area for success. We'd like to be able to magnify our affiliates business plans, their business initiatives, and we're doing so through our active engagement with affiliates. We've had a proven track record of providing capital and resources in these areas, business development, product development and distribution. So we're excited about continuing to add new affiliates in areas that we think we can help them grow. This unique sort of advantage that we have now in addition to just preserving independence, which we've always done very well, as you know, the ability to magnify the advantages of partner-owned firms has really added to our attractiveness in the market. The last thing I'd just say around our pipeline, in addition to, we continue to have a significant opportunity to invest our capital and growth initiatives. We will remain disciplined as always. The goal is to ensure that we deploy our capital at the highest -- in the highest quality opportunities with a target mid- to high-teens returns as we've said in the past. We have been successful in doing that over the past 6 years. But if we cannot find good investment opportunities, we will look to return capital through share repurchases, and we've done that also during this period, having reduced our share count by 40%. So maybe I'll just leave you with a summary of our new investment opportunity. We feel really good about it. We feel good about our ability to originate and invest in new affiliates in areas of secular growth and we're confident that we'll continue to meaningfully evolve our business through these growth investments and enhance shareholder value over time. So thanks, Bill, for your questions. Operator: Our next question comes from the line of Alex Blostein with Goldman Sachs. Alexander Blostein: So lots of enthusiasm from you guys in 2026. It feels like it's a little bit earlier than typical to give guidance in 2026, but I was wondering if you kind of could help contextualize what that could mean for next year given a number of moving pieces including you alluded to expansion in the margins at AQR and Pantheon, that sounds like it's an important part of the story here as well. So any way you can help us frame what sort of the growth expectations you might have so far into 2026, would be helpful. Jay Horgen: Yes. Thanks, Alex, and good morning to you. I'll let Dava do the meat of this. Maybe just to set it up. One of the reasons why we're so excited about 2026 is that, as you've seen in the past, when we do new investments, the year in which we do invest new investments is a partial year. And so the full year contribution from those new investments actually happens in the next year, in this case, 2026. We've also had the added benefit this year of having organic growth really come into the middle of the year and continues -- the momentum continues. And as you heard and you rightfully pointed out, there's an added benefit there because it's into businesses where we actually have margin expansion opportunity. So maybe I'll let Dava expand on what we're seeing in terms of mix and forward look. It is a little early to land on to 2026, but I think we can give you a sense for it. Dava Ritchea: That's right. Thanks, Jay, and thanks, Alex, for the question. At a high level, we expect the combination of new investments, share repurchases and the impact of net inflows from alternatives to be impactful to our 2026 EPS. Really, given the strategic evolution of our business profile over the last 6 years towards greater participation and alternatives, the EBITDA impact of the growth that we're seeing today is really meaningful. The largest driver of that has been a turnaround in our net flow profile as we've moved the business from what was shrinking organically around 10% annually to a business that today grew 3% annualized on a year-to-date basis and 5% annualized this quarter. And as we've experienced an even larger EBITDA contribution, the past 2 quarters from our net flows than our organic growth rate would indicate. So we're seeing some further expansion in EBITDA than you would expect in our net organic growth rate. This trend is occurring because of the bifurcation we've seen between strong organic growth on the alternative side, and the headwinds on the traditional side. The growth in alternatives is moving the business towards a higher fee and longer lock strategies that, in some cases, have future performance fee and carry potential while the outflows have been more isolated to lower fee open-ended equity funds. So even though we tend to own more of the firms where we're experiencing outflows, the higher fee rate from the alternative products have more than offset this impact. And we'll give some further guidance on the next earnings call in terms of our overall thoughts on 2026. Jay Horgen: Dava, you might just want to also talk about just the composition between NFRE and PRE just briefly. I think that's also something that's meaningful that's happening. Dava Ritchea: Sure. So what's exciting that we've seen to date, again, based on both the combination of the new investment profile that we've been -- that we've had this year and also in terms of organic growth, we've seen our year-over-year aggregate fee rate and real growth in fee-related earnings. So you've seen that up about 15% on a quarter year-over-year basis. And the shift mix of our business is moving towards a higher contribution from fee-related earnings. Operator: Our next question comes from the line of Dan Fannon with Jefferies. Ritwik Roy: This is Rick Roy on for Dan. So you reported another quarter of accelerating liquid alts flows, and it sounds like momentum in the tax were AQR strategies continues to be a big contributor towards that. So maybe on that, I was hoping you could add a little bit more color on the full diversity of flows coming from the AQR broader franchise and maybe perhaps also describing the performance fee potential of the broader set of AQR strategies that are gathering inflows? And then maybe separately, if you could note any notable private markets fund raises to be aware of in the near-term and into 2026, that would be helpful. Jay Horgen: Thanks, Rick. I'm going to let Tom just sort of give you an overview of flows, and I'm sure within that, he will drill down on some of the trends that we're seeing. Thomas Wojcik: Rick, thanks for the question and Jay, actually, maybe after I go through this, you can give a little bit more color on AQR specifically, but I'll give you the whole picture and then we can fill in from there. To put the whole thing in context, our flows are primarily a function of 3 key drivers. The first is the alignment between our affiliates' investment strategies and overall client demand trends. The second is the evolution of our business mix and Dava just talked about some of this as to Jay, over time through both organic growth rates, the relative organic growth rates of our different business lines, and the investments that AMG is making to form new partnerships and growth areas in line with our strategy. And then finally, the third driver is really the lift that we're able to provide at the AMG level to our affiliates through new product development and distribution. In terms of alignment with client demand trends, with approximately 55% of our EBITDA now coming from alternative asset classes and a growing portion coming from wealth clients our overall positioning is very well aligned with forward trends. In terms of where we go from here, as we look to continue to push that percentage of EBITDA from all closer to the 2/3 level over the course of time, all of our recent new investment partnerships have been focused on alternatives. And significantly more than 100% of our total net flows over the past few years have also been in alternatives. And over that same time frame, we've grown alternatives AUM on our U.S. wealth platform from about $1 billion to more than $7 billion. And you're seeing the cumulative impact of that business mix evolution on AUM on our fee rate, as Dava just talked about, and on the contribution of EBITDA that's coming from alternatives overall. So to go into the individual buckets in private markets, as I mentioned in my prepared remarks, our affiliates raised $4 billion in the quarter and that's really a continuation of momentum that we've been seeing over the course of the past several years. It was another very strong quarter for Pantheon, alongside positive contributions from EIG and Abacus. And I think importantly, that really demonstrates the diversity of our affiliate offerings across a variety of different areas, private market solutions, credit, private equity, real estate infrastructure, where our affiliates are real leaders in these specialized strategies in the market. Liquid alternatives was another record quarter for us, $14 billion in net inflows. And as you referenced in your question, driven primarily by solutions for the wealth channel focused on after-tax returns at AQR but importantly, with positive contributions from a number of our liquid alternative affiliates, we're seeing real breadth in that area as well. This is now the fifth consecutive quarter where we've seen positive flows in liquid alternatives. And over that time period, we've seen $38 billion in total net inflows. Equities, we continue to see headwinds, and that's in line with the overall industry. You saw that this quarter with about $9 billion in outflows that said, it's been another good year for beta, and beta continues to support AUM levels overall. And we're also seeing some pockets of strength, Jay mentioned earlier, Artemis, River Road. So there are some real bright spots that we're excited about there also. So when you put all those things together kind of back into that initial framework, better alignment with overall client demand trends as we continue to shift our business, continued investments in new affiliates, active collaboration with our affiliates to develop and create innovative new products that can help to drive client demand through our capital formation capabilities, together with our confidence in our ability to continue and maybe even enhance and accelerate the impact of these growth drivers going forward, we feel like we're in a really strong position from an overall franchise perspective in terms of forward organic growth opportunities. Jay Horgen: And Rick, let me address AQR specifically. Incrementally, it has been very helpful to our flow profile, but maybe I'll highlight a few key attributes about that business is a very diverse business. And the way I describe it is it's a liquid alts business, 1 of the top 3 in the world. It has a pretty significant tax-aware wealth business that has a different dynamic than just its overall institutional liquid alts business. And then it has a 40 Act long-only business as well. Because of its excellent performance, it's seeing inflows in each of these areas. And so I think we would be remiss without sort of stating the obvious, which is a very big, diverse business with lots of different strategies and lots of different opportunities within it. Maybe I'll highlight, though, as I did last quarter, sort of a paradigm shift that's occurring in the wealth channel. And AQR is leading -- or has a leading position in this paradigm shift. The basic strategies to harvest losses, they've been around for decades, but AQR, they brought in additional set of tools and capabilities to it. They've kind of unlocked the power of investing for after-tax outcomes with the use of liquid alternatives, specifically using long-short investing techniques, either to track market data or they have a goal of absolute return, and that has generated superior after-tax outcomes, and that's what's leading to the significant flows. The shift in focus by RIAs to after-tax outcomes from their historical convention of evaluating on pre-tax returns, we think this is just in the very early innings. So the AQR has quite an opportunity ahead of them. As you know, they've been an innovator in liquid alternatives for more than 20 years now, their ability to bring new strategies and products to the market is one of the best in the industries. They've been building this tax-aware business for some time. They've developed an entire suite of products inside of separate accounts, limited partnerships and now mutual funds. Their strategies generate for us, management fees and many of them have a potential for performance fees. As I've said in my prepared remarks, AQR has the potential to increase their fee rates here over some period of time as their flow mix changes. They also have an opportunity to increase their margins, and we feel that in our EBITDA contribution that Dava mentioned earlier. I gave most of this background on the prior call. So I thought I might just kind of update you bring you forward on our thoughts today. So we see AQR as having a first-mover advantage. It obviously has a differentiated culture and an operating environment that is advantageous compared to most competitors. On the first-mover advantage, it takes time to get on platforms to penetrate the largest RIAs in the country to integrate into systems at the wirehouses. AQR has a more than 2-year head start, Is now finishing the onboarding just now with several of the largest wealth platforms. So they haven't even gotten on all of the parts of the market where they could distribute their product. So we do expect continued momentum from AQR in this area. But I would be remiss if I didn't comment on the institutional business, again, with their great performance. They have a very nice pipeline building on the liquid alternative side. And through the lens of AQR, we're seeing increased interest in liquid alternatives more broadly on the institutional side. So maybe the last thing I'll say about AQR is that their assets have grown from approximately $100 billion at the beginning of 2024 to $166 billion as of September 30. And so you can see there's quite a bit of growth, and most of that came from organic flows. And thank you for your question. Appreciate it. Operator: Ladies and gentlemen, this concludes our Q&A session and will conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.
Operator: Good morning. This is the conference call operator. Welcome and thank you for joining the GTT Third Quarter 2025 Activity Update Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Philippe Berterottiere, Chairman of the Board and CEO of GTT. Please go ahead, sir. Philippe Berterottière: Well, good morning, everybody. I'm very pleased to present to you the Q3 2025 activity update. I am with Thierry Hochoa, the CFO of the GTT Group and with the entire Investment Relations team. Well, year 2025 first 9 months have been quite impressive. First of all, the fundamentals are excellent with 84 million ton per annum already decided. The revenue are approaching EUR 600 million on the first 9 months, which represents an increase of 29% compared to last year. We obtained a fairly diverse orders with LNG carriers; ethane carriers; FLNG, LNG as a fuel. All that led us to upgrade our 2025 outlook when we include Danelec. On key highlights, we introduced a new technology for LNG as a fuel that we named CUBIQ. We obtained approval in principle from Bureau Veritas. We completed the acquisition of Danelec, and we obtained a quite large contract from the Chinese shipyard, Hudong-Zhonghua for 24 LNG carriers. We continue our innovation efforts with the new partnership with Bloom Energy and Ponant Exploration Group on a new system for zero-emission ships. And we obtained a contract for an electrolyzer in Slovakia for 1 megawatt. If we look at our order book, we've received orders, 19 orders in the first 6 -- 9 months. So not taking into account the order we received in October. So 267 LNG carriers, which are guaranteeing our activity in the next years, 22 ethane carriers, 3 FLNG and 3 FSRU. If we look at the market, we can see that the activity in terms of SPA, sales and purchase agreement, for LNG for the contracts path to liquefaction facilities have been very important in the second and third quarter of 2025, and that is very much supporting the decisions for further FIDs. In fact, in terms of FIDs, we can see that this year has been phenomenal. It's an all-time record with 84 million tons decided as of today. It's historic. And that means that the outlook for LNG demand for the next year is very strong. So it's the supportive trends for LNG and for energy carrier orders are very strong. But the geopolitical context remains quite complex. I would say we could talk about that at large. But I would say that the instability of regulations between the 2 sides of the Pacific Ocean are creating a kind of concern, still perplexing the decisions of shipowners. I do hope that the recent discussions are going to be able to clarify that. In any case, the LNG carrier order inflow is expected to increase, backed by a strong long-term fundamentals on which we talked just a moment ago. As far as LNG as a fuel is concerned, we can see that the adoption of this fuel structure is continuing to grow very significantly. It's a very good news, very good news for the planet, very good news for GTT, as this LNG at a certain point of time is going to be transported by LNG carriers and also very good news for LNG as an actor in LNG as a fuel. We can see our market share. We are trying to enlarge this market share in introducing new solutions. And we've introduced CUBIQ, which is a new tank design, which aims at enlarging the -- increasing the cargo space, the space left for the cargo, facilitating the installation, so reducing the cost of building the tank, reducing the boil-off and so improving the total cost of return of our solution for the owners. In our digital activity, we are scaling up our efforts in a EUR 1.25 billion market with the acquisition of Danelec that we've completed in end of July. We are in a fast-growing market, and we do expect to be able to benefit from this growth. We are in this market in -- our ambition is to benefit from recurring revenues, which will balance our other activities and to develop revenue synergies that we are targeting between EUR 25 million to EUR 30 million by 2030. So key achievements. Well, I would say that during these first 9 months, we've released a new generation of VDR. Well, that shows you that the innovation activity, constant innovation activity of Danelec is very much in phase with what we do at GTT. And it's why the integration is going to be very easy as we are on the same wavelength. We've obtained new contracts with a very significant contract obtained from Hudong-Zhonghua for 24 LNG carriers with our SloShield system developed for mitigating the sloshing risks and optimizing cargo operations. Now I hand the mic to Thierry Hochoa, the Group CFO, who is going to present to you the consolidated revenues. Thierry Hochoa: Thank you, Philippe. Good morning, everyone. Now regarding our revenues for first 9 months of 2025. Revenues at EUR 600 million are up plus 29%, a strong increase compared to EUR 465 million for the first 9 months of 2024. Two main drivers to explain our revenue performance. The first driver is revenue from new builds standing at EUR 558 million, was up plus 30%, benefiting from a higher number of LNG and ethane carriers under construction. The second driver is linked to the digital activities at EUR 20 million was up plus 83% and including EUR 6.5 million of revenues of Danelec, our recent acquisition. Excluding Danelec, the digital revenue growth was plus 24% compared to last year. One comment on revenues from LNG as fuel. They are down by 32% at EUR 16 million and mainly explained by the strong competition. Regarding electrolyzers activities, revenue are down and stands at EUR 3.7 million for the first 9 months of 2025 compared to EUR 6.6 million for the first 9 months of 2024. This evolution is mainly due to the absence of contract in 2024 and the continuation of transition and repositioning of Elogen. Finally, revenues from services slightly decreased by 3% at EUR 18 million due to a lower level of reengineering studies, which are nonrecurring by nature, but offset by a robust certification activities. All in all, the activity of the first 9 months of 2025 remains very solid. I now back to Philippe for the outlook. Philippe Berterottière: Yes. Thank you, Thierry. Well, on the back of a very strong core business performance and the integration of Danelec over 5 months period, we are upgrading our outlook, assuming no significant delays in ship construction schedules. For our revenues, instead of range between EUR 750 million to EUR 800 million, we have now an estimated range of EUR 790 million to EUR 820 million. For our EBITDA, instead of a range between EUR 490 million to EUR 540 million, we have a range now between EUR 530 million to EUR 550 million. And our payout ratio will be at least 80% of our consolidated net income. So now we are going to answer to your questions. So please. Operator: [Operator Instructions] The first question is from Richard Dawson of Berenberg. Richard Dawson: First one is just on the order outlook for new LNG carrier orders because clearly, very supportive trends with new LNG capacity being sanctioned this year, but we're still seeing a bit of hesitation from shipowners really to place those orders with shipyards. So just through your conversations with your customers, when do you expect an acceleration to start to come for those LNG carrier orders? And then maybe second question is just on shipyard capacity across Korea and China. Has this slowdown in LNG carrier orders this year put some of those -- some of that planned expansion on hold? Where are we sort of in total slots for this year? Philippe Berterottière: Okay. Well, thank you very much for this question. I do agree with you about these hesitations. It's a perfect word for characterizing the current situation. In fact, the owners are weighing whether they should take the decision now. They are very much perplexed due to the instability in regulations. We had taxes on Chinese-built ships in the U.S. We don't have them anymore. We have taxes in China on ships, American ships. So they would like a more stable environment before taking decisions. Energy carriers are the most expensive commercial ships, and that's important investment decisions. So they are weighing the risks before taking these decisions. I can say that we have a lot of discussions with shipowners. They would like to move. They would like to know whether they can go to China. They would like to know what kind of competition they can benefit from between China and Korea. So that's considerations that for the time being, they are weighing. So when is it going to change? I think we may have orders in the last 2 months of this year. And I think that year 2026 will be significant in terms of ordering. And it goes back to your -- the second part of your question about slots. I don't think that there are many slots still available for building ships in shipyards for delivery in 2028. And so then it's in 2029. And I'm feeling that these slots are fairly far away for the needs that owners have. So there is going to be a kind of acceleration in the market. And your last question is the shipyard capacity. Well, the current flow of orders is not reducing the capacity of the yards as they are building. So the capacity out there as they are very -- this capacity are very active. And it's important for the shipyards to maintain these capacities. And it's why we can see some pricing, some prices, which are more aggressive than what they used to be. And I think it's a factor, which is going to help the acceleration in the order flow I was speaking about. Operator: The next question is from Jean-Luc Romain of CIC Market Solutions. Jean-Luc Romain: I have 2 questions, please. The first is about LNG as a fuel orders. We have seen several shipowners like CMA CGM and I think Evergreen, in Taiwan, ordering dual fuel vessels recently in Korea and China, not sure. Should it translate into orders for you? That's the first question. Second question is, as we are seeing a slowdown in order this year in new LNG carriers, should we expect a slowdown or stabilization of your new build sales in the next couple of years? Or should we expect those to decline a little? I'm speaking about the new build sales. Philippe Berterottière: For LNG as a fuel, when we have not announced a contract, I cannot comment on the fact that the contract is going to be for us. We -- it's a market where we have a market share, where we are trying to enlarge our market share and where we are going to -- where we are improving our offering, our solutions in order to do so. So it's a market with high competition where we are fighting hard. On the slowdown of orders and the consequences it means for the years to come, well, I would say that we are giving you figures about our revenues for the next coming years. And I send you to your computations to your work for assuming what the turnover is going to be, what the results are going to be for the next years. I cannot further help you. We are giving you all the information about that. What I can say that we may -- we are not seeing any kind of cancellations in our order book nor we see particularly delays in delivery. Operator: [Operator Instructions] The next question is from Henri Patricot of UBS. Henri Patricot: Two questions from my side, please. The first one on the market. I was wondering if you can comment on what you see as the potential impact of the delay to the IMO net zero framework, both for the core business and maybe driving a slower replacement of the fleet. And secondly, in terms of the speed of adoption for LNG as fuel. And then secondly, on deliveries for this year, I believe, you targeted something close to 100 deliveries in the core business. Is that still the case? It implies quite an uptick in the fourth quarter. Philippe Berterottière: Well, on the market for IMO, I think I hinted that in our last communication at the end of July for the first 6 months of the year. I was feeling that it was going too far, too quickly. And this -- the delay in the implementation of this regulation is not going to change the fundamental trend of the market for shipping, which is that shipping is switching to LNG. LNG is reducing the CO2 emissions and LNG is cheaper than other fuels. So cleaner and cheaper, it's 2 significant improvements. And whatever -- in spite of the delay of the IMO regulation implementation, there will be -- this evolution will continue. It's not going to cause a kind of slowdown, well, in the LNG carrier decisions as that is very much driven by the need for ships for new plants and also for replacement market. And there is clearly a need for replacing old ships, which are generating twice more CO2 than modern ships. And there are large parts of the world to begin with Europe, which are taxing CO2 emissions, heavily taxing CO2 emissions. So all these points are in place and are positive for LNG at large and positive for LNG as a fuel. On your second question, we expect to have still a strong activity in 2025. With compared to 2024, we had 66 orders; and up to now, we had in 2025, 58 orders. And we are going to have still a significant 58 deliveries. And of course, we are going to have still at the end, in the fourth quarter of this year, a very significant number of deliveries. Operator: The next question is from Jamie Franklin of Jefferies. Jamie Franklin: So firstly, just on LNG carriers. At the 1Q '25 update, you spoke to around 40 to 65 vessels still required for projects under construction. I just wanted to get a sense of how many of the orders that you've received in the last 6 months are for those under construction projects? And how many are for the newly FID projects this year, please? And then second question, just on Danelec. So the integration seems to be going well. Are you still actively pursuing new M&A opportunities now? Or are you waiting for the integration of Danelec to complete? And then if you are considering new opportunities, could we assume a similar size to Danelec? Philippe Berterottière: Okay. On LNG carriers, we -- I have not noticed when we said 40 to 65, but it's a time ago. But definitely, the orders we received this year are for existing projects and so are decreasing this number of projects decided before year 2025. And we have not received orders for the 84 million ton per annum decided in 2025. These are for deliveries in 2029, 2030 and 2031. So it's this long-term perspective, which are going to be supported by these investment decisions. And still, we consider that there are ships, which are needed for the projects decided before 2025. On M&A and Danelec, yes, I confirm that the integration with Danelec is going well. We -- the priority for the time being is to continue very well this integration. It's the best guarantee that we are going to be able to obtain the synergies that we were talking about and also that we are going to be able to benefit from the growth of the sectors where we are operating. We are looking at M&A possibilities. Of course, we are not -- meanwhile, we are not becoming blind to what we could find on the market. But I will say that for the time being, there is no opportunities, which are making sense. But it's not because there is nothing that we are not looking at that, and it's not because we have a priority succeeding the integration that we are not looking at what could make sense, which is our priority #1. Operator: The next question is from Kevin Roger of Kepler Cheuvreux. Kevin Roger: Sorry for that one, but it's a kind of follow-up because you used to give us the net numbers in terms of how many vessels you were seeing for the project that were sanctioned or under construction. So just if you can follow up as a kind of magnitude, the 84 million tons of projects that have been sanctioned year-to-date in '25, how many vessels do you consider are needed to transport this LNG worldwide? Just a kind of magnitude with the data that you have provided before. And the second one on Elogen, it seems that the restructuring is almost completed. H1, you booked quite a large provision, almost EUR 50 million. Any sense on if you're going to use all those provisions or if a bit more is needed? So just a comment maybe on this provision and where you think you're going to end with the restructuring? Philippe Berterottière: Okay. On the number of ships, what we can say on the 84 million tons per annum is that 17 million are not from Gulf of Mexico or Gulf of America, so to speak, to the rest of the world, where you have a very important shipping intensity and, in particular, as the Panama Canal is quite congested and where the shipping intensity is something like 2.3. In fact, I consider 67 million tons are from Gulf of Mexico to the rest of the world and the shipping intensity can be 2.3 or, let's say, 2 ships for a million ton, to be cautious. For the rest, the 17 million tonnes, you are on Mozambique to the rest of the world and the shipping intensity is probably 0.9 or 1 ship per million ton. So altogether, it's a very, very large number of ships. Let's say, without going to be too specific, far more than 100 ships to be ordered and probably something close or close to 150 -- around 150 ships ordered. As far Elogen is concerned, I'm going to hand the mic to Thierry. Thierry Hochoa: Yes. Thank you, Philippe. Yes, you're right to mention that we booked at the end of H1 2025, EUR 40 million of cost to restructure this affiliate. It's -- you have all the costs here. We do not expect additional cost because in this cost, I remind you, we have the final [ halt ] of Vendôme Gigafactory and the write-off of this asset. And you have as well provision for the workforce reduction plan. So we do not expect additional cost at the end of this year for Elogen. Operator: The next question is from Jean-Francois Granjon of ODDO BHF. Jean-Francois Granjon: Two questions from my side. The first one, could you come back on the LNG as a fuel. You mentioned some more intensive competition. So could you give us more color about that? And what do you expect for you in terms of growth and trend for the development of this business? Do you expect some more delay or more time due to the more competition you mentioned? And the second question concern Danelec. You also mentioned some cross-selling and synergy -- synergies at EUR 25 million to EUR 30 million. So in which timing do you expect that? And could you give -- explain us more how we can -- you expect to reach such level of synergy -- revenue synergy in the coming years? Philippe Berterottière: Okay. Thank you. Well, on energy as a fuel, we have competition from different containment technologies, which are called Type B or Type C and which are using a thick plate of stainless steel, which has to be welded in terms of operation, it can -- it's something, which is a bit complicated. But this technology has the merit to be very easy to install inside the ship. It can be lifted and pushed inside the ship. We -- which is very much liked by shipyards whenever they are quite busy. We need an installation in the ship, which is taking time and workmanship even though materials are far less expensive. We are existing in this market, and it's a fast-growing market. We are keeping on improving our solutions to better exist in this market. And you're going to see how we progress in this market in the years to come. As far as Danelec is concerned, we are planning synergies between EUR 25 million and EUR 30 million by 2030. And it's mainly obtained through cross-selling between the various activities of the various pools of Danelec. We had VPS, we had Ascenz Marorka, we have Danelec. And these 3 companies have a different portfolio of customers where we are going to try to sell the solutions of the others. That's basically where the synergies that we are going to try to obtain. Operator: Mr. Berterottiere, this was the last question of over the phone. Thierry Hochoa: Okay. Thank you. We do have one question coming from online from Jean-Philippe Desmartin at Edmond de Rothschild Asset Management. Succession planning of the CEO position at GTT, do you have an update to give? Philippe Berterottière: Well, what I will say is that the Special Committee of the Board of Directors is working on that and a proper information will be given in due time. So if there is no other question, I would like to thank you for having attended this conference, and I hope to see you soon. Thank you very much. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning. This is the conference call operator. Welcome and thank you for joining the GTT Third Quarter 2025 Activity Update Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Philippe Berterottiere, Chairman of the Board and CEO of GTT. Please go ahead, sir. Philippe Berterottière: Well, good morning, everybody. I'm very pleased to present to you the Q3 2025 activity update. I am with Thierry Hochoa, the CFO of the GTT Group and with the entire Investment Relations team. Well, year 2025 first 9 months have been quite impressive. First of all, the fundamentals are excellent with 84 million ton per annum already decided. The revenue are approaching EUR 600 million on the first 9 months, which represents an increase of 29% compared to last year. We obtained a fairly diverse orders with LNG carriers; ethane carriers; FLNG, LNG as a fuel. All that led us to upgrade our 2025 outlook when we include Danelec. On key highlights, we introduced a new technology for LNG as a fuel that we named CUBIQ. We obtained approval in principle from Bureau Veritas. We completed the acquisition of Danelec, and we obtained a quite large contract from the Chinese shipyard, Hudong-Zhonghua for 24 LNG carriers. We continue our innovation efforts with the new partnership with Bloom Energy and Ponant Exploration Group on a new system for zero-emission ships. And we obtained a contract for an electrolyzer in Slovakia for 1 megawatt. If we look at our order book, we've received orders, 19 orders in the first 6 -- 9 months. So not taking into account the order we received in October. So 267 LNG carriers, which are guaranteeing our activity in the next years, 22 ethane carriers, 3 FLNG and 3 FSRU. If we look at the market, we can see that the activity in terms of SPA, sales and purchase agreement, for LNG for the contracts path to liquefaction facilities have been very important in the second and third quarter of 2025, and that is very much supporting the decisions for further FIDs. In fact, in terms of FIDs, we can see that this year has been phenomenal. It's an all-time record with 84 million tons decided as of today. It's historic. And that means that the outlook for LNG demand for the next year is very strong. So it's the supportive trends for LNG and for energy carrier orders are very strong. But the geopolitical context remains quite complex. I would say we could talk about that at large. But I would say that the instability of regulations between the 2 sides of the Pacific Ocean are creating a kind of concern, still perplexing the decisions of shipowners. I do hope that the recent discussions are going to be able to clarify that. In any case, the LNG carrier order inflow is expected to increase, backed by a strong long-term fundamentals on which we talked just a moment ago. As far as LNG as a fuel is concerned, we can see that the adoption of this fuel structure is continuing to grow very significantly. It's a very good news, very good news for the planet, very good news for GTT, as this LNG at a certain point of time is going to be transported by LNG carriers and also very good news for LNG as an actor in LNG as a fuel. We can see our market share. We are trying to enlarge this market share in introducing new solutions. And we've introduced CUBIQ, which is a new tank design, which aims at enlarging the -- increasing the cargo space, the space left for the cargo, facilitating the installation, so reducing the cost of building the tank, reducing the boil-off and so improving the total cost of return of our solution for the owners. In our digital activity, we are scaling up our efforts in a EUR 1.25 billion market with the acquisition of Danelec that we've completed in end of July. We are in a fast-growing market, and we do expect to be able to benefit from this growth. We are in this market in -- our ambition is to benefit from recurring revenues, which will balance our other activities and to develop revenue synergies that we are targeting between EUR 25 million to EUR 30 million by 2030. So key achievements. Well, I would say that during these first 9 months, we've released a new generation of VDR. Well, that shows you that the innovation activity, constant innovation activity of Danelec is very much in phase with what we do at GTT. And it's why the integration is going to be very easy as we are on the same wavelength. We've obtained new contracts with a very significant contract obtained from Hudong-Zhonghua for 24 LNG carriers with our SloShield system developed for mitigating the sloshing risks and optimizing cargo operations. Now I hand the mic to Thierry Hochoa, the Group CFO, who is going to present to you the consolidated revenues. Thierry Hochoa: Thank you, Philippe. Good morning, everyone. Now regarding our revenues for first 9 months of 2025. Revenues at EUR 600 million are up plus 29%, a strong increase compared to EUR 465 million for the first 9 months of 2024. Two main drivers to explain our revenue performance. The first driver is revenue from new builds standing at EUR 558 million, was up plus 30%, benefiting from a higher number of LNG and ethane carriers under construction. The second driver is linked to the digital activities at EUR 20 million was up plus 83% and including EUR 6.5 million of revenues of Danelec, our recent acquisition. Excluding Danelec, the digital revenue growth was plus 24% compared to last year. One comment on revenues from LNG as fuel. They are down by 32% at EUR 16 million and mainly explained by the strong competition. Regarding electrolyzers activities, revenue are down and stands at EUR 3.7 million for the first 9 months of 2025 compared to EUR 6.6 million for the first 9 months of 2024. This evolution is mainly due to the absence of contract in 2024 and the continuation of transition and repositioning of Elogen. Finally, revenues from services slightly decreased by 3% at EUR 18 million due to a lower level of reengineering studies, which are nonrecurring by nature, but offset by a robust certification activities. All in all, the activity of the first 9 months of 2025 remains very solid. I now back to Philippe for the outlook. Philippe Berterottière: Yes. Thank you, Thierry. Well, on the back of a very strong core business performance and the integration of Danelec over 5 months period, we are upgrading our outlook, assuming no significant delays in ship construction schedules. For our revenues, instead of range between EUR 750 million to EUR 800 million, we have now an estimated range of EUR 790 million to EUR 820 million. For our EBITDA, instead of a range between EUR 490 million to EUR 540 million, we have a range now between EUR 530 million to EUR 550 million. And our payout ratio will be at least 80% of our consolidated net income. So now we are going to answer to your questions. So please. Operator: [Operator Instructions] The first question is from Richard Dawson of Berenberg. Richard Dawson: First one is just on the order outlook for new LNG carrier orders because clearly, very supportive trends with new LNG capacity being sanctioned this year, but we're still seeing a bit of hesitation from shipowners really to place those orders with shipyards. So just through your conversations with your customers, when do you expect an acceleration to start to come for those LNG carrier orders? And then maybe second question is just on shipyard capacity across Korea and China. Has this slowdown in LNG carrier orders this year put some of those -- some of that planned expansion on hold? Where are we sort of in total slots for this year? Philippe Berterottière: Okay. Well, thank you very much for this question. I do agree with you about these hesitations. It's a perfect word for characterizing the current situation. In fact, the owners are weighing whether they should take the decision now. They are very much perplexed due to the instability in regulations. We had taxes on Chinese-built ships in the U.S. We don't have them anymore. We have taxes in China on ships, American ships. So they would like a more stable environment before taking decisions. Energy carriers are the most expensive commercial ships, and that's important investment decisions. So they are weighing the risks before taking these decisions. I can say that we have a lot of discussions with shipowners. They would like to move. They would like to know whether they can go to China. They would like to know what kind of competition they can benefit from between China and Korea. So that's considerations that for the time being, they are weighing. So when is it going to change? I think we may have orders in the last 2 months of this year. And I think that year 2026 will be significant in terms of ordering. And it goes back to your -- the second part of your question about slots. I don't think that there are many slots still available for building ships in shipyards for delivery in 2028. And so then it's in 2029. And I'm feeling that these slots are fairly far away for the needs that owners have. So there is going to be a kind of acceleration in the market. And your last question is the shipyard capacity. Well, the current flow of orders is not reducing the capacity of the yards as they are building. So the capacity out there as they are very -- this capacity are very active. And it's important for the shipyards to maintain these capacities. And it's why we can see some pricing, some prices, which are more aggressive than what they used to be. And I think it's a factor, which is going to help the acceleration in the order flow I was speaking about. Operator: The next question is from Jean-Luc Romain of CIC Market Solutions. Jean-Luc Romain: I have 2 questions, please. The first is about LNG as a fuel orders. We have seen several shipowners like CMA CGM and I think Evergreen, in Taiwan, ordering dual fuel vessels recently in Korea and China, not sure. Should it translate into orders for you? That's the first question. Second question is, as we are seeing a slowdown in order this year in new LNG carriers, should we expect a slowdown or stabilization of your new build sales in the next couple of years? Or should we expect those to decline a little? I'm speaking about the new build sales. Philippe Berterottière: For LNG as a fuel, when we have not announced a contract, I cannot comment on the fact that the contract is going to be for us. We -- it's a market where we have a market share, where we are trying to enlarge our market share and where we are going to -- where we are improving our offering, our solutions in order to do so. So it's a market with high competition where we are fighting hard. On the slowdown of orders and the consequences it means for the years to come, well, I would say that we are giving you figures about our revenues for the next coming years. And I send you to your computations to your work for assuming what the turnover is going to be, what the results are going to be for the next years. I cannot further help you. We are giving you all the information about that. What I can say that we may -- we are not seeing any kind of cancellations in our order book nor we see particularly delays in delivery. Operator: [Operator Instructions] The next question is from Henri Patricot of UBS. Henri Patricot: Two questions from my side, please. The first one on the market. I was wondering if you can comment on what you see as the potential impact of the delay to the IMO net zero framework, both for the core business and maybe driving a slower replacement of the fleet. And secondly, in terms of the speed of adoption for LNG as fuel. And then secondly, on deliveries for this year, I believe, you targeted something close to 100 deliveries in the core business. Is that still the case? It implies quite an uptick in the fourth quarter. Philippe Berterottière: Well, on the market for IMO, I think I hinted that in our last communication at the end of July for the first 6 months of the year. I was feeling that it was going too far, too quickly. And this -- the delay in the implementation of this regulation is not going to change the fundamental trend of the market for shipping, which is that shipping is switching to LNG. LNG is reducing the CO2 emissions and LNG is cheaper than other fuels. So cleaner and cheaper, it's 2 significant improvements. And whatever -- in spite of the delay of the IMO regulation implementation, there will be -- this evolution will continue. It's not going to cause a kind of slowdown, well, in the LNG carrier decisions as that is very much driven by the need for ships for new plants and also for replacement market. And there is clearly a need for replacing old ships, which are generating twice more CO2 than modern ships. And there are large parts of the world to begin with Europe, which are taxing CO2 emissions, heavily taxing CO2 emissions. So all these points are in place and are positive for LNG at large and positive for LNG as a fuel. On your second question, we expect to have still a strong activity in 2025. With compared to 2024, we had 66 orders; and up to now, we had in 2025, 58 orders. And we are going to have still a significant 58 deliveries. And of course, we are going to have still at the end, in the fourth quarter of this year, a very significant number of deliveries. Operator: The next question is from Jamie Franklin of Jefferies. Jamie Franklin: So firstly, just on LNG carriers. At the 1Q '25 update, you spoke to around 40 to 65 vessels still required for projects under construction. I just wanted to get a sense of how many of the orders that you've received in the last 6 months are for those under construction projects? And how many are for the newly FID projects this year, please? And then second question, just on Danelec. So the integration seems to be going well. Are you still actively pursuing new M&A opportunities now? Or are you waiting for the integration of Danelec to complete? And then if you are considering new opportunities, could we assume a similar size to Danelec? Philippe Berterottière: Okay. On LNG carriers, we -- I have not noticed when we said 40 to 65, but it's a time ago. But definitely, the orders we received this year are for existing projects and so are decreasing this number of projects decided before year 2025. And we have not received orders for the 84 million ton per annum decided in 2025. These are for deliveries in 2029, 2030 and 2031. So it's this long-term perspective, which are going to be supported by these investment decisions. And still, we consider that there are ships, which are needed for the projects decided before 2025. On M&A and Danelec, yes, I confirm that the integration with Danelec is going well. We -- the priority for the time being is to continue very well this integration. It's the best guarantee that we are going to be able to obtain the synergies that we were talking about and also that we are going to be able to benefit from the growth of the sectors where we are operating. We are looking at M&A possibilities. Of course, we are not -- meanwhile, we are not becoming blind to what we could find on the market. But I will say that for the time being, there is no opportunities, which are making sense. But it's not because there is nothing that we are not looking at that, and it's not because we have a priority succeeding the integration that we are not looking at what could make sense, which is our priority #1. Operator: The next question is from Kevin Roger of Kepler Cheuvreux. Kevin Roger: Sorry for that one, but it's a kind of follow-up because you used to give us the net numbers in terms of how many vessels you were seeing for the project that were sanctioned or under construction. So just if you can follow up as a kind of magnitude, the 84 million tons of projects that have been sanctioned year-to-date in '25, how many vessels do you consider are needed to transport this LNG worldwide? Just a kind of magnitude with the data that you have provided before. And the second one on Elogen, it seems that the restructuring is almost completed. H1, you booked quite a large provision, almost EUR 50 million. Any sense on if you're going to use all those provisions or if a bit more is needed? So just a comment maybe on this provision and where you think you're going to end with the restructuring? Philippe Berterottière: Okay. On the number of ships, what we can say on the 84 million tons per annum is that 17 million are not from Gulf of Mexico or Gulf of America, so to speak, to the rest of the world, where you have a very important shipping intensity and, in particular, as the Panama Canal is quite congested and where the shipping intensity is something like 2.3. In fact, I consider 67 million tons are from Gulf of Mexico to the rest of the world and the shipping intensity can be 2.3 or, let's say, 2 ships for a million ton, to be cautious. For the rest, the 17 million tonnes, you are on Mozambique to the rest of the world and the shipping intensity is probably 0.9 or 1 ship per million ton. So altogether, it's a very, very large number of ships. Let's say, without going to be too specific, far more than 100 ships to be ordered and probably something close or close to 150 -- around 150 ships ordered. As far Elogen is concerned, I'm going to hand the mic to Thierry. Thierry Hochoa: Yes. Thank you, Philippe. Yes, you're right to mention that we booked at the end of H1 2025, EUR 40 million of cost to restructure this affiliate. It's -- you have all the costs here. We do not expect additional cost because in this cost, I remind you, we have the final [ halt ] of Vendôme Gigafactory and the write-off of this asset. And you have as well provision for the workforce reduction plan. So we do not expect additional cost at the end of this year for Elogen. Operator: The next question is from Jean-Francois Granjon of ODDO BHF. Jean-Francois Granjon: Two questions from my side. The first one, could you come back on the LNG as a fuel. You mentioned some more intensive competition. So could you give us more color about that? And what do you expect for you in terms of growth and trend for the development of this business? Do you expect some more delay or more time due to the more competition you mentioned? And the second question concern Danelec. You also mentioned some cross-selling and synergy -- synergies at EUR 25 million to EUR 30 million. So in which timing do you expect that? And could you give -- explain us more how we can -- you expect to reach such level of synergy -- revenue synergy in the coming years? Philippe Berterottière: Okay. Thank you. Well, on energy as a fuel, we have competition from different containment technologies, which are called Type B or Type C and which are using a thick plate of stainless steel, which has to be welded in terms of operation, it can -- it's something, which is a bit complicated. But this technology has the merit to be very easy to install inside the ship. It can be lifted and pushed inside the ship. We -- which is very much liked by shipyards whenever they are quite busy. We need an installation in the ship, which is taking time and workmanship even though materials are far less expensive. We are existing in this market, and it's a fast-growing market. We are keeping on improving our solutions to better exist in this market. And you're going to see how we progress in this market in the years to come. As far as Danelec is concerned, we are planning synergies between EUR 25 million and EUR 30 million by 2030. And it's mainly obtained through cross-selling between the various activities of the various pools of Danelec. We had VPS, we had Ascenz Marorka, we have Danelec. And these 3 companies have a different portfolio of customers where we are going to try to sell the solutions of the others. That's basically where the synergies that we are going to try to obtain. Operator: Mr. Berterottiere, this was the last question of over the phone. Thierry Hochoa: Okay. Thank you. We do have one question coming from online from Jean-Philippe Desmartin at Edmond de Rothschild Asset Management. Succession planning of the CEO position at GTT, do you have an update to give? Philippe Berterottière: Well, what I will say is that the Special Committee of the Board of Directors is working on that and a proper information will be given in due time. So if there is no other question, I would like to thank you for having attended this conference, and I hope to see you soon. Thank you very much. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning, and welcome to the Liquidia Corporation Third Quarter 2025 Financial Results and Corporate Update Conference Call. My name is Carmen, and I will be your operator today [Operator Instructions] Please note that today's call is being recorded. I now turn the call over to Jason Adair, Chief Business Officer. Jason Adair: Thank you, Carmen, and good morning, everyone. It's my pleasure to welcome you to Liquidia's Third Quarter 2025 Financial Results and Corporate Update Conference Call. Joining me today are Dr. Roger Jeffs, Chief Executive Officer; Michael Kaseta, Chief Operating Officer and Chief Financial Officer; Dr. Rajeev Saggar, Chief Medical Officer; Scott Moomaw, Chief Commercial Officer; and Rusty Schundler, General Counsel. Before we begin, please note that today's discussion will include forward-looking statements, including statements regarding future results, product performance and ongoing clinical or commercial activities. These statements are subject to risks and uncertainties that may cause actual results to differ materially. For further information, please refer to our filings with the SEC available on our website. Please note that our earnings release, our commentary and our slide deck accompanying this call include non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and the slide deck accompanying this call. With that, I'll turn the call over to Roger Jeffs, our Chief Executive Officer. Roger? Roger Jeffs: Thanks, Jason, and good morning, everyone. This morning, I want to begin by expressing just how proud we are in what Liquidia has accomplished in a remarkably short period of time. Over the last 5 months, we've not only brought a new and meaningful medicine in YUTREPIA to patients living with PAH and PH-ILD, but we've also begun to influence the way physicians consider how to best introduce a prostacyclin into various treatment regimens. Every day, we hear stories from physicians and patients who are thankful to now have an inhaled prostacyclin that fits their lives, one that's simple and well tolerated. For too long, patients face limited and difficult choices. YUTREPIA is offering them an attractive alternative. The results speak for themselves. In the third quarter, YUTREPIA continued to exceed expectations on every front. As of October 30, we've received more than 2,000 unique prescriptions, initiated therapy for over 1,500 patients and have over 600 health care practitioners who have prescribed YUTREPIA across the U.S. In fact, October is our highest month yet for referrals. Through the third quarter, the vast majority of prescriptions are converting to active patient starts with the referral-to-start ratio hovering around 85%, an incredible figure for a new-to-market therapy and a true testament to the strength of our commercial and market access infrastructure. We've seen broad application of YUTREPIA and I'd like to share some details on usage patterns. PAH has accounted for a majority of total prescriptions with the use in PH-ILD growing steadily. Approximately 3 out of 4 patients starting YUTREPIA are new to treprostinil, while about 1 in 4 are transitioning from other prostacyclin therapies typically inhaled. Switches from Tyvaso products are similar for both indications at roughly 25% of prescriptions. Notably, around 10% of PAH prescriptions represent switches from oral therapies, a meaningful indicator that physicians may be starting to view YUTREPIA as a viable option to improve exposure and tolerability for patients who are struggling with systemic side effects from their oral prostacyclin therapy. This balance of naive and transition patients demonstrates the flexibility of YUTREPIA across real-world settings in specialized centers and community practices. The feedback we're hearing has been consistent. Many physicians find YUTREPIA easy to initiate, faster to titrate and better tolerated than other available options while patients appreciate the convenience and confidence that come with a palm-sized low-effort device. YUTREPIA isn't just gaining traction. It's redefining expectations for inhaled delivery of treprostinil where exposure drives efficacy, tolerability drives durability and convenience drives compliance. We intend to translate this early commercial success into long-term sustainable growth. As Mike will explain, Liquidia achieved profitability in its first full quarter following launch, and we are well positioned to reinvest in innovation without compromising our financial discipline. Our clinical strategy in the near term intends to broaden YUTREPIA's clinical utility. We are actively planning niche open-label studies to further strengthen the product profile. For example, to help inform what we are already seeing in the field, we will initiate a study in PAH patients transitioning from oral prostacyclins to YUTREPIA. And considering the recent interest in ILD indications, we are evaluating the feasibility of proof-of-concept studies with YUTREPIA in IPF and PPF. We will also explore how YUTREPIA may be used to treat other diseases where patients have unmet needs and smart trial design can expand the value of well-tolerated inhaled treprostinil with opportunities in PH-COPD and Raynaud's phenomenon as examples. And as you heard during our R&D Day, we will further optimize inhaled treprostinil with L606, our sustained release formulation that is rapidly delivered twice daily with a palm-sized nebulizer. We believe that the week 48 data from our U.S. clinical study already demonstrates that L606 may be the most tolerable inhaled treprostinil developed with clear signals of efficacy in PAH and PH-ILD patients, whether transitioning from Tyvaso or naive to prostacyclin. Our global pivotal study called RESPIRE will initiate later this year and planned enrollment to start in the first half of '26. Now let me hand the call over to Mike to explain how we can maintain our trajectory for increasing the overall value of the company. Mike? Michael Kaseta: Thank you, Roger, and good morning, everyone. The third quarter of 2025 was truly a breakthrough quarter for Liquidia, both operationally and financially. During the quarter, our first full quarter of launch, we delivered $51.7 million in net product sales of YUTREPIA. We accomplished this while total R&D and SG&A expenses remained relatively flat compared to second quarter 2025. For the quarter, the company recorded a net loss of $3.6 million. However, when viewed on a non-GAAP basis, we generated positive adjusted EBITDA of $10.1 million in the first full quarter of YUTREPIA sales, much sooner than our previous guidance of profitability within 3 to 4 quarters post launch. Cash on hand at the end of the quarter totaled $157.5 million. Of particular note, I'm especially pleased to say that September marked our first month of positive net cash flow, a major operational milestone that highlights both our rapid success and disciplined approach to cash management. During September, we added $5 million in net cash, and we've continued to build on that momentum with additional gains in October. Looking ahead, we expect this positive trend to extend into 2026 as we stay focused on driving profitability while reinvesting in R&D to support sustained long-term growth. Roger, back over to you. Roger Jeffs: Thanks, Mike. And as we close out this quarter, I want to emphasize the 3 key foundational elements that are truly defining the success of Liquidia both now and into the future. One, we have a product in YUTREPIA that is rapidly influencing the standard of care. Two, we have quickly established strong profitable operating foundation; and three, we have a disciplined growth strategy focused on expanding indications and value for YUTREPIA while also advancing our next-generation product, L606. These pillars, innovation, execution and reinvestment are what will guide us as we end this year and enter 2026. Above all, I want to thank our team, our clinical partners and the patients who trust us. They are the reason we continue to deliver with both passion and precision. With that, operator, please open the line for questions. Operator: [Operator Instructions] Comes from the line of Amy Li with Jefferies. Amy Li: Congrats on the incredible launch. Based on our back-of-the-envelope math, we're getting to around 1,000 patient adds this quarter, which is doubling what Tyvaso, Tyvaso DPI reported in their 500 quarter-over-quarter adds earlier in their launch. Can you give us a sense of what's driving this uptake? And in particular, the breakdown between PAH and PH-ILD? And then finally, how are you thinking about the trajectory of patient adds going forward? Roger Jeffs: Amy, thanks for the question. So again, we won't really comment more specifically than what we already have in the earnings release on numbers. But I think what you're seeing is very strong demand in the first 5 months of launch, completely driven by the product profile of YUTREPIA, which is unique and certainly is well on its way to becoming the established prostacyclin of first choice not only in the inhaled market, but as we alluded to, we're starting to see oral transition so we can offset some of the GI toxicities with the oral. And then what we're also seeing somewhat is in the patients that have added sotatercept and maybe "normalizing" as they deescalate the parenteral therapy, they're replacing that with YUTREPIA so that they can keep the prostacyclin pathway addressed. So there's a lot of, I would say, growing opportunity. I think if you look at the first 5 months, we've obviously seen very strong demand based on the profile. October, as we said, has had a slight uptick versus the previous month. So we're still on an attractive runway. And while we can't predict growth in the future, and certainly, there will be some seasonality and I think some ordering choppiness at the early phase of launch, I think we'll continue to execute well, and we feel very good about our future prospects. Maybe, Scott, if I could ask you to maybe highlight some of the things that you think as Chief Commercial Officer that have highlighted the quarter and address more specifically some of Amy's questions. Scott Moomaw: Yes. I think that the things that we're focused on right now is, one is we're continuing to increase breadth. So we're still in launch phase. We're still out there getting awareness and trial. We feel like we have an amazing opportunity still to drive to new prescribers. At the same time, we're still looking at depth from the current prescribers. We have -- each day, we have new prescribers that are over the 5 prescription mark, which shows, I think, an amazing amount of investment at those centers. So we think there's a lot of opportunity left out there. I think, Amy, I think you asked about the PAH, PH-ILD split. One thing we will comment on there is we have seen that PAH is a majority of the prescriptions. However, PH-ILD is definitely growing steadily, which is kind of what you would expect. I think PAH was probably a little bit more the, if you will, the lower-hanging fruit and PH-ILD is a growing market, as we all know, and the sky is the limit as far as that goes. Operator: One moment for our next question that comes from Cory Jubinville with LifeSci Capital. Cory Jubinville: Congrats on this really exciting update. I guess, can you just speak to what percentage of revenues might be associated with contracted versus noncontracted reimbursement? I mean, at this point, are you on the formularies for the 3 major PBMs? I'd say the script volume and the prescriber count is strong, of course. But I think the revenues being recognized to this magnitude this early definitely far exceeds expectations. So just trying to get a sense of what some of those key drivers were in order for you to convert volume to revenues this quickly. Roger Jeffs: Great question. And we've certainly spent a lot of effort and energy on the market access initiatives. Mike, if I could ask you to comment on the specific question. Michael Kaseta: Yes. Thanks, Roger, and thanks for your question, Cory. Specifically around payers, I think it is also a testament of where we are right now on our pull-through. And as we said, we've pulled through approximately 85% of referrals have converted into a script. And that's a testament to the -- what we had talked about the launch of building these patient support services that will enable that smooth transition, and we're very proud of what we've done there. Now as it relates to payers, as we've previously stated, we signed contracts with the 3 major commercial payers. We are -- the new-to-market blocks that we referred to previously have or will be removed here in the coming weeks. So as it relates to what is contracted and what is not contracted, to date, as you know, there is no contracting in Medicare Part D. So we are even footing there. In commercial, we are -- have started -- have contracted and started to receive -- start to pay rebates there. But as we move forward, as we've always said, we wanted to make sure that patients had an ability to make a choice, and we feel that we have achieved that now and look forward to the future where if a patient wants to choose YUTREPIA that they will not be blocked by virtue of a contracting issue. Operator: Our next question is from Julian Harrison with BTIG. Julian Harrison: Congrats on the quarter. Of the 1,500 patients on YUTREPIA at end of last week, are you able to say how many were in the 28-day voucher period at that time? And also average time from prescription written to YUTREPIA being shipped to a patient, what is that currently looking like? Roger Jeffs: Yes. Julian, it was good to see you last week at the R&D Day. Mike, if you could answer the question, please? Michael Kaseta: Yes. So thanks, Julian. In terms of average time from time prescription is written to when it's filled, what we're seeing is it's usually within a few weeks, which is pretty customary for SPs. We have a cross-functional focus on pulling through every prescription from market access to field reimbursement managers with the SPs, which is in constant coordination with the HCP office. Now as it relates to our voucher program, again, the voucher program that we offer patients to give them an opportunity to try YUTREPIA with a free 28-day first shipment. That has ticked up a bit. We are now a bit over 50% of our new patients are using the voucher program, which was slightly higher from where we were when we had our call in August. But we feel it's a great opportunity for patients and doctors to trial YUTREPIA. And if it works for them, then that they can continue on their journey. But for now, the expectation and where we are is slightly over 50% are using the voucher program. Julian Harrison: Excellent. And just to clarify, 50% have utilized the voucher program or were using it as of the end of last week. Michael Kaseta: So from launch to date, we were slightly over 50% Yes. Operator: [Operator Instructions] Our next question is from Ryan Deschner with Raymond James. Ryan Deschner: Congrats on the quarter. In second quarter, you reported an elevated level of channel loading and I just wanted to ask how this metric is trending in third quarter and into October. And then I may have missed it at the beginning, if you could comment again on naive versus treprostinil experienced patients. Roger Jeffs: Yes. Ryan, so I'm not sure specifically what you're asking about channel loading because I don't think we commented on that specifically in the prior quarter. In terms of naive versus transition patients, it's been about 75% have been new to prostacyclin therapies and 25% have been transitions typically from inhaled, although you can see in PAH, where the orals are only approved and not in PH-ILD, we are seeing 10% transitions there. I think one thing that question is related is kind of are we growing the market versus just taking share. And I think the correct answer is, yes, we are -- I think the market is growing now with a second company in there driving awareness. And I think -- but when you look at things sequentially, I'd say, quarter -- second quarter to third quarter, I think we're capturing the lion's share of this new opportunity. For example, I think it was reported last week that Tyvaso increased in aggregate across the nebulized and Tyvaso DPI franchise, $14.8 million, whereas we're now from Q2 to Q3, we've grown by $45.2 million. So that represents the revenue growth. And of that revenue growth, we've captured 75% of that, which we're very, very pleased about. So a lot of opportunity here to grow the market. And I think with the product profile, the commercial acumen and the ability that we've had to drive immediate awareness around the value of YUTREPIA, you're seeing that the uptake is leaning in a one-sided manner towards YUTREPIA. So again, I don't think we've commented on channel loading, but we can get back to you on that later, if that's helpful. Operator: Our next question is from Serge Belanger with Needham. Serge Belanger: Congrats on the first quarter of launch. First question regarding payer coverage. Can you kind of give us an update on now on when you expect to be at a steady state of coverage? And I believe your competitor had entered some contracts with some commercial plans. Just curious if that has led to some headwinds for coverage of YUTREPIA. And then lastly, maybe just expand a little bit on your plans to explore YUTREPIA usage in IPF and PPF. Roger Jeffs: Great. Mike handles payer access question. you'll handle the first question. And then, Rajeev, if you wouldn't mind speaking to our explorations in IPF. Michael Kaseta: Yes, Serge, great to hear from you, and thanks for the question. As it relates to payers, and you referenced United's comments that they had contracted in the commercial space, which we've spoken previously about that they contracted at a parity level. As I said earlier, we have signed commercial contracts with the 3 largest payers. New-to-market blocks have been removed or in the process of being removed. So as a result of that, we feel that we will be on equal footing with United as it relates to that. So we feel very confident in our strategy, very confident in where we sit right now that will enable us to have future growth. One other point I just want to go back to is around the channel loading. Obviously, at launch, the channel loading prior to launch, SPs are making an assumption of what's needed. What I would say is we have settled into where I believe is a normal level of inventory. If you want to say that SPs hold somewhere between 3 and 4 weeks of inventory. We have leveled off there. We have great relationships with the SPs to understand where ordering patterns are. So we're very confident in -- as we move forward that can be managed appropriately and feel that we are in line with what our expectations would be. Roger Jeffs: Great. Rajeev, if you'll speak to the clinical question. Rajeev Saggar: Yes. Thanks, Serge, for the question. So I think there's a few lessons coming out of TETON-2 that highlight that inhaled treprostinil appears to slow the progression of forced vital capacity in patients with -- specifically with IPF over a course of 52 weeks. I think the other thing that continues to be something that we, as a company and with YUTREPIA are in full agreement is that dose matters. And once again, that will [ be on ] hold, it strongly suggests in TETON-2 that if you can dose the patient as high as up to 12 breaths, these patients did much better than if you cannot -- the patient cannot get to at least a minimum of 9 breaths. I think, obviously, our ASCENT study strongly suggests that if we can even dose even higher to that, we actually and earlier, we potentially can even improve overall patients in regards to exercise capacity at least in PH-ILD. So if you take the entirety of that situation, and of course, the PPF study is not read out yet, but this suggests that I think YUTREPIA has a very strong product profile that may have some significant advantages over nebulized Tyvaso in regards to potentially ease of use, dosing and titratability and overall tolerability effect. So I think as an organization, we're extremely interested in evaluating and considering this pathway as we move forward. Roger Jeffs: Thank you, Rajeev. As you stated, this is a real period of renaissance for inhaled treprostinil. And I think the value that YUTREPIA brings and the market opportunity expansion is immense. And that with L606, we have a next-generation opportunity to really complete this paradigm shift over time. Operator: Our next question is from Andrew Fan with H.C. Wainwright. Andrew Fein: Congratulations. I guess, the strong sales are always a great thing and patient demand is always a great thing. Maybe you can speak to the heightened importance of it in the context of the ongoing litigation with United Therapeutics and the read-through of the strength of sales and strength of patient demand and clear perceived differentiation in the products as we think... Roger Jeffs: Yes, Andrew, it was a little bit difficult to hear the question specifically. I could hear that you were asking about the litigation and how that's... Andrew Fein: Read to the robust commercial environment to the [ litigation ]. Roger Jeffs: Yes. I think the simple answer to that is physicians and prescribers in general don't -- aren't that aware of the litigation. And their only concern is patient benefit. So I think when our goal has been to expose the centers to the value of YUTREPIA, get them to try it, particularly within the centers of excellence and then drive further demand. I think that's their concern. What happens in a court of law is outside of their jurisdiction, so they don't technically pay any attention to it. So to me, there's not a lot of read-through in terms of how that litigation has impacted the uptake. And as you can see, we have been robust... Andrew Fein: How does it impact the landscape of thought processes Judge Young might go through in deciding is outcome of the litigation. So more of the commercial impact that Judge Young... Roger Jeffs: Yes. Yes. Understood. Okay. Maybe, Rusty, you can count on the sort of balance of equities and harm. Russell Schundler: Yes. So we don't -- again, it's hard to predict how a judge is going to consider or even whether he consider commercial results, if that's the question. I think the judge is going to be thorough in thinking through the evidence that was presented to him and evaluate and come up with a decision. So again, I don't think he's going to be taking into account what's happening in the marketplace sort of post trial and coming up with his decision. That was the question. Roger Jeffs: Yes. I would maybe just take this opportunity to just remind listeners today that the value of the opportunity in PAH alone. I think the oral therapies are doing around $2 billion currently. The inhaled -- if you just split the Tyvaso revenue in half, you'd say it's close to $1 billion and then orals are around -- I mean, parenterals is around $500 million. So you can easily get to a $3.5 billion current day revenue opportunity with -- in PAH alone. And as you can see, we think the attractiveness that YUTREPIA offers can lead to a leading position across all 3 of those segments, the oral inhaled and the steel of parenteral share. So again, I know there's some concern around what may or may not happen with 327, but I think even if you took it in isolation, this is a tremendous opportunity that we have in front of us. Operator: Our question is from Ben Burnett with Wells Fargo. Benjamin Burnett: Congrats on the quarter. I just want to follow up on that last question. I guess I think we were maybe anticipating an update from a legal update. I'm just curious if the timing from what you're hearing on your end is any change? And I guess maybe could you also just remind us as to what exactly we'll get? Like should we get an understanding of any sort of ramifications? Or is this just purely a decision around this patent that you mentioned? Roger Jeffs: Yes. Thanks, Ben. Rusty? Russell Schundler: Yes. Thanks, Ben. So I mean, as far as timing goes, let me address that first. Obviously, there's no deadline for judges to rule in cases. I think the judge -- the case load in Delaware is pretty high. I think the judge is going to be thorough in his opinion, but we don't have visibility as to when that decision will come. I think if you look at the time it took him to render a decision in the first Hatch-Waxman case a few years ago, I'd say we're in the window of when we'd expect an opinion, but the window is a pretty wide window. I think any time between now and sometime in the first quarter even wouldn't be unexpected. Then as far as sort of what we would hear from the judge, I think, again, if you look at the last case as a proxy, I think what we expect here first is just a decision essentially as to who won. And then typically, there's then a second step where the parties then put in front of the judge what they propose the consequence of that decision is one way or the other. And then if there's a disagreement between the parties, there's potentially additional hearings or whatever the judge wants to do to work through that. So at least as far as the initial step is, our expectation is just going to be an opinion as to who won, who lost. Operator: Our last question comes from the line of Jason Gerberry with Bank of America. Jason Gerberry: One litigation follow-up. Do you have a sense whether a royalty is a possible remedy depending on outcomes of the case as opposed to -- I think there's a lot of, I guess, thought that perhaps like an outcome if there was patent infringement would just be removing ILD from the label. So I just kind of would love to get your perspective on that. And then as we look to 2026, why wouldn't it be reasonable to assume there's at least 2,000 patients on paid drug next year, just given the trends and what we're seeing? Just love to get your perspective on that. Roger Jeffs: Yes. Rusty, you'll answer the litigation question, please. Russell Schundler: Yes. Jason, thanks for the question. I think there's a wide range of possible remedies here. It just is very dependent on exactly what the judge rules. I think the decides to put in arguments the consequence ranges from YUTREPIA being removed from the market to a royalty and those are all in sort of the downside scenarios. So again, it's just highly dependent on exactly how the judge rules. I think depending on which claims he finds are infringed the basis for the infringement, the consequences could be different. So I think it's hard to comment on that now. I mean, obviously, once we have the opinion, we'll have a more informed take on what we think the likely outcomes are. But at this point, I think as we've said consistently in our 10-Qs and other releases, I think we have a wide range of potential outcomes. We're just waiting to see what the judge says. Roger Jeffs: Great. And on the last question, obviously, we're not going to forecast patient numbers. I think what we have highlighted is that we've driven brand awareness very quickly. There's been significant uptake of YUTREPIA in our early launch phase and that our pull-through rate is very, very high at 85%. And we don't see any further impediments to that. So we're going to continue to try to position YUTREPIA as the best-in-class and first in choice prostacyclin and do what we need to do to benefit every patient that we can possibly benefit. So with that, I think we'll end the call. I'd like to thank everyone for joining us today. We're really proud of the progress we've made in just a few short months and even more excited about what lies ahead. I hope everyone has a great day. Thank you. Operator: Thank you for participating in today's conference. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Rob, and I'm your event operator today. I'd like to welcome everyone to today's conference, Public Service Enterprise Group's Third Quarter 2025 Earnings Conference Call webcast. [Operator Instructions] As a reminder, this conference is being record today, November 3, 2025, and will be available for replay as an audio webcast on PSEG's Investor Relations website https://investor.pseg.com. I would now like to turn the conference call over to Carlotta Chan. Please go ahead. Carlotta Chan: Good morning, and we welcome to PSEG's Third Quarter Earnings Presentation. On today's call are Ralph LaRossa, Chair, President and CEO; and Dan Cregg, Executive Vice President and CFO. The press release, attachments and slides for today's discussion are posted on our IR website at investor.pseg.com, and our 10-Q will be filed later today. PSEG's earnings release and other matters discussed during today's call contain forward-looking statements and estimate that are subject to various risks and uncertainties. We will also discuss on non-GAAP operating earnings, which differs from net income as reported in accordance with generally accepted accounting principles, or GAAP, in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today's materials. Following our prepared remarks, we will conduct a 30-minute question-and-answer session. I will now turn the call over to Ralph LaRossa. Ralph LaRossa: Thank you, Carlotta, and thank you all of you for joining us to review the results we announced this morning and to discuss our outlook for the business over the remainder of the year. PSEG reported solid third quarter and year-to-date operating and financial results, reflecting the expected positive impact of new rates from the October 2024 distribution rate case settlement that benefited the full third quarter. Our results through the first 9 months enabled us to narrow our 2025 non-GAAP operating earnings guidance to the upper half of the range at $4 to $4.06 per share from prior guidance of $3.94 to $4.06 per share. At PSE&G, we invested approximately $1 billion in the quarter and $2.7 billion over the first 9 months of 2025, all part of our planned full year $3.8 billion regulated capital spending program. This program is focused on replacing and modernizing New Jersey's energy infrastructure, meeting load growth and expanding energy efficiency programs that lower energy demand and customer bills. During the quarter, PSEG Nuclear supplied the grid with 7.9 terawatt hours of reliable, carbon-free baseload energy, while providing PSEG with the financial flexibility to fund our regulated investments. Our 100%-owned Hope Creek unit completed a 499-day continuous run since its last refueling outage, and we recently completed work to extend its fuel cycle from 18 to 24 months, positioning the unit to produce more megawatt hours going forward. Also during the past quarter, the Board of Trustees of the Long Island Power Authority approved a 5-year contract extension for us to continue as the operations service provider for the electric service on Long Island and in the Rockaways through 2030. We are executing on PSEG's growth plan with a focus on operational excellence and rigorous cost discipline to maintain reliability and provide value for our customers. The need for our investment in leadership has never been more evident than now with the significant and growing supply-demand imbalance in New Jersey and the entire PJM region. To address this resource adequacy imbalance, which will adversely impact both reliability and affordability for customers in the future if it's not addressed, we are actively collaborating with current and potential future policymakers to develop real solutions in New Jersey and ensure we can affordably meet our customers' energy needs. The next governor of New Jersey will be faced with addressing a broad set of rising costs and implementing practical solutions to get to the root cause of these cost pressures will be a focus. These cost pressures have many sources. For example, the latest Rutgers-Eagleton Poll showed that 36% of likely voters cited taxes as the top problem facing New Jersey, while 21% said it was affordability. Other topics trail these 2 leading concerns with 6% pointed specifically to housing affordability and 5% saw utility costs as the top problem in the state. We stand ready to work with the incoming administration to do our part to keep rates as low as possible in the short term and work on longer-term solutions to add supply. While the supply-demand imbalance remains a significant and growing problem, we expect the capacity market impact on customer bills next June will be limited by 2 factors. First, the FERC-approved price collar that will extend to at least the upcoming capacity auction in December; and two, the gradualism of the basic generation supply mechanism that feathers in changes over a 3-year period here in New Jersey. This assumes other supply-related costs remain the same, preserving the reduction from other charges expected to come off the bill. One energy topic where there is broad common ground is that New Jersey needs to add generation supply to reduce its over reliance on the PJM capacity market and ensuring continuing reliability and affordability for customers with imports having grown to over 40% of our generation consumption. Legislation has been introduced that allows electric distribution companies to compete to participate in offering supply solutions. We are supportive of legislation that would increase competition for generation of supply should New Jersey decide to pursue new in-state generation. In addition, we have sites with grid connection capability and pipeline supplies as well as the in-house expertise to build new supply here in New Jersey with prevailing wage labor. Now turning to PSEG Nuclear. We continue to implement projects designed to optimize our plants and increase megawatt production. In addition to the Hope Creek fuel cycle extension I mentioned earlier, our Salem uprate project will bring an incremental 200 megawatts to the grid during the 2027 to 2029 time frame as this kind of baseload carbon-free dispatchable power continues to increase in scarcity value. We also note the potential significance of the recent Department of Energy notice, which has now become a FERC rulemaking, seeking to accelerate interconnection of large loads in a way that is timely, fair and affordable for customers. The notice is requesting that FERC take final action by April 30, 2026. There are many positive elements to this proposal, but it will take a while before we see the ultimate impact of the rulemaking. So to summarize, we delivered a solid operating quarter for our customers, and our financial results through the first 9 months enable us to narrow our full year 2025 non-GAAP operating earnings guidance to the upper half of the range at $4 to $4.06 per share from our prior guidance of $3.94 to $4.06 per share. We are also reaffirming PSEG's 5-year non-GAAP operating earnings growth outlook of 5% to 7% through 2029 as we continue to pursue incremental opportunities to our long-term forecast, including the potential to contract our nuclear output under multiyear agreements and potential utility investments to address near-term need for additional supply due to the growing customer demand. Notably, our balance sheet continues to enable us to fund PSEG's 5-year capital investment program of $22.5 billion to $26 billion without the need to issue new equity or sell assets and provides the opportunity for consistent and sustainable dividend growth. Before I conclude, I would like to recognize the outstanding performance of both our transmission and distribution system as well as our nuclear business over the last quarter. Both demonstrated exceptional reliability and resiliency for our customers. This collective achievement reflects the hard work, dedication and technical expertise of everyone at PSEG. Now as you know, tomorrow is election day in New Jersey. Let me say this clearly, PSEG has been around for over a century, and we have worked successfully with every New Jersey administration on both sides of the aisle with aligned objectives for the state's advancement. Based on our meetings with both candidates for governor, I have every confidence that we will do so again with the new incoming administration. I'll now turn the call over to Dan, who will walk you through our financial results and the outlook for the remainder of 2025 and then rejoin the call for Q&A. Daniel Cregg: Thanks, Ralph, and good morning to everybody. For the third quarter, PSEG reported net income of $1.24 per share in 2025 compared with $1.04 per share in 2024 and non-GAAP operating earnings were $1.13 per share in 2025 compared with $0.90 per share in 2024. We've provided you with information on Slide 7 and 9 regarding the contribution to net income and non-GAAP operating earnings by business for the third quarter and 9 months ended September 30, 2025. Slides 8 and 10 contain waterfall charts that take you through the net changes for the quarter and year-to-date periods over the prior year and non-GAAP operating earnings per share also by major business. Let's start with PSE&G, which reported third quarter net income and non-GAAP operating earnings of $515 million for 2025 compared to $379 million in 2024. Utilities results were driven by the implementation of new electric and gas base distribution rates that took effect in October 2024 to recover a return of and on previous capital investments totaling more than $3 billion and higher working capital recovery. Beginning on Slide 8 with the PSE&G column. Our distribution margin increased by $0.30 per share compared to the year ago period, largely reflecting the impact of the rate case plus recovery of and return on PSE&G's capital investments. On the expense side, distribution O&M costs were $0.02 per share higher compared to the third quarter of 2024. And depreciation and interest expense rose by $0.01 per share and $0.02 per share, respectively, compared to the third quarter of 2024, reflecting higher levels of depreciable plant investment and long-term debt at higher interest rates. Lastly, the timing of taxes recorded through an annual effective tax rate, which nets to zero over a full year, had a net favorable impact of $0.02 per share in the third quarter compared to the prior year period. Following severe heat storms in June when PSE&G hit its electric system peak for the year, weather conditions during the third quarter, as measured by the temperature-humidity index, were 3% cooler than normal and 7% cooler than the third quarter of 2024. As a reminder, the Conservation Incentive Program, or CIP program mechanism, decouples weather and other economic sales variances from a significant portion of our distribution margin, while helping PSE&G promote the widespread adoption of energy conservation, including energy efficiency and solar programs. Under the CIP, the number of electric and gas customers is the primary driver of distribution margin, and each segment grew by approximately 1% over the past year. On the capital front, as Ralph mentioned earlier, PSE&G invested approximately $1 billion during the third quarter, totaling $2.7 billion for the first 9 months. Our plan for the full year of 2025 regulated capital investment remains approximately $3.8 billion, and our 5-year regulated capital investment plan of $21 billion to $24 billion through 2029 is unchanged. In the first quarter of 2025, PSE&G began deploying the new energy efficiency programs. We anticipate investing up to $2.9 billion over a 6-year period under that program. This program total includes approximately $1 billion of on-bill repayment options to help our customers finance their energy efficiency equipment and appliances and provides customers with energy information and options to manage their energy use and lower their bills. Now moving on to PSEG Power & Other. For the third quarter, PSEG Power & Other reported net income of $107 million in 2025 compared to $141 million in 2024 and non-GAAP operating earnings were $50 million in 2025 compared to $69 million in 2024. Referring again to the third quarter waterfall on Slide 8, net energy margin rose by $0.01 per share compared to the prior year quarter. While generation was down in the quarter due to the Hope Creek refueling outage, overall power pricing and market revenues were higher than in the third quarter of 2024. O&M was $0.05 per share unfavorable compared to the third quarter of 2024, mostly driven by the scheduled refueling of our 100%-owned Hope Creek nuclear unit. As Ralph mentioned, our Hope Creek unit has successfully transitioned from an 18- to 24-month refueling cycle going forward, which is expected to yield additional megawatt hours as well as O&M savings over the long term. Depreciation expense was $0.01 per share favorable and interest expense rose by $0.02 per share, reflecting incremental debt at higher interest rates. And taxes and other were $0.01 per share favorable compared to the third quarter of 2024. On the operating side, the nuclear fleet produced approximately 7.9 terawatt hours during the third quarter compared to approximately 8.1 terawatt hours in the third quarter of 2024. For the 9 months ended September 30, 2025, nuclear generation was approximately 23.8 terawatt hours, up slightly from 23.3 terawatt hours for the same period of 2024. Capacity factors for the nuclear fleet were 92.4% and 93.7% for the quarter and 9-month period ended September 30, 2025, respectively. In July, PSEG Nuclear declared approximately 3,500 megawatts of its eligible nuclear capacity in PJM's base residual auction at the market clearing price of $329 per megawatt day for the energy year June 1, 2026, through May 31, 2027. Touching on some recent financing activity. As of the end of September, PSEG had total available liquidity of $3.6 billion, including approximately $330 million of cash on hand. And on the financing front, in August, PSE&G issued $450 million of 4.9% secured medium-term notes due August 2035. And later in August, PSEG redeemed at maturity $550 million of notes that carried a coupon of 0.8%. Overall, PSEG had significant liquidity at the end of the third quarter, which remained relatively unchanged from the end of the second quarter. PSEG's variable rate debt at the end of September consisted of a 364-day term loan at PSEG Power for $400 million, which matures in December of 2025, and commercial paper. As of September 30, our level of variable rate that represents approximately 4% of our total debt. And in October, Moody's published updated credit opinions on PSEG and PSE&G with no change to either credit ratings or outlook. Looking ahead, our solid balance sheet supports the execution of PSEG's 5-year capital spending plan dominated by regulated CapEx without the need to sell new equity or assets and provides for the opportunity for consistent and sustainable dividend growth. In closing, we are narrowing PSEG's full year 2025 non-GAAP operating earnings guidance to 4$ to $4.06 per share from $3.94 to $4.06 per share. This updates PSEG's solid results through the first 9 months of 2025. And we are also reaffirming our long-term 5% to 7% compound annual growth and non-GAAP operating earnings through 2029, supported by our capital investment programs and the nuclear PTC threshold. We expect to introduce PSEG's 2026 non-GAAP operating earnings guidance, roll forward our capital investment plans, update our rate base on long-term earnings CAGRs and discuss this outlook call during our year-end call in February of 2026. This concludes our formal remarks. And operator, we are now ready to begin the question-and-answer session. Operator: [Operator Instructions] First question is from Shar Pourreza with Wells Fargo. Ralph LaRossa: Who's that? Welcome back, Shar. And just like we did with many of your peers over the last 12 months, welcome back to hear you. Shahriar Pourreza: I appreciate. You almost had me tongue tied and that never happened. So I appreciate that. So Ralph, just obviously, the elections could be kind of this key threshold for data center deals in the state. We've seen data center customers walk away from local politics issues in kind of both the regulated and even deregulated markets. Artificial Island is obviously -- it's a great asset. So kind of curious if there's any pressure points forming there? And then, obviously, one of your favorite questions is any updates on potential time lines? Ralph LaRossa: Yes. Thanks, Shar. I'll let Dan, as we have been doing over the last couple of calls here, answer the time line conversation. But look, I would say this, and it's more of a generic answer to you on the election and what we can expect post Tuesday. And that is, we will see. But as I said in my -- kind of my closing comments, we fully expect to be able to work with both sides of the aisle. We've done it in the past. It's a proven track record by this company, and we feel really, really confident that, that's going to continue as we move forward here in 2026. Specific to data center opportunities in New Jersey, they really haven't slowed down. We have some information in the deck about how that has continued, and we expect it to continue. A few of those jobs have moved a little bit further along in the queue, depending upon whether you look at our queue or PJM's queue as an example. And I'll just point you to one that showed up today, it's public information. There's a TEAC meeting that's taking place tomorrow at PJM, and there is some additional load that's been identified for a job in Kenilworth that is our supplement -- one of our supplemental projects. So they continue to arrive here in New Jersey. We haven't seen it at the hyperscale level. And we have talked about that for many times, and we expect these to be smaller, not ones that we're making big announcements about, and we don't expect those smaller, less in size announcements to be something that we're talking about, whether it's at the utility or at Power. Dan, do you want to talk more about the time line? Daniel Cregg: No, I mean, I think Ralph covered it. I think we'll get a little bit more color from both of the candidates. There's been a whole bunch of stuff they've talked about during the campaign. This hasn't been the highest topic with respect to data centers as much as with respect to affordability generally on things that have touched us. But we'll get more color as the election ends and we find out where they're going to go. But in the meantime, I think it's everything that Ralph said, and we're continuing to move forward. Shahriar Pourreza: Okay. Great. And then just lastly -- that's helpful. And then just on the 11 gigawatts, the large load pipeline that's obviously growing. Just -- I know I don't want to front run the CapEx update on the roll forward, but let me attempt anyway. But just on the grid capacity, just Dan, talk about -- Ralph, just the grid capacity that's there to convert into signed agreements versus how much transmission and distribution needs you're going to have as you start to convert? Ralph LaRossa: Well, again, I think a little bit of that is front-running some policy that will exist here in New Jersey, right? So the first -- and I talk a lot about the fact that the new governor will need to make some policy decisions that will help us plan the grid for the long term. Right now, we have capacity on our grid. That's based upon the current topology. If we see new generation come in, large-scale 1,000-megawatt plants that are showing up, that may change the grid topology a little bit. If we see more solar and more batteries, that may change the topology a little bit. So I'd be front-running to say that I could tell you that, which is why we're going to give you that full -- roll forward in February. Operator: Our next question is from the line of Jeremy Tonet with JPMorgan. Jeremy Tonet: Just wanted to pick up on the conversation with regard to potential data center contracting here. And wondering if you might be able to comment, I guess, on the flavor of conversations between your New Jersey versus Pennsylvania assets. Is there any discernible difference, I guess, in the tone of those conversations? Daniel Cregg: I wouldn't say difference in the tone of conversations, Jeremy, but I think that you're seeing different types of entities being involved between the 2 states. I think you have more of a forward-leaning appetite in Pennsylvania, which is enabling more to happen and more to happen on a bigger scale. And I think in New Jersey, I have not seen that as much with respect to the incentives. And so what you're seeing is still some interest in the state and some sizable interest in the state, but at a smaller scale. So I think that's probably the biggest differentiation between the 2 locations. Jeremy Tonet: Got it. That's helpful. And as it relates to, I guess, supply additions and working with stakeholders in the state, just wondering if you might be able to expand a little bit more beyond that, I guess, as far as what type of constructs Pega be interest in, be it regulated generation, unregulated generation or just any other color in general on this topic? Ralph LaRossa: Yes. So Jeremy, it's a great question. Look, we have said for many months, and we have indicated in public settings that we are more than willing to help the state achieve its goals in a regulated capacity, right? We absolutely think that we could provide some solutions for gas generation that's in a regulated manner. We also think we can continue. We've done large-scale solar on some brownfield sites, some landfill sites in the past. So we could do more on the solar front. We think there's an appetite now for some regulated storage and we're looking forward to taking part in that, see how that plays out over the next few months. And we know that many -- both candidates have been talking a lot about new nuclear. Now on new nuclear, we have also been very, very pointed in our responses in saying that we're not looking to put our own capital to work, but we want to enable solutions for the state. And that's where our site comes in. And we think that long term, that will provide us with some revenue opportunities, whether it be for our operating and maintenance activities or security activities, spent fuel storage. There's many, many things that we can do on that front without putting our own capital to work. And so that's the way we've been approaching it, and that's the way we'd like to see things play out. More opportunities for us in baseload generation from a gas standpoint that would be regulated. And certainly, more we can do on a solar and the battery fronts as well. And I think if you look at both candidates and their platforms, you really see one -- they all -- they're both talking about everything, right, that they're looking at all these options that are out there. The real question is to what degree. And I think you will see one -- with one candidate that might be leaning a little more towards the gas-fired units and another candidate that leans a little more towards solar and batteries. But both candidates are talking about all of the above strategies, which we support and we will be part of. Operator: The next question is from the line of Nick Campanella with Barclays. Nicholas Campanella: So look, just the contracting discussion, we did see the multistate kind of proposal advocating for Bring Your Own Generation and the need to kind of fast track and permit -- fast track the permitting for some of these data centers, but there just seems to be an overall stress on Bring Your Own Generation across the states in PJM. And how is that causing the conversation around the nukes to evolve? And is it fair to say that any deal at this point would now have to come with additionality commitments, whether that's upgrades, new gas, batteries or otherwise? Just maybe you can kind of talk to that a little bit if that's the right take? Ralph LaRossa: Yes. Are you talking about the DOE, Nick, in that the DOE -- the letter from DOE? Nicholas Campanella: I'm just -- I think there's been various calls by whether it's been Pennsylvania, New Jersey or Maryland on just the need to -- for data centers to bring their own generation now. And I'm just wondering how that impacts incumbent generators that were interested in potentially signing front-of-the-meter deals. Daniel Cregg: Yes. Nick, I would say that, if I'm capturing your question right, that there has been more dialogue around it. There has not been anything from the standpoint of requirements related to what must happen. And so I think from that perspective, I think it almost does tie in a little bit to what Ralph is talking about with respect to the DOE letter, which is trying to set some standards and trying to, I'm going to say, fast-track things, but get things moving where there is a little bit of a logjam. There's been a discussion about a whole host of topics. BYOG is one of them. But there's nothing that's mandatory from that perspective. And there's nothing about additionality that's mandatory from that perspective and different counterparties have different environmental profiles that are important to them, but not against the backdrop of anything that is required either. And so I think what you're seeing is continued dialogue around some topics that are of interest, but are not precluding anything from happen one way or another. Nicholas Campanella: Okay. All right. I appreciate that. And then there's been a lot of EPS CAGR updates this quarter. And I guess maybe you can kind of help position to the Street, you're doing 9.5% year-over-year growth, '25 through -- off of '24. I see that on Slide 5. I noticed the [past] 5% to 7% CAGR, that's not linear. But just from our perspective, we know where the capacity auctions have cleared at, we know where prices have gone. Just what are some of the negatives that we should be thinking about that kind of put you back within the 5% to 7% range as we kind of think through what you can deliver on in '26? Daniel Cregg: Yes. Nick, what I would tell you is our update is coming in February, and we're not going to piecemeal elements of it before we get there. So we'll give you a fulsome update when we give you the update. Operator: The next question is from the line of David Arcaro with Morgan Stanley. David Arcaro: One quick clarification or maybe an additional piece of data. I was just wondering what the level of mature applications would be in that data center activity that you've quoted in the past. Ralph LaRossa: Yes. So I think we moved that from 2,600 to 2,800. I think that's the information that is in the deck. But that's the right number, 2,600 to 2,800. David Arcaro: Great. Okay. Perfect. And then as you sketch out the utility growth outlook and roll forward, I was just curious if you could give your perspective now on how do you manage the affordability concerns maybe outside of just the generation front as you're planning the next iterations of your utility CapEx programs and looking at the T&D rate outlook. How are you weaving in just considerations around affordability? Ralph LaRossa: Well, look, we always think about affordability, no matter what we do here from a company standpoint, whether it's -- I could point you to our O&M slides that are in the deck and how we held O&M relatively flat over a longer period of time. I could talk to you about the way we're implementing our AMI system right now and how we've done that, not only from a standpoint of cost and keeping rates down, but also from the impact on employees and the just transition of those folks into different positions. So affordability is not something new to us. I appreciate it's a hotter topic in different circles, but it's the way we've operated. And you've heard us many times talk about the fact that we're not making any big announcements about expense savings. We normally just operate in that manner, and we'll continue to do that. That said, we've also, in the past, worked through different mechanisms with the regulator to spread costs out differently, and I'll go back 20 years when the decision was made to change the depreciable life of our gas assets. And those -- that cost was recovered in a different way from customers. So there are things that we can do working with the regulator to come up with solutions to keep T&D rates flat. We've done that recently. We'll continue to look at options for that. But this is not just an affordability issue, right? This is quickly becoming a reliability issue and the resource adequacy is going to drive us to solutions that are going to increase supply as the demand comes online. We have to find supply. David, I don't know any other way to say it. And I think both of the candidates for governor in New Jersey recognize that. They've both said that. Again, their solutions might be a little bit different, but how we get there is the only question. It's not if we're going to get there. We need more supply in the state. Operator: The next question is from the line of Bill Appicelli with UBS. William Appicelli: Just following up on some of those comments you just made about finding supply. I mean there would be a sense of urgency I think, behind that, right? So is there an opportunity here in the veto session to push for some legislation that could support this? Or do you think this is more likely something has to be dealt with under a new administration? Ralph LaRossa: Look, there's been a lot of things that have happened in the state in the past, not just from an energy standpoint, but other topics that have been handled in lame duck. And so I'm not sure whether or not that will be the approach that's taken here or it will be one that's taken in '26. But I do know it's going to be a hot topic one way or the other. And so I personally would like to see us move faster from a state standpoint. I think it would help us both from an affordability standpoint, but also from an economic development standpoint. We -- as I mentioned earlier, we've been -- we've got some headroom in the system today, and we've been using that up. But if we're going to continue to grow the state and again, both candidates would like to see us continue to grow the state, then one of the fundamental things we'll need is enough supply. And that's where I put my economic development hat on, and I say, "Let's get moving sooner than later. And boy, if we could have those discussions starting on Wednesday, it couldn't be soon enough." William Appicelli: Right. And then just along those same lines, I mean, how do you evaluate the framework for that, right? Would this be in terms of evaluating how much generation you potentially would need from a regulated basis? Would there be sort of an RFP approach that you could then bid on? I mean I'm not sure if you guys could sort of describe how you would envision such a mechanism coming out? Ralph LaRossa: Yes. Look, I think that the BPU could hold some sort of an auction. I think we could go to some sort of an FRR. I think, again, I don't want to front-run anybody. I think it would be rude to do that, so I won't. But I will tell you, what it all starts with the same four questions that we've been banging the table about, right? One, we've got to figure out what load we're going to supply, right? Two, we got to figure out what the reliability targets are going to be. Three, it's going to be emissions, right? And what are the emissions profiles we're willing to accept both if we're in a -- build our own generation or import it from our neighbors. Both of those have different impacts and how that plays out. And then the last thing is the definition of affordability. We talk about affordability, but we rarely define it, whether it's at the state level or at the federal level, to be honest. Is it going to be CPI? Is it going to be regional CPIs? Is it going to be state CPI? What is it going to be? And I think as we move forward, answering those four questions is fundamental to putting together an integrated resource plan. William Appicelli: And then just lastly on the outlook for the forward curves. I mean can you maybe just speak to where you see those relative to maybe your fundamental view or at least relative to where the PTC floor is that's embedded in your outlook? Ralph LaRossa: Yes. I'm going to let Dan answer that one. He sees that a little bit more, but I mean -- we look out 4 years the way others do. So I'll give it to you, Dan. Daniel Cregg: Yes, Bill, I think you've seen some recent strength within the market, and we've been saying for some time that if you just think about all the fundamentals that are going on and the discussions that everybody is having, it's been pretty tough to try to land the plane on exactly what's going to happen from a load perspective, but the numbers are a little bit staggering. And so even a lower end of the range would imply a need for incremental supply. And then if you think about the supply discussions, those have always moved towards the concept of we need to move quickly because at the end of the day, it generally isn't going to come out all that fast. You just think about time for turbines and everything else. And so all of that leads you to a little bit of a more bullish place. And if you look at the forward curve, you haven't seen quite as much bullishness. So we've seen some of that come up. And so I think that feels a little bit more like a fundamental move than just some interim period of time, although we do end up having some of those, too. It seems like every time we go into winter and we get a cold day, you see a little bit of movement out the curve. But I do think fundamentals should support a stronger price as we go forward, but the forwards are the forwards. Operator: The next question is from the line of Nick Amicucci with Evercore ISI. Ralph LaRossa: I think you'll get a welcome as well. I think this is our first quarterly call with you asking a question. Nicholas Amicucci: I appreciate that. I just wanted to dig in to a little bit on Hope Creek, just kind of the extension of the fuel cycle there. Kind of what undertakings were done? I mean, was that kind of an enhanced fuel offering? Or how should we kind of think about that? Is there opportunities to kind of extend that even further? Ralph LaRossa: Yes. No, Nick, it really is a lot simpler than people might make it out to be. It's just shuffling of the fuel, some different changes in the fuel design. But we didn't change to a new fuel supplier as a result, right? So this is something that's been done in the industry quite a bit. And we joked a lot about it. We had a CFO that always gave us a hard time about doing upgrades at a plant that we only had a visibility for 3 years of a life for, but he did the right thing and held us accountable a little longer-term life before we make long-term investments. So while Dan did that, we were getting smart about the changes that we could make there, and we're following what the rest of the industry has done. I will tell you, though, we also, at the same time, did a lot of other things at that plant to continue to reinforce both the asset itself, but also some efficiencies. And I talk about things that you might not pay attention to, but we changed out some of the insulation in the cooling tower, which just changes the efficiency of that -- of the cooling tower, and it just allows us the draft that the cooling tower is going to increase, which allows you to keep the megawatts up in the middle of the summer when at other times, the heat and humidity might reduce the draft flow through that stack. So we were looking all the time for it. And in that case, no big announcements, but I know we're running more efficiently in the summer months, which, by the way, is at the same time that we have the higher prices, right? So lots of different things that we're doing down there and the team is doing a nice job for us in identifying those opportunities. But specific to your question, on the fuel, not a big change compared to what others have done in the industry and no real opportunity at Hope Creek to make an additional change. But maybe at Salem, and I know there are some operators that are looking at moving from a 12- to 18-year cycle at PWRs. The PWR -- I'm sorry, 18 to 24 months. The BWR is what we just did at Hope Creek. Operator: The next question is from the line of Paul Zimbardo with Jefferies. Paul Zimbardo: Dan, just to follow up on the conversation on the forward curve. Obviously, there's been a pretty big move even as of late. Could you share some light on kind of what the hedging profile looks like at Power for the next few years? And just if there's been any changes? I know we had the nuclear PTC a little bit ago. Just any overall thoughts you could give on the positioning would be great. Daniel Cregg: Yes. And Paul, it isn't much and it's not very different from the characterization that we've provided in the past. I mean we said we were historically -- this goes back pre-PTC to fairly ratable 3-year hedging cycle. The PTC changed that because if you're taking a look at an overall hedging portfolio that you're trying to manage risk with, you have a risk protection from the PTC. So we said we varied from that a little bit because of the PTC. But the way we've described it is just not radically different from that ratable method. And I think if you think about it generally in those terms, you'll be in the ballpark of where we are. And that's how we've been describing it, and I think that's still a good way to describe it for you. Paul Zimbardo: Okay. That makes sense. And then on the capital refresh, just to make sure I understood correctly, it sounds like you will have kind of a bigger capital refresh when we do that fourth quarter roll forward. Is that a fair interpretation? Or do you need some of that political and regulatory clarity and just it's not a fourth quarter event, but sometime later in 2026? Daniel Cregg: No. We will be doing a normal roll forward of everything on our fourth quarter call. I think that's the simple way to think about the messaging. Operator: The next question is from the line of Carly Davenport with Goldman Sachs. Carly Davenport: Just one quick one for me on the utility side. Just as you get towards kind of the end of the GSMP II extension period, can you just share sort of the latest there in discussions about refreshing that program as we near 2026? Ralph LaRossa: Yes. We're continuing to have those discussions, Carly. And I wouldn't -- again, I wouldn't want to front run any of that, that's taking place right now. But we're in continuous negotiations that are ongoing with the BPU. Operator: The next question is from the line of Anthony Crowdell with Mizuho. Anthony Crowdell: Thanks for squeezing me in with all the welcome greetings. Ralph LaRossa: Anthony, my only question was, am I welcoming you to the Devil's bandwagon? It's a big question. But we'll talk about it... Anthony Crowdell: I'm on it. I agree. I'm on it. Much better than my Rangers. I guess two questions. One is, I'm sure you guys have met with both candidates. When they talk about affordability, do you think they're focused on the supplier generation side or the wire side? Do they understand the differences in the PJM impact versus just investing in the grid infrastructure? And then I have a follow-up. Ralph LaRossa: Yes. No, Anthony, great question. They absolutely understand the difference. They also understand that the customer gets one bill. And so what we need to work together with whoever is successful is working on that one bill. And so that's why we keep talking about supply. It's not our traditional lane. We're here to help on that. But we are really pounding the table about the integrated resource plan no matter what happens going forward because without that, we'll just continue to flounder. We lived on the backs of some excess capacity in the area for quite some time. And now we have this challenge here. But I don't want to at all give anybody an indication that either candidate doesn't understand the issue. They absolutely understand the issue, and they know where it is. Anthony Crowdell: And then the follow-up, kind of the same topic. Your company is the only company with both PJM wires exposure, but also merchant generation PJM. And as we're all looking for, whether it's a data center contract or a large load customer contract, is it possible that both segments of your business, the wires company and the generation, given the backdrop of affordability and everything else, that they actually both could win or outperform at the same time? The worry is when you see this election going on and a very high attractive price on a generation if something came about on the data center or any type of large contract would actually hurt the wires business or vice versa. I'll just leave it there. Ralph LaRossa: No, it's a very fair question, Anthony, but it's one that we think about every day because we're -- at the end of the day, we're hired by the shareholders, and that's where our head's at. And we do think that there continues to be an opportunity to benefit from having both of the assets. I'll say it in that term from a generation standpoint and from a utility standpoint. I think it showed up in the way we've been able to finance the utility. That was the reason we originally talked about holding on to nuclear. It helps us in the state in conversations. It helps us with our unions, having a common union there. So just to remind everybody of that is key. But we are laser-focused on adding value for the shareholder, and we're trying to look at that balance every day to get that optimization. So I think there is a win-win. And how it plays out will be based upon a lot of different factors over the next couple of years here. Operator: Our last question is from the line of Andrew Weisel with Scotiabank. Andrew Weisel: First question is on the balance sheet. You've obviously long touted the strength of that and the lack of need for external equity. But I am expecting in a few months, we'll see a pretty sizable increase to the capital plan. Maybe how are you thinking about that at this point? I don't expect specifics, but are you thinking that you'll be able to continue to stay no equity? Ralph LaRossa: Look, I think I'm going to start off and give it to Dan. The way I've talked about this quite a bit, both Dan and his predecessors have handled our balance sheet extremely well, and I don't think any of that's going to change as we have more opportunities in front of us. But Dan can give you any more he wants to there. Daniel Cregg: And there's not a lot without going into what we would be saying in the fourth quarter. I think we've been able to manage the business pretty well and manage the needs that we've had pretty well. And I think we're going to continue to be able to do that. We'll provide the fulsome roll forward in the fourth quarter, which will include capital rate base and overall earnings growth. Andrew Weisel: Okay. Great. Next, on affordability. Obviously, it's been talked a lot about today, and I can't watch a World Series or football game without being reminded about it. But one different approach I want to maybe think about is, obviously, no one likes seeing their bills go up, and it's been a real hard slog to get new supply added. But New Jersey is a pretty wealthy state overall. How are you thinking about it in terms of not only overall affordability, but focusing on low and lower customers? There's a lot of existing programs and talk about expanding or adding new programs. Is that maybe a different strategy that maybe could be pursued both by you and the state overall? Ralph LaRossa: Yes. No, it's -- again, a very good question. It is absolutely something I think it will depend upon who is successful and how this plays out. But both candidates talk about how they have to look at things a little bit differently dependent upon the customer or in their case, the taxpayer that they've -- that they're taking care of. So we have done that in the past, Andrew, and I'm going to give you one example here where Kim Hanemann and her team at the utility reaches that all the time. And we are doing analysis over the past week, just to try to see where things might play out from a SNAP standpoint and the impact on our customer base. And we identified about 500,000 customers that could be impacted in how we could think about those customers and making sure that we take that into account as we are in a shut-off period now for collections and how that's all handled. So our team looks at that level of detail on a regular basis and very proud of them for doing that. And I think that, that, at the end of the day, brings us a lot of goodwill in the state, not only from our customer base, but also from our policymakers. Do you want to add anything, Dan? Daniel Cregg: Andrew, the only other thing I would add is we show a percent of wallet slide in our deck that we have for a long time. And if you take a look at that slide, there's actually 2 lines on that. One of them is for the average customer. One of them is for a lower income customer. And given the lower income and given the share of wallet, you would think that it would be a higher percent of their income given the fact that the denominator is lower. And in fact, it's not. And that, I think, is a credit to the programs that are in place and the things that are done throughout the state and that we do ourselves to help some of those that are most in need. So that is always a focus and will continue to be as we go forward. Andrew Weisel: Great. Yes. I appreciate how much you guys have been proactive on that front. One last one, if I could, just on the large load inquiries, a pretty significant pickup there to 11.5 gigawatt. Can you detail how much of that is data centers versus manufacturers? And then just very roughly the timing of the ramp-up schedules? How much of that is kind of '26, '27 versus the outer years like '29, '30 or beyond? Ralph LaRossa: Yes. No, I don't have the level of detail on each of the years for you. So I wouldn't have that. It is mostly data centers. I would say, almost exclusively data centers in that number. There were some electric vehicle loads that were coming on. It has not stayed up at the same level. So everything -- but it's also edge computing more than it is hyperscalers, again, just to reinforce that point. And I think the other thing that's really telling about the load and the interest that's coming in, it's all sticking to around that 20% number that's actually coming to fruition, which we had talked about 3 or 4 calls ago. We thought that was going to be the way this would play out and it's shown itself in the numbers as the total inquiries come in, those that are actually moving to new business are staying around 20%. So again, proud of the team and the forecast that has been done there and give you a little bit of more flavor than maybe just looking at the due numbers. Operator: Ladies and gentlemen, I'd like to turn the floor back over to Mr. LaRossa for closing comments. Ralph LaRossa: Well, thanks. I got -- I have a planned comment. I'm going to add another one. I was told by Carlotta today that this Dan's tenth year as CFO, and so your 40th call, Dan. So congratulations on getting there. Daniel Cregg: I must be exhausted. Ralph LaRossa: You must be. But listen, all joking aside, we said a lot of thank yous and good luck to people moving into new roles and no place is that more important in Trenton as we go through the next week. It's been a heck of a campaign. All the polls are saying it's close. We'll see how this plays out. But what will not be close is our ability to work with whoever is successful. We stand ready, talk about rolling up our sleeves. We'll roll up our sleeves, our trousers, whatever else we need to do to make sure that we are here to help out and we're ready to work. So good luck to both candidates as they enter the last 24 hours of the campaign. And I look forward to seeing you all in Hollywood, Florida in the next 7 days or so. Take care. Operator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: " Inge Laudy: " Linde Jansen: " Michiel Declercq: " KBC Securities NV, Research Division Marco Limite: " Barclays Bank PLC, Research Division Marc Zwartsenburg: " ING Groep N.V., Research Division Unknown Analyst: " Operator: Good morning, ladies and gentlemen. Welcome to the PostNL Q3 2025 results. [Operator Instructions]. [Audio Gap]. [Break] Inge Laudy: Good morning, and welcome to you all. We have published our Q3 '25 results earlier this morning. Unfortunately, CEO, Pim Berendsen, cannot join in this meeting due to personal circumstances today. So Linde will do the presentation. And after that, we will open up for Q&A. With that, Linde, I hand over to you. Linde Jansen: Thank you, Inge, and welcome to you all. Let me start with what highlights for this quarter. Let me start with our Capital Markets Day, which we held on 17th of September. There, we presented our new strategy and transition program, Breakthrough 2028, with the related ambitions. We launched our new purpose, connected to deliver what drives us all forward. And we launched our new strategic intent, being to grow our business, create sustainable value, lead through innovation, and make impact that matters. This is based on 4 pillars: Growth, Value, Innovation, And Impact. I will repeat our 2028 ambitions on the next slide, but let me first share the key takeaways for this quarter. The Q3 results came in as anticipated and landed below last year's results. At Parcels, volumes were up 1%. And this quarter, again, volume growth from international customers outpaced domestic growth. The Mail volumes declined by almost 5%, mainly due to ongoing regular substitution, but this quarter was supported by the first batch of the election mail and some other one-off names. The decline in normalized EBIT at Mail led to a year-to-date normalized EBIT of minus EUR 43 million, and this reinforces the urgent need for adjustments in the postal regulation. Good to mention that our cost savings are well executed and bring savings according to plan, both at Parcels and for Mail in the Netherlands. Furthermore, additional efficiency improvements at Parcels contributed to our performance. And emission-free last-mile delivery increased to 33%, which is 5 percentage points better than last year. The last thing to mention on this slide is the reiteration of our outlook for 2025. Before moving on to more details on this Q3 performance, let's do a quick recap of our Breakthrough 2028 program. Our strategy aims at delivering sustainable returns for our shareholders and value for customers, employees, and society as a whole. We truly launched a strategic turning point with our new transformation program, Breakthrough 2028, that drives our financial ambition. A short summary of the strategic objectives of our 3 business segments, which we will create as of 2026: First, E-commerce, where we will grow from volume to value through a differentiated approach and smart network utilization; secondly, platforms, where we capture international growth through asset-light models; and lastly, our Mail segment, where we want to transform to a future-proof postal service. Driven by the e-commerce market growth and our commercial initiatives, we aim to achieve GDP plus revenue growth, targeting at over EUR 4 billion in 2028 with a step-up in normalized EBIT to over EUR 175 million in 2028. A disciplined investment approach will drive incremental return on invested capital with an increase in Return On Invested Capital (ROIC) from 3.4% in 2024 towards our ambition of over 12% by 2028. And our approach towards dividends remains the same, in line with business performance, with 70% to 90% payout ratio while holding on to our aim to be properly financed. That's about a short recap of our Breakthrough 2028 program. Let's now move to the strategic attention points for Mail and Parcels, before I will explain the detailed Q3 financial results. Let me start with Mail. Early October, a next step towards a viable and future-proof postal service in the Netherlands was proposed by the minister. The following adjustments for the USO were proposed: D+2 at 90% quality as of 1 July 2026 D+3 at 92% quality as of July 2027 The consultation period closed last Friday. Without doubt, these adjustments are much appreciated. But at the same time, this proposal is still insufficient to cover the net cost. And therefore, it remains necessary to find a solution, therefore. And we have to keep in mind that the uncertainty in the timelines of the political process persists. In the coming weeks, we are expecting a decision on our appeal on the rejection of our request for financial contribution for 2025 and 2026, and also a reaction of the minister on our request for withdrawal of the USO designation. Together, these will determine our next steps towards a sustainable future of postal service on its path to reach the ambition as set out in our Breakthrough 2028 program. We will continue to make every possible effort to maintain reliable service and remain committed to accessible and financially viable postal service. Then to Parcels. As announced during the Capital Markets Day, that segment will be split in e-commerce and platforms as of 2026. And we will focus on the respective strategies as announced on the Capital Markets Day. The strategic initiatives already started and are progressing according to plan. In Q3, we see for Parcels a continuation of the trends as we have seen in the first half of this year. The price/mix effect was positive. Strong price increases were delivered according to plan. These are largely offset by less favorable mix effects that are more negative than we had anticipated. And that is mainly explained by the increased client concentration within our domestic volumes. With regard to the targeted yield measures, it is important to emphasize that these will come into effect gradually and confirm the strategic validity of our focus on consumer value, while also resulting in a slight loss in market share as anticipated. What is also important to mention that to date, we have been able to mitigate the adverse development in mix effect by own actions. Our flexible operational setup proved our agility and enabled additional efficiency improvements in our network and supply chain that contributes to our performance, on top of the ongoing planned cost savings program. Another focus area is our international expansion, especially in intra-European activities, where we are investing to capture future growth. In Q3, this resulted in the continuation of revenue growth at Spring, with some impact on the performance following our strategic investments. We are ready for the ramp-up in our operations for the peak season that is about to come. Together with our customers, we are putting all efforts in striking the optimal balance between volume, value and capacity utilization. Over to our key metrics. Let's start with the financial KPIs. Revenue in the quarter amounted to EUR 762 million, which is slightly above last year. And we see normalized EBIT at minus EUR 21 million, in line with our expectations. Looking at free cash flow, we see minus EUR 18 million in this quarter, bringing the year-to-date at EUR 98 million comparable with last year. And normalized comprehensive income that includes, for example, tax effects amounted to EUR 23 million minus. I will discuss these results of Parcels and Mail in a bit more detail in a bit. Then the nonfinancial highlights for this quarter. The share of emission-free last mile delivery improved by 5 percentage points to 33%. We have recently started the rollout of over 40 electrical vans in our transport services, so in the first and middle mile. Looking at NPS, we keep our average #1 position in relevant markets and see an improving NPS for the important ‘I receive journey’. And to evidence our innovative power, we have recently concluded successful experiments to explore how robotics can contribute to future parcel delivery, building on the knowledge and experience about the way we have implemented robotics in our sorting centers. Then our out-of-home strategy. That is continuing to gain momentum and the utilization rate being defined as the total amount of parcels, both to consumers and returns, during the week as a function of locker capacity is increasing and is now at 50%, while NPS scores for APL services remain high. Let's move to the financial details of Parcels. Revenue amounted to EUR 581 million, which is EUR 6 million above last year, following volume growth, price increases and mix effects. Overall, our volumes grew by 1%. Volumes from international customers continued its growth and were up 5% compared to last year and domestic volumes were flat. Overall, market share was slightly down as anticipated following our yield measures. We do see further client concentration with increasing share of volume from large players, domestic as well as international, but also platforms and marketplaces. In this quarter, the top 20 accounted for 57% of volume. With that in mind, it's good to see that the total price/mix impact was positive this quarter. Average price per parcel was up by $0.02, supported by targeted yield measures and regular price increases. Price increases have been implemented according to plan. But definitely, the mix effects are more negative than anticipated, driven by client concentration, predominantly within our domestic customer base. Furthermore, it is positive that our cross-border activities continued the trend. We have been seeing for several quarters with revenues at Spring up this quarter, most strongly in our intra-European activities, a promising development as international expansion is one of our strategic initiatives. When looking at costs, it should not be a surprise that in this quarter, we saw a significant organic cost increase. This is mainly labor related. However, we also see EUR 9 million in cost savings in Q3, and they were delivered according to plan. To be more specific, they came from ongoing adaptive measures like, for example, rationalization of services because we stopped parcel delivery on Sunday. Next to that, our flexible operational setup proved our agility and made us achieve additional efficiency improvements in our network, so in depots, supply chain and transport, to mitigate the adverse mix effects. In Spring, revenue growth was more than offset by the mix effects and the planned investments in international expansion. In the quarter, the financial impact from the implementation of U.S. trade barriers was limited, though we do expect some adverse effects in Q4. This brings us to the Parcels bridge, showing the reconciliation of the normalized EBIT from EUR 6 million in Q3 last year to EUR 4 million in Q3 this year. The volume growth contributed to our results, though was more than fully offset by the less favorable product customer mix effects, mainly within domestic. Organic cost increases amounted to EUR 70 million, following wage increases according to PostNL and sector collective labor agreements and indexation for delivery partners. As you can see, the impact from our price increases was EUR 30 million and came in according to plan. Other costs were EUR 11 million better, mainly as a result of the combination of cost savings and additional efficiency improvements in depots, supply chain, and transport, which we managed to deliver to mitigate the negative mix effects. In other results, I want to highlight that this is mainly applicable to Spring, where we see revenue growth being offset by mix effects. Furthermore, we again invested in international expansion, one of our strategic initiatives, which was approximately EUR 1 million this quarter for the expansion of the intra-European activities in Spring. Also good to note is that we continue to focus on further growth in Belgium. There, we also invested further. We invested in our distribution network, also amounting to EUR 1 million this quarter. Moving over to the results of our segment Mail in the Netherlands. There, the revenue amounted to EUR 289 million, exactly the same as last year. The volume decline of 5% this quarter was mainly related to substitution, a structural trend which you are seeing for a long time now but supported by the first batch of election mail and other one-off mailings. Furthermore, revenue was supported by 2 stamp price increases in January and in July of this year. Looking at costs, labor costs were up following the CLAs for PostNL and mail deliverers. However, when looking at sick leave rates, we see a first improvement compared to last year. These cost increases were mitigated by cost savings of EUR 10 million according to plan, coming from further adjustments in our current business model, such as the transition of business mail towards a standard service framework of delivery within 2 days. Altogether, this resulted in normalized EBIT of minus EUR 23 million and year-to-date minus EUR 43 million, as mentioned earlier, evidencing that the current business model for Mail is not sustainable. That brings me to the bridge of Mail in the Netherlands. Here, you see the elements of Mail I just discussed. Starting at the top, you see the stamp prices I referred to added EUR 9 million to revenue. The organic cost increases of EUR 10 million due to wage increases and other inflationary pressures are also visible. And finally, the cost savings of EUR 10 million and a bit lower labor costs related to sick leave were partly offset by lower bilateral results. Let's move over to the free cash flow. Free cash flow was minus EUR 18 million in this quarter compared to minus EUR 68 million in the same quarter last year and in line with our expectations. The delta versus last year is mainly explained by the working capital development coming from anticipated phasing effects and a nonrecurring tax settlement for prior years, including interest, which we paid in the third quarter of previous year. This brings us to the next slide, where you find our balance sheet and development of the adjusted net debt position. Of course, here you see the impact from the impairment in Q2 on our financial position, which in the end is impacting our equity. In the short and long-term debt, you see the EUR 100 million from the Schuldschein placed in June. So that was already the case in Q2, but obviously, you still see there. Movements in Q3 were limited. We ended the quarter at an adjusted net debt position of EUR 572 million. Recently, we launched a new bond with face value of EUR 300 million, a term of 5 years, and an annual coupon of 4%, and we tendered on the outstanding 0.625 percentage notes due September 26. EUR 195 million was accepted for repurchase. Please note that these related recordings and cash flows will materialize in Q4. We continue to manage our cash flow, balance sheet, and net position carefully following our aim to be properly financed. And as a reminder, we reclassified in Q2 part of cash and cash equivalents to short-term investments and adjusted comparatives. It has no impact on adjusted net debt or any other key metric. Then over to the split of normalized EBIT over the quarters. As mentioned before, in 2025, normalized EBIT has to be earned in Q4 even more than in 2024. We are ready for our peak season. Please keep in mind that the impact of pricing will be larger in Q4 than in the other quarters, which also implies that in Q4, pricing will exceed the impact from organic cost increases. When looking at year-to-date results, overall results came in, in line with expectation. For the remainder of the year, for Parcels, you should take into account that announced yield measures are expected to come into effect gradually. And for Mail in the Netherlands, we will see the majority of the election mail coming in, in Q4. In the right graph, you can see the indicative phasing for the savings is not fully divided evenly over the year, with a larger part of savings expected in Q4. Obviously, that is related to timing of some of the underlying measures. Please note that some of the savings are a bit more tied to the absolute volumes, which also explains why the amount of savings is, as usual, expected to be slightly higher in Q4. Then over to the outlook. Of course, we have to acknowledge that the external environment remains challenging and volatile. And as said before, the pace of client concentration due to changing consumer behavior is difficult to predict. We reiterate our outlook for 2025. We expect normalized EBIT to be in line with 2024 performance. Free cash flow is expected to be negative as, for example, CapEx will be above the level of 2024, including around EUR 15 million cash outflows related to the strategic initiatives. I repeat our intention to pay a dividend over 2025. We hold on to our aim to be properly financed, taking into consideration the anticipated improvement in the performance going forward and the progress towards a future-proof postal service. And good to add that normalized comprehensive income, which is, of course, the base for the amount of dividend is expected to follow a pattern that is more or less in line with 2023. In 2024, this includes some incidental positive effects. Well, this concludes my explanation of the Q3 results, and I would now like to hand back to Inge. Inge Laudy: Thank you, Linde, for your presentation. We will now open up for Q&A, and I ask you to limit your questions to two questions per person to set. So, operator, could you please explain the procedure for questions via the lines. Operator: [Operator Instructions] Your first question comes from the line of Michiel Declercq from KBC Securities. Michiel Declercq: I have two, please. The first one would be on the impact of the trade barriers. You mentioned that you expect a bit more impact of that in Q4. Can you give some color on this? Or can, is there some quantification that you can give to this? And the second question would be on Parcels on the price/mix effect. How I understood it at the beginning of the year was that the impact from the yield measures should gradually step in. Now if we look at the first three quarters, we actually see that the average pricing has actually come down. You're quite confident in the fourth quarter that you will see the biggest impact from the pricing. Can you maybe elaborate a bit on why the impact here should be the largest? Is there a big difference compared to last year in terms of surcharges or maybe penalties to your customers if their predicted volumes don't match with the actual volumes? Just why the impact of the pricing should be that much higher in Q4? And if you can quantify what you're looking at? Linde Jansen: Sure. And thanks, Michiel, for your questions. Let me take them one by one. Starting with trade barriers. Well, as I mentioned, so this quarter, we had limited impact. Of course, we do see more uncertainty and increasing volatility in the context of the U.S. trade policy and the responses from the counterparties. Well, it's not a surprise that tariff changes increase volatility and could slow down GDP growth, but could also generate opportunities on the other side, looking, for instance, at our knowledge with regard to customs. But it's, of course, too soon to tell and to say what is the exact impact for Q4. But what we see is that from a materiality point of view, we do not expect the impact to be material. It will be limited also in Q4. And to give some context on it, the direct exposure will be less than, is expected to be less than 1% of our revenue. Then that's on the first question. Then on your second question with regards to pricing for Parcels. I would not say the pricing, what you mentioned, pricing has come down year-to-date. That's actually not the case. What we see is that we, that our pricing has passed as we anticipated. What you see overall is that with the yield measures which we are taking, so we say, and we see that, that's gradually coming in. Obviously, that depends also on when new contracts are being renewed. Not every contract has the same starting date or duration of the contract where we can change that. But clearly, looking at the fourth quarter, also, of course, depending on volumes, when you see when you have made price increases, that obviously has a larger effect in the Q4 with peak periods. And there, wherever we have been introducing higher prices, yes, that obviously then also will have a higher effect, larger effect in Q4 than we have seen in the past quarters, because we have started with that gradually as of Q2. So that is why we expect the Q4 price increases for PostNL to be larger than the organic cost increases for the year. I hope that provides an answer to both your questions. Operator: Your next question comes from the line of Marco Limite from Barclays. Marco Limite: My first question is on the USO. Clearly, you set some scenarios back at the CMD in September, but we have had some more news in October. So, you're increasing prices by a lot as of 1st of Jan '26 on a year-over-year basis. And you're now implementing D+2 from early Jan '26. So my question to you is, do we think that this is enough for you to be breakeven in 2026? Linde Jansen: Yes, to start with, first of all, on the start day of D+2, that's not the 1st of January 2026, but 1 July 2026. And on your question on the developments of the breakeven point, what we highlighted in during the Capital Markets Day is that we had, we would lead to breakeven as of 2028 because that is the point where we move to D+3. At that time, the proposal from the minister was the 1st of January 2028 if a certain quality measure was achieved. That was the point of breakeven, so not 2026. So to respond to your question, we still will not be breakeven in 2026 for the Mail division given the developments, which we've had in the beginning of October because the main change over there was regarding the timing of the move to D+3, which was from 1st of January '28, he moved it more to the front 1 July 2027. And secondly, there were, he proposed reliefs on the quality levels, which were in the earlier proposal 95%. However, it's good to mention that this are just proposals from the minister and really uncertainty around the time lines and the political process really persists. Well, as you know, we've had the recent elections last week. So as I said, these are just proposals from the minister and not yet law, so to say. Marco Limite: Okay. And what is the time line for a possible response on the cash compensation? Linde Jansen: For the cash compensation, well, as you know, is that this proposal from the minister, it is a solution on the, it is a move or a first step towards a more future-proof situation. However, it does not serve or a solution yet for our net cost compensation. And as you may know or remember, we are, of course, still in proceedings on our financial contribution for 2025 and 2026. And there, we have appealed. And yes, we are waiting for the outcome of that. And as I said, on top of that, in the proposal from the minister, we also are looking still for a solution of our net costs in general. Yes. That is now not in our control, but we are awaiting a response on that from our appeal as well as the next steps from the minister. Marco Limite: Okay. And second question very quickly. So, once you achieve breakeven first half '27, sorry, 1st July '27 or '28. But then I mean, if we think about more longer term, once you achieve the breakeven, you raised the bar to the breakeven situation, but then we are once again in a situation where we will be, we have cost inflation, let the volume decline. So on the long-term, let's say, over the next 10 years, once you move to D+3, how can you make sure that the USO is, let's say, forever breakeven at least? Linde Jansen: Well, I think that is, of course, ongoing, what we are doing in Mail is trying to get an optimal network to ensure we are, well, let's say, organized as efficient as possible. I mean we don't have a glass ball, but we will make sure that we will do everything, put all our efforts to make it a future-proof situation. And as I said before, the, let's say, regulation or a solution for net costs is in the end, fundamental for a future viable situation. And that's why these first steps are welcome, but it's not yet enough to cover the full problem. Operator: We will take our next question. Your next question comes from the line of Marc Zwartsenburg from ING. Marc Zwartsenburg: First question is just a check because I think can you remind us on when the D+3 would kick in? Was it on the 1st of July '27? Or is it 1st of January '27? Linde Jansen: Yes. The proposal from the minister, which was done in the beginning of October was for the 1st of July 2027. So that is six months earlier than in the previous proposal from the minister. Marc Zwartsenburg: Yes. And then the quality has moved from 95% to 92%. That’s correct? Linde Jansen: Yes, correct. Yes. Marc Zwartsenburg: Then your Mail volumes, the minus 5% in Q3, there was a little bit of election in there. But as I remind from the earnings call, it was only a few days and not so much volumes. Most of it would be in Q4. So, if you exclude, let's say, the slight tailwind from the election in Q3, but what would have been then the underlying mail volume decline in Q3 would have been something like minus 5%, or minus 6% something like that? Linde Jansen: 5.6%, Marc. Marc Zwartsenburg: Sorry, I didn't get that. Linde Jansen: 5.6%, it would have been. So, looking at the impact from election mail, you see that in quarter three, the impact was EUR 2 million of pieces for this quarter and the remainder of it for the fourth quarter. Marc Zwartsenburg: And why is it only minus 5.6%? Is that just seasonality? Or is it just quite different from the normal trend of minus 8% to minus 10%? Linde Jansen: Yes. I think it's indeed seasonality phasing that is playing part. Marc Zwartsenburg: Okay. So in Q4, we should just assume the normalized, let's say, minus 8%, minus 10% and then add the support from the election. Is that correct? Or is there something seasonal there as well? Linde Jansen: Yes, more or less, yes, that's correct. Marc Zwartsenburg: Okay. And a question on the Amazon news last week for the investments in the Netherlands. Can you share your view on what they're saying because they want to tie their volumes in with what they have when this world wake ups. I know it's sizable client, but the other ones are bigger clients for you. So if volume shifts from your biggest client to your smaller clients and they also have a bit of a policy to do it themselves for a part. Can you show us your view what will be the impact on your Parcel volumes? Linde Jansen: Well, obviously, we are closely monitoring these developments in the market. And well, at this point in time, it's too soon to give some color on the exact implications. But what we see more and more increasingly is we see online stores expanding and getting more and more, which is also happening now with Amazon or they are testing new services and investing in the e-commerce market. And that's obviously also what we are doing. We continue to innovate in e-commerce and expanding our delivery preferences and really carefully look at consumer preferences, for instance, what we do with our out-of-home network. And with that, yes, okay, this is, of course, an event and a news which we closely monitor. And on the other side, it is still volume in the market, and we are just making sure that we continue our strategic intent and moves, which we mentioned during the Capital Markets Day to also reflect on any new or extended customers and platforms. But too soon to tell, too soon to give exact implications for that. Marc Zwartsenburg: Maybe a bit more detail on Amazon, how big is that client for you at the moment in terms of volumes? Linde Jansen: Well, I cannot give their exact color, but it's, as you say, not the largest client. Marc Zwartsenburg: It's a top 5 client, I believe. Linde Jansen: No, no, no. No. Marc Zwartsenburg: Okay. Okay. And then my last question, if I may. You mentioned that there will be more positive impact from price in Q4. You have taken some additional efficiency measures. Is it correct that the efficiency measures, the extra, if I take the flow chart, the now from the original plan and then the bridge to the EUR 11 million, which is showing there as other cost as a positive then the EUR 2 million is then from the efficiency improvements? Is that the additional ones you mentioned? Is that the correct one? Linde Jansen: Well, of course, it consists of pluses and minus. So that's not the, you cannot simply subtract the 11% from the 9% because there are, of course, pluses and minus in there. But what we see is that we have been or are able to put additional efficiency measures in our depots, transport. And there, we see that to counter our mix effects. And that is also something which we will obviously continue for our fourth quarter, which will come on top of the ongoing adaptive measures. Marc Zwartsenburg: Because if I compare the mix effect and the price effect, basically, they are a bit similar to what we've seen in Q2. Yes, shift yet feeding through while it was supposed to yield higher price and a better price/mix on balance, and that's not showing. So I'm just curious how you see that for Q4 because if it only, if the mix effect becomes bigger and the price becomes a little bit bigger, then you still have only a very mild positive price/mix effect, then you should have quite some additional efficiency improvements in Q4 to make your outlook. That's a bit where I'm puzzled. Yes. Linde Jansen: No. Well, yes. Maybe to explain is, as said, so our price increases and yield measures, they are, we are delivering them according to plan. So that is basically what we have, let's say, in control. Looking at the mix effect, where you see that's really depending on consumer behavior, that effect, that mix effect is bigger than we, more negative than we anticipated and to counter that and mitigate that. And obviously, also inherently in yield measures is also part of moving to efficient operations. There, we see the counter effect where we can control or can mitigate that negative mix effect. So yes, correct, the mix effect we anticipated is more. So larger clients getting faster big, so to say, than we had anticipated. And to counter that, we are ensuring that we put additional efficiency measures in place to mitigate that. And to your point on the yield measures coming in, that's really gradually. It's not that from one day to the other, it all hits in. That takes a bit of time. And clearly, also this quarter is, let's say, a mild quarter in the sense that not a lot is happening. So that also is, therefore, the effect of yield measures is gradually coming in and then also, of course, more heavily as such in Q4. Operator: [Operator Instructions] We will take our next question, and the question comes from the line of, please stand by, [Indiscernible] Unknown Analyst: I have a couple of questions. And I'm afraid the first one is a bit of a long one because I think it's important to understand the right context. Last year, around this time last year, you warned us for the fact that Black Friday and Cyber Monday were so close to Sinterklaas . I think you've learned a lot from last year or you got to mention it, but I'm sure that this year it plays as well because Black Friday is on the 28th of November. Cyber Monday is on the 1st of December. Sinterklaas is on the 5th of December. With the improving consumer confidence data we've seen in recent months, this could really be a challenge. How are you dealing with it? Do you see any prebuying that as we saw last year that people try to avoid Black Friday and Cyber Monday and that sort of thing. So my key question is, how do you manage it? And are you seeing prebuying already? For example, what can you share with us in relation to the volumes in Parcels you've seen in October? Linde Jansen: Well, of course, on October, I cannot comment. That's too soon to tell. But on your question with the, let's say, the density of those Black Friday and Sinterklaas , et cetera. Well, I think that's not something new. We have been, we have had this for more years where we experienced this type of density in the holiday or in the peak season, sorry. And so, what you see is that overall, those peaks get more peaky, so to say. So that is not just something for PostNL but is a general market trend. And we are in very close contact with our customers to ensure that we really optimize knowing that these days will be in the way these days will be; that we optimize volume, value and capacity utilization for this peak period, and also take into account, of course, our experiences, which we've had previous year to ensure that we streamline that peak period as good as we can. And clearly, we are very well on time with preparing for that and are really in close contact because with our customers because it's not just PostNL who needs to have that optimal utilization in the peak period, but it's actually for the whole ecosystem. So, all players in the ecosystem benefit from that. And that's why we are in close contact with them and also clearly communicate also to consumers around this. So yes, I can't say anything different that we are fully prepared for it and ready to have this organized in the most optimal way. Unknown Analyst: Have you seen any prebuying activity? Anything noteworthy that the trend was different at the end of the third quarter, for example? Linde Jansen: No, no, I haven't seen that. No. Unknown Analyst: My second question is around international volumes. If I look at the first quarter of this year, then we saw plus 15%, second quarter, plus 10% year-on-year. Now we see plus 5% I can interpret it in 2 different ways. One is that indeed, the value over volume strategy is beginning to show. But I've also heard that new parties have come to the market like Cainiao and Dragonfly, which are especially aiming cheap Chinese volumes as long as well, they are a party in the market. One of your competitors even described them as gold diggers. What is happening there? What is it exactly? Are you indeed more cautious taking on more volume from China? Or is it the competitive environment that is changing? Linde Jansen: Well, I would say, first of all, it's good to note that I think comparing by heart versus the growth of previous year, we already had a higher base. So, the first 2 quarters are not your starting point is different. Secondly, yes, our volume value strategy is clearly something which is what we aim for, and that is also for both domestic and international playing out there. So yes, that is, I think, the combination. Unknown Analyst: Okay. And then connected to that, there have been talks about implementing handling fees on Chinese Parcels. France was the first to announce that they were considering imposing a EUR 2 per item handling fee. And I recently read something that the Dutch are intending to do the same thing, if the French do it as of the 1st of January. Any news there? And how could it impact your business because [Schiphol] is one of the main hubs? Linde Jansen: Yes. Well, let me start. It's too early to provide you with a concrete statement on the impact. But in general, PostNL is supportive of a level playing field in the different European countries. However, well, as you already mentioned, the 1st of January, such a potential additional tax would really result for us in an operational challenge. It's not feasible to implement this well, we are talking about already the busiest period in the year, and it's a very short time frame to implement such a system. And it also can be, of course, disruptive, I should say. So, like with the U.S. trade barriers, where also international postal traffic to the U.S. was on hold for a bit. So that's why we are in conversations with the government on that as well. And so, we would really plea, if it's being implemented for a careful implementation, so to involve all parties and with equal timing for all the EU countries and not to diversify between the different European countries. So that being said, too soon to give a statement on that, and we are actively in conversation to align on the best approach to make this work. Unknown Analyst: And then my final question, that's an easy one, sorry for making your life so hard, nothing personal. But on the APMs, I understood that you're currently at around 1,250 APMs, APLs, you call. Linde Jansen: Yes, that's correct. Unknown Analyst: You were at around 1,100 at year-end last year. When I look back in the annual report, the intention was to increase that number by 500 to 600 a year. I can't imagine that during the peak period, all of a sudden, you're placing 400, 500 or so of the APLs. You have better things to do, I guess. What is the time path going forward? Because at the Capital Markets Day, also you highlighted the importance of APLs just the background of efficiency and that sort of things. Why am I not seeing a stronger pickup? The DHL, for example, is north of 2,000 already. It will be more and more difficult to find the right locations at the longer you wait. Linde Jansen: Yes. Well, we indeed clearly have our ambition towards over 3,000 in 2028. And what we see is that it's also about the size of the lockers which you place. So, amount of lockers is one thing, but size, how many of these lockers are in one APL is we are placing bigger sizes than initially planned. And yes, we are progressing on that. And clearly, you have to deal as well with all the governmental regulations with that, and we are clearly on top of it to deliver towards our ambition for the long term. And as said, we see positive developments in the utilization of the lockers which we place and as said, which are bigger lockers than we initially placed. So yes, that is basically where we stand. Unknown Analyst: So basically, what you're saying is there will be a catch-up in the years ahead. Linde Jansen: Yes. Yes. Operator: Okay. Then we have one last one, a follow-up from Mark, if I'm correct. So that will be then the last one for today. Marc Zwartsenburg: Yes, that's correct. A quick one. You issued a press release on the 5th of September that is asking the minister to withdraw the obligation of the USO. That's 2 days away that the 2 months are done. Should we expect some news flow in the next few days? Or can you help me with the timelines? Linde Jansen: Well, indeed, correct, we asked for within 2 months. But obviously, that is not in our control. So yes, I would say expecting it this month, but depending obviously on the time lines on the side of the government, and that is not something we can control. Marc Zwartsenburg: So could be any 6 months basically or without a date that's how. Linde Jansen: Yes, exactly, exactly. they don't confirm by then and then you get the answer. That's not how it works. Marc Zwartsenburg: And on the appeal of the cost compensation, is there. Linde Jansen: It's the same. It's also depending on there. So yes, you are just basically depending on their side and also on the legal system. So yes. Marc Zwartsenburg: Yes, I thought it was more like a court case thing that at some point, you need an outcome or is it not the case? Linde Jansen: No, no, we haven't received any guidance on when we can expect it. No, not at this point in time. Inge Laudy: Well, then we conclude our Q3 '25 results for now. Thank you all for participating and speak to you soon. Thank you all.