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Operator: Welcome to the RLJ Lodging Trust Third Quarter 2025 Earnings Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the call over to John Paul Austin, Director of Investor Relations. Please go ahead. John Paul Austin: Thank you, operator. Good morning, and welcome to RLJ Lodging Trust's 2025 Third Quarter Earnings Call. On today's call, Leslie Hale, our President and Chief Executive Officer, will discuss key highlights for the quarter. Nikhil Bhalla, our Chief Financial Officer, will discuss the company's financial results. Tom Bardenett, our Chief Operating Officer, will also be available for Q&A. Forward-looking statements made on this call are subject to numerous risks and uncertainties that may lead the company's actual results to differ materially from what had been communicated. Factors that may impact the results of the company can be found in the company's 10-Q and other reports filed with the SEC. The company undertakes no obligation to update forward-looking statements. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release. Finally, please refer to the schedule of supplemental information, which includes pro forma operating results for our current hotel portfolio. I will now turn the call over to Leslie. Leslie D. Hale: Good afternoon, everyone, and thank you for joining us today. Overall, our third quarter RevPAR results were in line with our expectations, with trends improving sequentially month-over-month during the quarter. We were pleased to see our urban markets continue their stronger relative performance, and we are particularly encouraged by the momentum building in Northern California, which should continue to benefit our portfolio. Our solid growth in out-of-room spend, combined with our focus on cost containment allowed us to achieve solid bottom line results despite the RevPAR headwinds, demonstrating the strong contributions from our ROI initiatives and the resiliency of our lean operating model. Drilling into our third quarter operating results. Our RevPAR decline of 5.1% was balanced between occupancy and ADR. As we had expected, our performance reflected the broader lodging environment, which faced a layered effect of difficult holiday comps, non-repeat hurricane-related business in Houston and Tampa last year and softer citywide calendars in many markets such as Chicago, which benefited from the DNC last year and San Francisco that saw Dreamforce shift from September to October. These factors were compounded by the impact from our 3 transformative renovations in Waikiki and South Florida as well as headwinds in Austin, which collectively had a 200-basis point impact on our third quarter RevPAR. Notably, however, against this backdrop, we gained RevPAR index, highlighting the quality of our assets, which is allowing us to take market share. RevPAR at our urban hotels once again outpaced our broader portfolio this quarter by 50 basis points. We believe that urban markets, which benefit from a broad range of demand drivers should continue to outperform the industry. We were especially encouraged by the performance of our San Francisco CBD hotels, which achieved 19.4% RevPAR growth during the quarter, driven by a strong lineup of smaller conferences, concerts and special events, which more than offset the calendar shift of the Dreamforce conference. Regarding segmentation, healthy travel patterns across key sectors such as tech, finance and consulting, along with the sustained momentum and return to office trends led our non-government-related business travel to achieve 2.4% revenue growth. With our highest-rated customer coming back, corporate rates were up a healthy 3%. However, government-related transient demand remained meaningfully below last year. Our group revenues in the third quarter were impacted by the shift of the Jewish holidays into September, leading to a softer citywide calendar across many markets. Our group demand was further impacted by the ongoing transformation of the Austin Convention Center, which will significantly expand the center and further strengthen the Austin market in the coming years. While the demand environment was soft and the booking window remains short, we were encouraged to see pricing strength as demonstrated by the 2% growth in group ADR for the quarter. With respect to leisure, trends remain stable. And although we continue to observe some pricing sensitivity among consumers, we were encouraged to see demand up 1% during the quarter. Our urban leisure once again saw stronger relative performance, achieving flat revenue growth, led by a 3.2% increase in demand. Our urban markets are continuing to benefit from strong demand for concerts, sports and special events. Notably, we were pleased to see positive results from our ongoing strategy to drive out-of-room spend, which grew by 1.3% in the quarter, despite lower occupancy. Our non-room revenues generated strong margins and underscores the success of our ROI initiatives aimed at growing food and beverage revenues, re-concepting underutilized space and growing other ancillary revenues. Growth in our non-room revenues came in over 600 basis points ahead of our RevPAR performance. This growth, paired with our tight cost containment initiatives, allowed our portfolio to deliver bottom line results ahead of our expectations. Turning to capital allocation. We continue to make progress on several fronts during the quarter. We advanced our 3 transformative renovations in Waikiki, Key West and Fort Lauderdale, which are now substantially complete. We continue to ramp our conversions and see significant success with our 4 most recently completed conversions achieving 6% growth during the third quarter, including our newest conversion in Nashville, which achieved high single-digit RevPAR growth. The solid performance of these assets is testament to the success of our conversion strategy. Consistent with this strategy, during the quarter, we began the physical renovations at the Renaissance Pittsburgh, which will become part of Marriott's Autograph Collection. The timing of this conversion ideally positions the hotel to benefit from the momentum in the Pittsburgh market, including the NFL Draft, which will be hosted in the city next year. Additionally, we are pleased to announce that our Wyndham Boston Beacon Hill hotel will join Hilton's Tapestry Collection with renovations to commence late next year. This hotel sits in an irreplaceable A+ location, adjacent to Mass General's main campus, which is currently undergoing a $2 billion expansion. Our asset is positioned to benefit from the strong growth trends in all segments of demand, supported by a diverse base of demand drivers, including a strong corporate base, a robust life science and biotech ecosystem, a concentration of leading higher education institutions and a compelling set of leisure attractions. We believe the selection of Hilton's Tapestry Collection will allow us to attract robust incremental demand given the limited Hilton flags in the market, and we remain confident that we can unlock significant EBITDA upside of over 40% on a stabilized basis. Our ability to unlock meaningful value within our portfolio is made possible by our lean operating model that allows our portfolio to drive strong free cash flow and maintain a healthy balance sheet that enables us to return significant capital on a sustained basis to our shareholders. Now looking ahead to the remainder of the year. The broader uncertainty and lack of visibility that has persisted since the end of the first quarter has been recently compounded by the government shutdown, which began in October. October is the most important month of the fourth quarter. And despite having had an otherwise strong setup given the holiday shifts and an improved citywide calendar, October saw RevPAR decline year-over-year given the lack of compression created by the shutdown. Additionally, we anticipate that current travel-related headwinds created by the shutdown, including the effect it is having on the air traffic control system, will have an impact on consumers' propensity to travel. Current trends are also impacting the timing of the anticipated contribution from our major renovations in Key West and Waikiki, which were previously expected to begin ramping during the fourth quarter. These factors, combined with the lingering macro uncertainty that is affecting consumer and corporate confidence has moderated our view of the fourth quarter. We are, therefore, adjusting our full year outlook to reflect the impact of these trends with the new range, assuming current trends continue. As we look ahead to 2026, we are encouraged by a number of building blocks that when taken in aggregate, should drive a more positive backdrop for the industry, including: a more constructive economic environment with lower borrowing costs, clarity around taxes and increased investment spending in the U.S.; a lapping of difficult comparisons from 2025, including Liberation Day; and the continuation of historically low levels of new supply. Relative to this backdrop, our portfolio is well positioned for 2026, given our favorable geographic exposure and urban footprint, which should allow us to see outsized benefit in an improved demand environment. We are particularly excited about the World Cup in the U.S. and with 72 matches scheduled to take place in many of our markets, we are well positioned to capture this demand. Additionally, our portfolio will benefit from the 250th anniversary of the U.S. in markets such as D.C., Boston and Philadelphia as well as the rotation of major sporting events in many of our key markets, including the Super Bowl in Northern California. And we are also poised to capture the ongoing recovery in Northern California, which continues to gain momentum, supported by the rapid growth of the AI industry that is stimulating business travel, events and corporate investments against the backdrop of improving safety conditions and increasingly stringent return to office policies. All of these tailwinds for our portfolio will be further bolstered by the ramp of our conversions and the major renovations we completed this year. As we look ahead, we are well positioned to capitalize on what we believe will be an overall improved setup for the industry next year. With that, I will turn the call over to Nikhil. Nikhil Bhalla: Thanks, Leslie. To start, our comparable numbers include our 94 hotels owned at the end of the third quarter. Our reported corporate adjusted EBITDA and AFFO include operating results from all sold and acquired hotels during RLJ's ownership period. Our third quarter was generally in line with our expectations, even as we faced a low visibility environment. Third quarter occupancy was 73%, average daily rate was $190 and RevPAR was $139, which translates to a 5.1% RevPAR contraction versus the prior year, led by a 3.1% decline in occupancy and 2.1% drop in ADR. With respect to the cadence of RevPAR during the quarter, July experienced RevPAR decline of 6.8% due to greater impact from renovations as well as the lapping of difficult hurricane comparisons in Houston. August and September declined by 4.8% and 3.8%, respectively. Although October sequentially improved month-over-month as RevPAR declined by approximately 2%, it was below our expectations in light of the government shutdown. As Leslie noted, the layered effect of several known industry headwinds impacted the third quarter. However, our urban hotels continue to perform better relative to our overall portfolio, led by solid growth in markets such as San Francisco CBD, Atlanta and New York City, among others, that saw RevPAR increase by 19.4%, 12.1% and 4.7%, respectively. We were especially pleased with our non-room revenues achieving 1.3% growth over last year. Growth in our non-room revenues demonstrate the momentum behind our ROI initiatives, which led our total revenues to perform 110 basis points better than our RevPAR on a relative basis, despite occupancy being lower. With respect to operating costs, during the third quarter, our operating expenses were up just 90 basis points year-over-year after adjusting for non-recurring tax benefits in the prior year. And year-to-date, expenses increased by only 1.7% even against the prior year tax credits, reflecting the benefits of our lean operating model as well as the ongoing normalization of expenses and our relentless focus on enhancing productivity and managing expenses. Our ability to manage costs in a challenging RevPAR environment allowed us to achieve third quarter hotel EBITDA of $80.8 million and hotel EBITDA margins of 24.5%. We achieved adjusted EBITDA of $72.6 million and adjusted FFO per diluted share of $0.27 during the third quarter. Our balance sheet remains well positioned with approximately $1 billion of liquidity, comprising of $375 million of unrestricted cash and $600 million available on our corporate revolver. We ended the quarter with $2.2 billion of debt with a weighted-average maturity of 3 years and an attractive interest rate of 4.7%. 74% of our debt is either fixed or hedged, including $200 million of new interest rate swaps that we entered into during the third quarter. We continue to have significant flexibility with 86 of our 94 hotels unencumbered. Earlier this year, we addressed all of our 2025 debt maturities. And as we turn our attention towards addressing our 2026 maturities, we are encouraged by the improving interest rate and lending environment. We will continue to optimize the laddering of our debt maturities, our weighted average cost of debt and the flexibility of our balance sheet. We are leveraging the flexibility of our healthy balance sheet to unlock embedded value across our portfolio through transformative renovations and high-value conversions, while remaining committed to returning capital to shareholders. During the quarter, in addition to substantially completing the 3 transformative renovations in Waikiki and South Florida, we initiated the conversion of the Renaissance Pittsburgh to Marriott's Autograph Collection, while also advancing the programming for the Wyndham Boston, which we have selected to convert to Hilton's Tapestry Collection. Additionally, we remain committed to returning capital to shareholders by continuing to pay an attractive quarterly dividend of $0.15 per share that is well covered while increasing our shares repurchased to-date to 3.3 million shares for $28.6 million. We will continue making prudent capital allocation decisions to position our portfolio to drive growth through the entire cycle while returning capital to shareholders. Turning to our outlook. Overall, forecasting visibility remains low in light of the uncertainty related to the federal government. As such, our adjusted full year outlook reflects October's performance and the assumption that current operating trends persist through the balance of this year. For 2025, we now expect comparable RevPAR growth to range between negative 1.9% and negative 2.6%; comparable hotel EBITDA between $357.5 million and $365.5 million; corporate adjusted EBITDA between $324 million and $332 million; adjusted FFO per diluted share to be between $1.31 and $1.37, which incorporates shares repurchased to-date but no additional repurchases. Our outlook assumes no additional acquisitions, dispositions or refinancings, and we continue to expect capital expenditures in the range of $80 million to $100 million. We also expect total revenue growth will continue to outpace RevPAR growth due to the success of our initiatives to drive out-of-room spend. Finally, please refer to our press release from last evening for additional details on our outlook and to our schedule of supplemental information, which will include comparable 2025 and 2024 quarterly and annual operating results for our 94-hotel portfolio. Thank you, and this concludes our prepared remarks. We will now open the line for Q&A. Operator? Operator: [Operator Instructions] Our first question comes from the line of Michael Bellisario with Baird. Michael Bellisario: First one is probably for Tom here. Could you dive into the revenue management strategies? Maybe just how you changed your approach in the quarter, given that performance was weaker? And then also, what are you seeing in terms of booking channels and booking window that guide your near-term outlook? Any extra color there would be helpful. Thomas Bardenett: Yes, happy to do that, Mike. So, if you think about quarter 3, we knew that the industry setup was weak on the group side, not only in industry but in urban. So, we really thought about how do we diversify the mix going into that quarter. And some of the things that we were doing were focusing more on the leisure side, where we knew there was opportunity to replace some of that group. And you'll see that our demand was actually up on the leisure side in addition to urban leisure, where we had that opportunity to book more business because of the lack of group with a softer citywide calendar and some of the comps that we were up against. In addition to that, and I'll remind you that we have a lot of -- more opportunities because we have -- a significant amount of our hotels are on the full-service side where we can grab some of that contract base business that we need to be able to offer our own compression. And we were successful because of the renovations that we have had in '23, '24, we've been able to secure more base business, knowing that if you're in a situation where you have a lack of group going into the quarter, you can do that as well. Your other question that you were talking about was the channel. We continue to see great demand coming through brand.com., which is our least costly channel. Because leisure was an element of where we had additional demand, we did see some OTA growth on weekends. We are continuing to see BT grow on the -- even when out government, we had BT grow 2.4%, and that was a second consecutive quarter. So, what is happening on the channels is you're noticing that global distribution systems continue to grow as well. And so that's encouraging as we continue to see the national corporate accounts come back because that's our highest rated customer. I know Leslie wants to add a few things as well. Leslie D. Hale: Yes. Mike, I would say that, as Tom mentioned, the setup for -- as everybody knows, for the third quarter was weak. But I do think it's important to point out the momentum that was coming out of September. As we articulated, September performed better than we initially expected. And just to sort of give you a frame of reference, as Tom mentioned, our portfolio saw non-government BT increased by 2.4%. But in September, it was up 3.7%. And it really happened in the back half of the month, and that was all demand driven, 100% demand driven. The other data point that I would give you is that going into September, our group pace was at 90%. We ended at 97% for the month of September, which is up 700 points. And so, the momentum coming out of September prior to the government shutdown was positive. So, we saw a swing that moved pretty fast in September. And obviously, we've seen a swing the other way in October. Michael Bellisario: Got it. That's helpful color. And then just on renovations, just given that the top line outlook is weaker, I mean, how does that change your view of just CapEx broadly, your underwriting and then just expected returns for your bigger conversion projects, thinking about Boston in particular? Or anything else that you might have in the queue for '26 or '27? That's all for me. Leslie D. Hale: Yes. Mike, on the CapEx side, keep in mind that our -- most of our renovations were front-loaded as we talked about before, and so they're either substantially complete or rounding completion. That was in Waikiki, New York and Key West this year. As we mentioned in our prepared remarks, clearly, given the softened backdrop on transient and on leisure where some of these asserts are at, we still expect these assets to ramp up well, but that ramp may be a little bit delayed because of what's going on in the broader market from that. But we believe these assets will be a tailwind for us in 2026 for sure. And then, I would say on Boston, that is an asset that we feel very good about. As we mentioned, it's going to be moving into the Tapestry Collection. It's got a great flag and a great location and very diverse demand drivers. And so, the significant upside still remains there. That asset won't start until the end of next year. And so, we should be picking up around the demand drivers that we expect to capture within that market. And I'll let Tom add some color on Boston. Thomas Bardenett: Yes, Mike, as we're looking at not only '26 but '27 in Boston, the great thing about our location is the expansion of Mass General, which is a major hospital and they're putting about $1.8 billion in 2 different buildings that are literally next door to us. I was on the phone with the management team, and they're going to have an oncology cancer research center, which is going to expand the ability to get MRIs. And we think that's not only going to have a regional draw, but we think that's going to be an international draw of folks coming into Boston based on the expansion of those 2 buildings with one being oncology and the other one being cardiology. And then in next year, as you know, we got FIFA, we have an event that is international that comes in, what's called Tall Ships. And then the USA being celebration in the July period, which will be not only benefiting Boston, but New York and Philadelphia, where we also have demand. So, we're encouraged about going into the Hilton system because we know what happens when we convert and we start to get Hilton Honors members and changes the mix of our hotel in '27 after we're completing the renovation. Operator: Our next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: I wanted to go back to the leisure segment for a moment. And just wondering if you're seeing more price sensitivity from that customer or is it more that you're just targeting more bookings through discount channels and other leisure channels, and that's driving maybe some of the softness around pricing? Leslie D. Hale: Well, I would say, Austin, that as we talked about in the prepared remarks, leisure demand has been relatively stable for us for the last few quarters. And in fact, room nights were up in the third quarter. We are seeing the price sensitivity, and it's showing up in terms of what channels they're booking through. But I think that what we're seeing with the government shutdown is different. It's affecting the propensity and willingness to travel. And so we're seeing our pace soften relative to that, but that's more a function of a desire to be caught in the airport for 5 hours versus the underlying fundamental of leisure demand that we've seen being stable. Thomas Bardenett: And then, I would add that urban leisure, as we also said, it's really about the concerts, the special events, the location where the attractions are. We feel that, that 7-day harder demand, that's still active. That's why the demand continues for those events, and those still have had strong attendance even in the summer as we go into the fourth quarter. Austin Wurschmidt: Got it. And then switching over market specific, you'd referenced the significant RevPAR growth in San Francisco CBD and just positive outlook for the region. I guess, first, is it translating to your hotels across Northern California? Or do you need to see additional recovery before it really broadens out? And then second, wondering how that top line growth, again, that you referenced is translating to the bottom line just given some of the expansion pressures in the region. Thomas Bardenett: Yes, great question. When we look at CBD, and you're right, how the market works, and I'll talk a little bit about Silicon Valley differently. But when I look at CBD, Austin, this is back-to-back quarters of 19% growth in our CBD assets. And you know we have our Marriott and our Courtyard there. What we're encouraged in third quarter is that's in the fact that Salesforce moved from September to October, and we still had that growth. So, we were pleased to see that the convention center is the hub, and that really was the beginning stages of where CBD had its growth year-over-year. In addition to that, though, we're seeing a lot of things happen in the AI space. And even the conventions that are coming in for that are increasing in regards to the amount of attendance that's happening. So back to office, office demand was up about 102%. We were just on the phone with SF Travel. They talked specifically about the leasing and additional space that's coming in under the AI. I guess there's about 5 million square feet today that's AI, and they're predicting about 30 million square feet by 2030. So that's encouraging that CBD will continue to grow. And the convention calendar is in good shape next year, not only because of Super Bowl and FIFA, but just they're getting more corporate accounts to come back based on the political environment. It's just a safe and clean place. And I think people are encouraged. Their whole campaign about Believe in San Francisco, I think, is drawing more international travel as well. And then when I think about Silicon Valley, it's about back-to-office tech companies. You see the demand coming from NVIDIA, Tesla, all the different companies that are out in that section. We continue to see BT grow Santa Clara, San Jose, Palo Alto, which is where most of our assets are. And so, we're encouraged that San Francisco is not just CBD, but it's also happening in Silicon Valley. Leslie D. Hale: I mean we're seeing positive trends overall. But obviously, CBD is doing well because of the unique demand drivers within that market, Austin. It's not compressing all the way out, but we are seeing different demand drivers that benefit the rest of our footprint. And then on the cost and margin side, I mean, obviously, to your point, costs in San Francisco have moved, particularly on the wage side. But we are encouraged in terms of the mix of rate growth versus overall demand growth in the market and are optimistic long term in terms of the ability to recapture the margin growth. Operator: Our next question comes from the line of Gregory Miller with Truist Securities. Gregory Miller: I'd like to start with New York City and a repeat of a question I asked same time last year. I'm curious if you could provide your expectations for New Year's Eve for the Knickerbocker? How our RevPAR and food and beverage package pricing compared to 2024? Thomas Bardenett: You still got to go one of these days, Greg. We've got a seat reserved for you. But I would tell you that New York has been a strong story all year. As you know, it's good demand. Average rates continue to move. We're very pleased. international, when you think about international, globally, it's been down, but in New York, it's been up. So, when we think about the Knickerbocker, it really is a special iconic location to see the ball drop. I'm again encouraged to tell you that we're continuing to see growth. As you remember, in the last quarter, we talked about what we did upstairs where we added a sushi bar and a location there, which has already started to create more demand for more folks to come in, not just the guests. And what we're seeing is the package price for New Year's is continuing to exceed our expectations as we go into the holiday. So, I feel very good about the Knickerbocker and New York in general as we go into the fourth quarter just because of the lack of Airbnb and the inventory that's being controlled, the supply that came out of the location as well. And then, leisure continues to be very strong in that market. Gregory Miller: Appreciate that. For my follow-up, I'd like to ask about a new initiative by Hilton that they discussed on their earnings call, especially given you have many Hilton properties. As you know, Hilton spoke to offering owner system fee reductions that are tied to hotel-specific product and service quality scores. I'm curious how you anticipate the strategy impacting your properties, if at all, even if the effort may be towards competitive franchised hotels? Thomas Bardenett: Well, I think if we start with behavior management and you think about the carrot and the stick, I think what Hilton is doing is they're really putting the onus on the opportunity to be able to get reductions on the -- to be able to drive guest service scores, which helps everybody, right? You have to please the guests that have them want to come back. And I think the opportunity to incent the field to really drive those scores in addition to ownership to put capital in is really what is encouraging them to put out a program like this. Number two, for folks that aren't spending capital, that's the stick. This is encouraging them to think differently about what are the opportunities to potentially get money back if I do put capital in? And that's your second question where others may follow. We're encouraged because we do have a significant amount of our portfolio with Hilton. We think that the incentive is drawing our guest service scores in the right direction. And we certainly, as you know, have put the capital in. Our properties are in good shape. We feel like we're in a good position based on what we've done. And now it's a matter of going and collecting on that incentive that's out there. But we do believe that the incentive is in the right place for people to put the money into the hotels and then now it's about delivering results to get those returns. Leslie D. Hale: And I would just simply say that we're in a position to be able to benefit from that incentive because we have put the capital in the assets and partner with Hilton. We have a great relationship. And so it's a function of being a good owner and partner with them, and we would expect to benefit. Operator: Our next question comes from the line of Tyler Batory with Oppenheimer & Company. Tyler Batory: Follow-up on the government shutdown. Any help quantifying the impact of that on either the Q4 guide or October in particular? And then, connected to that, the FAA flight reductions, I know we're still waiting on some details in terms of how that's going to play out. But just any high-level thoughts on what that could mean. Leslie D. Hale: Yes, Tyler, I think that when you look at the adjustment we made to our guide and the implied impact on the fourth quarter, all of that is related to government. Government impact isn't just related to direct government business, which only represents about 3% of our contribution, but it's also the impact that it's having on compression in the broader market and then just sort of the sentiment and propensity to travel. And so, from our perspective, we had expected October to be a strong month because it was a great setup, set up from a clean BT month. It was going to be a strong group month. And it's the most significant month within the quarter. We had expected it to be positive. And as Nikhil mentioned, it was down approximately 2%. And so that's a meaningful swing for the most significant month in the quarter. When we think about what we're seeing is that -- for the balance of the year is that while our group pace remains positive year-over-year, it is down versus our expectations because it's weaker in the quarter for the quarter, pick-up trends, the effect of the overall compression and D.C. was already a tough comp for us because we were up 4% last year. And while we were doing a good job of backfilling that, that's going to be harder as a result of the lack of compression that's happening. Additionally, our position relative to our transient pace has shifted. Even though coming into the quarter, leisure had remained stable, and BT has shown strength, that transient pace is now weakened because of the -- what's happening on the government side. And all of these dynamics are affecting the key markets where we did our transformative renovations. So that's going to delay our -- the ramp-up that we were expecting across those businesses. So, when we look at the overall dynamics of what's happening in the market, government is impacting -- the government shutdown is impacting a number of things across the space from our perspective. And so, all of it is related to that. Tyler Batory: Okay. Very helpful. And my follow-up, the out-of-room revenue or the out-of-room spend, I think, has been a bright spot for you. So just double-click on that a little bit more, perhaps give some more examples of what's driving that? And is your expectation that the non-room revenue can grow faster than room revenue going forward? Leslie D. Hale: Yes. We've seen -- first of all, let me just say that our out-of-room spend surprised to the upside in the third quarter because we were down 5% and 300 points of that was occupancy. We would not have expected to see out-of-room spend at the level that we saw. And so it was a good pleasant surprise to the upside. But it's also a reflection of where we've been investing our dollars on the F&B side on parking and expanding our markets. And so, despite occupancy being down, to see positive revenues in that, it's been good. Just as a proxy, in the second quarter, we were down 2% and still had 1.5 points growth. And so what we've seen over the last couple of quarters is that the contribution from out-of-room spend has increased relative to rooms. What I would say is that, given the mix of business that we were expecting in the fourth quarter, the level of group in citywide and BT, that's another driver impacting our outlook for the balance of the year. What we were expecting from out-of-room spend, our expectations have come down relative to that. And I'll pass it to Tom to give some more examples. Thomas Bardenett: Yes. So, I know you've heard a little bit about our focus on ROI. I'll just give you a couple of examples as you want us to double-click down. When Leslie talked about our market expansions, as an example of that is we're up about 7.2% in quarter 3. And what we do while we're doing these renovations, we're expanding these markets to provide a lot more product that's interesting for a lot of the different groups as well as transient guests that are coming into our hotels. And we think that's been a big plus and will continue to be as we do these conversions as well as renovations. And then, we're also attracting what I would say is, guests that are not staying with us. The Mills House is a perfect example of that. The Black Door Cafe was probably our #1 revenue generator in Q3 because Charleston continues to be a strong market because it's a drive-to market. And 50% of our guests are actually not at the hotel. So, what we're looking at is where we can put a market or an opportunity for people to utilize in a good, strong foot traffic area, we're getting the benefit of that. And then lastly, we did expand in the Phoenix area. During its renovation, we added some meeting space, natural light. You need that ballroom space to drive group business in off-season as well. And that actually started performing really well as that came out of renovation from last year and seeing the benefits of changing meeting space that would kind of much was dead space and it gave us an opportunity to drive more group in addition to banquets. So those are some examples when we think about out-of-room spend. Leslie D. Hale: So, I think that the benefit to our bottom line here has been that we've taken non-revenue-generating space and turned it into revenue by either adding a market or converting, as Tom mentioned, into some ballroom space. And so that's been additive from a flow perspective. Operator: [Operator Instructions] Our next question comes from the line of Cooper Clark with Wells Fargo. Cooper Clark: Can you talk about the potential for dispositions as we think about what should be a healthier transaction market in 2026? And if there are any markets or types of assets you would like to reduce your exposure to in a meaningful way? Leslie D. Hale: Yes. I mean, I would say that in general, that the transaction environment continues to be overshadowed by the uncertainty and the sentiment around transactions is a little bit volatile. So, the market is not necessarily fully functioning because of a lack of conviction in terms of underwriting and PIP costs given the tariff situation. But the debt market is opening, and so that will help volume increase. Deals are taking a little bit longer. And most of the deals that are getting done are deals that are better suited for owner operator. And so, overall, we're constructive. And as things sort of settle down, you should see us being more active and it would be active on transactions that we think can actually get done. Cooper Clark: Okay. And then I guess on a higher level, how should we be thinking about the positioning of RLJ's portfolio relative to the sector into '26 as luxury chain scale continues to outperform, but you have some momentum in urban market recoveries that you spoke to earlier on the call? I guess, said differently, in what type of macro environment should we expect RLJ to drive outsized results relative to your peer set in the broader hospitality industry? Thomas Bardenett: It's a -- as we're looking at our budgets, first and foremost, it's a little early because we're just in the throes of it. But what I would say is your comment about urban, we believe, from an industry standpoint, will continue to outperform for 2 reasons when I think about that, Cooper. One, it's been the trend line ever since we've come out of COVID and the fact that there's a lack of supply in urban is a good setup. What I would also tell you that is these special events, when we talk about urban leisure and you think about the footprint and where we have locations in 2026, it's going to help us with not only World Cup, which is still to be seen when the teams are drawn in December. But the fact that we have 72 games in markets where we have hotels is a good sign. In addition to that, we think about the special events that we talked about earlier, whether it was the NFL draft as we're doing our Autograph conversion in Pittsburgh. In Philly, you got both NBA All-Star games. And then you also have the Super Bowl in San Francisco. So, even though it was in New Orleans last year, having it in San Francisco is a plus because we got more assets in San Francisco that we think will benefit from that. So, urban footprint, we truly believe will continue to be a good place to play. And then urban leisure is the reason that we feel these special events are a draw that will continue to help us, when BT goes back to office and we have a better footprint coming out of, hopefully, what's happening right now in the government shutdown. Leslie D. Hale: Yes. I would just add to that. In general, we believe that we've got the right footprint, the right portfolio. What we haven't had is a consistent economic backdrop because of the volatility and things like a shutdown that are happening. And so, I would say that as the economic backdrop continues to settle down and we have clarity around regulation, lower taxes and tariffs, those things should benefit our portfolio because that's the one ingredient that we've been missing, which is a stable economic backdrop. Operator: Our next question comes from the line of Ken Billingsley with Compass Point. Kenneth Billingsley: One thing, I missed the number, if we could clarify. Did you mention what was the October RevPAR? Leslie D. Hale: We said that October came in -- is currently estimated to be down about 2%. Kenneth Billingsley: About 2%. And do you have -- with just the way the calendar looks with Thanksgiving and other holidays for November and December, year-to-date RevPAR of negative 1.9% is at the top end of guidance. Are you expecting it to be flat? Or already 7 days into November, should we assume that that might be shifting towards the middle of guidance? Leslie D. Hale: Yes. I mean our expectation is that the midpoint of our guidance is the most likely outcome. And that implies with October down 2%, it implies November, December being down 4%. Keep in mind that November was an important month for the quarter relative to citywides. We were expecting strong citywides in Boston, Denver, Houston, Orlando. You also had the lapping of the election comp and another positive things that were happening in the month. And now you are overshadowing that with the shutdown. And so, the most important contribution period and event are being hampered by the shutdown. And if you sort of think about it from a pace perspective, while pace is still positive, it's down. And in the quarter for the quarter pickup is being hampered and not allowing us to achieve the original pace that we set. So, the most likely outcome today where we sit is the midpoint of our guidance. Our guidance, at the midpoint assumes that the current trends continue through the end of the year. If the impact gets worse and in the year for the year continues to slow and transient pace continues to slow, that would put us at the bottom end of our range. Kenneth Billingsley: Okay. And then lastly, just with '26 shaping up to potentially be strong by comparison, how does that impact your decision on share repurchases? Leslie D. Hale: I think that from a capital allocation perspective, it's very clear that buybacks are even more attractive today. And absent something that's sort of transformative, we're going to continue to be programmatic and deploy disposition proceeds into buying back our shares. We want to maintain a healthy balance sheet, and so we're going to strive to do that on a leverage-neutral basis and maintain our optionality. So, we're going to continue to be balanced between investing in our portfolio, buying back shares and maintaining our balance sheet. Operator: Our next question comes from the line of Chris Darling with Green Street. Chris Darling: Leslie, I'm hoping you can comment on how your RevPAR index share has evolved over the course of the year. Obviously, 2025 is shaping up to be somewhat difficult fundamentally. And I'm just trying to understand to what degree this is a market mix issue versus an RLJ-specific issue at all? Leslie D. Hale: Yes. As we talked about in the prepared remarks, our RevPAR index is up. And so, it reflects our positioning within the market. It reflects the quality of our assets. And so, we feel good about how we're positioned and how we're performing on a relative basis in the markets relative to our comp sets. Chris Darling: Okay. Understood. I missed the early part. So, thanks for the reminder on that one. Second question is a follow-up. Just thinking about the labor market. Obviously, there's broad-based concern around immigration policy, the effect this might have ultimately on the labor force. It doesn't sound like there's any concerning signs to-date. But as you look out 2, 3, 4 years down the road, what risks do you see to the hotel operating model, if any? Thomas Bardenett: Chris, I think we really focus on the trends right in front of us. And what I would say is, the continuation of reducing contract labor exists. We were down another 9.5% in third quarter. I would also tell you, when we invest in labor management systems and we have our own employees that the management companies are hiring, we feel like that helps from a productivity standpoint and we see it in our numbers when you look at retention and reducing turnover. The other thing I think on the labor force is people who are attracted to our industry, we know stay in our industry. When you think about the synergies and the opportunities and career enhancement in hotels, it really is available without having to move now. You can stay in a market and enjoy your job and your career. And if you're with a company that we pretty much work with management companies that have a fair amount of size, they can grow their career all in staying in one market versus having to move in the past. So, I understand your question and what that might look like 2 to 3 years from now. But I would say the current trends are positive, and we kind of lean into that, knowing that the workforce efficiencies that we have, specifically with the proximity with RLJ, we provide a lot of opportunities for managers to have additional responsibilities in a marketplace where they can grow their career and have regional responsibilities in addition to 1 property per se. Leslie D. Hale: And what I would add to that is that you can look at the success of what we've been able to do by the fact that contract labor has continued to come down, and it really speaks to the increase in applicants in our space. And so, we feel good about the trend line. I think the other thing that bolts-on to Tom's comments in terms of what he was describing, this is an industry where seniority matters. And so that's a sticking and retention tool. And so, people have to think really hard about giving up their seniority and moving to another industry and/or space. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Ms. Hill for any final comments. Leslie D. Hale: We appreciate you guys taking the time to join us today. We're available for any additional questions if you have them, and we look forward to seeing many of you over the coming months at various conferences. Thank you all. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, everyone, and welcome to CCU's Third Quarter 2025 Earnings Conference Call on the 6th of November 2025. Please note that today's call is being recorded. At this time, I'd like to turn the conference call over to Claudio Las Heras, the Head of Investor Relations. Please go ahead, sir. Claudio Heras: Welcome, and thank you for attending CCU's Third Quarter 2025 Conference Call. Today with me are Mr. Felipe Dubernet , Chief Financial Officer; Mr. Joaquín Trejo, Financial Planning and Investor Relations Manager; and Carolina Burgos, Senior Investor Relations. You have received a copy of the company's consolidated third quarter 2025 earnings release. The call will start by reviewing our overall results, and then we will move into a Q&A session. As every quarter, before we begin, please take note of the following statement. The statements made in this conference call that relate to CCU's future financial results are forward-looking statements, which, of course, involve known and unknown risks and uncertainties that could cause actual performance or results to materially differ. These statements should be taken in conjunction with the additional information about risks and uncertainties set forth in CCU's annual report in Form 20-F filed with the U.S. Securities and Exchange Commission and in the annual report submitted to the CMF and available on our website. It is now my pleasure to introduce our CFO, Mr. Felipe Dubernet . Felipe Dubernet: Thank you, Claudio, and thank you all for joining the call today. In the third quarter 2025, CCU posted higher operating results and increased profitability versus last year in a volatile and an uncertain business scenario. Consolidated EBITDA grew 4.6% versus last year, mainly driven by our main operating segment, Chile, which in the context of soft industries expanded EBITDA margin through gross margin improvement and efficiencies, maintaining the positive trend in financial results throughout the year. The International Business Operating segment also expanded EBITDA versus last year. Within the segment, we are facing a very challenging scenario in Argentina, where the beer industry contracted mid-single digit during the quarter. On the other hand, the Wine Operating segment posted a lower EBITDA driven by weaker domestic markets in Chile and Argentina together with a higher cost of wine. Our year-to-date results show that our path to recover profitability remains on track, supported by our 2025-2027 strategic plan, which prioritize profitability through revenue management efforts and efficiencies. Regarding our main consolidated figures in the third quarter 2025, net sales were down 1.1%, explained by 2.2% lower average prices in Chilean pesos, partially compensated by 1.2% volume growth. Gross profit decreased 2.9% and gross margin was down 79 basis points. In addition, consolidated MSD&A expenses in Chilean pesos dropped 4.7% due to efficiencies and a favorable translation currency effect from Argentina. In all, EBITDA expanded 4.6% and EBITDA margin expanded 60 basis points. For the first 9 months of the year, and excluding the nonrecurring gain from the sale of a portion of line in Chile in the second quarter 2024, consolidated EBITDA expanded 9.9%. In terms of our segments, in the Chile Operating segment, top line expanded 1.8% as a result of a 2.4% increase in average prices, partially offset by 0.6% lower volumes. Higher average prices were explained by revenue management efforts in all the categories. This was offset by mix effects between alcoholic and nonalcoholic categories. Volumes were below last year due to soft industries, mainly in alcoholic categories. Gross profit and gross margin expanded 3.6% and 75 basis points, respectively, due to lower cost pressures related to favorable prices in some raw materials, which compensated higher costs from our PET recycling plant, CirCCUlar. MSD&A expenses grew 3.2% below inflation in spite of higher marketing expenses and as a percentage of net sales increased by 46 basis points. Altogether, EBITDA increased 4.8% and EBITDA margin expanded 41 basis points. Isolating costs and expenses associated to CirCCUlar, EBITDA would have expanded 10.2% and EBITDA margin by 117 basis points. In International Business Operating segment, volumes posted a 5.3% expansion, although net sales contracted 8.9%, driven by 13.5% lower average prices in Chilean pesos. The decline in average prices in Chilean pesos was mainly due to the 42.2% devaluation of the Argentine peso against the U.S. dollar and a very challenging pricing scenario in Argentina, where prices grew below inflation and negative mix effects within the beer category. The volume expansion, excluding AV, the recent acquisition in Paraguay was mainly explained by Argentina, fully driven by the water category, while beer volumes contracted in line with the industry. Regarding our other operations, Bolivia and Paraguay posted higher volumes and Uruguay contracted low single digits. Gross profit decreased 16.6% and gross margin contracted 382 basis points. MSD&A expenses were down 19.2% and as a percentage of net sales decreased 552 basis points. In all, EBITDA grew 73.1%, driven by all geographies in the International segment. The Wine Operating segment posted a top line expansion of 1.6%, mainly driven by a 4.8% rise in average prices, while volumes were 3% lower. The higher average prices were mostly explained by a weaker Chilean peso and its favorable impact on export revenues and revenue management initiatives in the domestic markets. Volumes contracted due to a 6.3% decrease in Chile domestic market, in line with the industry. partially offset by 4.5% growth in exports. Gross profit decreased 1.6% and gross margin deteriorated by 128 basis points due to cost pressures from a higher cost of wine and higher U.S. dollar-linked packaging costs. MSD&A expenses rose 4.5% and as a percentage of net sales increased 78 basis points due to higher marketing expenses. Altogether, EBITDA decreased 12% and EBITDA margin was down 224 basis points. Finally, regarding our main joint venture and associated business in Colombia, we delivered low double-digit volume growth, outperforming the industry. We continue to build a robust brand portfolio and sales execution, which is the path to the long-term volume and financial growth. Now I will be glad to answer any questions you may have. Operator: [Operator Instructions] Our first question is from Constant Gonzalez from Quest Capital. Constanza González Muñoz: I have a question regarding the international segment, specifically in Argentina. Are you expecting a recovery in prices for the fourth quarter of this year? And also, what are you expecting for 2026? Are you expecting a recovery in prices and volumes? And secondly, could you tell us more about the environment that you are seeing in conception in that country? Felipe Dubernet: Thank you for your question regarding Argentina. Yes, in the second semester, we are facing a much more challenging scenario in Argentina, let's say, decline especially in the third quarter of the volumes, especially in beer, while the water business is growing mid-teens, let's say. The point of that, as you indicated, is that with prices that are below inflation. In fact, we are practically 9% below the inflation this year, year-to-date. We have increased prices in our side, but the scenario is competitive. The market share are rather stable, but we expect in the near future because everybody needs to recover profitability. Price increases, that's key in order to recover the profitability of the industry. Regarding volumes, let's say, we have maybe a more stable scenario in Argentina after the elections, where the government would -- is expected to, let's say, to decrease the uncertainty and its financial issues regarding -- especially the U.S. dollar. On the other hand, it is expected to do some reforms in this new Congress. Regarding the near future, we expect an increase in private consumption, but more than that, in this increase in private consumption that is expected to be next year, 3%, it would be different among different consumption categories. Maybe as you know, many Argentinians changed their car at the beginning of the year. So they have had some records in car sales. And normal people -- so I'm considering myself normal, I do not change the car every year. It's a very bad business. So maybe some of these resources from the consumers would come back to our categories, especially categories that are more linked to have fun as the beer -- responsible, responsible consumption of beer. And to regain momentum in the industry in the near future, along with -- we hope recovery of the overall economy. So we have had a bad third quarter. However, we expect recovery next year, I would say, and also more price adjustments to be at least in the near future in line with increase. Operator: Our next question is from Thiago Bortoluci from Goldman Sachs. Thiago Bortoluci: I'd like to turn the conversation back to Chile, right? Obviously, there are different dynamics playing out there. But what I see from the consolidated numbers is your pricing growth moderating, actually printing even a little bit below inflation, while I wouldn't call it for a material decline in volumes, but volumes slightly down meaning -- I know probably these efforts to be less aggressive on pricing, let's say, are not necessarily resulting in a stronger demand. Could you please elaborate more how you're seeing pricing versus volume growth versus competition, market share across the different categories, soft drinks and beer please? And more importantly than that, how much space you see for eventually more pricing to be implemented in each one of those going forward? Felipe Dubernet: Thank you, Thiago. Good to hear about you. Thank you for your question regarding Chile. Let me make very clear on price because I saw your report and then commentary now. Price in general per category are in line with inflation or above inflation. The thing that you are seeing is the entire segment, Chile that is showing a price of 2.7%, 2.4% quarter-on-quarter, but because there is a big mix effect between alcoholic categories and nonalcoholic categories. As the industry in alcoholic categories is declining, I have a negative mix effect in price. Excluding that mix effect, prices are increasing 4%, which is above inflation. So I need to make this precision because I read your report. The competitive dynamic, I would say, is very competitive, Chile, as you know. In terms of market share in the overall beverage industry, I would say we gained slightly share compared to previous quarter and quarter-on-quarter compared to same quarter last year, also we gained some share in both alcoholic and nonalcoholic categories because now we see the market as alcoholic and nonalcoholic, especially when you have industries that are declining and they are shift between industries. So I would say it's very competitive, but thanks to our brand equity, our revenue management strategies, our execution while we have increased prices in alcoholic and nonalcoholic categories, we have been able even to slightly gain share. The point regarding going forward in price always, we have an aim of optimizing our revenue management in all the categories, of course, to regain profitability, of course, there is competition. Alcoholic categories, especially wine, but also beer, the industries are very soft, are declining. The one that is declining the most is wine. But beer is also a decline in the third quarter, the industry. The only one that is growing low single digit in alcohol is spirit, thanks to the ready-to-drink where we lead innovation, will lead the market in this fast-growing category, which are the spirits ready-to-drink. Also, we have low alcohol or nonalcohol beer and all the shandies and the flavored beer such as, as an example, the Lemon Stones brand in Chile, where we led the market and it's also growing. Innovation is key in this scenario, okay? That's the answer, Thiago. Thiago Bortoluci: That's helpful, Felipe. And if I may, a follow-up in Chile, right? Obviously, I know this is a harder answer, but would love to pick our brains on that. I guess, across the world, we are seeing, in general, declining volumes in beer, right? 2025 has been an atypical year in some regions, you have adverse weather, you have obviously volatile macro, particularly across South America. What's your assessment of this weakness in beer, particularly for Chile? Would you say something more temporary? Would you say there is a structural component related to the consumption occasions, new generations, preferences? And what is CCU doing itself to try to revert this trend? Felipe Dubernet: Thiago, it's not useful to -- in alcoholic, I prefer to talk about alcoholic categories rather than specific because we have different pictures in different segments, let's say. As I said in my previous answer, the one that the industry is declining more is wine. This is a global trend and has been for many years and also a Chilean trend in the last 10 years. Wine, the per capita consumption in 2014 was 13.5 liters per capita. And in 2024 was 10.5. In the opposite of beer in 2014, per capita consumption was 44 liters per capita and last year for 54 liters per cap. There is no single explanation. We carried out very scientific or [ values ] based on data and on quantitative and qualitative, what are the reasons maybe this year in 2025, we saw a further decline from where we were in 2021 or what we have experienced in previous year. And there are high numbers of factors that came from, and you pointed out correctly, is how much money has the consumer. The economy has not been brilliant in the last years in Chile growing 2% on average or less than 2%, huge adjustment interest rate. Interest rates are declining now. The perspective of the Chilean economy should be better in the next 2 or 3 years. Copper prices are on the roof, thanks to the climate change and all of this. There are a number of projects that Chile with enhanced GDP. So we are positive about the economy in Chile in the near future. And this -- if we have this, maybe we will see a better perspective for overall categories, not only alcoholic but also nonalcoholic categories. But there are other reasons that are linked to alcohol consumption. One example is unsecurity. People feel very unsecure in Chile than it was 10 years ago. The sense of going out to on-premise, having a beer or having a cup of wine and let's say, the on-premise was in Chile 10%. And nowadays, it's 5% to 6%. So -- and this is linked to unsecurity. All presidential candidates, in 10 days, there will be presidential elections in Chile. The #1 priority is unsecurity. And when you ask the consumer, why you are not consuming so much alcohol or why are you not going out and having, as you said, in Brazil, a [Foreign Language] or a [Foreign Language] in French. Now because I feel unsecure to go in the night, so I prefer to stay home and not miss my friends. So -- there are many reasons, Thiago. But we expect because we have studied other realities such as the U.S. market. The U.S. market is declining a lot to beer consumption. But however, there has been some period of history where we have seen rebounds on consumption in specific categories. And the category that is performing very well because it is linked to trends is the ready-to-drink category in spirits, but also variants of beer, where you have flavor, you have low alcohol content, beers that are more seasonable. So innovation is key because we led the categories, especially in Chile, the alcoholic category. And innovation is key to, let's say -- and it's a key pillar of our strategic plan to overcome the situation, let's say. Operator: Our next question is from Fernando Olvera from Bank of America. Fernando Olvera Espinosa de los Monteros: Can you hear me? Operator: Yes, we can hear you. Fernando Olvera Espinosa de los Monteros: Great. Perfect. The first one is related to costs. If you can comment, Felipe, regarding the outlook on costs for the fourth quarter and 2026 would be great. And my second question is related to CapEx also for next year. I mean, considering the soft demand that we are seeing overall in alcoholic beverages, what is your initial thoughts on CapEx for 2026? Felipe Dubernet: Fernando, good question about the cost and commodities. I will give you a medium term, let's say, 2026 as our cautionary statement, I don't do forecast. But what we are seeing, we are doing the budget right now. We are seeing favorable news in practically all the commodities, except aluminum compared to 2025 and also compared to 2024, not yet at the level of prices of commodities that we had pre-pandemic, 2019. But we are seeing better news in barley, sugar, virgin, PET, resins, pulps that was a big hit, especially on juice in the next 2 years. So we are seeing a material, let's say, better commodity prices with the exception of aluminum. We are talking about an easy a projection about $10 million of better commodity prices in U.S. As I said, my #1 commodity is the U.S. dollar, and it seems stable in Chile, at least Chile, which is account for 70% of the EBITDA exchange rate seems stable going forward. And along with a lot of initiatives in terms of efficiencies in Chile that are linked to procurement, let's say, the strategic sourcing also design to value. We always see at our packaging or our formulations in order without affecting at all quality, however, doing in a more valuable or more cost-effective way to deliver the same benefits to the consumer. The consumer is first. However, we always look -- and we work on new material, new specification to reduce cost. And third is what we call nearshoring that is to have closer production of our raw materials and packaging materials to our breweries or factories, let's say, to decrease logistic costs. And in that side, also we have a strong efficiency program. So we saw a better scenario with the exception of aluminum for next year that is increasing practically in our projection 5%. On the other hand, what is -- and we have highlighted this year, we have had higher cost and expenses linked to the CirCCUlar. CirCCUlar is about introducing recycled packaging in our PET bottles up to 15%. And so far, this has had a significant impact in our EBITDA, about [ CLP 10 million ], roughly $12 million of extra cost and expenses year-to-date. On a yearly basis, this year would cost us something like CLP 15 billion. But overall, the aluminum is increasing, but all the rest is in better shape. We have efficiencies, so we expect a better scenario for raw materials and packaging materials going forward. Fernando Olvera Espinosa de los Monteros: No, that's great insight. And what about CapEx, Felipe? Felipe Dubernet: CapEx, I will hand over this question to my colleague, Mr. Joaquin Trejo, Financial Planning Manager. Joaquín Trejo Darraidou: Thanks, Felipe, and thank you, Fernando, for your question. Regarding CapEx, we actually estimate to close the year slightly below what we published in our annual report between 10% and 15% below the published figure for 2025. And looking ahead, we don't actually see major CapEx needs for capacity as the volume trend is what Felipe mentioned earlier, but rather focusing on technology. We are changing our IT system for sales and distribution and also innovation to address this new consumer trend that Felipe also mentioned in previous questions, and also regulatory requirements. The ratio we like to look at is the CapEx over sales, and we forecast it to be below 6% going forward. And also, this is why the CapEx over depreciation ratio should be at some point below 1% going forward, where the new projects are actually a smaller amount compared to previous years where we had, for example, the CapEx for the CirCCUlar plant. But this is also offset by some CapEx carryover from 2025 that is going to be transferred to 2026. But in general terms, Fernando, that's the trend we foresee. Operator: [Operator Instructions] Our next question is from Claudia Raggio from Provida AFP. Could you give us some color on the sales volumes of beer in Argentina on October? Felipe Dubernet: Yes, I would anticipate that we have had in both alcoholic and nonalcoholic, we saw decline also in October. So we have maintained in alcoholic the same trend we have in quarter 3. And in water, practically flat, small decline in water business. Operator: Thank you. We'll give it a few more moments for any further questions to come in. It looks like we have no further questions. I'll now hand it back to the CCU team for the closing remarks. Felipe Dubernet: Thank you all for attending today. In summary, in the third quarter 2025, our main operating segment in Chile continued in a trend of financial results and profitability in the context of soft industries and higher costs from CirCCUlar. The later was boosted by gross margin improvements, efficiencies and lower prices in raw materials. International Business Operating segment posted higher EBITDA, although results were negatively affected by a challenging scenario in Argentina due to a tough deceleration in consumption. The Wine Operating segment contracted EBITDA due to a higher cost of wine and weak scenario in domestic market, while export grew mid-single digits. We will keep executing our 2025-2027 strategic plan and its 3 pillars: profitability growth, enhancing innovation, and sustainability. With special focus on profitability, supported by both revenue management efforts backed by our strong and diversified portfolio of brands and efficiencies across all operating segments and functions. Thank you very, very much for attending today, and I wish you a wonderful end of day. Operator: That concludes the call for today. Thank you, and have a nice day.
Operator: Ladies and gentlemen, welcome to the VakifBank Audio Webcast Third Quarter 2025 Bank-only Earnings Results. [Operator Instructions] With that, I will leave the floor now to our host. First of all, Mr. Ali Tahan, the Head of International Banking and Investor Relations at VakifBank, and Ms. Ece Seda Yasan Yilmaz, the Head of Investor Relations, also at VakifBank. Speakers, the floor is yours. Ali Tahan: Thank you, Rob. Good afternoon, everybody, and welcome to VakifBank Third Quarter 2025 Earnings Presentation Call. As usual, I will be starting with the presentation quickly and thereafter, to the extent possible, leave the floor for the Q&A session. Starting with the first page in this quarter, in the third quarter of 2025, as you can see on the right-hand side above chart, we delivered TRY 11.9 billion quarterly net income, which is almost TRY 1 billion higher than the market consensus of TRY 10.9 billion. And this number itself comes with almost 20% increase on a Q-on-Q basis from TRY 10 billion to almost TRY 12 billion. And with this quarterly performance, year-to-date net income of VakifBank increased to TRY 42 billion, which is up by 54% compared to same term of the previous year. And with this 54% net income, we are glad to see that we outperformed the sector net income growth of 45%. And on top of this, we are still keeping TRY 4 billion free provisioning as a buffer in our balance sheet as of third quarter end. And on top of that, most importantly, as we will discuss more in detail, we will be delivering the best quarterly net income of 2025 within Q4 in the upcoming quarters, thanks to sizable potential interest income from our CPI linkers as we are one of the most conservative bank so far in terms of using the very conservative CPI estimation. With TRY 42 billion net income in the first 3 quarters period of the year, we delivered an ROE -- average ROE of 23% and quarterly it is 19%. And this 23% year-to-date average ROE, thanks to the strong Q4 of the year, we believe full year average ROE will be increasing to high 20s. Remember for the full year, we were guiding high 20s average ROE. And with a very strong Q4, we believe it will be easily achievable and doable. And another point I would like to take your attention on this slide is related to core banking revenues and pre-provisioning profit growth. On the core banking revenue side, similar to net income growth, we have another 56% year-over-year growth in our core banking revenues, reaching to almost TRY 140 billion. And in terms of this core banking revenue composition, we have slight increase in the share of net fee and commission income, which was 37% a year ago versus 38% as of today. And the remaining 62% is mainly coming from net interest income. And on the pre-provisioning profit side, the increase is much more visible with 147% increase compared to net income growth or core banking revenue growth, which take us to the conclusion that as a conservative state lender, we set aside provisioning too much for the credit risk and other different risk factors. To continue with the presentation for the sake of the time, I will be jumping to net interest margin page, where you can see the details on Slide 5. Starting with the net interest margin. Reported net interest margin in this quarter, as you can see with the red -- sorry, yellow dot line increased from 2.93% a quarter ago to 3.61% in this quarter, which corresponds to 68 basis points increase in just 1 quarter period of time. And similarly, swap adjusted net interest margin increased from 2.59% to 3.07% area, a very similar trend. And the good thing is those numbers achieved via a very conservative and humble CPI estimate. As you can see on the left-hand side above chart, as of third quarter, we used 26.9% CPI estimation during Q3, which is the lowest level among the peer group banks. But the eye-catching reality is despite such a very conservative CPI estimation, still reported net interest margin-wise as well as swap adjusted net interest margin-wise, VakifBank delivered one of the strongest quarterly performance within third quarter. As you know, in the beginning of November last week, October-to-October inflation announced officially with 32.9% area and all the correction will be reflected in Q4. And as a result of such big correction, we are expecting to receive additional TRY 16.5 billion additional interest income from CPI linkers. As you can see in the presentation, as of third quarter, we enjoyed almost TRY 20 billion interest income from CPI linkers. And on top of that, net-net total interest income from CPI linker portfolio will be reaching to TRY 35 billion, which will be the main driver of very strong quarterly performance within Q4. And another point I would like to take your attention is related to Turkish lira core spreads. Yes, it is true that for Q4, we will have additional sizable contribution from CPI linkers. But on top of that, additional positive news will be coming from the Turkish lira core spread development. As you can see on the below chart right-hand side, during Q3, we have additional expansion of Turkish lira core spreads, and now it reached to 450 basis points, which was 420 a quarter ago. So Q-on-Q-wise, Turkish lira core spreads extended by additional 30 basis points. And with the ongoing cycle, we believe within 2025, Turkish lira core spreads will reach to the peak level within Q4. So therefore, for the very short period net interest margin outlook for Q4, there will be a sizable contribution not only from CPI linker portfolio, but also from additional expansion of Turkish lira core spreads, it's coming, it's on the way. And therefore, we are quite optimistic for both Q4 net interest margin performance as well as overall profitability of the period actually. The next page is related to net fee and commission income. And on top of very eye-catching top line performance on the net interest margin and on the net interest income, another strong performance is visible on the fee and commission income side. Similar to net income growth, we also have outperformance in terms of yearly and quarterly growth on the fee income side. Total fees increased by 61% year-over-year versus 50% for the sector. And in terms of the quarterly evolution, we have another 19% quarterly fee income growth versus sector average of 14%. So therefore, core banking revenues, high-quality revenue generation capacity of the bank remain intact and further developed actually during the Q3. And in terms of the source of fee income, as you can see on the right-hand side, the bulk is coming mainly from the payment systems with more than 50% stake, followed by mainly lending-related fees, both cash lending as well as noncash lending. And in terms of quarterly and annual growth, the most visible growth rates are coming from payment systems and cash loans. And as a result of such strong performance on the fee income side, all fee-related KPIs seems to be in a very good shape like fee over OpEx or fee over income, fee total income. So therefore, on top of a very strong net interest margin performance, we are very happy to see and reflect another good results -- set of results on the fee income side. The next page is related to OpEx. And OpEx growth is more or less in line with the fee income. Both of them are above 60% year-over-year. And in terms of the OpEx rather than HR side, especially non-HR OpEx items like promotion expenses we are paying to payroll clients, this is the main driver of quarterly OpEx growth for Q3 as for the entire 2025. With Page 8, we can move to asset side. On the asset side, as of third quarter, our total balance sheet reached to TRY 5 trillion level, which corresponds to $120 billion equivalent. And out of this asset growth, more than 50% is coming from the lending side as the main activity. And on the lending side, in this quarter, we have a quarterly total lending growth of 9.1%, which is slightly higher than the sector average of 8.6%. So in this manner, on the total lending side, we continue to grow, and we continue to gain market share. And as of September end, our market share in total lending further increased to 12.5% area, which is the first ranking among the listed banks of Turkey. And in terms of the currency breakdown, we have another 9.8% quarterly lending growth, which is specifically the same compared to sector average. And on the hard currency side, we have additional 3.4% quarterly lending growth in dollar terms on the hard currency side. And when we look at the year-to-date numbers, year-to-date Turkish lira lending growth came at almost 29% and hard currency lending growth in dollar terms came at 18%. And these are the numbers actually we were sharing for the full year during the budget process. So on the lending side, as of September end, we are fully in line with the full year budget. In terms of the portfolio breakdown, during this quarter, most of the lending growth came from the SME side. So in this manner, third quarter was slightly different compared to first half of the year. Remember, during the first half of the year, quarterly lending growth was mainly coming from the corporate and commercial segment. But this time, due to commitment for some IFI-related projects, the main driver of lending growth was coming from the SME segment rather than corporate and commercial segment. And as a result of that, we have 16% Q-on-Q growth on the SME portfolio, which is followed by corporate and commercial segment with 7% quarterly growth. And on the retail side, we will continue to be on the conservative side and on the shy side. And therefore, our market share continued to diminish on the retail side, which is relatively lower compared to total market share on the total lending or our market share on the non-retail segment. Retail market share came down to 9.2%. However, on the corporate and commercial segment, we are almost reaching to 14% market share for both SME as well as non-SME side, which is fully in line with the strategy and the priority of the senior management. For the sake of the time, I am moving to Page 10, which is related to asset quality. On the asset quality, there are a couple of points I would like to share with you. Let me first start with the good part. The good part is related to collection performance. For the collection performance during this quarter, quarterly collection amount reached to almost TRY 6 billion, which is almost 2.5x higher than the last year average. So in this manner, collection numbers and collection performance seems to be in a very good shape, thanks to strong collateralization, thanks to our collateralized lending policy. That's the one part of the asset quality. The other part is related to simply ratios. And on the ratio side, we are calling this period as a normalization with the long-term average actually. At this stage, I would like to take your attention to NPL ratios. During this quarter, VakifBank NPL ratio further increased to 2.77%, which was 2.5% a quarter ago and which was almost 1.8% in the beginning of the year. So if we just look at from NPL ratio point of view, NPL ratio increased by almost 100 basis points year-to-date, mainly because of the NPL inflow driven by retail. And indeed, in this quarter, in terms of NPL inflows, we are having around TRY 19 billion NPL inflow. And out of this NPL inflow, almost TRY 11 billion is coming from the retail and credit card business and the remaining TRY 8.2 billion is coming from the corporate and commercial segments. And because of those NPL ratios -- because of those NPL inflows, NPL ratios are increasing. But on the flip side, it is normalizing with the sector average because if you look at the asset quality metrics from a long-term perspective, especially in this manner, as you can see in the middle of the page, we are indicating the NPL ratio of VakifBank during the period of 2008 to 2019. 2008 refers to the period with the global banking financial crisis period and 2019 simply refers to pre-pandemic period. And during that period of time, our NPL ratio in average was hovering around 4.3%. So from this perspective, actually, we are approaching to long-term cycle averages, which is also in line with our budget in terms of the budget and in terms of the expectations. For the full year, we were guiding up to 3% NPL ratio and 150 basis points net cost of risk. And indeed, as of today, we understand that those numbers and those guidance seems to be quite realistic as NPL ratio is hovering around 2.8% and full year cumulative net cost of risk is hovering around 154 basis points. So in this manner, especially related to NPL ratio, it is simply normalizing as the denominator effect to some extent is fading away. And the last point I would like to take your attention is related to slight contraction in the share of Stage 2 loans. As you can see on the right-hand side above chart, the share of Stage 2 loans within total loan portfolio contracted from 9.1% to 8.8%, but this is mainly simply a shift from Stage 2 to NPL. But within Stage 2, the share of restructured further increased from TRY 108 billion to almost TRY 125 billion, and this is simply a reflection of the regulation change, which simply makes easier for any kind of restructuring with the regulation introduced by the regulator as of July. With Page 11, we can move to deposit and liability side, starting with the deposit side. As of this quarter, for the first time, the amount of total onshore customer deposits exceeded TRY 3 trillion level. And year-to-date, our deposits increased by 23%. And in terms of the quarterly evolution, total deposit growth was up by 7.1% for Q3 specific and 23.4% year-to-date, and both numbers are slightly lower than the sector averages. In terms of the currency breakdown, our Turkish lira deposits are up by 5.7% and 18.8%, respectively, for quarterly and year-to-date. And those numbers are also slightly lower than sector trends. Because during 2025, we were mainly focusing in terms of making our deposit portfolio much more granular, much more retail-oriented and much more supported by the demand deposit side. And indeed, that strategy seems to be worked efficiently. In terms of the demand versus term deposit breakdown, the share of demand deposits in total increased to 30% area, which was less than 25% a year ago. And on top of that, the share of retail deposits also increased to 48%. These are the retail deposits and demand deposits. These are the main target areas for us in terms of deposit composition and all the numbers so far simply shows that this strategy worked very well, efficiently. The last -- another page I would like to take your attention is related to Page 13, where you can see the details of wholesale borrowings. As you know, during 2025 for Turkish banks, all wholesale borrowing channels are wide open and all of them are working efficiently. As of September end, total wholesale borrowing of VakifBank increased to $22.5 billion, which makes around 20% of total liabilities. And thanks to additional transactions we achieved during the first -- during October actually, that number further increased to almost $24 billion as of today with the new fresh DPR of $1 billion and with the recently issued additional Tier 1 of $500 million. Especially one important aspect of this very recent AT1 transaction is simply related to the fact that among all Turkish banks, including state banks and private banks, this transaction itself has the lowest yield with 8.2% and has the lowest reset spread margin. So therefore, we are extremely happy with the outcome and with the strategy. And our focus on the wholesale funding is still quite alive, especially with the further focus on long-dated IFI transactions and long-dated projects, and there will be much more transactions going forward. The last page I would like to take your attention is related to solvency ratios. As of September end, total reported CAR ratio materialized at 14.7%. Tier 1 ratio materialized at 12.34% and CET1 ratio materialized at 10.01% area. And as you can see on the right-hand side, we are also transparently showing the solvency ratios without BRSA forbearance measures, both bank-only basis and consolidated basis, including pre-provisioning. Given especially SIFI buffer, systematically important financial institution buffer, taken into consideration on a consolidated level rather than the bank-only level, we believe BRSA -- without BRSA forbearance numbers makes a lot of sense when we look at on a consolidated basis rather than bank-only basis, which take us to 9.56% as of September, which is quite a comfortable level compared to minimum requirements imposed by regulators as well as compared to our internal risk buffer. The last point I would like to share with you is related to the impact of very recent AT1 with the amount of $500 million. This transaction itself has a potential positive impact of 75 basis points in our Tier 1 ratio and Tier 2 ratio as of today. And that's the last point I would like to present to your attention. Thank you very much for your time, and thank you very much for listening to us. For the time being, we would like to conclude the presentation and leave the floor to Rob actually again. Thank you. Operator: Thank you, Mr. Ali Tahan. Thank you very much indeed. And yes, indeed folks, we're now going to start our question-and-answer session. [Operator Instructions] All right. Mr. Tahan, I see we have a written question. No audio questions so far, if you'd like to maybe have a look at that. [Operator Instructions] And I see we have written questions, Tahan, I hope you can hear me. Perhaps we can do that while we wait for an audio question. Ali Tahan: Sorry, Rob, I was muted actually. I couldn't reach out to you. Now I guess you are hearing to us. And we have one written question from Valentina from Barclays. She is asking different questions. Let me go over those questions. The first one is related to key guidance metrics and how VakifBank performed compared to guidance. She is also asking about 2026 guidance. As of today, unfortunately, given the budget process not finalized, we don't have the official guidance for 2026. But at least for 2025, we can try to summarize. In terms of the guidance on the lending side, for the Turkish lira lending growth, we were guiding high 20s. And as of now, we are already at 29%. So Q4 -- with Q4, I think we will be overshooting our Turkish lira loan growth. As of today, it is clear that Turkish lira lending growth will be above the 30%. And compared with the inflation, we understand full year Turkish lira lending growth will be in line with the inflation side. Given the year-end inflation is 32%, we believe Turkish lira lending growth for the full year will be also in line with the inflation growth on the Turkish lira lending side. On the hard currency lending side, we were guiding high teens in dollar terms for the full year. And as of September, it is already 18%, and it is already achieved actually. So for Q4, we don't expect too much room for hard currency lending. So more or less, it will be also the number for the full year. In terms of net cost of risk, it is also quite realistic. We were guiding 150 basis points net cost of risk. And as of September, on a cumulative basis, we are there actually. The specific number we are having is 154 basis points. On the swap adjusted net interest margin, we were guiding compared to previous year, 200 basis improvement. It will be also overshooting. I mean, probably the expansion on the swap adjusted net interest margin will be lower than what we were guiding. And I think in this manner, all the banks are in the same category compared to what we were expecting in the beginning of the year. We understand as of today, net interest margin expectations in the beginning of the year was quite optimistic and the numbers we are all delivering will be slightly lower than the guidance. So net-net, maybe rather than 200 basis points swap adjusted net interest margin improvement, we will end up with around 100 and 125 basis points net interest margin expansion. On the net income and OpEx growth, all of them were referring to above the inflation, and they are in line with each other. As you can see from September numbers, both on the fee income side as well as on the OpEx side, we have more than 60% growth on an annual basis for each, and this is also in line with the guidance. And all those numbers will take us to high 20s average ROE for the full year. That was our guidance. As of September, we are at 23% area, slightly lower than what we were guiding. But because of very strong net interest margin outlook and profitability outlook for Q4 because of the both core spread expansion as well as because of the sizable additional interest income from CPI linkers, we believe for the full year, high 20s average ROE is quite doable and realistic. So that was the brief summary of our guidance and what we achieved so far. For the second question, is related to asset quality. Do you see asset quality pressure in the SME or commercial segment? For the micro SMEs, partially, yes. However, for the midsized SME and for the commercial and corporate sector, we don't see a general weakness or we don't see a general trend actually. As you can see from the presentation so far, since the beginning of the year in the first 3 quarters of 2025, vast majority of NPL inflow was coming from the retail side. We believe going forward because of the restructuring easing, NPL inflow from the retail segment will be much more slower starting from Q4 onwards. And restructuring easing, which introduced from BRSA in July, it was an important game changer, and it will work efficiently. However, for the specific part of your question for the asset quality pressure in the SME, for micro SMEs, partially, we can say yes. But for the midsized SME and corporate and commercial segment, we don't see such general trend yet actually. The third question is related to hard currency liquidity as of third quarter. Maybe as of today and as of September, in terms of hard currency liquidity, all the banks are enjoying the most ample liquidity conditions in the hard currency. As of September end for us, it is hovering around $9 billion actually. And this number is one of the highest compared to the beginning of the year or compared to previous years. The next question is related to consolidated CET1 ratio. Does it include the free provisioning? Yes, that number assumes in case we are also releasing TRY 4 billion to the P&L actually. Without that number, it would be around 9.45%, 10 bps lower than what we are suggesting. I think that these are the questions. The last question is related to RWA without forbearance on consolidated and unconsolidated basis. We will come back on this via written e-mail to you, Valentina, after the call. I don't have the specific numbers with me for the time being. Another question is coming from the Goldman Sachs, Mikhail Butkov. Mikhail is asking simply would like to double check on CPI linker income contribution in Q4. Would it be TRY 16.4 billion incremental increase on top of normal income contribution? Yes, your understanding is correct, Mikhail. As of Q3, we are having around almost TRY 20 billion interest income from CPI portfolio. So with the actual numbers, given it is announced, we will make the full year correction and rather than TRY 20 billion, we will be enjoying around almost TRY 36 billion total interest income in Q4. I think that's the answer for your question. And the last question, actually a couple of questions. We have another question from Furkan Vefa Tirit. You were talking about TRY 35 billion income from CPI linkers. Is this the total CPI linker income in Q4? Yes, the total income in Q4 from CPI linkers will be TRY 35 billion. Where do you see the exit net interest margin for this year? And lastly, how do you see the net interest margin trajectory next year? I mean for the net interest margin side, of course, Q4 by far will be the strongest quarter of the year because of the peak level within 2025 of Turkish lira core spread evolution as well as because of the additional sizable interest income from CPI portfolio. So in terms of 2026, as we discussed, we will be discussing more in detail once the official budget is ready and approved by the Board, which is not the case. But in a [ bulk ] explanation, what we can tell to you, of course, we will be entering to the 2026 with a very good level of Turkish lira core spread level. And there will be more room for additional Turkish lira core spreads in the first half of the year as Central Bank of Turkey in our base case scenario, continue to cut rates. Of course, the level of cuts may not be as strong as 2025. Just to remind you, during 2025, Central Bank of Turkey start cutting rates by 350 basis points. And thereafter, [ they increased ] it to 250. And in the last MPC meeting, they cut by an additional 100 basis points. So in line with some of the research suggest in our base case scenario, we expect 100 bps rate cut at every MPC for next year. But as of today, of course, Central Bank of Turkey didn't announce yet the calendar and the number of MPC meetings for 2026. But as long as inflation is standing at the current trend, there will be more room for Central Bank of Turkey to cut rates. So therefore, it will be much more beneficial from Turkish lira core spread and expansion point of view. However, of course, at least in the first quarter compared to Q4, CPI linker contribution will be quite weak in the first quarter of 2026 compared to Q4 2025. But to some extent, it will be compensated by additional expansion of Turkish lira core spreads. These are the general trends for a very short period of time. But as of today, unfortunately, we are not in a position to quantify those trends in numbers. But of course, we will be happy to share our expectations once the budget is approved by our Board of Directors. Another question is coming from Mustafa Kemal Karaköse. Mustafa is asking, does ROE guidance include any provision reversal in the next quarter? What is breakeven NPL ratio in terms of required capital ratios? I mean we don't have any sensitivity for the second question. But for the first part, we -- in our base case scenario, we don't touch to remaining TRY 4 billion free provisioning, and we are still keeping it in our balance sheet. For your information, among the listed banks, top Tier 1 banks of Turkey, we are the only bank who still have free provisioning in the balance sheet. And in our base case scenario, when we are talking to high 20s full year average ROE, we don't take into consideration any free provisioning reversal. Rob, actually, these are the written questions I am seeing on the screens. As far as I understand, there is no audio questions. If there is any -- if I'm mistaken, please correct me. Otherwise, we will take 1 more minute for closing. Operator: Thank you, Mr. Tahan. Yes, indeed, no audio questions are coming through. And you're right, there don't seem to be any other written questions. So unless there are any other questions, I think, yes, we can -- you can move to the conclusion. Thank you, Mr. Tahan. Ali Tahan: Thank you. Thank you, Rob. Thank you very much for everybody for joining the call. Together with Ece and all IR colleagues in case of need, we are at your disposal and happy to answer any kind of follow-up questions. Thank you very much for your time and patience again and looking forward to talking in the first possible occasion. Operator: Thank you, Mr. Tahan. Thank you much for your presentation. And that, ladies and gentlemen, concludes today's conference call. We thank you for your participation. You may now disconnect.
Operator: Hello, everyone, and thank you for standing by. My name is Ellie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Krispy Kreme Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Christine McDevitt, Krispy Kreme Associate General Counsel. Please go ahead. Christine McDevitt: Hello, everyone, and welcome to Krispy Kreme's Third Quarter 2025 Earnings Call. Thank you for joining us today. This morning, Krispy Kreme issued its earnings press release for the third quarter of fiscal 2025. The press release and an accompanying presentation are available on our Investor Relations website at investors.krispykreme.com. Joining me on the call are President and Chief Executive Officer, Josh Charlesworth; and Chief Financial Officer, Raphael Duvivier. After their prepared remarks, we will host a question-and-answer session. But before we begin, please note that during this call, we will be making forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements of expectations, future events, or future financial performance. Forward-looking statements involve a number of risks, assumptions, and uncertainties, and we caution investors that many factors could cause actual results to differ materially from those contained in any forward-looking statements. These factors and other risks and uncertainties are described in detail in the cautionary statements in our earnings press release, our annual report on Form 10-K filed with the SEC and in other SEC filings we make from time to time. Forward-looking statements represent our expectations only as of today, and we assume no obligation to publicly update or revise any forward-looking statements, except as may be required by law. Additionally, during this call, we will reference certain non-GAAP financial measures. Please refer to our earnings press release on our website for additional information regarding those non-GAAP measures, including a reconciliation to the closest comparable GAAP measures. Raphael will take us through our quarterly financial performance in a moment. But first, here's Josh. Joshua Charlesworth: Thank you, Christine, and good morning, everyone. I am pleased with the early progress we are making on our turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth as reflected in our third quarter performance. As a reminder, we are focused on: one, refranchising; two, improving returns on capital; three, expanding margins; and four, driving sustainable, profitable U.S. growth. First, refranchising enables us to more profitably drive system-wide sales growth and accelerate unit development through our capital-light franchise model. We are already working toward refranchising certain international markets as we look for experienced long-term potential partners to operate and expand our iconic brand around the world. We also plan to restructure our joint venture in the Western U.S. with the WKS Restaurant Group, which today represents approximately 15% of our U.S. revenues. Restructuring is expected to reduce our ownership to a minority stake. We are happy with the strength of our operations in the WKS joint venture and look forward to future capital-light expansion across 10 Western U.S. states. Proceeds from international refranchising and the WKS restructuring are expected to be used to reduce net debt. Second, our focus on improving returns on capital involves reducing capital intensity by leveraging existing assets and focusing on franchise development. As part of this approach, we have lowered our CapEx spending for the back half of 2025 compared to the first half of the year. And in aggregate, annual CapEx will be significantly below 2024 levels. In the U.S. next week, we will open our Hot Light Theater Shop and production hub in Minneapolis, bringing Krispy Kreme to an area where fans have been eagerly anticipating our arrival. Overall, though, we have reduced investment in building new hubs, preferring to leverage existing excess capacity for growth where available. Looking ahead to 2026, we plan to reduce CapEx investment compared to 2025. We also expect our international franchise pipeline to continue to be a source of capital-light growth in the years ahead. For example, through our franchisees and minority joint ventures, we recently opened our first Hot Light Theater Shop in Madrid, Spain. We'll soon enter Uzbekistan and have announced further expansion in Brazil. Future international growth is expected to come not just from new shop openings with franchisees, but also through fresh delivery door expansion in grocery, convenience, club wholesalers and quick service restaurants. For example, our collaboration with KFC in the UAE has now expanded to more than 200 KFC restaurants offering Krispy Kreme doughnuts. This reflects the success of the model and the potential for future growth. Third, to expand margins through greater operational efficiency, the business model is being simplified. U.S. operations have been strengthened under the leadership of Chief Operating Officer, Nicola Steele, and costs across the P&L are being reduced. First, doughnuts are being made more efficiently by optimizing production, streamlining hub activities, and improving labor productivity. These initiatives are expected to maximize capacity, enhance operations and guest experience and increase profitability through better labor management. Second, doughnuts are being delivered more efficiently by improving route management and demand planning and by testing adjusted production and delivery schedules to support cost-effective expansion. These efforts are further strengthened by the capabilities of our third-party logistics partners whose expertise in fleet management, delivery technology and safety now supports approximately 54% of our U.S. network. Outsourcing has already resulted in more predictable logistics costs, and we expect to fully outsource U.S. delivery in 2026. And third, the benefits of reduced headcount and costs that we previously announced are decreasing both operating expenses and SG&A. Finally, to drive sustainable, profitable growth in the U.S., we are focused on strategic customers with high volume and high-margin doors, ensuring that we have the right product variety in the right amount, in the right place and at the right time. We continue to grow with strong existing customers. During the third quarter, more than 200 profitable doors were added with strategic partners, including Target, Costco, Sam's Club, Kroger and Publix. In total, approximately 1,000 profitable doors have been added year-to-date, and these doors are delivering weekly sales well above the system average. At Walmart, we are seeing the benefit of additional shelf space combined with our current merchandising towers and cabinets as well as placement on Walmart's website. Early results demonstrate higher sales at current stores while supporting incremental distribution and new stores. So far, we only serve about 30% of Walmart's total domestic footprint. So there is a considerable opportunity ahead of us. Our marketing continues to emphasize the original glaze donut, our most iconic, most affordable, and most profitable product, while leveraging digital channels to engage consumers and further amplify sales. The excitement around our signature core product is coupled with innovative limited time offerings that are culturally relevant and tied to buzzworthy events. Third quarter examples include our Harry Potter and Passport to Italy collections as well as our collaboration with Crocs. In the fourth quarter, we are also pleased with our successful Halloween campaign. These limited time offerings performed particularly well in our digital channel. In the third quarter, U.S. digital sales increased 17% year-over-year and represented more than 20% of U.S. retail sales. Our heightened traction in this channel reinforces digital as a key driver of profitable growth and a highly valued means for connecting with U.S. consumers. In addition, we recently announced a refresh of our everyday doughnut menu, featuring trending flavors, fan favorites requested on social media and returning popular doughnuts. Our updated offerings provide more variety for consumers while reinforcing the strength of our core menu. Our turnaround plan to drive sustainable, profitable growth and reduce debt leverage is showing progress, and I'm confident that we can deliver on our objectives and achieve compelling results. Our long-term success will be built upon the strength of our leadership and field teams whose talent and commitment to operational excellence continue to inspire confidence. I'm especially encouraged by how our new CFO has seamlessly taken off his role, providing strategic financial leadership that complements the operational expertise of our teams. With that, Raphael will now review our third quarter financials. Raphael Duvivier: Thank you, Josh. Through our comprehensive turnaround plan, we have pivoted to better position ourselves for sustainable, profitable growth. As I mentioned in August, my immediate focus as CFO is deleveraging the balance sheet, improving profitability in the U.S. during the second half of this year and leading our refranchising efforts to evolve Krispy Kreme to a more capital-light franchise model. The third quarter provided us with an encouraging start as we grew adjusted EBITDA 17% year-over-year or 20% if you exclude the sale of our majority stake in Insomnia Cookies in the third quarter of 2024. Adjusted EBITDA was $40.6 million in the third quarter, more than double what we saw in the second quarter. We also delivered positive free cash flow of $15.5 million. These results reflect the early progress we are making on our turnaround plan, reducing our net leverage by 20 basis points compared to second quarter. We have excess liquidity of over $200 million as of the third quarter, which I believe provide us with the flexibility to meet both short-term obligations and long-term investments as we continue to implement our turnaround plan. Net revenue for the quarter was $375.3 million with 0.6% organic revenue growth driven by the International segment, offset by the strategic closure of underperforming doors, primarily in the U.S. Total net revenue declined by 1.2% compared to last year, largely due to the sale of a majority stake of Insomnia Cookies. Adjusted EBITDA was $40.6 million, up from $34.7 million last year. We generated nearly as much adjusted EBITDA in the third quarter as we delivered in the first half of 2025. These results were positively impacted by productivity initiatives, SG&A savings, and the removal of costs from the now ended McDonald's USA partnership, combined with recoveries from business interruption insurance related to the 2024 cybersecurity incident. Turning to the U.S. segment. Organic revenue growth declined 2.2%, in part due to the exit of approximately 600 unprofitable doors. During the third quarter, we also exited approximately 2,400 doors connected to the now ended McDonald's USA partnership. As Josh mentioned, we also have added doors to deliver substantially higher average weekly sales. Sequentially, this store optimization has resulted in an 18% increase in average weekly sales to $617 per door, demonstrating the traction we have when our products are in the right place with the right partner. Adjusted EBITDA was $21 million in the quarter, up from $13.9 million in the third quarter of last year. We benefit from cost savings related to operational efficiencies at our retail shops and our logistic outsourcing initiatives in addition to cyber-related insurance recoveries of $9.3 million. Excluding those cyber-related insurance recoveries, U.S. adjusted EBITDA increased sequentially $1.8 million despite approximately $3 million of lagging costs early in the quarter related to the now ended McDonald's USA partnership. This demonstrates solid improvement resulting from our turnaround planned initiatives. Within our company-owned international markets, organic revenue grew 6.2%, driven by growth in Canada, Japan, and Mexico. These markets continue to see the benefit of strategically rolling out our hub-and-spoke model. International segment adjusted EBITDA increased by $0.4 million or 1.7% to $23.2 million, driven by Japan and Mexico. This is the first time, in the last 4 quarters, we saw year-over-year adjusted EBITDA growth in this segment. The margin decline of 90 basis points to 16.5% was due to the ongoing turnaround in the U.K., where we saw a strong sequential improvement in adjusted EBITDA as the U.K. leadership team continues to make progress. In the Market Development segment, organic revenue declined 5.3% as growth in royalty revenues from international markets was more than offset by lower product sales and limited equipment sales in the quarter. Adjusted EBITDA was $12 million with a margin rate of 63.5%, up 930 basis points year-over-year. Shifting back to our consolidated results, adjusted EBITDA and working capital management strengthened cash flow. We generated $42.3 million in operating cash flow during the third quarter and $15.5 million in free cash flow following 2 quarters of cash outflows in the first half. Our bank leverage ratio was 4.5x at the end of the quarter, which is below the 5x leverage ratio limit in our credit facility. Our net leverage ratio, which reflects our net debt divided by trailing 4 quarters adjusted EBITDA was 7.3x, down from 7.5x as of last quarter, positively impacted by the adjusted EBITDA improvement. Josh outlined several steps we are taking to increase profitability. We have already started to see the benefit of an estimated $12 million to $15 million of annualized SG&A cost savings along with productivity improvements at retail shops and efficiencies through third-party logistics. All of these items are already having a tangible impact on our financial condition. Sequentially, we saw working capital improvement across our balance sheet, including accounts receivable, accounts payable and inventories. While we're encouraged by this progress, we are mindful of continued consumer softness in the marketplace and are managing through these conditions with discipline. We must remain focused on deleveraging the balance sheet as we move towards our capital-light franchise model. With that, I'll turn it over to Josh for his closing remarks. Joshua Charlesworth: Thanks, Raphael. In summary, we are making progress on our comprehensive turnaround plan to deleverage the balance sheet and deliver sustainable, profitable growth. We are focused on refranchising, improving returns on capital, expanding margins, and driving sustainable, profitable U.S. growth. I am confident in our ability to capitalize on the significant growth opportunity ahead and share the joy of Krispy Kreme with more people in more places around the world. Operator, let's now open it up for Q&A, please. Operator: [Operator Instructions] Your first question comes from the line of Daniel Guglielmo of Capital One Securities. Daniel Guglielmo: You all mentioned great momentum in the International segment, and we have seen international strength versus the U.S. for other global brands this earnings season. Are you seeing continued strong trends in those markets for 4Q? I think you mentioned Japan and Mexico adjusted EBITDA growth this year -- this quarter. Raphael Duvivier: This is Raphael. I can take the question. Thank you for the question. Yes, we did see, and as you can see from the results in international, we saw year-over-year growth, but also more important, a growth in the quarter, which we have not seen in the past quarters. We continue to see good momentum. You mentioned Mexico and Japan, they continue to deliver, but also the markets that we don't own, the international franchise markets, we continue to see growth in places like Brazil, where we've just opened and the places that we're actually planning to open. So we continue to see strong momentum there. Daniel Guglielmo: Okay. Great. I appreciate that. And then I think in the commentary, it seemed like there is going to be some DFD expansion in some of the international markets. Can you just talk about some learnings that you've taken away from the U.S. expansion that you're going to kind of think about as you're doing this expansion in international? It would just be helpful to understand. Raphael Duvivier: Yes, it's a great question. Look, we learned a lot with DFD over the years. And as we expand internationally, we have the hub and spoke in mind. So as we go in places where we already have the DFD in place internationally, think about U.K., think about Mexico, Japan, but also the places we're expanding now, once again, new countries like Brazil or France, we are taking all those learnings. We know better and better what works. And it's interesting. When the brand is in the right place with the right partner, we see how DFD and the hub and spoke can operate very well. Operator: Your next question comes from the line of Brian Harbour of Morgan Stanley. Brian Harbour: I guess maybe can you just comment on sort of the U.S. demand environment as you saw in 3Q and kind of what's important here? Joshua Charlesworth: Yes, I'll take that. Q3 was very interesting for us because the results reflect the progress on our turnaround plan. Think about it, we intentionally exited from McDonald's restaurants and another 600 poor performing doors. So overall, that contributed to a small revenue decline, but a significant improvement in EBITDA and positive cash flow. So it was clearly the outcome of our actions, the rationalization program, though on U.S. doors is over. So instead, we continue to focus on high-volume, profitable doors going forward with strategic partners. We've actually added 1,000 of those year-to-date with people like Walmart, Target and Costco. And that's resulted in average weekly sales jumping back up over $600. So that is about the future. We intended to have that reduction in growth in the third quarter to drive the turnaround plan. Underlying all that, we're actually seeing U.S. trends improving. The consumer response, in particular to our specialty doughnut campaigns, we had Harry Potter in the late summer and just saw a successful Halloween means that my confidence in Krispy Kreme's long-term sustainable profitable growth is high. Brian Harbour: Okay. What -- I guess, what additional cost things should we expect here just since the end of the year? And I know you're not guiding, right, but do you think that -- do you want to make any comments about where you think EBITDA could be in the fourth quarter? Raphael Duvivier: Yes, I can take this. This is Raphael. Look, we saw a sequential improvement in EBITDA in Q3 as we saw in Q2 and are happy with the progress we made. The turnaround plan is working. And we continue to believe that as we enter Q4, we'll see sequential EBITDA improvement. As I said, we're not providing guidance, but we do expect Q4 EBITDA to be higher and to still be able to generate a positive cash flow in Q4. Operator: The next question comes from the line of Sara Senatore of Bank of America. Sara Senatore: Isaiah Austin on for Sara. My first question is around the comment on fully outsourcing U.S. delivery in 2026. Do you guys mind talking through the P&L implications? Does that create a lower cost per delivery or just a more like variable cost structure so that you don't need as much volume to lever expenses? And then I have a quick follow-up. Joshua Charlesworth: Yes, sure. This is an important program for us through our turnaround. You're right, we're now -- 54% of the network is outsourced to third-party providers, and we expect that to be the whole network in 2026. What we see is very high service levels. We're very pleased with the partners as we roll this program out. For now, on your P&L question, it's ensuring we have more predictable costs but interestingly, we see it as, in the long term, providing us a tailwind. If you recall, earlier in 2025, late '24, we were seeing the impact of casualty losses, and that exposure is reduced going forward. We also expect with the expertise of these partners who are focused every day on moving our doughnuts as logistics experts as opposed to us ourselves being the producers of the doughnuts, we expect operational improvements over time. They've already been identifying and sharing with us ideas around how they can use their technology and expertise to improve route management, for example. So a long-term tailwind for us. But for now, the impact on the P&L is more just ensuring we have predictable costs without any of the surprises of those casualty losses. Sara Senatore: Excellent. And then just as a follow-up, just thinking about the recently announced expanded core menu lineup, just want to know like what prompted that change? And how do you all think about balancing variety versus complexity? Joshua Charlesworth: Yes. I mean it reflects -- we talk about long-term sustainable, profitable growth. That's seen us really focus on our core business. And there's nothing more core than our fresh doughnuts board at our doughnut shops across America. And we've been highlighting the original glazed itself, adding flavored glazes like chocolate glaze, strawberry glaze. But we also saw that we haven't refreshed and updated our assorted doughnut menu for many years. And we get a lot of input from consumers, social media, in particular, pointing out that there are favorite doughnuts from the past or even favorite ideas that they have that they would love to see. So we've been listening to the consumer. You'll see we've brought out with this new refreshed range, OREO Cookies with Kreme and New York Cheesecake, my favorite, the Biscoff Cookie Butter. And that's a response to consumer demand. Now we also think -- we've also done that. We've been really thoughtful about making sure that consumers have a good amount of choice and get a really awesome experience when they come to the Krispy Kreme Doughnut shop, all in the context of our turnaround plan, focusing on what we do best, making awesome doughnuts. And we're really looking forward to the impact of that. Operator: [Operator Instructions] Your next question comes from the line of Rahul Krotthapalli of JPMorgan. Rahul Krotthapalli: Josh, you have a large brand presence or brand equity that is probably even bigger than the company as many would say today. I mean discuss the growing supply or competition in the segment as we see a number of cake and cookie and other sweet treat brands in the market. And at the same time, many consumers are also being more mindful of spending generally and then also more conscious around the segment. Any thoughts you could like to share there? And then I have a follow-up. Joshua Charlesworth: Yes. We're very proud of the strength of the brand, both in terms of awareness and also in terms of what it means to people, particularly in sharing occasions, gifting occasions, makes us quite unique compared to others. It's a relatively infrequent purchase, just 2 or 3 times a year. So we don't really get impacted by those things. Instead, we find what's most important is making sure we really come with an awesome doughnut experience with our original glaze, most famously with the hot doughnut and continuously bringing news, as I just mentioned a moment ago, with innovation, specialty collections and being relevant at those important times of the year. I mean we're in hot doughnut season right now. It's really important that we saw a good response to the brand at Halloween and the whole holiday period coming up is an important one for us. So that's where we are focused, bringing moments of joy that people can share and enjoy with us. Rahul Krotthapalli: And the follow-up is on the retooling the distribution network. I know you are like taking a full look on the entire DFD touch points now. Is there any changes to the thought process on kind of brands and partnerships you want to focus on going forward? Are we -- where are we in the journey there? And then also, is there any change in the kind of agreements or how you want to execute the drop-offs in this new model? Joshua Charlesworth: So we're continuously looking to improve our distribution network, looking at delivery timing, making sure that we are producing the doughnuts in close proximity to our customers, but also efficiently. So we really are doing a lot of work around that as part of our turnaround and continue to expect benefits from that. The big initiative for us was to exit from low-traffic doors. We had -- over time, we identified there were about 1,400 doors in the U.S. where the traffic wasn't high enough, and therefore, the weekly sales were good enough. And so we intentionally exited from those this year, but that program is done. So going forward, to your broader question, it is about expanding convenience and access to the brand. But only where the traffic is high enough and in-store visibility is really clear. That's when the conditions are right for us. What's great is we have several customers that already qualify against that. And they have plenty of upside opportunity. It's only recently in the last year or so that we entered Target, and we're really just starting out with Costco as 2 clear examples of that. And even more recently just got going with Sam's Club. So we have plenty of customers where we can go that are sort of proven with that high traffic. It's interesting and internationally that we see some other innovations such as the KFC we're seeing in the Middle East. But really in the U.S., the focus is on these big high-traffic locations in which we have plenty of runway, and they can support our long-term sustainable profitable growth. Operator: Your next question comes from the line of Alexandra Gaillard of BNP. Alexandra Gaillard: This is Jaafar Mestari from BNP. Just wanted to clarify one thing in terms of the outlook where you talk about the remainder of 2025, you expect to see further improvement in adjusted EBITDA. Does that mean a Q4 '25 EBITDA higher sequentially than Q3? Is that a Q4 '25 EBITDA higher year-on-year than Q4 last year? Or is there any other way we should look at this? Raphael Duvivier: I can take this. This is Raphael. Yes, that's the way you should read this. We do expect to see improvement in Q4 versus Q3 and also positive cash flow in Q4 as we generated in Q3. And as to 2026, we're still not providing guidance, but you can expect sequential improvement in EBITDA. And as I said, in Q2, we continue to focus on lowering CapEx spend. We will do this in the second half of this year, and we will lower CapEx for next year as well. Operator: Thank you. There are no further questions. I'd now like to hand the call back to the CEO, Josh, for final remarks. Joshua Charlesworth: Well, thank you, everyone, for your interest in Krispy Kreme today. We saw we implemented a turnaround plan this summer to drive sustainable profitable growth and deleverage the balance sheet, and we are already seeing that turnaround underway. It's thanks in large part to our great Krispy Kreme team all over the world. So I thank you as well. Thank you. Goodbye. Operator: Thank you for attending today's call. You may now disconnect. Goodbye.
Operator: Greetings, and welcome to the Advantage Solutions Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce [ Vic Mohan ]. Thank you. And Vic, you may begin. Unknown Analyst: Thank you, operator. Welcome to Advantage Solutions Third Quarter 2025 Earnings Conference Call. Dave Peacock, Chief Executive Officer; and Chris Growe, Chief Financial Officer, are on the call today. Dave and Chris will provide their prepared remarks, after which we will open the call for a question-and-answer session. During this call, management may make forward-looking statements within the meaning of the federal securities laws. Actual outcomes and results could differ materially due to several factors, including those described more fully in the company's annual report on Form 10-K filed with the SEC. All forward-looking statements are qualified in their entirety by such factors. Our remarks today include certain non-GAAP financial measures, which are reconciled to the most comparable GAAP measure in our earnings release. As a reminder, unless otherwise stated, the financial results discussed today will be from continuing operations and revenues will exclude pass-through costs. And now I would like to turn the call over to Dave Peacock. David Peacock: Thanks, Vic. Good morning, everyone, and thank you for joining us. Before we begin, I want to acknowledge the continued focus and dedication of our teammates. You are advantage and your commitment to delivering for our clients and customers, especially as they navigate a complex consumer environment remains central to our success. Starting with our third quarter results. Revenues of $781 million were down 2.6% versus prior year. Adjusted EBITDA was $99.6 million, a decline of 1.4% versus prior year, a sequential improvement from the second quarter. This was the result of a strong performance in our Experiential segment, where demand remains robust. This partially offset softer trends in branded services and anticipated declines in retailer services due in part to timing shifts. We generated strong cash flow driven by our marked improvement in working capital, resulting in adjusted unlevered free cash flow of $98 million or nearly 100% of EBITDA. As a result of the strong cash flow generation, we ended the quarter with over $200 million in cash, including the proceeds from the sale of our 7.5% equity stake in Acxion Foodservice. During the quarter, we leveraged the benefits of our structurally diversified platforms, pulling levers in real time across our high-volume labor business and retailer and experiential. We meaningfully increased hiring activity to meet growing customer demand, enabling the business to execute more events in in-store retail work, which drove strong incremental margins. Our ability to respond to rapidly changing dynamics with the right data, systems and talent provides resilience in the near term, while longer term, we remain well positioned for an improving environment across our network businesses, primarily in branded services. As we move into the acceleration phase of our IT transformation and modernization effort, having implemented our new ERP and enterprise data infrastructure with Phase 1 of our SAP and our Oracle EPM environment in place, we are beginning to leverage these systems to drive efficiency gains, improve workforce optimization, increase cash flow, accelerate data integration and sharpen visibility into performance. These actions enable us to operate as a truly insights-driven organization even as we continue the remaining phases of our SAP and Workday implementations over the next 15 months. We remain committed to establishing a leading data architecture and system foundation to yield operational savings and better data-driven services for our clients and customers. We're advancing the development of our new Pulse system, an AI-enabled end-to-end decision engine designed to elevate the speed, precision and impact of our commercial decision-making across sales and merchandising. This next-generation platform will seamlessly integrate Advantage's data intelligence, including unique retail data with dynamic real-time capabilities, augmenting our team's ability to anticipate demand, prioritize actions and drive efficiency and effectiveness across client workflows. At the same time, we are deepening key strategic partnerships that enhance our technology capabilities and operational reach, most recently through our expanded collaboration with Instacart. By combining their live in-store audit capabilities with Advantage's retail execution network, we are building an alert-based retail model that allows CPG brands to quickly identify and correct on-shelf availability, pricing and display issues in real time. This approach leverages Instacart's network of more than 600,000 shoppers alongside our execution expertise to reduce out of stocks, improve compliance and drive stronger ROI for our customers. We closed over 6 million distribution voids and out-of-stocks each year, and this new partnership will enable us to do more of this and do it faster than anyone in the industry. The early results of our 200-store pilot have been encouraging and the partnership will scale into additional markets in 2026. The partnership reinforces our commitment to data-driven execution and technology-enabled growth. We also continue to roll out our centralized labor model, which we believe will significantly strengthen our high-volume labor businesses in our retailer and Experiential segments over time through increased utilization, which will drive higher retention and ultimately stronger execution for clients and customers. We see this as providing some benefit in the fourth quarter with acceleration in 2026. Our teams remain laser-focused on the fundamentals, deepening customer relationships, elevating our technology platform and driving better labor utilization in our highest volume service lines. These actions are helping us to operate with more consistency and improved execution in the market, which leads to a better experience for our customers. Turning to a review of our segments. We are adapting as we continue to operate in a dynamic macro environment. Inflationary pressures and a cautious consumer continue to curb demand. Last quarter, we noted that higher income shoppers remain more resilient while value-oriented consumers were becoming more selective, and we saw the trend persist in the third quarter. Accordingly, CPG companies and retailers alike are remaining increasingly cautious and sharply focused on stronger ROI on every dollar deployed. Our platform with its ability to drive efficient execution, informed decisions with data and improved commercial outcomes positions us well to help our customers compete and win. In Branded Services, we faced uncertain market conditions as tariffs, channel shifts and a softening growth environment continue to influence spending. While the decline in revenues and EBITDA eased sequentially, the business continued to face headwinds. The result was a reduction in commission-based revenues through scope and customer retention that was not fully offset by new customer wins and growth in incremental services within our existing client base. While the environment remains challenging, we continue to focus on investing back into this business, strengthening our value proposition and pursuing customers that can benefit from our core offerings, both near and long term. We expect branded services revenues and EBITDA to remain under pressure. However, we are encouraged with a larger pipeline of new business opportunities as we close out the year. Turning to Experiential Services. We had a very strong quarter with solid growth in revenues and EBITDA. Demand for events continued to rise, and we responded with increased staffing levels, resulting in higher revenues and incremental margin. Demo event volume grew strongly in the quarter, up 7% on an underlying basis and execution reached 91%. We continue to see strong demand signals in this business, and we expect improving execution in the fourth quarter as we enhance our talent acquisition processes even more. Retailer Services was down year-over-year in revenues and EBITDA. As we indicated in our last earnings call, this reflected a difficult year-over-year comparison and a shift in the timing of some project activity out of the third quarter. We also experienced a negative impact from ongoing channel shift toward club and mass stores as well as some pressure from more cautious retailer spending. We remain focused on the controllables as staffing levels and execution rates continued to improve through the quarter, enabling stronger coverage and an ability to satisfy demand for projects. We view these staffing improvements, along with a healthy project pipeline as leading indicators of stabilization and recovery and are well positioned for improving revenues and EBITDA in the fourth quarter and beyond. While consumer behavior remains challenging, effective execution, transformation-enabled technology, a solid project pipeline and accelerating customer demand gives us confidence in the long-term trajectory of the business. Our diversified business model, which includes high-volume labor businesses, creates operating leverage and the disciplined execution, we can redeploy teams and flex staffing to meet customer demand, creating outsized incremental margin growth in the business. We also continue to improve our productivity through AI initiatives, which are accelerating efficiencies in our back office as well as sales tools and data analysis while engaging with vendors to build platforms and applications at scale. Taking into account our expectations for the fourth quarter, we are reiterating our revenue growth guidance of flat to down low single digits for the year. We are updating our EBITDA guidance for the year to include the Acxion Foodservice divestiture as well as the challenging macro environment, especially affecting our Branded Services segment and now expect mid-single-digit decline. We continue to expect unlevered free cash flow to be greater than 50% of EBITDA. We are encouraged by the strong cash flow performance despite the negative impact from a timing shift of our payroll period weighing on the working capital in the fourth quarter. We expect cash flow generation to remain strong, driven by continued working capital improvements, lower CapEx and benefits from our labor and efficiency initiatives. Our business is built to generate consistent cash flow. And as the transformation investments taper and our modernization work takes hold, we continue to expect strong cash conversion going forward. We are confident in the trajectory of the business and are taking the right long-term actions to strengthen our position and restore growth. We continue to focus on disciplined execution while improving our systems, technology and labor capabilities. I'll now pass it over to Chris for more details on our performance and guidance. Christopher Growe: Thank you, Dave, and welcome to all of you joining the call today. I will review our third quarter 2025 performance by segment, discuss our cash flow and capital structure and expand on Dave's guidance commentary. In Branded Services, we generated $258 million of revenues and $42 million of adjusted EBITDA, down 9% and 15% on a year-over-year basis, respectively. This segment continues to experience challenges, mainly within the sales brokerage business, which we are working expeditiously to address as well as our omni-commerce marketing business. The softer growth environment for consumer packaged goods companies has weighed on our organic growth performance, and we continue to see some pressure around in-sourcing, which has been a headwind to growth. However, we took cost actions earlier in the year to improve our efficiency. We maintain a robust pipeline of new business opportunities, offering confidence in our ability to move towards stabilization in 2026. In Experiential Services, we generated $274 million of revenues and $35 million of adjusted EBITDA, up 8% and 52% on a year-over-year basis, respectively. Solid execution and the continued improvement in staffing levels enabled our teams to execute more events in the quarter. We were able to pull operational levers during the quarter to accommodate growing demand that was again ahead of our expectations. Events per day increased by 7% versus the prior year on an underlying basis, and we see momentum accelerating into the fourth quarter. Execution rates were approximately 91%. And given strong fixed cost leverage, we saw EBITDA margin improvement of 370 basis points year-over-year and up strongly on a sequential basis. We are beginning the rollout of our centralized labor model for part of our experiential business with the goal of further improving our efficiency, which will also support a better teammate experience as our teammates access an opportunity to garner more hours in the store. In Retailer Services, we generated $249 million of revenues and $23 million of adjusted EBITDA, down 6% and 22% on a year-over-year basis, respectively. As expected, we faced a challenging comparison to the prior year period and results were impacted by project activity timing. Additionally, advisory and agency work were impacted by channel mix. We are developing more bespoke services to increase our value add to retailers and focusing on expanding our services beyond the grocery store to other retail outlets. We maintain a strong and growing pipeline of new business opportunities in this segment. Across the businesses, shared service costs were down year-over-year in the quarter, which benefited profitability in all segments and reflects the stabilization of costs we expect to continue. Moving to the balance sheet and cash flow. We ended the quarter with $201 million in cash on hand, a notable increase from $103 million in the second quarter, driven by the improvement in working capital, mainly DSOs and the benefit of the $19 million in proceeds from the sale of our stake in Acxion Foodservice as well as the $22.5 million in proceeds in July related to the first of 2 deferred purchase price installments for June Group. We did not repurchase debt or shares in the quarter. Our net leverage ratio was 4.4x adjusted EBITDA, which is down from the second quarter, and we expect it to hold at this level in the fourth quarter. With cash on hand, expectations for stronger cash generation going forward and approximately $450 million available on our undrawn revolving credit facility, we have ample liquidity to operate the business in the current macroeconomic climate while investing for growth and opportunistically paying down debt. Turning to cash generation. We ended the quarter at approximately 62 days of sales outstanding, an 8-day improvement from the second quarter as cash collections continue to recover after the transition to our new ERP system. Optimizing DSOs has been a big focus for the organization, and we continue to make progress in reducing DSOs as we move forward into 2026, which will contribute to additional cash flow. CapEx was $11 million in the quarter. We now expect full year CapEx in the range of $45 million to $55 million, moderately below our previous guidance due to the timing of projects occurring this year and continued efficiency in our spending. Adjusted unlevered free cash flow was $98 million in the quarter, and the conversion rate was nearly 100%, driven by the stronger working capital performance as well as lower-than-expected CapEx. In addition, we made progress on transforming and optimizing our portfolio. During the quarter, we monetized our 7.5% stake in Acxion Foodservice for $19 million in cash proceeds. This divestiture helped streamline our portfolio and boost our liquidity position. We will continue to capitalize on similar opportunities that make strategic sense going forward. As Dave highlighted, our revenue guidance is unchanged, but we are adjusting our full year EBITDA guidance due to the divestiture of our stake in Acxion Foodservice as well as the more challenging macro environment. We remain encouraged by the sequential progress in 2025. After a challenging first quarter to start the year, we have seen a steady improvement in our operating performance, which has supported a strong revenue and EBITDA trend for the business. As indicated by our full year guidance, we expect a stable growth trend in revenue and EBITDA in the second half of the year, supported by strong execution across our labor-related businesses. The diversity and resilience of our business model supports this improved business performance and provides confidence in our path forward. As Dave mentioned, we continue to expect 2025 adjusted unlevered free cash flow to be above 50% of adjusted EBITDA. We lowered our CapEx spending outlook slightly again this quarter to a range of $45 million to $55 million, which will aid unlevered free cash flow growth for the year. Our expectation for interest expense remains in the range of $140 million to $150 million, assuming no additional debt repurchases. Robust cash generation is expected to continue in the fourth quarter. Excluding a $45 million year-end payroll shift into 2025 due to timing, we anticipate adjusted unlevered free cash flow conversion close to 100% and net free cash flow conversion of approximately 30% in the second half. We continue to expect our restructuring and reorganization expenses to be about half the level of the prior year, which is contributing to our stronger net free cash flow performance in the second half and the year. Our business is designed for efficient and consistent cash generation, and we expect to return to our typical net free cash flow conversion rate of at least 25% of adjusted EBITDA next year and beyond as our transformation improves our services and modernizes our processes for more consistent and efficient results. Thank you for your time. I will now turn it back over to Dave. David Peacock: Thanks, Chris. We believe our expertise and range of services position us well to navigate the current macroeconomic environment with resilience and agility. We continue to execute with discipline and advance the foundational work of the company. We are making measurable progress in improving our systems and workforce efficiency, strengthening the backbone of our operations and competitive positioning. At the same time, we continue to make progress toward completing the strategic initiatives that will enable Advantage to reach its full potential as a technology-driven industry-leading service provider and generate meaningful cash flow for our shareholders. Operator, we are now ready for a Q&A session. Operator: [Operator Instructions] Our first question comes from Lucas Morison from Canaccord. Lucas Morison: So maybe just to start here, discussing the EBITDA outlook and the minor trend there. Can you just frame like how much of that change was related to the divestiture versus core operations? Christopher Growe: Yes, I can go. Luke, good to speak to you. Welcome to Advantage. In the fourth quarter, so we had an EBITDA contribution from that stake, like we do with other joint ventures that we have. It's a relatively small piece of the fourth quarter. And outside of that, obviously, you have this overall challenging macro backdrop that I'd say. But I'd just say we're bringing down a little bit, and there's one element of like business mix, never seen stronger growth from experiential versus branded as an example. So there's a little bit from the divestiture and a little bit from that just general macro environment that we're incorporating into the guidance here. Lucas Morison: Got it. Makes sense. And then maybe just like thinking bigger picture longer term, it sounds like experiential continues to outperform. Branded services and retailer are kind of softer and lagging. Can you just talk about like how you see the overall portfolio mix evolving as we enter 2026? Do you expect experiential to remain the primary growth driver? And do you see stabilization in branded and retailer returning the model to a more balanced footing? David Peacock: Yes, Lucas, this is Dave. Yes, we do see experiential continuing to perform well, and we see continued demand in that segment. And then as it relates to branded and retailer, and we talked about it in the second quarter and just here again, retailer is really facing a little bit of an anomaly in the third quarter. We feel very good about the retailer segment and its outlook as we move into 2026, especially the merchandising services, which is the largest component of that business. And then on the branded side, we expect sequential improvement as we move through 2026. Obviously, the macro backdrop affects that segment more than the others. But we recognize that the efforts we're undergoing to kind of get the business back where it needs to go are starting to pay off. And our pipeline for the fourth quarter as we end the year of new business is very strong. So we have optimism of a more stabilized branded services as we move into 2026. Operator: Our next question comes from Greg Parrish from Morgan Stanley. Gregory Parrish: Maybe to start, I just thought it would be good to hear maybe an update on the market and the consumer. Obviously, hearing a lot of softness out there, especially on the lower income side this week even from some restaurants. So maybe kind of just update us on what you're hearing from your clients in store. David Peacock: Yes. Thanks, Greg. And I'm glad you asked that question. We make the rounds with leadership across most of our clients and customers on a quarterly basis. And obviously, everyone has been tracking the consumer and the retail names pretty closely over the last couple of weeks and a little bit mixed. You see some positive results for some. But for the most part, you're seeing guidance down or a little more of a negative tone relative to the consumer. I do think we've got 2 realities. You've got, call it, kind of higher income consumers still remaining resilient, still shopping, still realizing trip and what have you. But when you think of all the things that have hit consumers more broadly and especially those on the lower end, you've got pricing that largely rolled out at least in the businesses that we work with. Not all of them, but a lot of them in the kind of late second quarter, early third quarter. And there was a byproduct of tariffs or tariff concerns. There was a byproduct of commodities in some large categories. You've got the continued GLP-1, which on the food side does have some effect on demand. And then you just -- if you look kind of longer term, you've got a little bit more constrained population growth. And it's not just immigration reform, but it's also birth rate is actually -- if you look kind of back a few years and look forward, it's lower. So I think that's created some of the environment we have. Now I think there's a belief that there's some cyclicality to those -- some of those dynamics. If you think of being GLP-1, there'll be a lapping of that eventually and the growth of the adoption of that will slow. Number one. Number two, I think you see a lot of CPGs and even the private label side leaning into innovation and innovation can spark growth within these categories. And then you have different realities across different categories. So categories that are protein-centric, categories that are expandable consumption, categories that lean a little bit more on the health orientation continue to show pretty strong growth. And then you've got obviously other categories maybe they're struggling a little bit. So I think that it's -- as we move to '26, a little bit of cautious optimism that '25 was a pretty tough year for the consumer and some hope that some of the factors on the margins that have affected the consumer, especially on the low end, are mitigated a bit and taper a bit as we move into '26. Operator: Our next question comes from Faiza Alwy from Deutsche Bank. Faiza Alwy: I wanted to -- you mentioned timing as it relates to retailer services, and it sounded like you're a little bit more optimistic on that business as we look ahead. So just talk a bit -- just put a finer point on the timing issues and talk more about the visibility and pipeline that you're seeing into next year. David Peacock: Sure. Thanks. To be clear, so third quarter was a combination of a difficult comp due to the timing of project work last year, not all of which is going to be repeated this year. And then also the timing of some project work, as you saw in the second quarter, retailer had a pretty strong quarter, and we do anticipate improvement in the fourth quarter. When we zoom out and look at the year, because I know we all look quarter-to-quarter, but I like to look at the year, the retailer segment will be for us, I think, largely in line with expectations, but for some of this kind of macro consumer impact that's obviously affected retailers that hit probably a little bit of our advisory business, a little bit on the merchandising services side, only in the retailers will pull back investment a bit on the project work. The continuity work continues, but it is important to understand that the continuity work is also funded by a flow-through of revenue for the retailer. And then when we talk about the pipeline as we go into 2026, our business development team, and we've really redoubled efforts there, has really done a nice job building a pipeline really across, if you will, all our segments, but especially the branded segment. And we're seeing just better success as it relates to closing on opportunities. So we're optimistic as we look out into '26 and the ability as we lean into this business development effort. And it's a byproduct of all the work that's been done by our teams around talent upgrades, which is a combination of some new people, but a lot of training, investment in technology and our data lake is now paying off with more robust and faster data at the fingertips of our sales teams because as you can imagine, that's the most critical factor in helping drive client performance is having deep and what I'd say, fast insights relative to what's happening with brands and SKUs so that they can make decisions around promotion schedules, merchandising plans, what have you. Faiza Alwy: Understood. And then I guess just a similar question on branded because I think you're saying that you're expecting declines to moderate into 2026. Like is that because of, again, some of these business development efforts that you're talking about? Or do you think like market conditions or the macro environment is likely to improve into 2026? David Peacock: I mean, look, it's a lot of the work that I was describing before, which is the business development and just improving what I call the machine, the sales machine about underpins that Branded Services segment because so much of it is in how we represent our clients with retailers on the sales side and the headquarter selling support. And then also on the retail merchandising side, with our Instacart partnership, especially being able to demonstrate ROI in the services we provide and addressing out of stocks. We mentioned in the prepared remarks, we're close to 6 million out of stocks a year. If we can leverage the relationship with Instacart to identify those more quickly and close those faster, that's just more sell-through, which both benefits us and our clients. And then -- I mean, look, I believe opinion of one, that the industry, like I mentioned earlier, it has some cyclical aspects this year that likely won't repeat or the industry, as I say, learns to adjust to a new environment and some of the uncertainty that you heard a lot in the first half that I don't think you're hearing quite as much in the second half is probably an example of the industry, if you will, and companies kind of learning how to manage in this new reality. And I personally remain optimistic that the macro market should be a little bit better for the consumer as we move into 2026. Operator: Our next question comes from Greg Parrish from Morgan Stanley. Gregory Parrish: Okay. Yes. So I don't know what happened, perhaps user error -- thanks for coming back. Chris, I just want to clarify on the EBITDA guide. So I think you said like stable second half. And then -- I mean, obviously, the mid-single digits, you can kind of plug in a lot of numbers the fourth quarter and get to that. So you've had improvement every quarter in the year-over-year EBITDA. Third quarter, you're down 1. So like sort of similar level, maybe a little bit better to flattish. How do we think about the year-over-year 4Q EBITDA relative to third quarter? Christopher Growe: Yes. And I think relative to the third quarter, Greg, obviously, there's some nuances year-over-year. We do expect experiential to have a very good quarter. We mentioned retailer gets better in the quarter. There's a tougher comp on the branded services side, just given some of the activities of a year ago in the fourth quarter. That mid-single-digit growth is meant to have a range, and it would get you to a relatively flat second half overall, certainly for revenue and then like a flat to down level of EBITDA overall. And I think that's just where we keep it right now is right at that level and gives us a little bit of flex for the fourth quarter here. David Peacock: Yes, Greg, I'll jump on Chris' response, too. I mean if you really look at our year without digging in detailed fourth quarter, let's talk about second and third, we all know we had a rough first quarter, and there was a couple of things. We knew when we implemented SAP that given our business and the fact that working capital is really driven for us by DSO and the impact that, that implementing SAP can have on cash collection and what have you that from a DSO standpoint, it would be a rough period. We also knew we were transitioning to more centralized talent acquisition and workforce planning. And with any transition, you're going to have bumps. So we have that hiring shortfall. What I'm excited about is the team is hiring for us a record pace and doing a great job in bringing in more and more talent to address the increasing demand we have in the labor parts of our business. I'm also excited, and I think we don't always acknowledge we have had a very good SAP implementation. And we've had a team that's really pulled together even amidst a challenging kind of broader environment and done a great job and to see our DSOs kind of back to close to where we were at the end of last year. Basically realizing about a 6-month challenge just given the implementation. We've all seen some of the other stories of more difficult or challenged SAP implementations. And I just want to note that our team has done a phenomenal job in implementing that amidst everything else going on in the industry. And I think it's an example of the ability to execute both projects but also on a day-to-day basis in driving the business. Gregory Parrish: Yes. Okay. And maybe one more each on the segments here. Maybe just experiential, you've been recovering from labor shortages. Like how much of this -- you talked about demand a lot this quarter. So really trying to unpack like how much of this is staffing up versus like real demand increases? And then how do I think about that heading into '26? And like how sustainable is the growth here, especially given the backdrop of you're recovering from COVID and staffing up post-COVID. And then as we reach normal here, what's going to sustain growth going forward? How do we think about that? David Peacock: So events per day grew 7% and execution, frankly, was only 91%. What that implies is while we were able to satisfy an extra about 850-plus events per day during the quarter, we could have done more. And for us, it's why I'm even optimistic about the fourth quarter as we move into '26 because our -- the fidelity of our hiring and onboarding machine, if you will, is improving every day. And so -- and then demand is there. I mean there was -- I would argue, unmet demand in the third quarter that we could have capitalized on and even with a great talent acquisition and onboarding process. So there's more to be had. I think the other thing you see is COVID is in this space kind of long in the rearview mirror. There are some retailers that have opportunity to kind of get back to that COVID level. There are a number of retailers that are at that level or beyond. So we're not doing that comparison back to COVID as we used to do because this is now just underlying growth and demand for this business. And part of it is, as I mentioned earlier, the innovation that's going on within the industry, number one, especially on the consumables side. And then you are seeing some sampling efforts around general merchandise, and it's crazy that sounds. But we've got a program this year with one retailer around toys and having kids kind of be able to see in parents. So as they start planning for holidays, maybe driving those categories for these retailers a little bit more. So this is a segment that's going to continue to exhibit growth. And I'm just really proud of the team for meeting the demand and yet at the same time, challenging them every day to continue to find ways to both make the experience for our teammates as the best they can be and continue to bring more teammates in to meet this demand. Christopher Growe: Greg, to add a couple of points here. I think from a high level, what I wanted to add was that these activities and this investment that retailers and/or CPGs make drives a return. So I think with the fact that you've got a return on this investment and you've got enough activity going on, there's a desire to want to lean into it. It also helps drive traffic. So there's a lot of good features of this business that can help differentiate a retailer. The other thing I want to say was that we've had pretty solid pricing here, which gives us an ability to offset some of the incremental inflation in labor. So -- and then when I wrap it all together with the incremental demand and the pricing coming through to help offset some of the incremental investments we're making in wages and with our teammates, we've got a really strong incremental margin. So that really shined through in this quarter. And I think that's something where we can -- we should continue to see some of that incremental margin benefit as this business continues to grow. Gregory Parrish: Yes. Okay. That's all very helpful. And maybe just to wrap here, touch on branded and some of the comments you made. With the backdrop, I know it's been a very challenging market there. You called out some new customer losses. And then I think you mentioned in-sourcing on the call here as well. If you could unpack those 2. And are the losses to competitors? Or is that losses to in-sourcing? Or is both happening? And then is there an uptick of in-sourcing that you're seeing? I just wanted to maybe clarify that. David Peacock: Yes. I think when the comments were made, it's a little bit more of a longer-term trend that we've seen relative to in-sourcing. And like most trends that we envision that ultimately tapering because you get to a point where you kind of in-source the accounts, if you will, that you want to call on. We've obviously seen some of that this year. We have had some losses to competitors as well. And then we've had wins and wins from those very same competitors. In fact, this year was a very good year from a win standpoint. So -- and then we have to look at kind of net losses and wins. And we're constantly assessing the drivers and what I'll call the sales action plan that we started in earnest in the summer -- in the early part of the summer was to address the kind of root causes of that. And I think this notion of being the fastest in the industry, identifying, again, the root cause of any sales issue or opportunity our brand or SKU and be able to proactively action that on behalf of our clients has been the focus of our efforts. So that combination of work and the upskilling of both the technology and talent against that with, again, as you heard, a little bit, at least in my view, of some optimism on maybe a little bit better macro environment next year and the fact that our business development efforts are really bearing some fruit as it relates to pipeline gives us some optimism to see that business start stabilizing and obviously improving as we get into '26. Christopher Growe: And I might just add a quick comment on there, Greg, around the -- just 2 dynamics. We talked about the in-sourcing. I think that would be the predominant area of loss, if you will. But then beyond that, just there's been organic growth softness. We've talked enough about a challenging macro environment, but that definitely was a weight on the quarter and has been for the year, frankly. So we can't dismiss that because it's a pretty meaningful contributor to this. Dave mentioned the large pipeline. That's actually just even accelerated in the third quarter. How we can go execute that pipeline. Let's be clear, but that's something I'd just say it gives you a lot of optimism in terms of the business going forward. And I just want to add one other element around the omni-commerce. There's a marketing business within this as well. It's been -- you can look at the industry trends there it's been a little more challenged. That's been also another, call it, factor in our softer revenue growth performance in this business. Operator: There are no further questions at this time. I want to turn the call back over to David Peacock for closing comments. David Peacock: Yes. We want to thank everybody for joining, and we look forward to connecting with this group on next quarter, and we will talk then. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for participating.
Operator: Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM Group 9 Months 2025 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Arne Riscassi, IR Manager of Banco BPM. Please go ahead, sir. Arne Riscassi: Good afternoon, and welcome to Banco BPM 9-month Results Conference Call. We have here Giuseppe Castagna, our CEO; and Edoardo Ginevra, Joint General Manager and CFO, which will take you through the presentation. This will be, as you know, followed by a Q&A session, and I kindly ask you to limit yourself to 2 questions. Now I hand over to Giuseppe. Giuseppe Castagna: Thank you, Arne. Thank you, everybody, for being with us for this Q3 presentation. Let's start immediately on Page 6 of our presentation. We wanted to show you just a full picture of what we are doing and how we are delivering our vision that we announced with our business plan in February this year. We think we have completed almost the product factory activity that we started 2.5 years ago with the bancassurance, payment system, life insurance and recently asset under management. This brought us already quite a relevant set of results, let's say, almost EUR 400 billion of total customer financial assets, 49% of fee-based generated models or non-NII revenues on total revenues, a strong reduction on NPE ratio, 2.48% gross and 1.4% net and maintaining and building up, again, a strong capital position up to 135%. Profitability is growing as we expected. We have now reached ROTE of 22% vis-a-vis 16% of 2024 and 14% in 2023 with an ROE which stands at 6.5%. In terms of shareholder remuneration, we can confirm that the Board has approved a distribution of EUR 0.46 per action per shares to be paid in -- later in November on 26th of November this month, representing interim dividend for 2025. If you can make a comparison with the previous dividends starting from '22, you can see the growth that we are having, considering like-for-like results, EUR 350 million '22, EUR 850 million '23, EUR 1,100 million, excluding extraordinary distribution for the Numia one-off in 2024 and already EUR 700 million in 2025. Total shareholder remuneration during this year is 565%. We will -- the dividend yield that we will pay will be 7.3% on a yearly basis. Net income stands at EUR 1.660 billion, well on track towards our guidance. Common equity ratio at 13.52% Again, as you can see, excluding one-off, we are 17% higher than last year results, and we have already reached 85% of the total guidance we gave for this year. Then we will come back to that. Net income was very strong, EUR 450 million, considering the seasonality of August and one of the best quarter -- third quarter in our story. This pace we deem is fully consistent with our long-term targets. In terms of the commercial performance, new lending was 39% higher year-on-year. Asset under management net flows was EUR 1.7 billion in 9 months compared to EUR 700 million of 2024 and the cost income stood at 45%, down from 47% 9 months '24. Again, cost of risk reduction to 34 basis points compared with 40 basis points last year. The interim dividend has a yield on 6-month yield of 3.6% and again, has been approved today will be paid on 26th of November. We have already accrued EUR 170 million in the first 9 months of the year to be distributed between the interim and the final distribution. Economics are very solid, both in terms of growth in revenues, 5% stated vis-a-vis last year. If we consider pro forma the contribution of Anima, we increased these results EUR 120 million. We already say that non-NII revenues stood pro forma at 49%, very close to 50% of the target in '27 as well as net fee and commission rose 18%, including the contribution of Anima, but pro forma also the first quarter of Anima, this will grow of another EUR 140 million. Also the contribution from income from associates, insurance NFR increased from EUR 140 million to EUR 290 million in line with our expectation for '27. In terms of cost control, we were able to reduce again the cost-income to 45% with a reduction of 2% like-for-like vis-a-vis '24 and just a slight increase if we consider the Anima inclusion of cost. Significant decline in provision from 30% year-on-year from EUR 350 million to EUR 24 million with a cost of risk going down from 40 to 34 basis points. Capital, if we consider the acquisition of Anima and the regulatory headwinds, we were able to build up 152 basis points in terms of organic generation through managerial action after paying 240 basis points out of the Anima transaction and 60 basis points for regulatory headwinds and including, of course, also 200 basis points that we will pay as dividend, 80% dividend payout. On Page 10, let's have a look to the trajectory towards our target in 2027. As we already said, net income grew in terms of quality of the contribution. You remember that we switched our bank from a pure commercial banking activity to a more equilibrated and more capital-light activity, diversified activity. We had the target to grow from 24% to 35% is a contribution in terms of wealth asset management and protection. We are already at 33% after 9 months from the target decision. The same is for specialty banking contribution that is almost in line with the minimum target of 27% and reduction of commercial banking activity, which went down from 65% to 57% with a target of 50% to 55%. The quality -- these results were driven by non-NII revenues, again, growing from 40% to 49%, cost income ratio reducing from 47% to 45% cost of risk down to 34 basis points. In terms of figure numbers and the different contribution of the main area vis-a-vis the current results and the target -- we have still -- we are fully in line with our expectations. We still have a delay of EUR 30 million per quarter in terms of NII, which will easily reach through the refresh of replicating portfolio in the next couple of years. The decrease in cost of wholesale funding, which is already contributing more than EUR 40 million per year and the growing commercial volumes, which we expect in terms to up to EUR 3 billion by the end of the business plan. Net fees and commission, still we have some growth to expect from the full speed of the different product factory, including, of course, Anima contribution and improvement in the running fees, but also we expect some improvement from insurance business. You may remember that this year, we had 2 IT migration for both life and non-life business, which impacted on our results and also on the payment system activity with Numia. Meanwhile, we are still -- we are experiencing a very strong growth in terms of fees coming from corporate investment banking, Banco agro's trade finance, and we expect this to continue to grow for the coming 2 years. In terms of cost, both operating cost and cost of risk as we anticipated are well on track. Cost of risk is below the target we expected. So we have an advantage that would help the final target that we have in terms of net profit. So very confident to reach our target. Let's have a look to Q3. We wanted to dedicate a slide to the Q3 contribution. We are very satisfied of our EUR 450 million of results. On the right side of the slide, you can see the profit before tax, which stood at EUR 685 million in Q3, which has normally deflated by seasonality, but the difference of EUR 70 million coming from the Q2 results is due essentially only to the Monte Paschi dividend that we included in Q2. Meanwhile, the seasonality has been partially recovered through organic improvement expected in fees and lower cost. So a very solid result for Q3. Let's have a look to the 9 months, net interest income down 8%. But if you consider net interest income at full funding cost, which means including the cost of certificates, which are, of course, a source of funding for our bank, we go down to 5.7%. And core revenues, although experiencing a reduction of EUR 225 million in NII vis-a-vis the 9 months '24 have an increase of 1.6% as total core revenues year-on-year. If you include the net financial result and other operating income, this advantage vis-a-vis last year grew to 5% and operating cost meanwhile registered a 2.2% increase due to the Anima impact if we consider year-on-year without Anima on a like-for-like is a reduction of 2% in general cost. Provision down 30%, leading to a net profit from continuing operation and net income one-off down better with 17% vis-a-vis last year. On the right side, you can see the trend of the last 2 years with the continuous improvement, which are very encouraging for the remaining growth that we have to experience by 2027. As you can see, revenues grew 13%, almost EUR 550 million in 2 years. NII at full funding cost registered this year is at the same level of 2023, notwithstanding a Euribor, which is 106 points below the average of 2023. Cost income down, cost of risk down. Let's pay some attention to net profit from continuing operation, which is EUR 1.5 billion compared to EUR 1.1 billion of '23 is EUR 440 million more also after considering almost EUR 200 million reduction of NII. So that means that we had a profit generated by a strong increase in fees and a very strong reduction in general cost and cost of risk. We already mentioned NII. Let me just say that the reduction we had has been offset for EUR 84 million by managerial action out of EUR 100 million that we expected by 2027. So we are also, in this case, at a good point. Now we have almost the same spread asset liability in the region of EUR basis points. And we are consistently taking advantage from the bonds issue spread, which has been reducing 40 basis points, generating a lower cost in terms of NII for EUR 41 million per year. You have some example of in the different kind of bond issued by the bank of the strong reduction we are experiencing since the previous issuance, that were strongly higher in terms of spread vis-a-vis the current situation. We also gave you some figure about the replicating portfolio, which now stood at almost EUR 28 billion. We have to refresh by the end of the year and next year for a total consideration of something like EUR 9 billion to EUR 10 billion that will improve also the general yield and the contribution to NII. Notwithstanding, we have -- we were able to have an increase in new lending of 39%, exactly 57% in mortgages and 44% to nonfinancial corporates the level of our stock remaining basically the same. As you know, we are not registering an increase in loan demand, although we are confident that by 2026, having kept the level of loan at the same level of beginning of the year, we can register a strong increase that is testified by the good activity we are having in granting new loan. We are taking, of course, a lot of attention to the quality of our portfolio. Stage 2 loans reduced EUR 1.6 billion to below EUR 9 billion. And now our corporate nonfinancial corporate portfolio is 53% secured, 64% if you consider only small businesses. 92% of our stock is concentrated in the best risk classes and the same level is up to 98% if we consider the new lending of the first 9 months of this year. Let's go to Page 16. Total net fees and commission, up 3%, which would be pro forma 5% if you exclude the contribution of ecobonus and instant payments last year. Of course, the stated figure is much higher because it includes the contribution given by Anima, which is up to EUR 1.8 billion. And if we include the full consolidation of Anima starting from January, this figure is almost EUR 2 billion. The investment product fees grew 10%, mostly in upfront fees, but with a good contribution also running fees in line with the growth of investment product placement, which after 9 months stood at EUR 17 billion vis-a-vis EUR 15 billion of last year and EUR 7 billion was realized notwithstanding EUR 2.3 billion of issuing of BTP by our bank. Let's say that also in October, we are continuing this strong production. And also in October, we have increase of another EUR 2 billion the investment product sales. For other fees, we have a reduction, which is driven by the commercial banking activity, the 2 business line I mentioned before, especially ecobonus and instant payment, which went down EUR 35 million year-on-year. Meanwhile, we are growing almost EUR 40 million in terms of fees generated by corporate investment banking, structured finance and trade finance. So very strong results. Let's have a look to the contribution of Anima. On the left, we have the growth in terms of total asset generated by the bank stand-alone. Also in this case, we wanted to give you the progression of the last 2 years, we grew basically EUR 20 billion in less than 2 years from EUR 210 billion to EUR 230 billion with the growth year-to-date of EUR 3.4 billion in terms of assets under custody, EUR 2.4 billion in assets under management, EUR 2.3 billion in terms of deposit. These, of course, are excluding consolidation of Anima. In terms of net inflows, we grew EUR 1.7 billion versus EUR 700 million last year. On the right side, you have the consolidation of Anima. We increased EUR 230 billion to almost EUR 390 billion vis-a-vis EUR 377 billion of end of '24. So a strong increase also in terms of Anima asset contributed to the bank. On Page 18, on the left side, you see the main feature of Anima, which we consider a first-class network, which is still performing consistently well. And we have on the right, the outstanding commercial and financial results, a growth in assets under management of 2.4%, namely EUR 2.5 billion in 9 months of asset under management net flows, excluding the insurance mandates. In terms of revenues and net income in the 9 months compared to 9 months '24, we have an increase of 11% in terms of revenues [ up 50% ] in terms of net income generated by Anima. Cost-income ratio down to 45% as you can see, like-for-like, we have a reduction of 2%. Meanwhile, we have a stated with a small increase of 1%, driven by the Anima inclusion. The staff cost was down, again, like-for-like 1%. Still, we have some further advantages that will be generated in Q4, even though mostly offset compensated by the new labor contract and hirings that we are still having in order to offset the exit of the early retirement scheme. We will have another EUR 40 million of reduction next year generated by the early retirement scheme ended December '25, but part of that, of course, will be offset by the. Also other administrative expenses and D&A are down 4% like-for-like and other admin expenses stand-alone are down 7%. Cost of risk at a very good level of 34 basis points, driven in effective credit management over the life cycle. The gross total NPEs went down from EUR 3.2 billion to EUR 2.5 billion, the net from EUR 1.7 billion to EUR 1.35 billion. The net bad loan ratio is low as 0.4% of total loans as much as we -- if we include also the state guarantee, this figure go down to 0.1%. And the share of the cake between UTP and bad loans is 80% UTP and 20% bad loans. We already mentioned the reduction in Stage 2. Let's see some figure that generated this 34 basis points of cost of risk. First of all, default rate down to 0.8%, rate up from 4% to 6.5% with the net default rate which was as much low as 0.7% from 1% -- the coverage is increasing both in terms of total coverage to 45.7% as total NPEs with vintage in terms of years, which has been reduced from 2.5 to basically 2.1 years. If we include the state guarantee -- if we exclude the state guarantee NPEs, we have an increase in bad loans to 77% in UTP to 43% and in total NPEs, 55.3%. Let me pass the -- give the floor to Edoardo for some figure in terms of net financial results. Edoardo Ginevra: Thank you, Giuseppe. So very quickly on the financial contribution to capital and the financial part of the balance sheet contribution to capital and to P&L. Capital-wise, we are at a contribution which from reserves at comprehensive income that remains at EUR 330 million, similar to last quarter, a significant improvement versus the value at the beginning of the year, which was negative for EUR 500 million, allowed this improvement by the active management of the bond portfolio. In terms of stocks, situation is that we have EUR 47 billion, similar to what we had -- slightly above EUR 47 billion, similar to what we had 3 months ago and also the split between fair value comprehensive income and amortized cost didn't change, EUR 32 million as opposed to EUR 68 million with a slight increase of the fair value comprehensive income versus the beginning of the year. Share of Italian govies on total govies is below 40%, which is our risk appetite threshold, also very well under control. Contribution to P&L, as I was saying, it's positive for EUR 97 million. Bearing in mind that in this P&L line, we have to offset the negative contribution from certificates, which is as high as EUR 129 million this year, down from EUR 29 million -- EUR 20 million in the 9 months of 2024. So with a positive impact from the reduction in rates, as also shown in the first part of the P&L of this presentation, concerning the overall contribution of NII at full funding cost. Rest of NFR of trading is EUR 226 million positive through the year, benefiting not only from MPS dividends, but in general, from the active management of the bond portfolio. Page 22. Liquidity is at EUR 54.7 billion, so almost EUR 55 billion, increasing again this quarter and from the beginning of the year, which was EUR 48.4 billion. Total direct funding increased, especially for the contribution of retail deposits, which, of course, leads gives interesting perspective in terms of -- interesting outlook in terms of positive potential P&L contribution, NII contribution. We have continued actively our activity in the market for issuance being the first Italian bank and the second in Europe issuing in October a green bond under the EU green bond fact sheet. Issuance activity has been also encouraged by the positive evolution of our rating position with a positive outlook assigned by Standard & Poor's, Moody's and Fitch and an upgrade by DBRS to BBB (high). DBRS also is -- has assigned a first A level rating to the bank recently in October. Very positive, reassuring also the position for the liquidity indicators, LCR at 157%, NSFR stable at 126%, MREL buffer at 7.8 percentage points of the total. So a very significant level of the buffer. 23 for capital -- Page 23 for capital. As mentioned in the first part of this presentation, capital creation in -- from the beginning of the year has been 152 basis points after taking into account more than 200 basis points of dividends. In the last quarter, the progress has been 20 basis points, which is some 12 basis points from the difference between positive performance and accounting for additional dividends, 20 basis points from our source of capital that constantly gives a contribution which is DTAs and reserves fair value other comprehensive income in total, 13 basis points negative from the expansion of the books in terms of RWA increase. On the contribution from DTA and fair value comprehensive income, we confirm that this will be important also for the rest of our plan horizon with 145 basis points as shown in the bottom of this page, materializing in between now and end of 2027. MDA buffer quite comfortable now above 400 basis points in 50 basis points above the minimum threshold of our plan. Let me conclude. Let's recap this very strong first 9 months of the year. I don't have to remember that during the year, our bank was also some pressure, I would say. But notwithstanding that, we were able to almost complete the target for this year, the guidance for this year. Let's say that we are increasing profitability through the non-NII-related business, benefiting from our unique product factories model. We are continuing strong and efficient cost discipline. We have built up an excellent asset quality, which reflects the footprint and the geography of our branches. All in all, we were able in 1 year to increase the ROE adjusted and ROTE adjusted adjustment means without Anima contribution -- one-off Anima contribution for '25, one-off Numia contribution for '24 up to almost 200 basis points in terms of ROE and almost 550 basis points in terms of ROTE. And this notwithstanding the NII impact due to the reduction of Euribor from 3.6% to 2.2%. So we consider this a very strong results and already on top of our target in 27. Having already said of the capital position, the capability to build up further capital over the next quarter, we were able to approve the EUR 700 million distribution for our shareholders to be paid on 26th of November with an increase of 15% year-on-year on the interim dividend distributed in November '24, EUR 0.46 versus EUR 0.40 last year with an annualized expected dividend yield at 7.3%. In terms of cumulative remuneration after 18 months, we are already -- we have already delivered and will distribute EUR 2.2 billion in 18 months, fully in line with the over EUR 6 billion we expect for the full duration of our business plan. Some hint on the guidance. We already say that we prefer to leave the guidance at the level we announced EUR 1.95 billion. Whatever will be the accounting treatment of the fiscal impact that they will have, and we don't know yet which kind of impact, but we are pretty sure that having already reached 85% of the target we wanted to achieve in '25, we will be able to leave this guidance, whatever will happen in terms of fiscal impact this year. That's all. And now we will leave the floor to M&A session -- Q&A session, sorry. Operator: [Operator Instructions] The first question is from Giovanni Razzoli, Deutsche Bank. Giovanni Razzoli: I have 2 clarifications. The first one is on Slide 23. You mentioned the 145 basis points of organic capital generation that I interpret as deriving only from the release of DTA and the fair value reserve in the next 2 years. Is that -- is my understanding correct? And is my understanding correct that out of these 145 basis points, around 60 basis points are from the securities on fair value on other comprehensive income. That's my first question. And the second one, again, on capital, I was wondering whether you plan to complete some SRT transaction on risk-weighted asset optimization in Q4 or if there are any regulatory headwinds that you can expect? Edoardo Ginevra: So thanks, Giovanni. As far as the question on capital -- the 2 questions on capital, let me first confirm that we are finalizing an SRT transaction, which we plan to complete in the next few weeks, so before the end of the year. For the capital creation from DTAs and fair value comprehensive income, so this is EUR 145 million is what is expected to come as additional capital in the quarters in the next -- between the next quarter, '26 and '27 in total. You asked what is the split between DTAs and fair value comprehensive income. DTA is around EUR 120 million. The rest is fair value comprehensive income pull to par effect. Before continuing -- let me add also that we prefer here to stick to the plan horizon. Needless to say, there is additional capital to come also after end of '27. Operator: The next question is from Manuela Meroni, Intesa Sanpaolo. Manuela Meroni: The first one is on the guidance of 2025. You confirm your EUR 1.95 billion guidance, but considering what you have already achieved in the 9 months, this embeds a fourth quarter significantly weaker compared with the third quarter. On the other hand, you are guiding for a stabilization of NII and fees up on a quarterly basis. So I'm wondering what -- if there are some reason to be so prudent on the fourth quarter, so what you are expecting there? And the second question is on the dividend. You have already at 13.5% common equity Tier 1 so well above your 13% minimum threshold. You have these tailwinds from DTA and fair value through the OCI. So I'm wondering if you might consider to increase the payout above the current level. Giuseppe Castagna: Thank you, Manuela. Let me be more precise on that. Of course, we think that we will reach the guidance. As I said before, whatever will be the final accounting principle to regulate the fiscal impact that we are still waiting from the government to deliberate. So let me be a bit prudent, but also, let's say, on the other way, a bit aggressive in saying that even though we should be obliged to put the potential amount into profit and loss, we feel that we can be able to still respect a figure in the region of EUR 1.95 billion, which I think was not expected. And I didn't hear from anybody else such a possibility. On dividends, of course, as you may remember, we were very much questioned about the possibility to be above 13%. In the first 3 quarters, we have generated a lot of capital. We are respecting 80% of payout still increasing to 13.5% our common equity Tier 1, let's say that still we are below our peers. So let's wait for end of the year to understand which will be the capital generated by the bank in the next couple of quarters, and then we can discuss the increase in the remuneration of the payout. Operator: The next question is from Sofie Peterzens, Goldman Sachs. Sofie Caroline Peterzens: Here is Sofie from Goldman Sachs. My first question would be on net interest income. In terms of the trough, we saw weak volumes, but new production is very encouraging and also lending margins are stabilizing. So do you think we have reached the net interest income trough? Or do you think that's still ahead of us? And then my second question would be on M&A. If you could just talk about your kind of thoughts around M&A. The press has been talking about CRA, Italy. Any comments you can make here? Edoardo Ginevra: So let me talk about NII and then Giuseppe on the M&A session, which you wanted to start earlier. On NII, considered that in our plan, we have a guidance of -- we have a target of slightly above EUR 3 billion for 2026, which we believe that at this point is confirmed with a scenario of Euribor at 2%. We announced already that we would be able to absorb more shocks on the scenario. But basically, we don't see reasons why we should change this target and this assumption on given the evolution -- the market evolution that we are facing at this point. Then we expect, as described in Slide 10 that this is the basis to achieve higher level of NII and to hit our target in 2027 with a mixture of actions that will provide contribution from the financial part of the portfolio, and this is replicating portfolio and decreasing cost of wholesale funding. To give you an idea, we have EUR 25 billion EUR 27 billion replicating portfolio target is EUR which is where we expect to stay on average next year. This EUR 25 billion are paying currently a level that is some 20 basis points above Euribor for a pure mechanical effect of time lag on the repricing and the readjustment. If Euribor stabilizes, this mechanical effect will disappear and 20 basis points on EUR 25 billion is around EUR 50 million. Similarly, benefited from issuance of wholesale funding. We have EUR 5 billion of new issuance per year. And so in the next -- in a total of EUR 10 billion, which is the average over 2 years, including issuance of second part of this year and issuance and half of issuance of 2027, a benefit of 50 basis points leads to an improvement down the line of around EUR 50 million. Commercial volumes, just look at the spreads, which are quite similar on the asset and on the liability side means that every EUR 1 billion either of growth in loans or growth in deposits will provide us with an improvement of some EUR 15 million, 1.5% in terms of P&L. Deposits are growing at a very -- an excellent pace, have been growing at an excellent pace throughout the last few years. Loans is the next challenge, but we believe we are very well equipped to restart in growing the loan book once investor -- once our clients will restart -- will revamp this investment process, maybe on... Giuseppe Castagna: Thank you, Sofie. Let me just give some color to your question. I think we have shown this year to be able to respect our guidance also considering unexpected headwind as we are having. On top of that, we managed this year to cope with the Anima acquisition on one side and let's say, to be obliged to stay unde [indiscernible] for 9 months with our network. We had to cope with 2 IT migration in the 2 bancassurance deal and the integration of the product factory we have built up in the last year. So a lot of work to do, reaching always strong results. The same we have for 2026. Of course, we are not scared of taking one eye on reaching our target for '26 and also considering any opportunity coming from the market in terms of M&A. We are not -- in this moment, of course, we have nothing in mind. We are not dealing with any traction. But we know very well that there are some stakeholdings either in our bank or our stakeholding in other banks that could generate during 2026, some potential M&A. So I think we have to consider our stand-alone plan and the capability in any situation, in any market situation to respect our plan on one side, and the possibility to deal with opportunities that we show that we were able to do together with reaching our results. So attentive to have anything happen on the market. We have not many left in the market, but still with a lot of opportunities. Operator: The next question is from Luis Pratas, Autonomous. Luis Pratas: My first one is on NII. We saw a much lower quarterly reduction this quarter in the customer spreads compared to, let's say, Q1 and Q2. So do you think we are close to the bottom in the customer spread? And how do you see the spread going forward, split by the asset and liability spread? And then my second question is on the Anima minorities. I wanted to hear your latest thoughts on how you plan to deal with the minorities. Do you have the goal to own 100% of Anima and delist? Giuseppe Castagna: Thank you, Luis, for the 2 questions. Let's say, yes, we think we have reached the bottom, both in terms of asset spread. Of course, the same, I think, is also in terms of liabilities. We don't think we can -- with Euribor, which is now quite stable. Again, I want to stress especially the work we have done on the asset spread because on the liability, I think we dealt very well with the spread. On asset, as I mentioned before, we managed to maintain the same level of stock with a strong increase, almost 40% of increase in new loans generation, which, of course, are a good boost for our commission. In a situation in which loan growth was 0% or minus 0% because we don't have -- we are not having loan growth in our country. So thanks to our geographic footprint, we were able to stand at a very good level of new loans, maintaining the situation, but of course -- and sorry, bettering the quality of this credit book with a lot of guarantee taken also with the opportunity of the guarantee state scheme. This, of course, in a situation in which loans are not growing, and we are willing to better our quality, of course, you can lose some few basis points, which is what happened to our portfolio. We feel, as I also understood that my colleagues think that in 2026, there will be a recovery in terms of investment. If this happen, as historically happened, our bank is -- will be in the best situation to take advantage from that. And with a growing, even though not booming, but growing market in terms of loans, I think also the asset spread will increase. Second question about minorities. We are -- I always say that we're going to buy Anima in order to make Anima greater. We want to have our distributor of Anima. We think there is an opportunity to have some other banks joining the group of distributors. And we want to leave room for also giving a stake in Anima to this new distributor. So until this situation will be open, and we will have the opportunity to manage some contact with other banks, I think we will leave for the time being, the stock listed, but I hope that quite soon, we will understand what will be the opportunity for the next quarter. So give us some time to experience the opportunity of having somebody else on board, and then we will decide what to do with the stake. Operator: The next question is from Hugo Cruz, KBW. Hugo Moniz Marques Da Cruz: My main question is around dividend, the final dividend for 2025. If I understand your dividend policy is you net out the gain on the revaluation of Anima. You already raised the interim larger than last year. So even if you beat the guidance on earnings, it sounds like the final dividend will be lower year-on-year. Is that something you're comfortable with or not? And then a second question, why are you not seeing loan growth? You're in the most dynamic part of Italy. Some of your peers, at least in the past quarter have shown loan growth. So is that too much pricing competition and you don't want to compete there? Or because a system level, there is -- that you're starting to have loan growth for the whole of Italy. So why shouldn't you be doing better than the system when you are in the better part of the country? Giuseppe Castagna: Thank you, Hugo. For the first part, yes, of course, the one-off of Anima will not be considered. We announced that with our business plan. But of course, if we will beat the guidance, the dividend will increase and our effort will be to give a dividend, which would be as much as possible in line with last year, in which we include the Numia one-off contribution. So let's say that like-for-like will be much better this year. We will decide, depending also on this fiscal impact, how to increase further this contribution. Let's say that when we announced the EUR 6-plus billion in 4 years, we already say that, of course, there would have been an increasing dividend distribution in the last part of the 4 years, increasing, of course, also the profitability. We are perfectly in line and hopefully, depending on the unexpected situation, we can try to also increase the contribution. On the loans, we think we are doing better because we are basically maintaining our loans at the level they are. Meanwhile, I think there is some reduction in loan for other banks, notwithstanding is the best part. Unfortunately, investments are still lacking. So the geopolitical situation, the uncertainty on tariffs have been very persistent during the year, and we still now in the beginning of November are not having a signal -- strong signal of recovery. But being the third year in a row, we really are confident that some recovery there could be. And in this occasion, I'm sure we will be better than others in recovering and increasing our loans. Operator: The next question is from Ignacio Ulargui, BNP Paribas Exane. Ignacio Ulargui: I have 2 questions. One is on fees. I mean, do you think that whatever is not fees from specialized activities within the other fees bucket have probably bottomed at this level, and we should -- we could see some recovery into the fourth quarter, thanks to seasonality? And the second question is linked to Monte dei Paschi stake. So if you could just share with us a bit of your thoughts on the stake going forward? Edoardo Ginevra: Okay. Just a minute and get into the page -- yes. So you were mentioning about the product factories because we have 3 categories, commercial banking and other product factories, which means consumer credit payment system and P&C insurance. And the last one is from Corporate Investment Banking and Trade Finance, which one you are precisely? Ignacio Ulargui: I was just referring to the commercial banking and other fees and product factories, which -- I mean, if I just look into the year, they have been relatively flattish, whether that could be -- you see that could recover into the year-end? Edoardo Ginevra: Yes. We think that there will be basically everything which is not included in product factories and in corporate investment banking and trade finance activity is on the other, which mean current account, commission on loans, other commission on payment activity, money transfer and so on is included in that. Last year, we had also a strong contribution from the discount on fiscal credit. You know that in Italy, we had such a possibility to discount the fiscal credits, the famous super bonus or ecobonus. And together with the commission that we were able to get from the instant payment, which now are not anymore possible to apply, there is a reduction of almost EUR 40 million, EUR 35 million to EUR 40 million. The other are doing well, especially, of course, on loans because as you -- as I said before, we were increasing 40% the new loans activity. So all in all, we think that like-for-like, we are increasing the commission also on the commercial banking, and this will stand also for the next quarter. For the other, as I mentioned before, the one from specialized activities are doing very well. Meanwhile, we have registered some reduction in the bank insurance because of the migration I was mentioning before, both in the Life activity and the non-life activity, which will not have any more, of course, going forward in the next quarter. This is for the first question. The second question go back to the problem of we were talking about delisting Anima until we don't understand exactly what will be Monte Paschi, as you know, is a strong contributor in terms of distribution of Anima. We had in the past some talks about the possibility for them to continue this activity, also getting possibly some interest in being shareholders. So we will see after that what the final word about our stake in Monte Paschi. Operator: The next question is from Delphine Lee, JPMorgan. Delphine Lee: My first one is on the Italian bank taxes. I know it's still being discussed, but just wanted to kind of have your thoughts, your initial thoughts on how much that impact could be? And then my second question is on M&A. So CredAg has already commented that they wouldn't -- they're not considering selling their subsidiary in Italy. So just kind of wondering what other forms this M&A potential could take. Like, I mean, would you consider more partnerships with CredAg in Asset Management or in other areas? -- which I think is something that they would be keen on. If you could just share your thoughts here, that would be great. Edoardo Ginevra: Yes. So thanks for the question. On bank taxes, there are various, of course, items that are of interest by the law or the project of law, which has not been, as you know, approved yet. In the current scenario, we expect to have a one-off this year of payments of levy that is in the order of magnitude of around EUR 100 million, and this is a one-off. For the next years, the scenario is not clear, but we expect this to be affordable in the margins of flexibility and buffers that we will have in our plan once the real amounts and the technicalities of taxes will be clarified, then of course, we will have to take care of planning the impacts and potentially adopting measures to counterbalance these impacts. But we don't believe them to be a real changer versus our targets. Giuseppe Castagna: Okay. Let's go back to M&A. You were mentioning CASA doesn't want to sell, but we never talk about buying the network of CASA. We're never talking about having anything else with CASA other than being, I hope, an happy shareholder of our banks. We are not aware of anything happening in terms of a possible merger. And so we will see what happen. They also requested to increase their stake to ECB. They have not yet received the authorization. Once they will receive the authorization, they will decide the stake to take. Of course, we will understand better what could be the possibility to have some more collaboration with them. Up to now, there is nothing at all. I read the speculation about buying the activity in Italy, but there is nothing in course. Operator: The next question is from Adele Palama, UBS. Adele Palama: Two questions. One is a clarification on the capital impact. So 145 basis points does include also like the impact that you were expecting in the business plan from the securitization. So if I remember correctly, you were guiding for like 48 basis points from synthetic securitization. How much of that 48 basis points has been already taken? How much is left? And if it is included in that 145 basis points. And then if you can give us a guidance on the other provision and provision for risk and charges. Because this quarter, you reported like positive number there. I'm just trying to understand a little bit the gap versus the target, which seems a little bit conservative for full year '25. And then on cost of risk, so which is the guidance for this year? Because again, I mean, you have reported like around 35 basis points. But then if I try to bridge with your target, it looks like that you are expecting some additional extra provision in the fourth quarter. Is that right? Which is the guidance there? Edoardo Ginevra: So on capital, thanks for giving the opportunity to clarify. 145 basis points that we showed -- that we mentioned in Page 23 of today's presentation is only the impact during the plan horizon from DTAs and fair value comprehensive income. Securitization transactions are on top and will continue to provide the contribution that we have announced in the plan. By the way, we are overdelivering on that, taking into account the fact that in the plan, we said 48 basis points, including the effect of amortization of existing ones. But in general, in this quarter, we didn't have securitization since SRT transactions, we -- as I said earlier answering to the previous question, we will have impact in the fourth quarter. And in general, we will continue to generate capital through this lever also in the next few years. Normally, the high-level guidance, I would say, is that we do 2 to 3 transactions per year, and we have an impact of each transaction of around 10 to 15 basis points on average, but part of this impact is eroded by the amortization of existing ones. Giuseppe Castagna: For cost of risk guidance, we always said that this year, we would have been below 40 basis points. We can confirm we don't expect extra loan loss provision in Q4. As I mentioned before, we have a 0.1 net bad loans ratio. We have a very good default rate. We are almost at half of November, so halfway to the year-end. So I expect apart from some managerial action that we could take by the year-end, I expect something in line with the previous cost of risk. Operator: The next question is from Matteo Panchetti, Mediobanca. Matteo Panchetti: I have one clarification on RWAs and capital for the quarter. Can you please clarify because when I see on your booking loans, they are down 2% Q-on-Q, but your RWA were up quarter-on-quarter. So can you please clarify if there was any headwinds during this quarter or if the density has been increasing? And the second one is on the overlays. You still have EUR 150 million overlays, which point you will consider to release or eventually using that? Edoardo Ginevra: No. We have grouped the 13 basis points in Page 23. RWA and other, actually, this includes a number of of second effects that give a contribution, the specific part of RWA is only 6 basis points, and it's related in general to normal refresh of the portfolio, but nothing that creates any real drift towards a higher level of density or headwinds in this quarter. The rest is due to a number of minor impacts, for example, increase in the value of our participations that we deduct from capital and that if they mature, if we use equity method for our valuation, if they mature net profit over the quarter, then this net profit is accounted for in the value of the participation and this value is an increase in the capital deduction. So not material effect on credit in general. Yes, overlays, overlays, well, usual debate. Overlays, technically speaking, are not something like a treasure we have and at some point will be left for release. Overlays are a way to account for unexpected risk that are not modeled and that you capture in your framework of risk management framework and IFRS 9 accounting framework through adjustments on top of what the risk model suggests to have in terms of generic provisions on performing loans. The only thing that counts is the level of coverage on performing Stage 1 and Stage 2. And this coverage is driven by considerations on the status of the portfolio. We are sticking to a coverage, which is in the area of above 40 basis points. We have increased from 45 to 46 basis points in this quarter. We believe that this is our sweet spot in general in the long run. And so we believe that any comparison should take into account between banks on this KPI should take into account, of course, geographic footprint, average rating of portfolios and so on and so forth. Operator: Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Giuseppe Castagna: So if there are no other questions, thank you very much for being with us for Q3, and we will see in the next days or talk to you for further details. Thank you and have a good evening. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Greetings, and welcome to the Installed Building Products' Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Darren Hicks, Vice President of Investor Relations. Thank you. You may begin. Darren Hicks: Good morning, and welcome to Installed Building Products' Third Quarter 2025 Earnings Conference Call. Earlier today, we issued a press release on our financial results for the third quarter, which can be found in the Investor Relations section of our website. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements within the meaning of federal securities laws. These forward-looking statements are based on management's current beliefs and expectations and are subject to factors that could cause actual results to differ materially from those described today. Please refer to our SEC filings for cautionary statements and risk factors. We undertake no duty or obligation to update any forward-looking statement as a result of new information or future events, except as required by federal securities laws. In addition, management refers to certain non-GAAP and adjusted financial measures on this call. You can find a reconciliation of such non-GAAP measures to the nearest GAAP equivalent in the company's earnings release and investor presentation, both of which are available in the Investor Relations section of our website. This morning's conference call is hosted by Jeff Edwards, our Chairman and Chief Executive Officer; Michael Miller, our Chief Financial Officer; and we are also joined by Jason Niswonger, our Chief Administrative and Sustainability Officer. Jeff, I will now turn the call over to you. Jeffrey Edwards: Thanks, Darren, and good morning to everyone joining us today. As usual, I will start the call with some highlights and then turn the call over to Michael, who will discuss our financial results in more detail before we take your questions. With another quarter of record sales and profitability, 2025 has been another very encouraging year for IBP. Our national network of branches continue to execute at a high level, delivering reliable installation services to large, medium and small homebuilders and commercial developers. While local market dynamics can vary greatly across the country, our results highlight the benefit of IBP's scale, product and end market diversity and the trust we place in our branches to make the right operating decisions for their respective markets. Although the 10-year U.S. treasury rate has come down since our second quarter call in August, homeownership remains incredibly expensive for most people, which we believe will remain the biggest challenge for our customers selling new homes in the near term. Still, we are confident in the long-term fundamentals of the U.S. housing construction industry, and we remain focused on growing earnings and cash flow while diligently deploying capital to shareholders. Through the 9 months ended September 30, 2025, we paid nearly $78 million in cash dividends and repurchased approximately $135 million of our common stock, returning nearly $213 million of capital back to our shareholders. In October, we published our 2025 ESG report, highlighting IBP's continued efforts to support environmental sustainability, employee well-being and community engagement in pursuit of a more sustainable and equitable future. Since our inaugural ESG report was published in 2021, we have made steady progress reducing our carbon footprint. We believe our efforts today are laying the foundation for a stronger, more sustainable future for our employees and people representing all communities. Looking at our third quarter sales performance, consolidated sales increased 2% and same-branch sales were roughly flat. In our largest end market, same-branch new single-family installation sales were down 2%, while adjusting to the pace of residential housing and commercial building construction in local markets, our branches did a tremendous job growing complementary product sales by a double-digit percentage relative to the same period last year. Third quarter installation sales in our multifamily end market were down 7% on a same branch basis. But looking ahead, several markets are stabilizing and showing improvement. As of the end of September, contract backlogs at key branches have grown year-over-year, and we have secured jobs in geographic markets in which we previously had little or no presence. Third quarter commercial sales in our installation segment increased 12% on a same branch basis from the prior year period. Our heavy commercial end market continued to be the dominant driver of sales growth in this end market, which more than offset weakness in our light commercial end market. Based on the growth in our heavy commercial contract backlogs, we believe heavy commercial sales and profitability are poised to remain healthy beyond 2025. During the 9 months ended September 30, 2025, cash flow from operating activities increased 16% to $307 million, which primarily reflected improvements in working capital management. Year-to-date, we have acquired nearly $60 million in annual sales. We remain disciplined in our approach to find well-run businesses that would make strategic sense, support attractive returns on invested capital and fit well culturally. Our core residential installation end market remains highly fragmented with considerable opportunity for consolidation. During the 2025 third quarter, we acquired a North Carolina manufacturer of cellulose-based insulation for homes, hydromulch for erosion control and composite materials used in industrial applications with an annual revenue of $20 million. In addition, in October and November, we acquired a business with a value-added wholesale glass design and fabrication division and a retail sales and installation operation, primarily serving residential customers throughout the Southeastern United States and annual sales of approximately $12 million, an installer of drywall and metal stud framing across a balanced mix of commercial and residential end markets throughout Wisconsin with annual sales of approximately $4 million and an installer of insulation in the single-family, multifamily and commercial structures across South Dakota, North Dakota, Wyoming and Nebraska with annual sales of approximately $3 million. Single-family starts year-to-date through August 2025 have decreased by 5% from the prior year, while multifamily starts are up 15% for the same period. Looking into 2026, as is typically the case, the new residential construction outlook will be influenced by consumer confidence and buyer activity during the spring home selling season. However, with persistent challenges from housing affordability, we are expecting residential housing starts will be flat compared to 2025, a level that is above the 5-year average from 2017 to 2021. For individuals and families with housing affordability concerns or shifting lifestyle preferences, newly constructed multifamily housing helps meet the needs of growing markets. Over the long term, we continue to believe that the volume growth in our business is supported by a fundamental undersupply of residential housing and the gradual adoption of advanced building codes for the purpose of improved energy efficiency across the U.S. We believe IBP continues to operate from a position of strength as we remain flexible in navigating any potential near-term challenges. Our national scale, strong customer relationships, experienced leadership team and sales across product categories and end markets create a solid platform for IBP to serve our customers and meet their operational efficiency goals. Although broader macroeconomic uncertainty influences prevailing market conditions in our industry and in many others, we remain focused on profitability and effective capital allocation to drive earnings growth and value for our shareholders. I am proud of our team's continued success and commitment to doing an excellent job for our customers. To everyone at IBP, thank you. I remain encouraged by the fundamentals of our industry, our competitive positioning and I'm optimistic about the prospects ahead for IBP and the broader insulation and complementary building product installation business. So with this overview, I'd like to turn the call over to Michael to provide more detail on our third quarter financial results. Michael Miller: Thank you, Jeff, and good morning, everyone. Consolidated net revenue for the third quarter increased 2% to a record of $778 million compared to $761 million for the same period last year. Same-branch sales for the Installation segment were flat for the third quarter as a 12% increase in commercial same-branch sales more than offset a 3% decline in residential same-branch sales. Although the components behind our price mix and volume disclosure have several moving parts that are difficult to forecast and quantify, we reported a 1.5% increase in price/mix during the third quarter. This result was offset by a 4.8% decrease in job volumes relative to the third quarter last year. It is important to note that our heavy commercial end market and the other segment results are not included in the price/mix volume disclosures. Our heavy commercial same-branch sales growth exceeded 30% during the 2025 third quarter, including the heavy commercial installation sales. Price/mix increased 4.4%, while job volume decreased 4.5% during the 2025 third quarter. With respect to profit margins in the third quarter, our business achieved adjusted gross margin of 34%, an increase from 33.8% in the prior year period. The year-over-year increase in margin during the quarter was in part related to a shift in customer, product and geographic mix. Adjusted selling and administrative expenses were stable relative to the 2024 third quarter. As a percent of third quarter sales, adjusted selling and administrative expenses decreased to 18.2% compared to 18.5% in the prior year period. Adjusted EBITDA for the 2025 third quarter increased to a record $140 million, reflecting an adjusted EBITDA margin of 18% and adjusted net income increased to $86 million or $3.18 per diluted share. Although we do not provide comprehensive financial guidance, based on recent acquisitions, we expect fourth quarter 2025 amortization expense of approximately $10 million. We would expect these estimates to change with any acquisitions we complete in future periods. Also, we continue to expect an effective tax rate of 25% to 27% for the full year ending December 31, 2025. Now let's look at our liquidity position, balance sheet and capital expenditures in more detail. For the 9 months ended September 30, 2025, we generated $307 million in cash flow from operations. The 16% year-over-year increase in operating cash flow was primarily associated with improvements in working capital management. Our third quarter net interest expense was $7 million compared to $8 million for the 2024 third quarter as lower interest income from investments was offset by lower cash interest expense on outstanding debt. At September 30, 2025, we had a net debt to trailing 12-month adjusted EBITDA leverage ratio of 1.09x compared to 1x at September 30, 2024. This remains well below our stated target of 2x. At September 30, 2025, we had $330 million in working capital, excluding cash and cash equivalents. Capital expenditures and total incurred finance leases for the 3 months ended September 30, 2025, were approximately $20 million combined, which was approximately 3% of revenue. This is higher than usual as we accelerated vehicle purchases in advance of expected price increases. With our strong liquidity position and modest financial leverage, we continue to prioritize allocating capital to achieve the best returns while distributing excess cash to shareholders. During the 2025 third quarter, IBP repurchased 200,000 shares of its common stock at a total cost of $51 million and 700,000 shares at a total cost of $135 million during the 9 months ended September 30, 2025. At September 30, 2025, the company had approximately $365 million available under its stock repurchase program. As previously announced, IBP's Board of Directors approved the fourth quarter dividend of $0.37 per share, which is payable on December 31, 2025, to shareholders of record on December 15, 2025. The fourth quarter dividend represents a 6% increase over the prior year period. With this overview, I will now turn the call back to Jeff for closing remarks. Jeffrey Edwards: Thanks, Michael. I'd like to conclude our prepared remarks by once again thanking IBP employees for their hard work and commitment to our company. Our success over the years is made possible because of all of you. Operator, let's open up the call for questions. Operator: First question comes from Stephen Kim with Evercore ISI. Aatish Shah: This is Aatish Shah on for Steve. I just want to touch on how you see backlogs for multifamily and commercial. And do you still see a multifamily rebound in 1Q? And then on the commercial side, are you seeing any delays there? Any color there would be helpful. Michael Miller: So this is Michael. On the multifamily side, as we talked about really in the first quarter and the second quarter, we expected through the rest of this year, continued headwinds, which I think we saw in the third quarter, although our team has done a phenomenal job of outperforming relative to the market. We believe they will continue to do that. As Jeff mentioned in his prepared remarks, we're seeing in certain markets, building of backlogs in those markets as well as gaining share in new markets for ourselves. So for us, the multifamily story continues to be intact in terms of us strategically gaining market share, not just in insulation, but in the complementary products as well. And as we -- pretty much everyone on this call would know that multifamily starts have performed pretty well this year because of the lag time from start to install on the multifamily side, we don't expect to see any benefit of that starts growth or the share gains that we're experiencing in multifamily until '26, it's probably going to be more weighted towards the back half of '26 than the front half of '26. So really, a lot depends on the trades that come before us to get their aspects of the trades done. But we are seeing -- continuing to see good bidding activity and are surprised, actually some markets like Florida, which is, I think everybody knows is probably the weakest residential market right now, is seeing some actually decent multifamily development. So we feel good about that in those markets. On the commercial side, as we talked both last quarter and the first quarter, really the story there is the heavy commercial business, which has performed exceedingly well and has offset the continued weakness in the light commercial business, although the light commercial business is starting to be less negative in part because it is -- the comps are getting easier because it's been down for such an extended period of time. As you know, we don't have nearly as much visibility into the light commercial business as we do the heavy commercial business. We feel very good that the heavy commercial business is going to continue to deliver strong top line and bottom line results, but it's not clear yet when the light commercial business is going to inflect positively. And it will really be dependent upon the inflection in the single-family market. Stephen Kim: Mike, it's Steve Kim. Just a follow-up. I think last quarter you had suggested that we might see the multifamily business rebound as early as 1Q. I think you had said at that time that maybe you were seeing the comps sort of accelerate or something. And so just wondering, did anything change to sort of push that back? You're now sort of saying maybe back half of the year. So just not to nitpick too much, but just want to make sure we don't miss something that you're trying to communicate about what you're seeing with respect to your backlog timing. Michael Miller: No, it's just being cautious. And also, as you know, we are influenced significantly in terms of our ability to do install work based upon the trades that come before us. So it's really the ability of the trades that come before us to get their work done so we can get there. And while we're not seeing across the board project delays, there have been in certain select markets some project delays. One of the issues potentially could become for the trades that come before us is we're all expecting because of the starts numbers and what's happened from a completions perspective and the significant decline in multifamily completions is that if there is a significant inflection, which the starts numbers would indicate, you can start to have elongated cycle times on the multifamily side. So we're just trying to factor some of that potential into our thought process as it relates to 2026. Stephen Kim: Got it. Do you guys anticipate that if there were to be any elongation in cycle times like you just described that, that would be more on the labor side? Or would be more on the product availability side? I assume labor. Michael Miller: Yes, it is definitely labor. And I'm not -- just to be clear, I'm not talking about our ability to source the labor or our ability to source material. But I definitely think that some of those -- the earlier trades like the framers and foundation guys might experience a bit of an issue from a labor perspective. Stephen Kim: Got you. Last one for me is you talked about margins benefiting from mix. I think you said product geographic and customer. Can you talk a little bit about the geographic? Was there a noticeable relative strength or weakness across any geographies worth calling out? Michael Miller: Yes. I mean we definitely benefited from our historical overweight, if you will, to the top half of the country, which has done fairly well relative to the bottom half of the country. I mean, clearly, the weakness that we're seeing in the single-family market or lack of inflection, I should say, in the single-family market is really driven by the entry level, right? We're seeing good solid performance at the semi-custom, custom, regional and local builder level, which, as everybody knows, tend to be centered more from a percentage of overall revenue in the top half of the country. So just to give you some kind of regional flavor for us, and I'm using this based upon the census regions, not the way that we manage the business, but based on the census regions. So the Midwest and the Northeast represent roughly 30% of our new residential installation sales. So that's both single-family and multifamily. In the quarter, those region sales for single-family, multifamily were up low single digits. The South, which is our largest region, is about 45% of residential sales, and it was essentially flat in the quarter. The West region, which is roughly 20% of our residential sales was basically down very low single digits. So clearly there's different performance across the different regions, and we are definitely benefiting from the fact that we have such strong market share in the Midwest and the Northeast. That being said, and I don't want to go into too much detail necessarily on this question, but -- or the answer to this question, but our teams even in the South and the West have performed extremely well given the headwinds that they're facing and the market conditions that are there. So we're really -- we can't shout out enough how proud we are of the field team and the local management and their ability to continue to manage through what is a pretty challenging market environment. Operator: Next question, Michael Rehaut with JPMorgan. Michael Rehaut: First, I just wanted to get a sense, you highlighted in terms of your end market demand kind of benefiting perhaps from price point and geographic exposure. I don't know if it's possible to try and triangulate. You had a competitor yesterday talk about their end markets down low double digit. Given your different mix based on customer, based on geography, I'm just trying to get a sense of whether or not you feel like that's down double digits is kind of the right framework for your set of exposures. And if you're able to kind of triangulate what your end markets, what your markets did or have been doing this year or during the third quarter even if you feel like you've outperformed that mark? Michael Miller: Well, as we said in the answer to the previous question, clearly we benefited from the regions and our exposure to certain regions that have performed well relative to the overall market. I would say that we have been very successful with our customers, particularly the regional and local semi-custom custom homebuilders in our markets to work with them to provide for us a very solid base from a revenue perspective. And we feel very good about our ability to continue to do that. I mean, no doubt, there are headwinds and pressures, particularly as it relates to the entry-level market. But our team is doing an excellent job of focusing on the right customers in the right markets and working to make sure that we offset the challenges that the current market environment is providing. Michael Rehaut: Okay. So in other words, better markets, but any type of sense of what your markets or how they did during the quarter relative to what you were able to do? Michael Miller: Yes. I would say that, not in every single market, but if we -- and I think the results clearly reflect this, the team performed much better than the market opportunity that was in front of it. They did that last quarter. They did that this quarter. And so far going into the fourth quarter, we feel very good about their ability to continue to do that. I mean, that being said, I mean, obviously, we will continue to see pressure, particularly in the single-family entry-level market, which is heavily weighted towards the bottom half of the country or the Smile as people refer to it. But while we don't see the inflection yet in the single-family entry-level market, we're hopeful and encouraged that the spring selling season will be certainly more constructive next year than it was this year. Jason Niswonger: And this is Jason. I would add to that, we've also seen very strong performance in our other complementary products. So the sales growth is not just housing demand focused, it's the strength that we've had in growing those sales organically. Dominic Bardos: Which is a really important point, right? And we continue to improve the margin on those products. Now they're still less -- they're lower than insulation, considerably lower than insulation. And as we've talked in previous quarters, when the sales rate of the complementary products is higher than the sales rate in insulation, it is a negative to gross margin, but we're making tremendous progress from both the sales perspective, as Jason pointed out, and a margin perspective. Michael Rehaut: Yes. No, no, I appreciate that point. It actually kind of leads me into my second question around pricing, price mix and gross margin. So you're able to do another modestly positive price/mix in the quarter. I think that's kind of a positive surprise relative to perhaps some concerns around pricing, maybe reflects your own more stable demand backdrop. But I'd love to get a sense of what insulation pricing did during the quarter? How much of the price/mix was price versus mix? And how does it kind of impact your outlook for -- now you have a couple of quarters and several quarters actually in the last year, 1.5 years where you're more or less at that 34% range at the high end of that 32% to 34% and your ability to sustain that type of margin level? Michael Miller: Yes. So there's 2 parts to that question. On the price/mix growth, a lot of it was mix and the mix was really that our rate of sales growth with the regional local custom builder was better than it was with the production builders, I mean, which is obvious based on their Q3 results. I mean the reality is that given our solid share with the production builders, which tend to be very heavily weighted towards entry level, our sales with them trend with their sales basically fairly closely. So as a consequence, the benefit that we saw from a price/mix perspective in the residential side was really driven by the outperformance, if you will, on a relative basis with the regional local and custom builder, which, as everyone knows, has a much higher ASP than the entry level. And because of our regional difference relative to our regional performance in the top half of the country, building codes and energy codes are much higher in that part of the country. It also tends to be a basement market, which that means that we're insulating the basement, we're insulating to a higher code. It also tends to be on average, a larger home. So you have a much higher average job price in those markets than you do in the bottom half of the country. So as a consequence, all of the things that we talked about from the regional benefit came in to benefit price/mix growth as well. And then on the gross margin part of your question, the -- there's a couple of things that are really helping gross margin and then also some things that were headwinds to gross margin. So -- and we've talked about this in previous quarters, but the -- even though the complementary products saw margin improvement of about 100 basis points in the market, as I mentioned earlier, they still are at a lower gross margin than insulation. The higher rate of growth there then creates a headwind to gross margin. Also, our other segment, which includes the distribution and manufacturing business, naturally has lower gross margins, and it also saw decent growth in the quarter, thus weighing on overall gross margins. Combined, that had about a 60 basis point headwind to gross margin, but that was more than offset with a 100 basis point gross margin benefit from the outsized performance from the heavy commercial business. So those 2 things were more than offset and helped us stay at that high range of the 34% adjusted gross margin. I will say that the benefit that we received from the heavy commercial business in gross margin at 100 basis points this quarter, we don't expect to see in the fourth quarter of this year, not because they won't continue to perform well, but because they had already raised their gross margin up by the fourth quarter of last year to sort of where it is today. So we don't expect any incremental benefit coming from the heavy commercial business in the fourth quarter. But we still feel very confident that we will operate in that 32% to 34% adjusted gross margin range on a full year basis. Operator: Next question, Susan Maklari with Goldman Sachs. Susan Maklari: My first question is following up on the gross margin comment, Michael. It seems like part of this is that you're doing a good job at being able to preserve the core margin that you're realizing on your installation of insulation even with the pressures that are coming through across the different regions and types of builders. Can you talk about how those conversations are going and how you're able to leverage the value add and perhaps the growth in the ancillary products that Jason mentioned in there to preserve that core margin? Dominic Bardos: Yes, Sue, just to be clear, it's the field team that's doing it, and they're doing an incredible job. I don't think anybody in this room feels that they can take responsibility for what a great job they're doing. But I think those conversations are definitely challenging right now given the softness, particularly at the entry level. But the reality is, is that we provide an installed solution. So we're not providing just labor. We're not providing just material. We're providing an installed solution and we're solving problems for builders. And they absolutely appreciate the value that we're providing. And this has been a continuous story for us, quite frankly, in terms of the team's ability to continue to do that. We, as we've talked, I think, on multiple occasions about the benefits of a softer environment on the uptake of the complementary products. We're absolutely seeing that. The team is doing what we would have expected them to do. We think that -- we don't think, we know, that our incentive compensation systems are designed, quite frankly, to drive outperformance in a challenging market because so much of our branch managers' compensation is tied to the profitability of their location. In fact, I mean, really, when you think about it, almost every employee within IBP has some portion of their compensation tied to profitability. And we think that drives outperformance in a challenging environment. Susan Maklari: Yes. Okay. And then turning to SG&A. It seems like you're also doing a nice job at controlling those costs in this kind of an environment. Can you talk about the progress that you're making on the reductions that you had mentioned earlier this year and anything else that's flowing through there that we should be aware of? Michael Miller: Yes. Thanks for that question, Sue. Definitely we're making very good progress. We still have progress to make. I mean, to a large extent, the efforts that the whole team is making to control the G&A that we can control is, to a large extent, being offset, unfortunately, by some of the things that aren't immediately under our control like insurance, and that's insurance at all levels. But the team is really working very hard to lower G&A expenses. And our objective is that we will offset the natural inflation in some aspects of G&A and some of the headwinds that we're experiencing on the insurance side of G&A with the savings that we're continuing to experience on the G&A side. But it's really, at this point, an opportunity for us to maintain the growth or to use our belt tightening, if you will, to offset some of the costs that we don't directly or immediately control. Operator: Next question, Phil Ng with Jefferies. Philip Ng: Congrats on a really impressive quarter. I guess, Michael, that was really helpful color when you shared with us just now on your trends in the Southeast and the West, which was actually very stable, clearly outpacing the market handily. Was there a big pivot this year in terms of your go-to-market strategy to kind of lean harder in some of these custom and regional builders? Or you've always been generally a little higher there just because it does feel like the team's really outperformed here. Michael Miller: Yes. I think that's a fair assessment, Phil, in the sense that our team looking forward, obviously, working with their production builder entry-level builders saw the weakness that the market was going to present. And really saw that as an opportunity to work more closely with some of the other customers in that -- in those markets to offset what they saw as the headwinds coming. And the team has done a great job of performing relative to that. Now the reality is that there continues to be some states that are very weak. We talked about Florida last quarter and Florida continues to be quite weak. Although as I mentioned earlier, we're seeing some encouraging signs on the multifamily side in Florida, but it continues to be very weak. Texas is a state that people call out, which Texas is our second largest state. It definitely has pockets of weakness, but we believe our team is doing a good job there of trying to offset some of that weakness by changing a little bit of the customer mix and also cross-selling the other products. And quite frankly, Texas is really one of the markets that's been very successful for us on the multifamily side. The CQ team, which is our centralized multifamily operation that covers around 40% to 45% of our multifamily revenue has really outperformed in Texas and allowed us to gain solid market share in that market, but in a profitable way. Philip Ng: Okay. Super. And Michael, I think what you just said earlier, October trends, November sound pretty good, and you're still outperforming pretty handily. One, did I hear you correctly? And I know you don't give guidance. Part of this question is just most of your peers have seen and expect demand to really soften in the back half and perhaps these declines moderate going into next year. Your trends have been very different from everyone else. So I'm just really curious, is that decline to come? Or this is potentially the trough, especially as we go into next year, perhaps rates coming in, the consumer getting a little better kind of back on the men. Just want to better appreciate some of the nuances as it relates to your portfolio. Michael Miller: Yes. And thanks, Phil, for reiterating that we don't provide guidance. And in my answer to your question, I don't mean this to be guidance. It's just publicly available information that I'll use to sort of triangulate a little bit on our expectations for the fourth quarter. So I think as a lot of people on the call know that roughly 55% to 60% of our total revenue is new single-family construction. Of that 55% to 60%, roughly 27% to 30% of that revenue comes from the public builders. If you look at the guidance that those builders provided for the fourth quarter, and as I said in the answer to an earlier question, our sales to them kind of track their sales basically. Their numbers, right, their publicly available numbers would suggest that their sales are going to be down on a combined basis, roughly high single digits. And that high single-digit decline would be roughly 400 to 500 basis points higher than the typical seasonal decline from the Q3 to Q4 because Q4 is seasonally a lower -- typically lower revenue month across the board within building products. And we expect that, that extra 400 to 500 basis points of revenue headwind that they're forecasting, we will feel as well in that portion of our business. So to more succinctly answer your question, we do think that the fourth quarter is going to create pressures. Multifamily completions, we don't expect to inflect positively in the fourth quarter. So there's definitely going to be headwinds. But we have confidence based upon what the trends that we're seeing and what we've experienced over the past 2 quarters that our team is going to perform better than the overall market opportunity, but there are definitely going to be headwinds coming into the fourth quarter and the first quarter on the new residential construction side. We feel very good, though, and I'll reiterate this probably 10 times on the call today. We feel very good about what the heavy commercial business is doing and is really helping to offset some of those residential construction headwinds. Operator: Next question, Mike Dahl with RBC Capital Markets. Michael Dahl: Just want to follow up on that last point and just to make sure we're understanding. When you talk about the high single-digit decline, are you talking about their delivery guides or something else? Because I think the starts commentary has been pointing to more significant declines in starts, understanding that you guys have some differences in lag timing, right? I just want to make sure we're understanding what you're saying. And then could you give us any insight into then on the private side, are those customers of yours seeing a significantly different trend than what you just articulated for the public? Or are they kind of starting to follow suit into your… Michael Miller: Yes. So my comment around the Publix was more closings versus starts, right? And they are 2 different things, as we all know. As it relates to the kind of custom, semi-custom and regional and local builders, I would say that the commentary is generally flat, where they're not seeing -- and obviously, it's market by market. But if I had to put it in a kind of broader context, it would be that the market is flat, it's not getting worse, but it's also not getting better. Michael Dahl: Okay. Got it. That's helpful. And then shifting gears back to the gross margin dynamic. I appreciate the color on the heavy side and that you're now comping against the step-up there. So when we think about the year-on-year impacts for fourth quarter, I think you articulated kind of some of the moving pieces around mix. But when we think about that fourth quarter, can you just dial that in a little better in terms of, all right, we don't have the 100 basis point tailwind. We do have some of the headwinds and some other -- how do those headwinds in your mind stack up compared to what you just articulated for the 3Q dynamics? Dominic Bardos: Yes. I mean we would expect that we would -- I mean it's interesting that we call out gross margin headwinds because the businesses are performing, those businesses perform very well, right? And they're improving margin, but just that they're at a lower gross margin to start with, just creates that sort of headwind. We would expect that trend to continue through the fourth quarter, where the other products, the other segment, which is the distribution manufacturing business, we continue to grow at a higher rate than in the insulation business. So as a consequence, we believe that headwind will be there. And then as I said and you pointed out, we don't expect to see that much incremental gross margin benefit from the heavy commercial business in the fourth quarter. And just as a reference point, in the fourth quarter of last year, the adjusted gross margin was 33.6%. So again, well within our 32% to 34% full year range that we've talked about. Operator: Next question, Jeffrey Stevenson with Loop Capital Markets. Jeffrey Stevenson: Congrats on the strong results. So I wanted to dive deeper into the double-digit growth in complementary products, which is great to see. Would you call out any products that are outperforming? And is most of the strength in better single-family markets such as the Midwest? Michael Miller: That's part of it. But also keep in mind that within the complementary bucket, if you will, is primarily -- the heavy commercial business is primarily in the complementary product bucket. So they're definitely helping from a growth perspective in those products. But we're definitely seeing it on the residential construction side of the business as well, particularly on a margin improvement basis. So we feel good about what the team has been able to do there, so. And to answer your question specifically, I mean, there's not -- I would say that -- I wouldn't highlight any one particular of the complementary products as being any better than the others. It's really a uniform story in terms of their growth with the one exception that growth that Jason talked about is definitely being helped by the heavy commercial business. Jeffrey Stevenson: Okay. Understood, Michael. Obviously a lot of discussion over the outperformance with the regional and local builders over the national public builders. And as you look at your backlog moving forward, could you -- would you expect those mix tailwinds to continue, especially given the softness at the entry-level price point right now? Michael Miller: Yes. We would expect that to be the case until the entry-level inflects. And we're hoping that, that happens in the spring selling season. Operator: Next question, Keith Hughes with Truist Securities. Keith Hughes: Just to level set on the commercial, about $135 million in revenues in the quarter. What is the split right now between heavy and light? Michael Miller: So on the install side, which is just slightly different than from the total IBP perspective, on the install side heavy commercial is around 11% of revenue and the light commercial is like 7.5% of revenue. Keith Hughes: Okay. And what is the dividing line between light and commercial? Is that -- is there a job size? Or is it a product? Or how do you define that? Michael Miller: I mean the simplest way is that light commercial is framed construction and heavy commercial is steel and concrete. Keith Hughes: Okay. And from a growth rate -- when if we look longer term, I think you want to do more in this market. What do you think has the bigger TAM that you could reach? Michael Miller: Heavy commercial without a doubt. I mean our market share in heavy commercial is, in the markets that we're in, it's great. But [indiscernible] because we have so much geography that's open to us. And now that we have so much confidence in the team, and the team is working so well that we see a lot of opportunity there on an acquisition opportunity and then also potentially on a de novo basis, but that's going to be very selective. Keith Hughes: And what's stopping really accelerating the acquisition activity there? It seems like a great business for you. Just seems like we would see more deals or maybe that's to come. What's kind of your view of the pacing, I guess, is my question. Jeffrey Edwards: This is Jeff, Keith. So I would say, honestly, unlike what we would say about our residential business, I think the potential for organic growth by us following customers and developers and general contractors that we have relationships that actually, in this case, outweigh maybe even some of the commercial acquisition activity. It's not to say that it isn't there, but I wouldn't be surprised if we don't end up moving more on the organic side than we do on the acquisition side in that part of the business. Not to downplay that there aren't opportunities. It's just I think that may happen [indiscernible] organically. Keith Hughes: Final thing. It lends itself to organic growth, what dynamic of it lends itself to organic growth more than, say, your residential insulation is? Michael Miller: I don't want to call the customers necessarily stickier than they are on the residential side because we also make a point of calling our residential customers because of the jobs that we do for them, the work that we do for them, the quality, et cetera, we provide is being sticky. But I do think maybe the universe of contractors that can perform the services that we perform on the commercial side, especially the bundling of that [Audio Gap] But I think in addition to that, it's just -- we'll be able to follow developers and builders to other large metro areas that we're currently not in with heavy commercial. Operator: Collin Verron with Deutsche Bank. Collin Verron: I just want to start on price cost a little bit. I appreciate all the color around the moving pieces of mix on gross margin. But any color as to how price cost is tracking and more specifically within the residential insulation business and the commercial insulation business? Michael Miller: Well, I mean, I think on the commercial side, there's definitely a difference between the light commercial and the heavy commercial. As we've talked about, the light commercial business has been weak for multiple quarters at this point. So obviously that can lead to some pricing pressure. I would say on the single-family side, really where there's pricing pressure, and we would expect it to continue until the market inflects positively is it's more regional in nature and more at the entry level that we've been talking about. I would say at the custom, semi-custom our top half of the country, while obviously it's a competitive environment, the competitive challenges are not as significant as they are in the parts of the market that are softer. I mean it's a logical supply and demand sort of response. But at the same time, our team is doing an excellent job of working hard to maintain price and provide for the builder a high level of service that they will value and pay a fair price for. We are constantly working to be more efficient for our builder customers and to provide them as much value as possible. But there is a fair balance between what we get paid for and the installed solution that we provide. Collin Verron: That's helpful color. And I just want to touch on the distribution and manufacturing side. I know it's a small piece of your business, but the growth is really strong in the quarter and contributed to growth at an outsized pace relative to its size. I guess just any color as to sort of what's going on there and sort of the trajectory of that business as you look out a little bit further? Michael Miller: Yes. And keep in mind, some of the growth that -- or a portion of the growth that is in that other segment is coming from our internal distribution efforts, which we've talked a lot about. And that's really coming to fruition. And you can see the growth rate in that in our segment disclosures that just shows the significant growth of intercompany sales. And we estimate that year-to-date and in the quarter that the internal distribution efforts provided an almost 50 basis points benefit to gross margin. Jeffrey Edwards: We're just executing on the plan that we've talked about for multiple… Michael Miller: Years. Jeffrey Edwards: Yes, years. I was going to say multiple quarters, let's say, multiple years. Michael Miller: Yes. So the benefits there are coming to fruition. We still have a lot of work to do, but the team is working really well together, and we finally have gotten, I think, a wide acceptance among the branches to support the effort of internal distribution. Operator: Ken Zener with Seaport Research. Kenneth Zener: It feels like we were looking at a force and then the light was turned on and you're more like a Zebra relative to the regional customer mix. So first question. For customer mix… Michael Miller: Is that good or bad? Kenneth Zener: It is what it is. So for customer mix, generally speaking, I think you talked about even the public is about 30%. Can you talk to the dollar generally, Michael, I know you've disclosed a lot today, so I don't want to press you. But what is generally like kind of the dollar spread between like that public, which I think people understandably characterized you guys as, as opposed to the 70% that's actually going to that private, more custom bucket since it's the majority? And then can you describe the demand dynamics of those builders buyers? So if it's custom, it's not going to be as tied to affordability entry, it's going to be more non-spec, et cetera? Michael Miller: Yes, that last part of your comment or question there, Ken, is definitely accurate. I would say that the average job price for the regional and local builder because of the type of product that they're building, and I'm not talking on a per square foot installed basis, I'm just talking about the average job price, right? So because of the type of product that they're building because they're generally speaking, going to have a basement, which adds another level of work for us to insulate, those average job prices are multiples of what the average job price is for an entry-level home. Kenneth Zener: Okay. And the -- just trying to think more of my question here. Given that multiple difference, is that something -- well, I guess I'm going to tie this into my second question. The census data, besides the fact it's not going to be published right now, is highly inaccurate for the markets that the public builders are in, the Smile because most of the builders don't respond to the census. Do you feel that the census data is more accurate in those non-Smile states relative to kind of the starts and the activity that you've seen? Michael Miller: Boy, I think we would have to go back and look at the information over an extended period of time to see if the adjustments that they make to the information is greater in the Smile than it is in the top half of the country. Yes, I have no idea, and we've never really looked at that. I mean… Kenneth Zener: Yes. It's never been… Michael Miller: Yes. We sort of take it at face value for what it is. Obviously we don't run our business based upon what the Census Bureau is reporting, so. Kenneth Zener: And then relative to that, given your -- and we very much appreciate your commentary relative to the census boundary definition. Given that so much of your business is to the nonpublic and that mix is geared more towards a higher total take, it seems to me that's the biggest factor as we enter '25 for expectations for your business in addition to your cost controls. Is there a reason that the base of your business is going to be detrimental next year? Because it seems if you have more of your mix in these more attractive markets where there's better job growth, et cetera, that we could continue to see kind of a disconnect relative to census data next year, simply tied to your product mix and your regional mix. Is that a fair assessment that the spread we've seen this year would persist into next year? Michael Miller: I mean, obviously, well, one, we don't provide guidance. Two, obviously, it depends upon what ends up happening in the market. What I would say though is that while the entry-level market right now, as we all know, is challenged and it's a challenging operating environment for there. And yes, our customer mix and regional mix is hitting or helping our outperformance. It's not the only reason we're outperforming. The team is doing the outperformance, but it is definitely helping in that situation. I would say, though, and it's one of the reasons why we're so excited about the business and continue to be is that when the inflection comes in the entry-level market, we are completely set up to benefit from that inflection upward. And we think that, that will come at the same time when the regional and locals are going to continue to perform as well. Now does that mean it will put pressure on our price/mix disclosure? Absolutely, because we'll be seeing an acceleration in that entry-level market. But at the same time, as we've talked about before, even though it's at a lower job price, considerably lower gross margin, the cost to serve is considerably lower as well and the EBITDA contribution margins on that business is solid. So I don't think -- or I know we're not ready to call when that inflection happens. We're hoping that it's the spring selling season. But whenever it happens, we're ready to work with our customers to make sure that we can all capitalize on the opportunity that, that will present. Operator: Next question, Adam Baumgarten with Vertical Research Partners. Adam Baumgarten: Just on the multifamily business, I know when things started to slow and you have a pretty unique business within that, you guys talked about sort of the white space geographically you had and some organic opportunities to expand there in a weak market. I guess any update there on how that's going, if you're starting to see some benefits from maybe a renewed effort to kind of go out of your core markets? Michael Miller: That is a great question, and I appreciate you asking it because, yes, we are making very good progress on that front. It's not translated into revenue yet, but it's translated into backlog. And the team is doing a really good job of, as Jeff said in his prepared remarks, going into new markets and opening up those new markets for multifamily. And we really believe we have a differentiated model/opportunity for the GCs on the multifamily side, and we'll continue to strategically and methodically pursue continued market share gains in multifamily. I mean, honestly, for us, the multifamily story, as we've talked before, it's a lot about us catching up from a market share perspective to where we should be because we really lagged behind in a lot of markets, particularly markets in the smile, we lagged behind from a multifamily perspective because we were so focused on the strong single-family opportunity. Operator: Next question, Reuben Garner with The Benchmark Company. Reuben Garner: Congrats on another strong quarter. My question, and apologies if this has already been discussed, I had to hop on late, but just curious on the current M&A environment. I know you picked up a couple of kind of specialty product categories of late. But curious on what the environment is like for some of your smaller insulation peers and then also the likelihood that we could see something larger or maybe even in a different vertical in the near or medium future. Jeffrey Edwards: Great. This is Jeff, and I'm glad you asked that question. So I think the environment from an acquisition perspective on both the small guys, the ones that are kind of regular way as we would usually call them is not dissimilar that it's been really over the last, I don't know, 20-plus years. Like we've said all along, the deals are kind of lumpy. We did make an effort to kind of do some add-on kind of bolt-on deals, which you've seen some of those flow through. But we're actually pretty excited about some of our kind of regular way, both in size and in terms of quantity kind of deals that we have in the pipeline currently. In addition, we continue to look at kind of what we would call adjacent areas to the business, still interested pretty seriously in potentially commercial roofing and other areas where we would be installing products that have similar characteristics to the things we already install. But I guess also going back to Keith's question, I may have at least interpreted the question more narrowly than the way he asked it, which is also kind of a lead into what you asked also. And that is when I said that there wasn't -- maybe the avenue for acquisitions on the heavy commercial was kind of more organic or was going to be constrained on the acquisition side. I was interpreting at least the question being asked specifically to the products that Alpha installs currently. And I think we feel pretty good about our ability to kind of chase the things that we do well as Alpha organically. Now there are definitely other product lines that Alpha is not in, but I would categorize those more as adjacencies that we could get into on the heavy commercial side in that particular area, we're very excited about what our prospects have in front of us. Operator: I would like to turn the floor back over to Jeff for closing remarks. Jeffrey Edwards: Thank you all for your questions. I look forward to our next quarterly call. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Thank you for standing by. At this time, we welcome everyone to the Amcor First Quarter 2026 Results Conference Call. [Operator Instructions] I would now like to turn the call over to Tracey Whitehead, Head of Investor Relations. You may begin. Tracey Whitehead: Thank you, operator, and thank you, everyone, for joining Amcor's Fiscal 2026 First Quarter Earnings Call. Joining today is Peter Konieczny, Chief Executive Officer; and Michael Casamento, Chief Financial Officer. Before I hand over, a few items to note. On our website, amcor.com, under the Investors section, you'll find today's press release and presentation, which we will discuss. Please be aware that we will also discuss non-GAAP financial measures and related reconciliations can be found in that press release and presentation. Remarks will also include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause future earnings to be different than current estimates. And reference can be made to Amcor's SEC filings, including our statements on Form 10-K and 10-Q for further details. [Operator Instructions] With that, over to you, PK. Peter Konieczny: Thank you, Tracey, and thank you to everyone joining us. I'm excited to welcome you today to discuss our first full quarter operating as a combined company. We're 180 days in, and I'm pleased with how well our teams have come together to integrate and execute against our priorities. We are also seeing strong and consistent validation by our customers, who are very receptive to our expanded offerings and innovation capabilities. We're now experiencing the quality of the combined business. As the global leader in consumer packaging and dispensing solutions for Nutrition, Health Care and Beauty and Wellness. We're gaining traction with synergy realization, including commercial synergies and have solid pipelines, which continue to grow. Margins increased in both operating segments, and we are addressing identified noncore assets to enhance focus on our core business. Adjusted EPS of $0.193 per share was above the midpoint of our guidance range, increasing 18% compared with last year. This includes the addition of the Berry business and was supported by disciplined cost-out performance, improved productivity and synergy delivery towards the upper end of our expected range. Our synergy run rate continues to build, and we have clear line of sight to opportunities that will drive at least $260 million in synergy benefits in fiscal '26. We're confident in delivering a year of strong earnings and free cash flow growth. This is an exciting time for Amcor, and I look forward to continuing to execute on our commitment to create an even stronger business that delivers significant long-term value for our shareholders and is the global packaging partner of choice for our customers. Now moving to Slide 3 and safety, which has always been a core value for legacy Amcor and Berry. As a combined company, our focus on safety remains absolute, and fiscal '26 has started well with strong performance. For Q1, our industry-leading safety metrics continue with Amcor's total recordable incident rate at 0.55. This is a slight increase compared with last year's performance, which is typically the case when we acquire a business. We have already identified opportunities for improvement across our now much broader footprint and global workforce, and we are proud that 89% of our combined sites remained injury-free in Q1. Slide 4 highlights our key messages for today, which align with our near-term priorities: delivering on the core business; integrating Berry; realizing synergies; and optimizing our portfolio. First, core business execution. As mentioned, we executed well in the first quarter with EPS above midpoint of guidance. This positions us well to achieve our full year financial objectives, including earnings per share growth of 12% to 17%, and doubling free cash flow over fiscal '25. Second, integration momentum remains strong. We delivered $38 million in synergies during the quarter, which was towards the upper end of our guidance range. In addition to strong cost and financial synergies, we have already secured revenue synergies totaling more than $70 million in annualized sales, and our strong pipeline continues to build. This performance, combined with our track record of executing synergy targets from prior large integrations, reinforces our confidence in delivering a total of $650 million in synergies through fiscal '28, including at least $260 million in fiscal '26. Third, we're addressing previously identified noncore assets and have entered into agreements to sell 2 businesses for combined proceeds of approximately $100 million. While these businesses are small, the swift progress underscores our commitment to disciplined portfolio management. We continue to review options to accelerate actions on noncore assets, and we anticipate additional actions this fiscal year. Fourth, we are reaffirming our fiscal '26 guidance. Importantly, Amcor is well positioned with significant earnings and cash flow growth expected through delivery of $260 million in synergies, largely under our control and not impacted by divestments of noncore assets. This means achieving our guidance for 12% to 17% EPS growth this year is not dependent on improvements in the macroeconomic environment or end customer or consumer demand. And fifth, the Board has approved an increase in Amcor's quarterly dividend to $0.13 per share. Turning now to Slide 5 and our first quarter financial results. As Michael will cover in more detail, ahead of our segment commentary, we've moved quickly to operate as a unified organization. As a result, our commentary is focused on the year-over-year performance of the combined business. Fiscal year '26 is off to a good start as our businesses benefited from disciplined cost performance, improved productivity, and delivery of cost and financial synergies, while also building a pipeline of revenue synergies. First quarter EPS of $0.193 per share was above the midpoint of our guidance range, growing 18% on a constant currency basis. Excluding noncore North America Beverage, overall volumes were broadly similar to Q4, down approximately 2% in the quarter and in line with our expectations. Emerging markets performed better than developed markets, led by solid growth in Asia. And EBIT of $687 million was up approximately 4% on a comparable basis as our teams continue to proactively manage and flex costs. These actions, along with the enhanced quality of the combined business, resulted in another quarter of strong margin expansion with reported EBIT margin of 12%, 110 basis points higher than Amcor's reported margin last year and 50 basis points higher than combined companies' comparable margin last year. Moving to Slide 6, which shows we are on track relative to our 1- and 3-year synergy commitments. Our teams delivered $38 million in synergies during the quarter, which was towards the high end of our guidance range. Approximately $33 million of those synergies benefited EBIT and came from G&A and procurement savings, with the remaining $5 million preliminary -- primarily, excuse me, related to interest. Headcount reductions now exceed 450, and discussions with our vendors and suppliers are progressing well. Our procurement savings and opportunity pipeline continue to build. We are also off to a fast start on revenue synergies, which I will return to shortly. Our teams are executing well against our proven integration playbook, positioning the business to deliver strong earnings growth in fiscal '26. We're confident in delivering at least $260 million in synergies this year and $650 million in total through fiscal '28. Today, we have reaffirmed both targets. Before turning the call over to Michael, I want to take a moment to acknowledge that this will be his final earnings call as Amcor's CFO, as he has decided to return to Australia to spend more time with his family. Michael has been an exceptional partner to me and to the business, and we thank him for his many contributions over the past decade. He will continue with Amcor in an advisory capacity through June, working closely with our teams to support smooth transition. We look forward to welcoming Steve Scherger, who will join Amcor as CFO next week. Steve brings deep industry expertise and a strong understanding of both the U.S. and global packaging markets. We're fortunate to have an executive of his caliber and reputation join our leadership team, and we're confident that his insights and experience will further strengthen our ability to deliver value for customers and shareholders. Michael, over to you. Michael Casamento: Hello, everyone, and thank you, PK for those kind words. It's been a privilege to work with our talented teams over the years, and I look forward to continuing to support Amcor's strategic objectives, over the next several months while helping Steve transition into the, role and ensure that he is well equipped to continue delivery of the significant opportunities ahead and value capture from the transformational Berry acquisition. Now, before we get into further detail, I note that comparative data throughout our earnings materials will continue to represent the legacy Amcor business only for most of the fiscal year. However, we also understand that insights on the performance of the business on a like-for-like basis is important to understand. And several of our comments today related to volumes and adjusted EBIT will be focused on first quarter performance compared with estimated prior period results for the combined legacy Amcor and Berry businesses. So starting with the Global Flexible Packaging Solutions segment on Slide 7. Net sales increased 25% on a constant currency basis, primarily driven by the Berry acquisition. On a comparable basis, net sales were down 2%, with favorable price/mix dynamics offset by a 2.8% decline in volumes. By region, demand across the developed markets of North America and Europe was down low single digits, with volumes across emerging markets in line with last year, reflecting growth in Asia offset by lower demand in Latin America. From an end market perspective, volumes in our focus categories reflected relative strength and were broadly in line with the prior year. We saw good growth in pet care and dairy categories and volumes comparable to last year in health care, offsetting softer demand in fresh meat and liquids. Broader Nutrition was weaker, including in categories such as snacks and confectionery coffee and condiments, partly offset by growth in other categories, including fresh produce and prepared meals. Adjusted EBIT rose 28% on a constant currency basis to $426 million, driven primarily by approximately $75 million in acquired earnings net of divestments, and on a comparable basis, EBIT was up approximately 2%, reflecting synergy benefits and improved cost performance and productivity, partly offset by the unfavorable impact of lower volumes. The quality of the business continues to improve, with EBIT margin of 13.1%, up 20 basis points over last year. Turning to Slide 8 and the Global Rigid Packaging Solutions segment. Net sales increased 205% on a constant currency basis, mainly driven by the Berry acquisition. On a comparable basis, net sales were lower than the prior year, reflecting a 1% volume decline excluding noncore North American beverage as well as unfavorable price/mix. By region, demand in North America was in line with the prior year, excluding North America Beverage. And outside of the U.S., volumes in Europe were marginally down, and Latin American volumes were down low single digits. From an end market perspective, our strategic focus categories were broadly in line with last year, with strong performance in pet care and continued growth in Europe in health care, helping offset softer demand in Foodservice and premium Beauty and Wellness. Adjusted EBIT of $295 million increased 365% on a constant currency basis, driven primarily by approximately $240 million in acquired earnings, net of divestments. On a comparable basis, and excluding noncore North America beverage, adjusted EBIT was up approximately 3%, reflecting synergy benefits and disciplined cost performance, partly offset by the unfavorable impact of lower volumes. The strength and value creation from the combination with Berry Global is clear in this segment, with EBIT margin increasing to 11.9%, which is 420 basis points higher than last year. Moving to Slide 9, covering cash flow and the balance sheet. Free cash outflow for the first quarter was $343 million and in line with expectations. It represented a year-over-year improvement of more than $160 million prior to funding acquisition-related costs. CapEx was $238 million, up from last year as anticipated, primarily due to the acquisition of Berry. And we continue to expect capital spending in the range of $850 million to $900 million for fiscal 2026, with depreciation expected to slightly exceed CapEx. Leverage exiting the quarter was 3.6x, in line with our expectations given seasonality of cash flows, and we expect solid cash flows in Q2 and remain on track to reach the 3.1x to 3.2x by fiscal year-end. This outlook includes $100 million of proceeds from the small asset sales announced today, but excludes proceeds from any additional asset sales through the balance of the year, which would support further deleveraging. Our commitment to maintaining investment-grade balance sheet and as a dividend aristocrat to growing our dividend annually, as we did again this quarter is unwavering. We are confident that our strong annual cash flow generation fully supports these priorities. Turning to Slide 10 and our financial outlook. Q1 EPS came in above the midpoint of our August guidance, reinforcing our confidence in delivering a year of strong EPS and cash flow growth. As PK noted, we are reaffirming our guidance for adjusted EPS of $0.80 to $0.83 per share on a reported basis, representing strong year-over-year growth of 12% to 17%. Our confidence in delivering at least 12% earnings growth is fully supported by continued execution against our identified synergy opportunities and does not rely on any improvement in the macro environment or increases in customer consumer demand. In terms of the December quarter, which historically has been a seasonally weaker quarter, particularly for the legacy Berry business. We expect EPS of $0.16 to $0.18 per share including approximately $50 million to $55 million of synergy benefits. At the midpoint, this represents around 12% comparable growth against prior year estimated combined EPS of approximately $0.15 per share. Interest expense and effective tax rate are both expected to be similar to the September quarter. This also means that earnings phasing is expected to be consistent with Amcor's historical performance with approximately 55% of EPS being delivered in H2. Growth is also expected to accelerate in the second half and particularly in the fourth quarter as synergies build throughout the year. We're also reaffirming our free cash flow guidance of $1.8 billion to $1.9 billion in FY '26, which is double fiscal 2025 cash flow and is after funding approximately $220 million of cash integration and transaction costs, of which $115 million was funded in the first quarter. Our full year net interest expense range of $570 million to $600 million remains unchanged, and we are currently tracking towards the lower end of our effective tax guidance range of 19% to 21%. So in summary, we had a solid start to the year, executing well against the outlook we provided in August. And with that, I'll hand back to you, PK. Peter Konieczny: Thank you, Michael. Before we move to Q&A, I'd like to take a few minutes to discuss the mid- to longer-term growth opportunities for Amcor. As we look ahead, we're well positioned with significant synergies from the Berry acquisition, which over the 3-year period ending fiscal '28, is expected to drive more than 30% EPS growth. At the same time, we are taking deliberate steps to position Amcor for sustained volume growth in our base business through 3 strategic initiatives shown on Slide 11. First, we have clearly defined our core portfolio, establishing Amcor as the global leader in consumer packaging and dispensing solutions for Nutrition, health care and Beauty and Wellness. These are large, stable end markets with attractive margin profiles, where we hold leadership positions and see meaningful opportunities to grow. As part of our portfolio optimization efforts, we are exploring strategic alternatives for several businesses that are less aligned with the core portfolio. As mentioned earlier, we've already entered into agreements to sell 2 smaller businesses. We continue to review strategic options to accelerate actions on noncore assets, and we anticipate additional actions this fiscal year. Second, we have meaningful opportunities to supply customers with solutions that neither legacy company would have provided -- could have provided on its own. Our now combined teams are largely -- are already actioning more than 10 growth synergy initiatives, which includes straightforward geographic expansion or cross-selling opportunities, such as taking Berry solutions into Amcor's Latin America or Asia Pacific footprint. They also include more complex combined solution offerings that meet customers' complete packaging needs, including combining legacy Berry containers plus Amcor Lids or seals or legacy Amcor bottles and containers with Berry closures. In just a few months, we have already been awarded new business wins, totaling more than $70 million in annualized sales revenue, and our pipeline is building rapidly. As an example, we expanded our business with a large food service customer. Amcor had a strong relationship with the customer and technical know-how and legacy Berry brought core manufacturing capabilities that were not then available to Amcor. Bringing our business together allows us to accelerate execution for the customer and deliver a disruptive and sustainable solution faster to the market. We also recently won business in Latin America with a large Beauty and Wellness customer across product categories. This is a great example of Amcor's ability to mitigate supply chain risk with production flexibility across a stronger multisite footprint within a single country. This also included the complete solution win combining Amcor's rigid container with a legacy Berry closure system. And finally, about 50% of our core portfolio, or $10 billion in annual sales comes from 6 key focus categories where volumes have historically grown at mid- to high single-digit rates with above-average margins, supported by demand for Complex Packaging Solutions. We're already winning in these attractive categories, and with enhanced scale and capabilities post Berry acquisition, we are even better positioned for continued success. We're making tangible progress across all 3 strategic initiatives, and we are confident our focus will result in more consistent volume growth in the low single-digit range, translating to meaningful long-term earnings growth and shareholder value creation. In closing, this is our first full quarter combined with Berry. The quality of our combined business is showing as we executed well against our financial commitments. Integration is progressing well, and we're building significant synergy momentum, including for revenue synergies. We moved swiftly on portfolio actions, reaching agreements to sell 2 smaller noncore businesses, and we increased our quarterly dividend, which now stands at $0.13 per share. We have also reaffirmed our fiscal '26 EPS and free cash flow guidance, which is not contingent on any improvement in the macroeconomic environment or increase in current customer or consumer demand. As we look ahead, we're uniquely positioned with $650 million in identified synergies. And over the 3-year period ending fiscal '28, synergies alone are expected to drive more than 30% EPS growth. At the same time, we're taking deliberate steps with strategic growth initiatives to create an even stronger business that delivers consistent organic growth and value for our shareholders and is the global packaging partner of choice for our customers. Operator, we're ready for questions. Tracey Whitehead: [Operator Instructions] And your first question comes from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Michael, first off, congratulations on the announcement and wish you the very best for the future. So PK, just going back to the Flexibles business, it looks like after an increase in the first 3 quarters of fiscal year '25, the volume cadence is basically reversing the growth from the year ago period, and I think you saw that last quarter as well. What do you think is driving this most recent decline? Is it the same issue with consumer affordability challenges? You called out confectionery and obviously, cocoa prices have gone up significantly. So are you seeing some sort of order pattern distortions because of that? Or do you see another sort of leg down in terms of volumes for -- at the consumer level? Peter Konieczny: Yes. Thanks, Ghansham. I think it's important for us to take a step back and just remind ourselves again, we expected the volumes to be very similar to Q4, and that's exactly where they were down about 2% if you exclude the noncore North American beverage. And now you're asking specifically about Flexibles, which was a little weaker, and particularly was weaker in Europe. So the Flexibles weakness really that we've seen is in Europe. And if you double-click on that one, you get to a subcategory that we call unconverted film. And the unconverted film category was weak essentially following really general market softness. This is a film that we make, we don't further process it. We don't print it, we don't cut it, we don't split it, we don't make any pouches. We just sell that film into different end markets and that's particular -- those particular segments that have been particularly weak, but that is really what's driven the Flexibles demand in the last quarter. Tracey Whitehead: Your next question comes from the line of Ramoun Lazar with Jefferies. Ramoun Lazar: And Michael, congratulations on your announcement from us as well. Just a quick one on just the North American beverage business, if you can give us any kind of update there? It looks like volumes for the quarter fell high single digits there. Just any progress you're making on turning that business around, given the issues that you identified last quarter? And any update on divestments of that business potentially? Peter Konieczny: I'll be happy to just take that, Raymond. Look, first off, I'll say we made really good progress on the operational side with that business. We were reporting a couple of challenges in the last quarter. I was not proud of those, but I have to say kudos to the team that sort of jumps on it. And as I was expecting, that was very quickly turned around, and we've exited the first quarter with those issues completely under control again. So that is important. You're right that volumes softened sequentially from the fourth quarter last year to the first quarter this year, but on the back of the operational activities and the strengthening of the business, we actually increased the profitability of the business sequentially, which puts us so much better spot. And finally, as this is a noncore business, you're absolutely right. We are pushing ahead ambitiously to find strategic alternatives for that business. We're exploring a broad range of options. We said about 90 days ago, and I'll just repeat that today, that we're very open to all kinds of solutions here, including joint ventures or also partnerships. That is progressing, and we'll see how that plays out, but it's really hard to be more definitive on timing. Tracey Whitehead: Your next question comes from the line of Anthony Pettinari with Citi. Anthony Pettinari: With the high-growth category, as you called out in Slide 11, I'm just -- if company volumes were down 2% for the quarter, is it possible to generalize kind of the volume performance of these focus categories? I know there are 6 of them. So -- but I'm just -- are these categories posting positive growth, and maybe the sort of more base business is seeing much sharper declines? Or are you seeing the same kind of challenges currently in health care, Beauty and Wellness that you're seeing maybe the more conventional CPG kind of Foodservice categories? Peter Konieczny: Yes, Anthony, I think it's a great question. Look, I think generally, what I would say is that the focus categories, and that's what we were referring to on that slide, they performed better -- they generally performed better than the overall business. They also did collectively in the first quarter of '26. If I give you a bit of a detail around that, and I'll start with Health, Beauty and Wellness. In that area, health care would have been in line with the prior year, Beauty and Wellness was down sort of low single digits, that was certainly reflecting the consumer being more value-oriented. And then moving to the nutrition space, the one that I would call out, pet care, really a strong category continues to grow strongly, very resilient, very happy with the performance there. Dairy as being a subcategory to protein. We've seen some low single-digit growth with really good performance in Europe on yogurt, in North America with cheese. And in Lat Am, we saw some good performance in margarine. So happy with Dairy overall. Meat, the other subcategory and protein on the other side was a little weaker. I think it's fair to say that we're having a bit of a tough time of the protein cycle in the meat cycle right now, and that also reflects the value-conscious behavior of the consumers. And then Foodservice and liquids, they were also down low single to mid-single digits. So it's a bit of a mixed bag. But when you pull it all together, the focus categories, overall, they did perform better than the rest of the business. Tracey Whitehead: Your next question comes from the line of John Purtell with Macquarie. John Purtell: Peter and Michael, thanks for all your help over the years, and all the best going forward. Just in terms of the comparable EBIT up 4% on a 2.8% volume decline. Obviously, there's some synergies in there, but can you just talk to the sort of, I suppose, the underlying sort of cost and productivity piece because it does imply that there's been some pretty good costs and productivity management there. Michael Casamento: John. I can take that one. Yes, you're right. We're really pleased where the quarter ended up. The team is really focused on the cost side of things, knowing that we were anticipating volumes to be similar to what we saw in Q4. So we knew there was going to be some softer demand. And we worked really hard to flex the cost base accordingly. So manage the shift patterns, manage the line performance, drive cost out, where we can and particularly on the discretionary spend as well. So we're really pleased with the performance on that front. And then, of course, you had the synergy delivery as well, which is really unique to us, and I think that's something we were really pleased with where the synergies ended up toward the upper end of the range that we guided to with $38 million in the quarter. A good mix of G&A and some procurement coming in there as well, some financial synergies, we feel really confident in the ability to deliver the full year of that $260 million. So we're really pleased with the way that came out and the pipelines that are coming through, which also include as PK touched in his remarks, revenue synergies as well in that pipeline. So we feel pretty good about the synergy delivery overall and where the business is performing from a cost standpoint because we are able to flex when we can see that the volume is a little softer than we would typically like. Tracey Whitehead: Your next question comes from the line of George Staphos with Bank of America. George Staphos: Michael, thanks for everything, and best of luck in the next chapter. I really appreciate your support of our research. My question is on synergy broadly. PK and Michael, can you talk a little bit more about how the sort of marriage, if you will, of Lat Am and specialty containers is going with legacy Berry? I think you touched on a couple of synergy benefits. Can you talk a bit more -- provide a bit more color, maybe what kind of growth you're getting there? And then somewhat relatedly, can you give us a bit more color on this Foodservice award you got, putting the 2 businesses together and getting a revenue synergy out of that? Peter Konieczny: Yes. Thanks, George. I'll start out here and try to take the 3 tiers of your question. Let me start off with the synergies. And before I get specifically into the benefits that we would be expecting from the combination of Rigid and Flexibles on Lat Am, let me just make some high-level comments here. Let's, first of all, calibrate ourselves against the fact that, we're really just 180 days into the combination of the 2 companies. It's really important to calibrate that because it feels like we've been together forever. The teams are really executing well. I'm very pleased with all of that. And in the first quarter, we've seen synergies coming through and really falling to the bottom line, which we are at the upper end of our guidance range, but what you're not seeing here because of how to translate it yet is really the momentum that we're building with the pipelines. Some of that you can take from the guidance in Q2, obviously, the synergies are stepping up. And that gets us -- when we think about the exit rates of Q2, gets us through a really clear line of sight of at least $260 million, and you will notice that we positioned that a little different to what we said beforehand, we said, now we're saying it's at least $260 million. So we've really strong confidence in the synergy delivery for this year. Now, you've been asking about Lat Am. Now Lat Am, and I think you're connecting that to the decision to combine the 2 businesses. We are doing this because we believe that we have an opportunity to more efficiently and effectively address the region of Lat Am by representing a larger product suite, which we know is very complementary between the 2 businesses, that's why we're doing it. And when I talk about the synergies that result from that, you referenced the -- I think the Beauty and Wellness customer that actually was in Latin America, was not the Foodservice customer. That one is North America, but in Latin America, it was a Beauty and Wellness customer. And we achieved an agreement for two products, across two products. And two things helped us actually land that win, one is we have a combined footprint between Berry and Amcor that actually provided a contingency solution in-house for the customer, which was really high in the customer's list, but more importantly, we're combining an Amcor Rigid container with a Berry closure. So it falls into the bucket of the systems solution sell. That's the Latin American piece. I hope I captured, sort of, your question. Operator: Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: In your raw material cost savings, were they largely in the United States or in Europe? And in your description of Global Rigid Packaging, you said your volumes were down 1% against combined prior year ex noncore North American beverage, were they down inclusive of the noncore North American beverage? Michael Casamento: So I can take you on the synergy side. Look, if I break down the synergies for the quarter, that's probably a better way to think about it. On the synergies in the quarter, we delivered $38 million, which was at the upper end of our guidance range. Of that, $33 million was in the EBIT space, and then we had $5 million financial synergies, which related to some interest benefits as we've got more flexibility now with fixed and floating and commercial paper, et cetera. On the EBIT side of things, of the $33 million, about 2/3 of that was G&A. And that comes from the fact we've already taken out 450 roles across the business. So we are starting to see the benefits there. And look, on the procurement side, again, it was 1/3. So it wasn't a significant amount, and it was pretty general across the board. So that's where we ended up for the quarter. And as we said, that will build through the second and third quarter into the full year, we feel really confident around that number. Peter Konieczny: And then, Jeff, I think you asked the question in terms of volume performance. We said Rigid overall, excluding North American Beverage, was a point down. If you rolled North American beverage in there, it's 2.5% that. Operator: Your next question comes from the line of Brook Campbell-Crawford with Barrenjoey. Brook Campbell-Crawford: I know you're talking about not expecting markets to improve in FY '26. And -- but does EPS range you've given for FY '26 cover a scenario where volumes continue to decline at that sort of 2.5% year-over-year trend that you saw in the first quarter? Peter Konieczny: Let me start this, and maybe Michael wants to build on that. So I think we've discussed the volume expectations for the first half, right? The first quarter is done, the second quarter we've discussed, and you're specifically asking about the back half of fiscal '26. And I'd say, if I take a step back, I believe that there is actually even an opportunity for the volumes to be positive in the back half of the fiscal year. And the reason for that is, one is technically, we're cycling softer comps in the back half, but we're also seeing wins coming through now that will translate. I told you that we are very much driving very discrete and select growth initiatives in the second half. We will have a little more time for them to actually gain traction. So you could even expect the volumes to be positive. Now what adds to that though, is the underlying market environment, and I don't know how that's going to look like. I think nobody really knows what the underlying consumer and demand environment is going to look like. And that creates a bit of the challenge here. So what we're going to do in the back half is we're going to do exactly the same thing that we did in the first quarter, which we did well and what we're set sales to do in the second quarter, we will manage our costs, and we will adjust our capacities to the actual volume situation, and we'll focus on the delivery of synergies. And that's what we've done very well. It was a good recipe in the first quarter, we want to do the same thing in the back half, and while our guidance range obviously includes a number of ranges on volumes outcomes and volume is not the only driver for our guidance range, as you know, but even if the overall macro environment, we're not -- would not improve, that would be covered within our guidance range. That's the way how we think about it. Operator: Your next question comes from the line of Matt Roberts with Raymond James. Matthew Roberts: Michael, I'll echo others, all the best for you Australia, and you should all be so lucky. Quickly on the divestitures you mentioned, could you give us sales and EBITDA contribution? Or I apologize if I missed that, there's still about $900 million to go there in the noncore, non-beverage assets. So based on those initial, albeit small -- smaller contribution of sales there, where the public markets are trading, how did multiples compare to your prior expectations on that? And how is line of sight to the remaining $900 million that you have remaining? Anything you could -- I don't know if you will frame it, but anything you've given potential impact to leverage or timing that would be appreciated. Michael Casamento: Yes, sure. Look, I think in terms of the 2 divestments that we announced today, one of those is just a small plant in Europe, sales less than $20 million, so not a significant impact on earnings or sales. The other one is actually a joint venture. So we were not consolidating that one. We were equity accounting that. And so that also contributes to the $100 million in earnings. So we were pretty pleased with the outcome of that. We'll use that cash to pay down debt, when it comes in, and we continue to focus on the other items, I think, PK already touched on the Rigid -- the North American beverage business, and we're working hard on the other businesses as well. So we'll keep you updated as that progresses. Operator: Your next question comes from the line of Cameron McDonald with E&P. Cameron McDonald: Just in terms of the volume performance. Do you -- and I appreciate that you've said that it's hard to see what underlying environment is going to be going forward. But do you -- when you think about either the core business or the North American business in beverages. Are you thinking that, that is all organic volume reductions? Or have you experienced some market share loss to other substrates, particularly in that North American beverage sector? Peter Konieczny: Cameron. Look, generally, I'd say, in the way that we look at our whole portfolio and there is always puts and takes, as you will appreciate. But this is not a story of share loss. So generally, I would say that. When you dive deeper into the beverage business per se, and you talk about shifts between substrates, we have referenced in the past, and I think that is still something, and that's the only trend that I would be able to point to that you have in multipack sales that go through big box stores. You have a more attractive price point for consumers when you choose an aluminum bottle versus other substrates. And that is the space where because of the -- where the consumer goes, as the consumer is seeking value. And that's where you can see -- in that specific case, you could see that there is some shift, but other than that, we don't see anything significant. Operator: Your next question comes from the line of Keith Chau with Macquarie. Keith Chau: Well, I think in me [indiscernible] and then ask this question is that if the [indiscernible]. Peter Konieczny: Keith, it's PK. You really broke up a lot here, and I had a really hard time to follow the question. It's not getting any better. It's not getting any better. I'm sorry. But I think, we probably need to move on, and maybe you can just dial in back in again, and we'll try to take your question when you come back in with a better line. Operator: Your next question comes from the line of Nathan Reilly with UBS. Nathan Reilly: Just a question on private label. Can you give us an update on your exposure to private-label products? And maybe just talk to some volume trends that you're seeing in that category at the moment? Peter Konieczny: Yes, Nathan. I think it's also a great question. I mean, in private label, you would assume that, generally, the consumer seeking value would turn to private label more, and that's something that we would expect that in certain cases, we do see and that we want to participate in. Obviously, we have some pretty good exposure to private label across the regions, both in North America and Europe, if I just focus on those 2 big markets where private label really plays a role. But I would also say that we are probably somewhat underrepresented in the market when you look at the share of private label and our share -- our sort of share of business with private label, you will see that we have an opportunity there. So that will be a focus area for us to drive additional growth going forward, and that will make us participate in the trend. Operator: Your next question comes from the line of Gabe Hajde with Wells Fargo. Gabe Hajde: I just had a question about health care. I think the expectation was that it was going to return to growth kind of in the back half of 2025. And I think you made some general comments around the business, but just if anything has changed with that trajectory. And then maybe I don't know if you want to talk about it in calendar year terms, but just prospects for that business in 2026. Peter Konieczny: Yes, Gabe, I'd say, first off, I'd say we believe that health care is a gem in our portfolio. I've said this many times and I continue to say that. The performance of health care has some differences between the regions, what we're seeing right now that we're having a really strong performance in North America. So very happy there in North America. We tend to be more focused on the medical side of the business. And our performance is improving, but on a comparable basis, a little weaker on the European side, where we have more of a pharma exposure. And that has averaged out to overall a flat health care business, which I would still say, if I compare it to the prior quarters, is a solid outcome given the fact that medical had improved faster than pharma and over time. So my expectations for health care is that we will see continued improvement in that business into calendar '26 and also into the back half of our fiscal year '26. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I will now turn the call back to management for closing remarks. Peter Konieczny: Well, thank you, operator. This -- I'll keep this very short here. But we feel like we've executed a pretty solid quarter in line with our expectations, maybe even a little better than what we expected. We're very confident in the synergies with a delivery of at least $260 million and the revenue synergies, they're also coming through. We talked about those, and the pipeline is really building strongly. We talked about reaffirming our guidance where the low end of our guidance, the 12% EPS growth is really just driven by the synergies that we have good line of sight of. And then in the long term, and this is important for me also to make that point, we continue to really drive the growth strategy on the back of 3 pillars. One is the portfolio optimization, the other one is, again, capturing the revenue synergies, and the third one would be the focus categories and our drive towards those. So thank you again for joining us, and we look forward to the opportunity to sitting down with many of you over the course of the quarter. Thank you. Operator: That concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings. Welcome to Root's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to Matt LaMalva, Head of Investor Relations and Corporate Development. Thank you, and you may begin. Matthew LaMalva: Thank you for joining us. Root is hosting this call to discuss its third quarter 2025 earnings results. Participating on today's call is Alex Timm, Co-Founder and Chief Executive Officer. Megan Binkley, our Chief Financial Officer, will be unable to join us this afternoon due to a family medical matter. In her absence, I will be providing our financial results and will also be available for Q&A. Earlier today, Root issued a shareholder letter announcing its financial results. While this call will reflect items discussed within that document, for more complete information about our financial performance, we also encourage you to read our third quarter 2025 Form 10-Q, which was filed with the Securities and Exchange Commission earlier today. Before we begin, I want to remind you that matters discussed on today's call will include forward-looking statements related to our operating performance, financial goals and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call, and we are not obligated to revise this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our most recent 10-K, 10-Q and shareholder letter. A replay of this conference call will be available on our website under the Investor Relations section. I would also like to remind you that during the call, we will discuss some non-GAAP measures while talking about Root's performance. You can find reconciliations of these historical measures to the nearest comparable GAAP measures in our financial disclosures, all of which are posted on our website at ir.joinroot.com. I will now turn the call over to Alex Timm, Root's Co-Founder and CEO. Alexander Timm: Thanks, Matt. The third quarter was another very strong quarter for Root, and we're excited by the momentum we are building. It was a record quarter for policies in force and revenue, driven by accelerating growth in both direct and partnership distribution channels. We achieved this growth while maintaining our exceptional loss ratio performance. As a technology company, we believe we have a structural and durable competitive advantage. This DNA is evident in everything we do, from our customer obsession, to our pricing technology, to the people we hire. It is what makes us special. And you saw that come through in the quarter across our pricing algorithm innovations, our partnership platform expansion and our direct marketing machine, all combining to generate exceptional performance. As one example, we deployed our newest pricing algorithm in the quarter, which is improving customer LTVs by 20% on average. This model allowed us to accelerate growth across all channels. And we aren't stopping there. In the quarter, we also launched our new UBI model, which, we estimate, has improved predictive power by 10%. We believe this speed of innovation is unmatched in the industry, and we have no plans of slowing down. Also in the quarter, you saw our growth strategy at work, more than doubling new writings in our partnership channel, launching Washington State and launching several experiments in new marketing channels. In our partnerships channel, we are extending our competitive advantage that provides seamless, easy purchase experiences with great prices to customers no matter how or where they shop. This represents a vast growth opportunity. Today, Root is only active in a very small fraction of distribution points in the insurance shopping ecosystem. This opportunity was on display in the quarter as we more than tripled our new writings year-over-year from independent agents, which now represents 50% of our partnership distribution. This channel alone is over $100 billion in premium nationally. And although we have made great strides, we are still active in less than 10% of agents, giving us a long and natural runway to rapidly expand our presence in this space. In our direct channel, new writings increased sequentially by high single digits despite increased competition. Combined with our new pricing model, we continue to invest in new real-time bidding algorithms that allow us to optimize for anticipated long-term economics. This machine continues to detect trends and changes in the marketplace and dynamically deploys our investments. We have also begun to see green shoots in a handful of new marketing channels, the focus of our R&D efforts. We plan to continue to accelerate our investments in these channels given our recent successes and react appropriately as the data emerges. Our success makes us excited and confident to invest further into the business to accelerate our pricing advantage, increase our distribution presence across channels and geographies and continue to create experiences customers love through product innovation. With a healthy capital position, excellent underwriting results and a culture of discipline and excellence, we are ideally positioned to accelerate our growth trajectory. Our goal remains to build the largest, most profitable personal lines insurance carrier in the United States, and this quarter represents marked progress toward that goal. I'll now turn the call back over to Matt for more details on the quarter. Matthew LaMalva: Thanks, Alex. For the third quarter, we recorded a net loss of $5 million, operating income of $300,000 and adjusted EBITDA of $34 million. As previously communicated, our net loss in the quarter was primarily driven by a $17 million noncash expense related to our warrant structure with Carvana. Of the $17 million, $15.5 million reflects a cumulative expense catch-up. This expense ultimately reflects the success of our partnership as the vesting of warrants depends on achieving policy origination milestones. Even with this expense taken into account, we have generated $35 million of net income on a year-to-date basis. In the third quarter, we accelerated growth while continuing to achieve our target unit economics. Year-over-year, we delivered double-digit percentage increases in policies in force, written premium and earned premium while achieving a 59% gross accident period loss ratio. These strong results were driven by the deployment of our latest pricing model, advancements in our real-time bidding algorithm and expanded partner integrations. Our capital position remains strong with unencumbered capital of $309 million at the end of the third quarter. Given our exceptional underwriting performance, we also continue to be in a position of excess capital across our insurance subsidiaries. This allows us to optimize our operating structure and deploy growth capital to the highest profit-yielding opportunities. We continue to take a disciplined and opportunistic approach to direct marketing investment, adjusting quarter-by-quarter based on prevailing competitive dynamics. On the partnership side, we are still early in scaling this channel, and we expect it to continue to increase as a percentage of our overall book over the long term. Looking ahead, we expect continued acceleration of policies in force growth and are excited to support that growth by increasing our investment in direct R&D marketing by roughly $5 million in the fourth quarter. Further, we anticipate a headwind to our loss ratio from typical seasonality in the fourth quarter, which is driven by elevated animal collisions and bad weather. Last year, the impact of the seasonality was roughly 5 percentage points of the accident period loss ratio, and we expect a similar impact this year. As we close out 2025 with exceptional underwriting performance, a healthy capital position and a strong culture, we are now focused on accelerating growth at our target unit economics. Put simply, we are optimistic that our superior technology will drive growth despite an increasingly competitive environment. We are just getting started. With that, Alex and I look forward to your questions. Operator: [Operator Instructions]. Our first question comes from Andrew Andersen with Jefferies LLC. Andrew Andersen: Sounds like some opportunities in the direct channel this quarter with some new writings increasing sequentially, high single digits. Maybe you could just talk about how that opportunity came to be and just the overall level of competitiveness you're seeing on the direct channel? Alexander Timm: Yes. Thanks for the question. We are still seeing competition up in the quarter and in the channel. But really, what has happened, and we've continued actually to see that even this quarter to date, a continued acceleration of new writings and growth in our direct channel and our partnerships channel and really every channel overall. And a big thing that's driving that is our price. Last quarter, we detailed that we shipped a new pricing algorithm that improved customer LTVs by 20%. That unlocks a lot of opportunity for us to continue to grow. And as we do that and we continue to refine pricing, continue to collect more data and continue to get better at it, you're going to continue to see us be able to grow despite increased competitive pressures. And that's exactly what you saw this quarter, and we're still seeing that quarter-to-date as well. Andrew Andersen: And then on the severity number, plus 9%. It seems to have ticked up a little bit after kind of some 6s and 7s in recent periods. Can you maybe just talk about the change that you saw in severity this quarter, and if it requires any change to rate here? Alexander Timm: We're not anticipating any major changes to rate. It's going to be -- we're broadly rate adequate. There will be some maintenance rate that we take here and there. I think the increase that you saw in the quarter is well within sort of natural variation for those numbers. We did see a little bit more in our property damage line, so in vehicle collisions versus our medical coverages. But again, I think that it was well within the normal range of variation. Operator: Our next question comes from Tommy McJoynt with KBW. Unknown Analyst: Can you hear me? Alexander Timm: Yes, we can hear you. Unknown Analyst: Awesome. You mentioned being active with less than 10% of independent agents. Can you just give us some color on how that figure has trended over the last couple of years so we can get a sense of the trajectory of your penetration? And then what's the process to go live with more agents? Alexander Timm: Absolutely. Independent agents has been one of the most attractive near-term growth levers we've actually seen in the business, and we just are getting started. We really just launched a couple of years ago significantly into independent agents. And last quarter, I believe we had disclosed that we were in less than 4% of all agents nationally. And so it represents -- it's 1/3 of the market still. It was 1/3 of the market a decade ago, it was 1/3 of the market 100 years ago. So we don't think the independent agents channel is going anywhere. And we're -- again, we're just barely dipping our toe in. And so as we continue to grow that, we grew at 3x year-over-year this quarter, and we're not seeing that slow down. So we are marketing to agents. We're actively onboarding more agents. We are continuing to improve the product for agents so that they have more service capabilities, better prices for their customers as well. So we're seeing that as a really attractive growth channel, and we don't have any plans to slow down on appointing agents. Unknown Analyst: And then my second question is just that you gave us the partnership as a percentage of new writings in the quarter. But if we wanted to think about partnership as a percentage of earned premium, could we take a trailing 12-month average? Matthew LaMalva: So this quarter, you saw roughly flat partnership percentage of overall new writings, and that's because both of our channels grew very strongly. We're still continuing, as Alex mentioned, to see very strong growth in partnership driven by IIA, but we have the pricing model that we launched last quarter, which tends to be the tide that lifts all ships. So we are seeing very strong growth there. But when we look over sort of the medium to longer term, we do expect partnership to continue to grow and to continue to be an increasing proportion of our book over time. Alexander Timm: And as a matter of earned premium, you're probably going to see -- you see higher average premiums in the partnership channel. They're just larger policies that come through because there's more vehicles per household in that channel, particularly in the independent agency channel where a lot of preferred business shops. And so I think you're going to see a little bit more -- it will be a little bit more skewed towards earned premium than sort of a trailing 12-month average. Operator: Our next question comes from Hristian Getsov with Wells Fargo. Hristian Getsov: My first question is on the average premium per policy. It actually went down quarter-over-quarter. And I was trying to get a sense of how much was that driven by that new pricing model? And then given you continue to trend well below the 60% to 65% target loss ratio, do you have more flexibility to maybe give up a little bit more on price to continue to win in this environment? Alexander Timm: First, on average premium, you saw us, I believe it was in June, take a fairly sizable rate decrease at the order of like -- it was double-digit rate decrease in Florida. And Florida is a very big market. I think you saw that some folks had to do some refunds in Florida. We really wanted to make sure that we were giving the right prices to customers upfront. And so we took that rate decrease proactively. And that's why you've seen sort of those average premiums come down, which has actually put us in a really good position for the end of the year. In terms of the ability to give more price back or to potentially lower prices, we're not in a position right now where we're broadly lowering rates, believing that we're overpriced. But we really do see a continued very healthy loss ratio. And what that's allowing us to do is to just continue to grow faster. And that's what we saw in this quarter. And again, we've seen that quarter-to-date as well. Hristian Getsov: Got it. And then for my follow-up, any changes in the competitive landscape? Obviously, it remains elevated, but have you noticed anything, I guess, any recent changes? And then, do you have any color on how October PIF has trended versus the Q3? Alexander Timm: Yes. October PIF growth has definitely accelerated versus what you saw in Q3. And again, we're not seeing that slow down. And so we feel good there. The competitive environment, it's still very competitive. You are seeing lower rate -- the lower pace of rate increases in the market right now. You're also seeing continued high levels of marketing advertising. And so on the direct channel, specifically, you are seeing high degrees of competition. But again, we saw that in Q3. And I think now we've been able to show that we can even grow, and we can execute through that cycle. And that's really driven by our technology and our new pricing models that are continuing to allow us to grow despite the fact that competition is about as hot as we've ever seen it. Hristian Getsov: Got it. And if I could sneak one more in. Obviously, tariffs were a topic of discussion at the start of the year, and now it's kind of dwindled down, and I think people are maybe expecting less of an impact than they originally thought. I guess, have you guys seen any meaningful change in your data? And has your expectation for those impacts changed? Alexander Timm: We have not -- we have not seen that come through yet. Right now, it still looks like our expectations are basically right in line with what we'd expect just from natural trend. And so we don't think that we're seeing any sort of impact to inflation in the data or in the numbers right now from tariffs. We do expect to see loss ratios generally increase in Q4. There's seasonality, and that's usually -- if you look at 2024, you can see that's usually 3 to 5 points. So we might see some temporary increases in loss ratios in the fourth quarter, but we don't think that's going to be driven by tariffs. Operator: Ladies and gentlemen, this now concludes our question-and-answer session and does conclude today's teleconference as well. Thank you for your participation. Please disconnect your lines, and have a wonderful day.
Operator: Good day, and welcome to Peakstone Realty Trust's Third Quarter of 2025 Earnings Call and Webcast. [Operator Instructions] Also, please be aware that today's call is being recorded. I would now like to turn the call over to Steve Swett, Investor Relations. Please go ahead. Stephen Swett: Good afternoon, and thank you for joining us for Peakstone Realty Trust's Third Quarter 2025 Earnings Call and Webcast. Earlier today, we posted an earnings release, supplemental and updated investor presentation to the Investors page on our website at www.pkst.com. Please reach out to our Investor Relations team at ir@pkst.com with any questions. The company will be making forward-looking statements, which include any statements that are not historical facts, on today's webcast. Such forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, please see our annual report on Form 10-K and subsequent filings with the SEC. Additionally, on this call, the company may refer to certain non-GAAP financial measures such as funds from operations or funds from operations, adjusted funds from operations, EBITDAre, adjusted EBITDAre and same-store cash net operating income. You can find a tabular reconciliation of these non-GAAP financial measures to the most currently comparable GAAP numbers in the company's earnings release and filings with the SEC. On the call today are Mike Escalante, CEO and President; and Javier Bitar, CFO. With that, I'll hand the call over to Mike. Michael Escalante: Good afternoon, and thank you for joining our call today. Our strategic transformation into an industrial-only REIT focused on growth in the industrial outdoor storage sector continues to advance. As of October 31, our Industrial portfolio generates more than 60% of our ABR. Through disciplined office sales, strong IOS leasing and targeted IOS acquisitions, we have strengthened our balance sheet, reducing debt by approximately $450 million and improving total leverage to 5.4x on a pro forma basis. With solid liquidity and a growing IOS investment pipeline, we remain confident in our strategy and our ability to continue creating value for shareholders. During and after the third quarter, we continued making progress on our office dispositions. As of October 31, we sold 12 office properties totaling approximately $363 million, leaving just 12 remaining office properties in our portfolio. Buyer interest, including from existing tenants, has been strong, and we expect to complete the sale of a majority of these properties by the end of this year with a few transactions potentially closing in the first quarter of 2026. Let me now turn to our IOS portfolio, where market fundamentals remain solid, characterized by strong tenant demand and persistent supply constraints. These dynamics continue to keep vacancies low and support healthy rent growth. Against that backdrop, we continue to deliver strong results across both our IOS operating and redevelopment portfolios. During the quarter, we executed new leases, renewals and proactive lease modifications across our IOS portfolio, generating more than $1 million of incremental IOS ABR. These transactions brought the IOS operating portfolio to 100% leased and overall achieved weighted average re-leasing spreads of 116% on a cash basis and 120% on a GAAP basis. Let me provide more detail on the transactions that drove these results. In Philadelphia, we signed a new 8-year lease for 1.6 usable acres that is expected to commence in the first quarter of 2026, following the completion of landlord improvements. The lease includes 7.7% average annual rent escalations and filled what had been our only vacancy in the IOS operating portfolio. In Houston, we executed a new 5.1-year full-site lease for 10 usable acres. The prior lease was set to expire in 2028 and included a below-market fixed rate renewal option. To capture embedded value, we proactively terminated that lease and simultaneously replaced it with a new lease at re-leasing spreads of 9% on a cash basis and 7% on a GAAP basis. The new lease includes 3.5% annual rent escalations. And in Norcross, Georgia, we proactively downsized the existing tenant, renewing them for 2 years and simultaneously signed a new 2-year lease for the remaining acreage, keeping the 8.7 usable acres fully leased. Together, these transactions produced strong re-leasing spreads of 239% on a cash basis and 251% on a GAAP basis with weighted average annual escalations of 3.3%. In our IOS redevelopment portfolio, we executed a full site lease at our property in Savannah, Georgia, which commenced in July. The lease, which delivers over $500,000 of incremental ABR with 4% annual rent escalations was previously disclosed. Overall, this performance highlights our ability to drive internal growth and capture the mark-to-market opportunity within our IOS portfolio. We intend to build on this progress as we advance our strategy. Turning now to acquisitions. Let me briefly describe the 3 IOS properties we acquired this quarter for a total of approximately $58 million. The Atlanta property is a 27 usable acre site acquired for approximately $42 million. At closing, it was 100% leased by 2 tenants with a 5-year WALT and 3.8% weighted average annual rent escalations. The Port Charlotte property is a 9.2 usable acre site acquired for approximately $10.4 million. At closing, it was 100% leased by 3 tenants with a 6.8-year WALT and a 3% weighted average annual rent escalations. Both of these latter acquisitions were previously disclosed. Our third acquisition was a 2.5 usable acre site in Fort Pierce along Florida's East Coast. We acquired the property for $5.3 million. It includes upgraded yard space and a newly renovated building that supports yard operations. The site is fully leased by a single tenant that utilizes it to store and distribute HVAC and plumbing supplies. The lease has a remaining term of approximately 10 years and includes 2.5% annual rent escalations. Now turning to our traditional Industrial portfolio. This quarter, as part of our ongoing portfolio optimization, we sold 3 properties for approximately $72 million. These assets, 2 flex properties and 1 manufacturing facility, are located in Baltimore, Detroit and Cleveland markets and were sold at a combined cap rate of 6.9%. Each asset was sold to a long-term net lease focused buyer. These transactions reflect our continued effort to enhance the overall quality of our traditional industrial portfolio. We remain disciplined and opportunistic in managing these assets, consistent with our approach across all of our real estate. Going forward, we do not anticipate broad sales activity within our traditional industrial portfolio. And with that, I'll turn the call over to Javier to walk through our financial results and capital markets activity. Javier? Javier Bitar: Thanks, Mike. To begin, I'd like to explain a nuance to our reporting this quarter. The 16 remaining office properties we owned as of September 30, all of which were classified as held for sale and 11 of the office properties we sold prior to that date were classified as discontinued operations. As a result, these assets and related results are reported separately on our financial statements for all periods presented. Now I'll cover several key financial highlights for the quarter before turning to a few pro forma metrics that reflect activity completed after quarter end. For the quarter, total revenue was approximately $25.8 million from continuing operations, which excludes revenue from office discontinued operations of approximately $25.2 million. Net income attributable to common shareholders was approximately $3.5 million or $0.09 per share. FFO was approximately $18.3 million or $0.46 per share on a fully diluted basis. Core FFO was approximately $19.1 million or $0.48 per share on a fully diluted basis. AFFO was approximately $18.6 million or $0.47 per share on a fully diluted basis, and same-store cash NOI increased 3.7% compared to the same quarter last year. Moving on to our balance sheet. At quarter end, total liquidity was approximately $438 million, consisting of cash and available revolver capacity. Our cash balance, excluding restricted cash, was approximately $326 million, and available revolver capacity was approximately $112 million. We had approximately $1.05 billion of total debt outstanding, consisting of $800 million of unsecured debt on our credit facility and the remainder being nonrecourse secured mortgage debt. After deducting cash, our net debt was approximately $725 million. As of quarter end, 76% of our debt was fixed, including the effect of our forward starting floating to fixed interest rate swaps totaling $550 million, which converts SOFR on our unsecured debt to a fixed rate of 3.58%. These swaps took effect July 1 of this year and will remain in place through July 1, 2029, unless we choose to terminate them in connection with future debt paydowns. After giving effect to these swaps, our weighted average interest rate for all debt, both secured and unsecured, was approximately 5.46%. Next, I'd like to mention the impact of certain post-quarter activity. Subsequent to quarter end, we utilized proceeds from office dispositions to pay down an additional $240 million on our unsecured credit facility. On a pro forma basis, after giving effect to this paydown and other post-quarter activity, our total debt outstanding is $811 million. Our net debt is $615 million. Our total liquidity is $420 million, and our net debt to adjusted EBITDAre ratio is approximately 5.4x, which is below our target level of 6x. Additionally, we want to provide some clarity around the timing, amount and use of proceeds from our remaining office sales. As Mike mentioned, we expect to complete a majority of these sales by the end of this year with a few transactions potentially closing in the first quarter of 2026. Total proceeds from these transactions are expected to range from $300 million to $350 million, and we intend to further strengthen our balance sheet by using approximately $250 million to $300 million of those proceeds to pay down debt. Finally, for the third quarter, as previously announced, we paid a dividend of $0.10 per common share on October 17. The Board of Trustees also approved a fourth quarter dividend in the amount of $0.10 per common share that is payable on January 19 to shareholders of record on December 31. With that, I'll turn the call back over to Mike. Michael Escalante: Thanks, Javier. This quarter marks another milestone for Peakstone with industrial assets now generating 60% of our ABR. Our strategy remains focused on growth in the IOS sector supported by strong supply and demand fundamentals. Our IOS market insight, tenant relationships and execution capabilities position us to capture opportunity, drive growth and create value for our shareholders. With that, we'll now open the call for questions. Operator? Operator: [Operator Instructions] And our first question here will come from Dan Byun with Bank of America. Keunho Byun: From the prepared remarks, it sounds like you will pay down additional $250 million to $300 million of debt. When should we expect an acceleration in IOS acquisitions? Or are current levels a good run rate for that? Michael Escalante: Yes. So Dan, thanks for joining the call. I think that the reality of what we have right now is, as you can tell and mentioned, we've got ample liquidity and our debt ratios are below long-term targets. So we'll continue to do disciplined -- we're going to be disciplined in our management of our growth and the strengthening of our balance sheet. So as you know, there's not a straight line in the way we've conducted that. But if you look all the way back to first quarter of this year, we were as high as 7:1. So we're pretty pleased with the fact that we've been able to reduce it down to a 5.4% ratio, which gives us a little bit of leeway there. Keunho Byun: Got it. And congrats on bringing down your leverage below your goal here. I guess like just going back to the acquisitions, have you seen any increased competition for the IOS assets? And if so, like are you seeing the same private buyers or maybe even free players potentially? Michael Escalante: Yes. I don't know that I would call it increased competition. I just think there's more acceptance. And I think the other way to look at it is that the lender community has been more accepting. I think I mentioned that last quarter as well. That seems to be perpetuating itself. So one of the things that we have in terms of our abilities to address these matters is the fact that we've got a very flexible balance sheet with which to respond. We've shown that we can take down something that was relatively large, not that we're aiming to do that necessarily. But those factors in combination with really our platform being national in scope allows us to see a lot of activity across the country and really take a very disciplined approach to that. Operator: And our next question will come from Michael Goldsmith with UBS. Michael Goldsmith: Another quarter of strong same-store NOI growth. As you implement your portfolio optimization, what do you see as a sustainable same-store NOI growth for the portfolio? And when do you think you could -- do you have enough visibility where you could start guiding around that? Michael Escalante: Yes, Michael, we can appreciate that you're looking for that information. As you know, our business has been undergoing significant change and we are not providing guidance at this time. But I think we do provide a fair amount of information. We're very transparent. And so I think we provide you a fair amount of metrics. And if you look across our supplement and our IP to try and get you as much information as we can provide in that regard. We laid out in our IP, the growth that we have seen. And I think you've got the tools in essence to sort of put that together. Michael Goldsmith: Got it. And another quarter of solid leasing with some nice lease spreads and strong escalations, but it also looks like you had to put a little bit of money in where one property was under redevelopment, another required a little bit of landlord work. So I'm just trying to understand kind of like the -- if there is like tenant improvement dollars or just to think about the return on the money that you're putting in and then in turn, the lease terms that you get out of that. Michael Escalante: Yes. I think on balance, honestly, we've been surprised at how little money we've had to spend outside of our redevelopment opportunities and even inside of our redevelopment opportunities. So thus far, we've been able to achieve, in some of our leases, a fair number of deals with, frankly, no TI and very little downtime. So all said and done, the attributes that people have been mentioning about IOS, in our opinion, are frankly meeting the test of time. And certainly, that's proven out with our ability to operate the portfolio over the course of really a full year now. And so overall, I would tell you that we're quite happy with really what we've been able to achieve all the way across the board in terms of upticks in rents, lack of downtime, the interest in our sites and what we've been able to do on a proactive management basis. I could probably go on and on about that. But for now, I'll just leave it at that. Operator: Our next question will come from Anthony Hau with Truist. Anthony Hau: Congrats on the quarter. Mike, I might have misheard this earlier, but I think you mentioned that you guys have around -- you guys are going to have around $300 million to $350 million from office sales to pay down the debt. Is that additional $300 million of asset sales in the fourth quarter. Is that what you guys are gauging? Michael Escalante: Yes. So yes, you heard that that's the net proceeds from the remaining 12 assets that we're selling. Javier Bitar: In the range of $300 million to $350 million, Anthony. And with that, we said we would plan to pay down debt by somewhere in the range of $250 million to $300 million. So that is future sales. Anthony Hau: Okay. So that's on top of the $160 million you guys already announced, right? Javier Bitar: That's correct, yes. Anthony Hau: Okay. And how confident are you guys in achieving that pricing range? Are there like any active LIs or notable like tenant interest that's supporting that valuation? Michael Escalante: Yes, we're feeling pretty good about that, Anthony. Virtually, every asset is engaged at this point in time. And I think officially under control. We'd say that half of them are officially under control, but all of them are engaged. Operator: And this will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks. Michael Escalante: Thank you very much. I appreciate all your time today. It's a very exciting quarter for us to be able to tell you and regale you with all of our successes across the board, really disciplined office sales, strong execution across our IOS leasing and the ability to put some targeted acquisitions to work in the IOS subsector. So all of that for us has really rewarded the investors with great third quarter results. So thank you, and we're looking forward to our future. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Greetings and welcome to the ACV Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tim Fox, Vice President of Investor Relations. Thank you. You may begin. Timothy Fox: Good afternoon, and thank you for joining ACV's conference call to discuss our third quarter 2025 financial results. With me on the call today are George Chamoun, Chief Executive Officer; and Bill Zerella, Chief Financial Officer. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. A discussion of the risks and uncertainties related to our business can be found in our SEC filings and in today's press release, both of which can be found on our Investor Relations website. During this call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's earnings materials, which can also be found on our Investor Relations website. And with that, let me turn the call over to George. George Chamoun: Thanks, Tim. Good afternoon, everyone, and thank you for joining us today. We are pleased with our team delivering record revenue despite challenging market conditions during the quarter. Our performance was driven by solid execution in our dealer wholesale business as we continue to gain market share, expand our dealer partner network, and leverage our value-added dealer solutions. And again, this quarter, ACV Transport and Capital delivered record revenue performance. We also executed on our product road map to further differentiate ACV's marketplace experience, support our commercial wholesale strategy, and expand our TAM. As Bill will detail later, we have updated our 2025 guidance to reflect continuing crosscurrents in the broader macro environment, while still expecting to deliver strong top line growth of 19% year-over-year. Furthermore, we expect to deliver strong adjusted EBITDA growth of over 100% while continuing to invest in our long-term growth objectives. We're confident that executing on this profitable growth strategy will create significant long-term shareholder value. With that, let's turn to a recap of our results on Slide 4. Q3 revenue was $200 million and grew 16% year-over-year, against a tough comparison in Q3 2024 with 44% growth. We sold 218,000 vehicles, which was 10% year-over-year growth despite the sustained market deceleration during the quarter. Next on Slide 5, we will again focus our discussion around the 3 pillars of our strategy to maximize long-term shareholder value: growth, innovation, and scale. I will begin with growth. On Slide 7, we highlight how ACV is leveraging AI across our suite of solutions to attract new buyers and sellers, increase penetration and wallet share, and gain traction with large dealer groups. Let's begin with our marketplace. For sellers, we provide highly accurate, condition-adjusted pricing guidance, enabling them to set better informed reserve prices, increasing buyer engagement. Flexible auction durations and scheduling allow dealers to customize their marketplace experience. Given the challenging market conditions, with vehicle price depreciation above normal seasonal patterns, dealers are increasingly leaning into ACV's technology. The buying experience on ACV is tailored across buyer personas, and we optimize the bidding experience by providing AI-enabled recommendations informed by dealer preferences and current market factors. Our differentiated marketplace experience is showing up in the numbers. In Q3, we achieved new quarterly milestones with over 10,000 sellers and 14,000 buyers transacting in our marketplace. Our franchise rooftop penetration also achieved a new milestone, reaching 35% in the quarter. And our major account team delivered impressive results with rooftop penetration within the segment increasing 300 basis points year-over-year. Lastly, from a geographic perspective, we delivered solid growth in our more established regions, where ACV has built significant market share. We also delivered accelerating growth in several emerging regions, like in Southern California and the Midwest, where unit growth exceeded 20% in Q3. While we are very pleased with this performance, there are certain emerging regions where we are enhancing our field engagement model to accelerate growth. These efforts will continue in 2026, and we are confident in the medium-term growth outlook for these emerging regions. Next on Slide 8 I'll provide some highlights on our data services. Market traction for ClearCar remains strong. Dealers are leveraging ClearCar service to generate consumer appraisals and offers in their service lanes, creating a valuable sourcing channel in the current supply-constrained environment. While this is great for our dealer partners, ClearCar is also becoming an effective lever to increase wholesale wallet share and attract new dealers to our marketplace. Dealers that recently launched ClearCar increased their wholesale volume by over 30% after going live. And 50% of recent ClearCar customers also became new sellers on our marketplace. ACV MAX is gaining further traction in the industry with dealers now using AI to accurately price retail and wholesale inventory. And we're seeing the same cross-sell dynamic when bundling ACV MAX with wholesale. A recent cohort of new ACV MAX dealers increased their wholesale vehicle sales on our marketplace by an average of 40% within 1 quarter of launching MAX. We're excited to see that our strategy to offer a broader set of solutions is creating another long-term growth lever for ACV. Turning to Slide 9. Let's review our marketplace service offerings, beginning with ACV Transportation. The Transportation team had strong execution in Q3, again, setting records for both quarterly revenue and transports delivered. AI-optimized pricing continues to drive strong growth and operating efficiency. Revenue margin expanded 200 basis points year-over-year in Q3 and was in line with our medium-term target in the low 20s. And our off-platform transportation service continues to gain traction from our dealer partners, creating additional long-term growth opportunities. Lastly, I'll wrap up the growth section on Slide 10 with ACV Capital highlights. ACV Capital team delivered strong revenue performance with 70% growth in Q3, which was the fourth quarter in a row of accelerated growth. In terms of managing risk and in light of the bankruptcy of a former customer, Tricolor, we conducted a review of our loan portfolio. Based on our review and current macro factors, we're lowering our exposure to higher-risk customer segments and reducing our Q4 ACV Capital revenue forecast. Overall, we are confident that ACV Capital will remain an important value-added service for our dealers and long-term growth opportunity. Next on Slide 11 I will address the second element of our strategy to drive long-term shareholder value, innovation. Turning to Slide 12. Let's go deeper into how we're leveraging ACV AI to drive growth and deliver value to our dealer and commercial partners. Using machine learning, we've used inspection and dynamic market data to provide real-time pricing for every vehicle within ACV's pricing platform. Last quarter, we highlighted how we're leveraging our pricing platform to offer ACV Guarantee to sellers and deliver a no-reserve auction format to buyers. This offering is the fastest-growing channel in our marketplace. We were pleased to see ACV Guarantee increase from 11% units sold in Q2 to 18% in Q3. As a reminder, our Guarantee sale is a win-win-win for buyers, sellers and ACV. This offering accelerates bidder engagement, increases buyer satisfaction, and delivers 100% conversion rate while removing seller market risk. We're confident this highly differentiated offering will be another key driver of continued market share gains. On Slide 13, we highlight how we're expanding our competitive edge with AI-driven next-generation products like Project Viper and Virtual Lift 2.0. Since launching our first few pilots in Q2, we added new dealers and our own remarketing centers to the pilot program. To date, over 60,000 vehicles have been inspected by Viper and Virtual Lift, and our team is leveraging this data to fine-tune the product. We are receiving tremendous feedback from dealer and commercial partners as our imaging and AI models are maturing and identifying key inspection data. We are looking forward to the commercial launch of Project Viper and Virtual Lift 2.0 in 2026. Wrapping up on innovation, let's turn to our commercial wholesale strategy on Slide 14. Our first greenfield remarketing center in Houston successfully completed its soft launch and volumes are beginning to ramp. Our team has deployed a range of capabilities developed over the past year, including vehicle assignments from AutoIMS, commercial inspection applications, work order and repair estimates, and integration with ACV's wholesale marketplace. We believe this new digital model and end-to-end experience will transform commercial vehicle remarketing. We also look forward to launching additional greenfield locations to expand our footprint. With that, I'll hand it over to Bill to take you through our financial results and how we're driving growth at scale. William Zerella: Thanks, George, and thank you for joining us today. We are pleased with our Q3 financial performance. Along with record revenue, we continue to deliver strong adjusted EBITDA margin expansion and growth, demonstrating the strength of our business model. On Slide 16, let's begin with a recap of our third quarter results. Revenue of $200 million grew 16% year-over-year and was at the midpoint of our guidance range, despite market headwinds in the last 2 months of the quarter. Adjusted EBITDA of $19 million was at the midpoint of guidance, with margins improving 280 basis points year-over-year. Note that adjusted EBITDA benefited from a $7.6 million class action lawsuit settlement against a data services vendor. However, this benefit was almost entirely offset by approximately $7 million in ACV Capital reserves. As George discussed earlier, during our quarterly review of capital loss reserves, we factored in current macro conditions and exposure to higher-risk customer segments, which yielded a higher level of reserves booked in Q3. Adjusted EBITDA also excludes $18.7 million of operating expenses related to the Tricolor bankruptcy. Finally, non-GAAP net income of $11 million was also at the midpoint of guidance. Non-GAAP net income includes the net impact from the legal settlement and ACV Capital reserves and excludes the $18.7 million bankruptcy-related reserves. Next on Slide 17, let's review additional revenue details. Auction and assurance revenue was 56% of total revenue and grew 10% year-over-year against a very tough comparison of 52% growth in Q3 '24. This performance reflects 10% unit growth and Auction & Assurance ARPU of $508, which grew modestly year-over-year but declined 3% quarter-over-quarter. The sequential decline resulted from targeted volume pricing and ACV Guarantee promotions we implemented to support our seller acquisition strategies. We were pleased to see the promotional activity deliver early returns, with unit growth accelerating in September to 13%, reflecting 16% market share gains. Note that we're expecting Auction & Assurance ARPU to increase sequentially in Q4. Marketplace Services revenue was 40% of total revenue and grew 28% year-over-year, reflecting record revenue for ACV Transport and ACV Capital. Lastly, our SaaS & Data Services products comprised 4% of total revenue and grew 2% year-over-year. Next I'll review Q3 costs on Slide 18. Non-GAAP cost of revenue as a percentage of revenue decreased approximately 100 basis points year-over-year. Note that cost of revenue benefited from a $7.6 million credit related to the class action lawsuit settlement. Excluding the credit, cost of revenue as a percentage of revenue would have increased approximately 300 basis points. The increased cost of revenue was primarily driven by increased arbitration costs within a specific cohort of customers. Given the pressure dealers are facing in the current market environment, we expect arbitration costs to remain elevated in Q4, but are taking steps to mitigate the impact and expect trends to normalize in 2026. Non-GAAP operating expense, excluding cost of revenue as a percentage of revenue, decreased approximately 100 basis points year-over-year. Note that Q3 non-GAAP operating expenses included the increase in ACV Capital reserves resulting from our loan portfolio review. Moving to Slide 19, I'll frame our investment strategy as we drive profitable growth. In 2025, we expect OpEx growth of approximately 12% to support our remarketing center strategy and commercial platform investments. Even with these growth investments, adjusted EBITDA margin is expected to increase by approximately 400 basis points year-over-year. Next, I will highlight our strong capital structure on Slide 20. We ended Q3 with $316 million in cash and cash equivalents and marketable securities and $220 million of debt. Note that our cash balance includes $200 million of marketplace float. In the figure on the right, we highlight our strong year-to-date operating cash flow, which reflects adjusted EBITDA growth and margin expansion. Now turning to guidance on Slide 21. Following 2 months of year-over-year declines in the dealer wholesale market in August and September, market conditions continued to weaken in October. Dealer wholesale price depreciation has been tracking above normal seasonal patterns, which has pressured industry conversion rates. As such, we're expecting the dealer wholesale market to decline in the mid-single digits in Q4, which is more than previously anticipated. Our updated guidance factors in this more challenging market environment and a $2 million reduction in projected ACV Capital revenue, reflecting a more cautious approach in Q4 as we prepare to further scale in 2026. We are now expecting fourth quarter revenue in the range of $180 million to $184 million, growth of 13% to 15%. Fourth quarter adjusted EBITDA is now expected to be in the range of $5 million to $7 million, reflecting the impact of the market conditions on dealer wholesale volumes plus higher expected arbitration costs discussed earlier. Based on the revised Q4 outlook, 2025 revenue is now expected to be $756 million to $760 million, growth of 19% year-over-year. Adjusted EBITDA is now expected to be $56 million to $58 million, growth of approximately 100% year-over-year. We are expecting non-GAAP OpEx, excluding cost of revenue, to grow approximately 12% year-over-year, resulting in a 24% incremental adjusted EBITDA margin at the midpoint of guidance. Before handing it back to George, I would like to share some initial planning assumptions for 2026. First, based on an uncertain backdrop for automotive retail and elevated trade retention rates, we believe it's prudent to assume that the dealer wholesale market is flat in 2026. Second, as George discussed earlier, we are enhancing our field engagement model in certain emerging regions and rolling out a host of new innovations next year, which will be key factors in reaccelerating market share gains over time. And third, we expect to balance margin expansion while investing for growth. And with that, let me turn it back to George. George Chamoun: Thanks, Bill. Before we take your questions, I will summarize. We are pleased with our record revenue performance in Q3 and accelerated market share gains, all while navigating through challenging market conditions. We are quickly overcoming these market challenges by continuing to enhance our technology and operating models, ultimately making us even more resilient. We continue to attract new dealer and commercial partners to our marketplace and expand our addressable market, which positions ACV for attractive growth as market conditions improve. We are delivering on an exciting product road map powered by ACV AI to further differentiate ACV and drive operating efficiencies. We are focused on achieving strong adjusted EBITDA growth and delivering on our midterm targets that we believe will drive significant shareholder value. We are committed to achieving these results while building a world-class team to deliver on our goals. With that, I'll turn the call over to the operator to begin the Q&A. Operator: [Operator Instructions] Our first question comes from the line of Chris Pierce with Needham & Company. Christopher Pierce: Is it fair to ask, do you guys think it's possible the wholesale market -- the dealer wholesale market has changed structurally and dealers are just going to hold on to trade-ins at a much higher rate? Or I just want to think about because it's been a choppy couple of years. Just how you guys think about this going forward? And then I just had one on competitive landscape as well. George Chamoun: Chris, I don't think we should assume that there's a long-term structural change. I think the dealer wholesale market is still -- should recover. I think when you look at all the factors, off-lease really hasn't come back in a significant way, where we haven't seen interest rates come down, you haven't seen all the macro factors play in. So I think at the end of the day, it'd be way too early to say with all the macro events that the dealer market has structurally changed. Christopher Pierce: So we've got this choppiness right now. And against this backdrop, and maybe a [ truer ] #2 competitor emerging, have competitive dynamics changed on the ground when you go to market to talk to dealers? Are dealers thinking they need to have a second source more? I'm just curious if you're hearing anything different from dealers that you were hearing maybe 18 months ago. George Chamoun: Chris, we'll be very specific. Quarter-over-quarter, we grew by 8,000 units. If you look at 8,000 units quarter-over-quarter, I believe that was significantly more than any other competitor that had U.S. growth. So that will be, I think, fact number one. So that shows pretty significant quarter-over-quarter growth. In addition, when you look at it, we went from -- our share gains became double digits again in Q3 for the whole quarter. And then last but not least, in September, according to AuctionNet, with the market being down 3%, we would, therefore, have had 16%, therefore, mid-teens growth. So the way I look at it is, yes, the market is softer, and with the market ending 3% down -- dealer wholesale market being down, obviously made the quarter challenging and the start of this quarter more challenging. But when you look at the fact that we've always had competitors from day 1, and we grew 8,000 units quarter-over-quarter and had end of the month -- end of the quarter right around those mid-teens objectives for that month, Chris, I would say we've always had competitors, we still have competitors, and we believe we have the best solution. Operator: Our next question comes from the line of Rajat Gupta with J.P. Morgan. Rajat Gupta: Just have a couple. Could you unpack a little bit on the third quarter auction ARPU moderation from second quarter? I appreciate your market share comments. I'm curious that if there were any price actions that were being taken to maintain that? Is that a change in strategy? I know you talked about putting more boots on the ground. So curious if you could talk about that a little bit. And I have a quick follow-up. George Chamoun: Yes, I'll start and then Bill can chime in, Rajat. We, I think, mentioned in the call that we have targeted regional pricing campaigns where we are being a bit more aggressive. Think about that more on the supply side. So where we're still new and we're still emerging, we are attacking the market and it is helping us win share. I think. Bill, also mentioned in the call that we expect Q4 for ARPU. How did you... William Zerella: Yes. So what I mentioned on the call was that we expect Q4 ARPU to actually go back up. So it went down 3% in Q3, but that's more just a result of some of the activities in that quarter. George Chamoun: So at the end of the day, Rajat, we're going to go out and win share. We are using pricing, especially where ACV has low volume in certain regions, we are being a bit more aggressive. So I think that that's definitely one part of your question. And the other part is I'm still very confident in our midterm model we've given you guys for pricing. So look at those as -- when you look at our midterm model and where we've been hovering, and I think I feel very confident in ARPU for Q4, but we will use pricing in certain regions to gain more share. Rajat Gupta: And you briefly touched upon the 2026 wholesale market outlook. I'm curious if there's any more color you want to maybe provide some soft guidance. Should investors still expect the same kind of share trajectory? Or should we expect some acceleration given you're putting more boots on the ground? Maybe if you could give us some sense of market share expectations going forward? And also what incremental margins is reasonable to assume at this point as you attack more share? George Chamoun: Yes. So again, I'll start and Bill will chime in. As you mentioned, I think assuming flat helps us all, so that -- basically just to be very open, we don't have analysts assuming right now dealer wholesale goes up next year. I just think we'd rather just put it out there. Let's not assume that. There's too many macro factors going on. I think better for all of us just assume flat. None of us really know. But if we just assume that, I think that would be prudent for all of us as we start to think about next year. Two, I would look at share gains and how we've operated. In most of our months and quarters, we've been hovering right around the double digits. You've seen us range -- granted last quarter, we were high single digits. This past quarter, we were double digits. We ended the quarter in that mid-teens. So when you look at that range of our execution, just to be fair, I would say our range has been on execution has been -- in that lower double-digit range has probably been our true execution. Our objective is to get back to mid-teens, but I would say we need to go out there and prove that. And that would be a way to maybe restate what Bill said. Maybe just -- I think I basically said the same thing he said a few minutes ago. But it's a way to think about we need to more consistently hit that mid-teens, which we haven't yet proved we can do each and every month. But having said all that, I'm really proud that if you look at the quarter-over-quarter, we grew more than anyone else last quarter. So I would separate those 2 things of how we grew last quarter was better than anyone else in the market. Rajat Gupta: And in terms of just the incremental -- sorry, go ahead. William Zerella: No, I was going to say just -- Rajat, one other thing I would just add, again, Q3 of this year was our biggest quarter of the year. And if you remember, historically, at least prior to last year, typically, our growth in unit volume would follow seasonal patterns. The first half would be relatively strong and then Q3 would be a bit weaker and then Q4 would be the weakest quarter. So last year, for the first time since we went public, our Q3 volume and revenue was actually the highest it was the entire year. And the same thing occurred this year. So the growth rate might have been a bit different since we came off of a very, very strong quarter last year. But again, we had record revenue in Q3 and record volume for the full year, bigger than Q1 or Q2. So I guess that's the other context to just give you in terms of our Q3 performance. Rajat Gupta: I just wanted to follow up on leverage. Given some pricing actions or the low double-digit share, should we assume lower than 30% for now as reasonable before you get back to the 40s on incremental margins? Just curious if that has been a bit of a change in the operations as well. William Zerella: Yes. I don't think we're ready to comment on that at this point, Rajat. we're in the middle of obviously putting our planning together for next year. You can assume some marginal improvement. But beyond that, there's nothing else for me to comment on at this point until we have our plans finalized. Operator: Our next question comes from the line of Bob Lubick with CJS Securities. Bob Labick: I wanted to ask a question about ARPU is where I'm going to get to. Hopefully, I can make this make sense. Recent J.D. Power's analysis showed the spread between retail prices and wholesale prices has widened from $9,000 to $15,000 over the last 5 years. And this seems to confirm earlier points you guys were saying that dealers are keeping more cars and better cars and retailing those versus wholesaling them. That's part of the problem now because there's no off-lease to have, et cetera, et cetera. So the question is, what does this mean for your ARPU going forward if retailers -- I'm sorry, if dealers are going to keep the highest value cars and wholesale lower ones, how should we think about this trend? And when does it start to reverse itself? George Chamoun: Yes. Bob, I think it's a great question. Difficult one to answer because you're predicting obviously, macro with everything else. I think the simple thing to do is just to look at a revenue range, an ARPU range that you're hearing us be comfortable with a certain ARPU range. And you saw our execution in Q2, Q3 a bit later. We're trying to give you guys a little bit of an indication on Q4. But I think for right now, just to keep everyone's expectations in line, I would just not have ARPU going up materially next year or at all. Because to your point, with all these factors going on, I would rather just put it out there that keep ARPU in this moderate area for now. There will be 1 quarter or 2 that it might bump up. And you may see a little bit of that. But I think we'll go into next year, and I think better to keep the expectations of ARPU in a reasonable area for analysts, never want to think about the year. And then to your point, in a more medium-term outlook, there probably is some ARPU that maybe in the next 1 to 3 years, whenever that happens, Bob, to your point, we could start to see ARPU bump up even more. And I just don't want to be wrong at this point, right, and put too much out there. So I just think let's take this correction and say, I think you're right, there will be a correction, and it would mean we'd have a higher ARPU. I just don't want to think -- I don't want to guess it's going to happen next year. If it happens, it takes a little bit longer. Bob Labick: No, absolutely fair. I think you just need [ deals ] to start wholesaling better as well, and therefore, off-lease to come back so that they have other things to sell, et cetera. Okay. Great. And then you talked about lower conversion rate for the industry in Q4 based on the accelerated depreciation of values. But at the same time, you guys are increasing your guaranteed pricing. I think you said it was 18% during the quarter, and that's higher conversion, obviously. So looking into next year, how should we think about conversion at auction with those little factors? George Chamoun: I think conversion rates, my biggest goal for next year is it's just not as crazy. We've seen some ups and downs this year, even within a quarter, that's pretty significant. And when you think about this year with everything from tariffs and everything else going on, we've really had a challenging year for dealers to absorb the value of a car. And then what is that value, what is that depreciation, all these factors, it's been a very difficult year for dealers. I hear sentiment from dealers saying some of this will normalize. I mean, that's what I'm hearing. I believe that's what many of you and others are hearing, which the normal -- having the value of these vehicles normalize would mean that we'd see the bid and the ask between sellers and buyers also start to normalize, and we won't have this up and down on conversion rates that we've seen. So I think next year, conversion rates would -- we'd see a bit more consistency in conversion rates across the industry. Obviously, it all depends upon all the macro factors. But I think some of the stuff starts to work itself out. I don't know, Bill, if you have any more on that topic. But it's a hard one, Bob, as you know, for us to predict next year as it relates to conversion rates. But I think you and others have also heard dealers saying things should start to normalize as some of these other factors start to take place. Operator: Our next question comes from the line of Andrew Boone with Citizens. Andrew Boone: I wanted to ask about ACV Capital and just the return to normalization of lending. Can you guys just help us understand the guardrails outside of macro of what you guys need to do to be able to return that business? And then again, going just back to top of funnel demand. Can you guys talk about cohorts, and is there anything you're seeing within the cohorts as we think about just the change in dynamic of macro and what you guys are seeing? Or is this just widespread? William Zerella: This is Bill. So I'll start with ACV Capital, and then I'll turn it over to George. So maybe first, a little bit of context in terms of ACV Capital. So as part of our planning, we have historically planned an historical loss rate that's slightly higher than some of the bigger players out there. Typically, we model a 3% loss rate based on the fact that we're in a high-growth phase for the business, and we're certainly not as mature as some of the bigger players out there. So that's what's been baked into our financial models for ACV Capital historically. So despite what occurred in Q3, and I'll get into that in a minute, our view of that loss ratio hasn't changed in terms of our modeling going forward into next year. That said, as I mentioned on the call, as a result of this large bankruptcy that occurred in which we've reserved basically over $18 million for that bankruptcy, not sure what the ultimate outcome will be in terms of recovery, we did do a very thorough portfolio review. And as a result, we've looked at our internal controls, our processes, and we're in the process of making a number of improvements going forward so that we can scale with comfort next year in terms of the confidence that we're going to stay within our planned target in terms of those loss ratios. But as a result of that, there were certain higher risk credits that we had outstanding that we concluded it was prudent to book some reserves in Q3, which is what flowed through the quarter, and that was approximately $7 million. In terms of the go-forward plan, there's still a lot of upside opportunity for us. This is very synergistic, obviously, with our auction business. So it's very strategic. And you can expect this business to continue to grow next year at a good clip, albeit maybe at somewhat of a slower rate than we experienced this year. And we are taking our ACV Capital revenue down a couple of million for Q4, as I mentioned, just to ensure that before we start to scale next year, we've got the right processes and controls in place. So hopefully, that gives you a little bit of color in terms of ACV Capital. George Chamoun: And maybe just 2 more things on that. Even with that bit of caution, we're still going to be executing on attach rates in the high teens. So look at this as it's still very strong execution, even with having this mitigated risk and being a bit more careful. The midterm model assumed 25% attach rates. So when you just -- the way I look at this is, listen, you learn on moments this, you sometimes just add some more controls. You take moments this. Obviously, there's other major banks in the world that had the same common customer. This will make us even a better company in the midterm. And you really become, I think, a more durable company in moments that when you have a situation this like this Tricolor. But I would say, I have the same confidence in getting back to the 25% attach rate goals in the midterm model. This is a small period of time. We have a lot of demand for ACV Capital. We've got a great product. You saw us execute really well up until that moment. And I would say one step backwards, I think we'll then take 3 steps forward. So that was all on your first question. Your second question, I believe, was about other cohorts and other things going on the business. Can you repeat that one, just to make sure because it was so long ago, it took us a while -- such a long time to answer your question that I remember your first one, but I want to make sure -- your second one, but I want to make sure I got it right. Andrew Boone: It was a great first answer. So let me try the second one again. If I think about macro just overlaying in terms of results, is there anything you want to call out in terms of specific cohorts or geographies that may help us better understand what's going on across the industry? George Chamoun: Yes, I'll try to give a little color on this. We mentioned on the call that 2 of the regions that we were probably known to be weaker in had 20%-plus growth year-over-year, and we were really excited about that. If you look at our largest regions from a cohort perspective, most of our large regions are still growing. And there's only one, and the one that -- it still grew. It grew, but it didn't grow as much. It was one where we've got nearly 40% market share. And so when you look at overall the cohorts, I still -- the reason why I remain confident in the midterm model is because in the regions where we don't yet have the brand and support of being the dominant player in that region, we're emerging. And in the areas -- in most of the areas where we have very significant market share, and that's significant against physical and digital, all in, we're still growing in the majority of those regions even with big numbers. So long-winded way of saying, I think not a lot has changed. But we did mention on the call, there's a few reasons where we need to step it up and grow even more, and we're on it. Operator: Our next question comes from the line of Naved Khan with B. Riley Securities. Naved Khan: Maybe just touching on commercial. How should we be thinking about the volume through the AutoIMS relationship ramping exiting this year and into next year? What trajectory should we assume there as we not only just map out Q4, but also look at 2026. And then, George, you spoke about being opportunistically with respect to discounting in certain markets where the penetration is low. What do you see from your competitors in terms of price promotions? Do you see any price increases occur in recent quarters? Or are we in an environment where pricing is not necessarily going to be a lever for any of the players, including yourself? George Chamoun: I'll go to the second one first. I think pricing between the hundreds of physical auctions and a few digital, there's a lot of different pricing things going on. To your point, some people continue to increase fees and some are using fees primarily on the supply side to get the attention. But generally speaking, buy fees typically go up every year with most of the competitors, which is the majority of the ARPU. And your first question on commercial, we're going to be hovering somewhere in the mid-to-higher single digits, I think somewhere 6%, 7% of our volume in commercial for 2025, somewhere in that range for commercial. So I'm very proud of what we're doing. But as I've said in many other calls that we are -- we're really laying out the foundation right now for many years to come. I'll just remind you of the 3 things we're doing there. One is the upstream digital like you said, with AutoIMS upstream digital. That's one. Two is the greenfields, like Houston being our first. And then we'll have a second greenfield that we launch sometime early next year. And then third is once our software is hardened and we're ready to go, we'll take it back to the 10 legacy locations that we acquired. So that will take us some time. So look at it as if you're -- right now, our total commercial is in that 6% to 7-ish-percent range of our total volume. And even if that increased pretty materially for next year, it won't be a big number. I just want to be fair to that. It will help. It all helps. And it will grow. But dealer wholesale will remain next year being a far significant piece of our overall volume. But then commercial, when you think about going into out years, into '27 and beyond, it starts to really add up. So hopefully, that gives you a lot of color, because we're really not yet talking about next year. Obviously, a lot of these questions are about next year, but trying to give you enough color. But we're going through that planning cycle right now to nail down our objectives. But maybe that gives you a little bit of color based on the base. Operator: Our next question comes from the line of Glenn Shell with Raymond James. Unknown Analyst: Just following up with what Naved said on commercial wholesale. Will we see that broken out so we can parse out dealer wholesale versus commercial wholesale? And then I just got a quick follow-up after that. George Chamoun: At this time, we don't know yet. We really didn't come into today's call with that answer, I would say, ready to go, but appreciate the question. But I would say we're not sure yet. Unknown Analyst: And then on Project Viper, is that still on track for a first half of '26 launch? Or is that more just generally '26? And then what have you been seeing from initial demand contribute to performance next year? George Chamoun: Yes. Project Viper is getting incredible feedback from dealers. Our goal -- and we need to still go out and hit this goal, I just speak to be open, but our goal is to start taking orders by an [ MADA ]. That's when we start actually taking orders by dealers, which will be in February and start shipping units in that middle of the year. Those are the internal goals. So I don't have any reason why we're not going to hit those goals of starting to take orders by [ MADA ]. I think next year will be primarily launching to enough dealer groups, get the feedback, and you then start scaling it the following year. But I would say so far, so good, getting great feedback, plan to go live, and we'll go from there. Operator: Our next question comes from the line of Jeff Lick with Stephens Inc. Jeffrey Lick: George, I was wondering if you could talk about you guys obviously have a pretty robust and novel set of services and features, ClearCar, ACV MAX, Data Services, obviously, Viper I guess up and coming. If you just look at the places that you're winning that are disproportionately doing better than the average, could you talk about just where you're really getting traction, and the dealer just looks at you to say, hey, look, this is a great partnership and where you clearly have an advantage and you're winning? George Chamoun: Yes, certainly. I'll try to give you a little bit of color without mentioning the dealers' names just to get a little closer to this. But yes, we mentioned on the call that dealers that have recently launched ClearCar and MAX, where we've won a higher proportion of the wholesale volume than our average across the board. And if you get to the why, you're now a strategic partner to that dealership group. And if they're using us for ClearCar and/or MAX, ACV MAX, and soon, hopefully, Viper, then they're using us to price their inventory. We're predicting the retail price, we're predicting the wholesale price, we're helping them make better decisions. And so we were the one to predict the trade value before they even bought the car. So you're not going to sit here and make the wrong decision on having wholesale values that are too high because you actually bought the car right way upfront during the trade. So when you think about what AI can do for this entire industry is take all these manual decisions that a lot of these dealers are working hard. These are people across the country who just don't have the right tools today, who got prices going down. And here we are, we're predicting the retail price of what the car is going to sell for in the next 30 days within a few hundred bucks. We're predicting the wholesale price on average within $100. That's really significant because now as you're sourcing and you're deciding what reconditioning you need to do, it's a big deal. So some of the data we mentioned during the call about dealers now selling more wholesale with ACV, they happen to have ClearCar and happen to have MAX. It's partially because they're actually making better decisions. And by the way, they're retailing more cars and typically having better margin versus our competitor or SaaS equivalent companies that we compete against. Hopefully, that gives you what you're looking for. Jeffrey Lick: And then a quick follow-up for either you or Bill. As it relates to what you guys referred to as targeted volume pricing on the supply side or for the seller, I was just curious because usually that's a pretty low price to begin with. How does that work in terms of -- we're probably talking you're saving $50, $75. Is it short-lived in terms of, hey, okay, I'll give you this. It would seem you're going to eventually have to provide a little more for them than just pricing. Are the dealers really motivated by $50, $75? George Chamoun: First of all, I agree with your question. $50 or $75 or $100 shouldn't matter. We're a better solution. And we're helping them sell the car for more money. But when you do give one of these sell-side promotions, you're getting their attention, you're getting them to try it, you're getting them into the family. And some of these guys have been using these legacy auctions for a very long time. So look at it as you're just trying to get their attention. And then what you do is you start to say, hey, this is good for so long, x period of time or y amount of volume. So you do start to set some parameters about it. And none of those parameters make me worry about our midterm model. Operator: Our next question comes from the line of Gary Prestopino with Barrington Research. Gary Prestopino: Last quarter, there was a big delta between listings and cars sold. Did you still see pretty good listings, but the conversion rate was just so much lower than expectations? George Chamoun: Yes, Gary. We continue to drive listings, which is listings obviously represents the opportunity to get in front of that car and sell it. But yes, so we've continued to see listings grow. Christopher Pierce: And then just a question. Bill had mentioned there was an increase in arbitration expense. With all the technology that you've put on your inspections, what is actually causing that to happen? Is it just that you're getting a car that might be a little bit lower quality? George Chamoun: So Gary, most of the customers that we inspect their car and then we go out and we look at the arbitration results, the far majority of the customers, we hit our target arbitration and goodwill. There are subsets of customers where it's become elevated. And what we've been doing is over the last couple of months is we're enhancing some of our dealer management tools to identify faster on what is going wrong with this one seller and/or buyer, what should we be doing differently, where it could be training or other best practices, and we're starting to build privileges and other aspects to our dealer management model. So it's really into the details of -- look at it as the far majority of the time, you really -- you don't have an issue, but you've got to get into those times where things become elevated, and we're diving in it. Again, when I look at this from a going into early next year, I think even by Q1, we're probably fine. I think just you go in there and you mitigate and you really learn through some of these things that crept in, and then we'll -- our dealer management and internal training when these things go wrong will be even better on top of that. Operator: Thank you. And we have reached the end of the question-and-answer session. I would to turn the floor back to Tim Fox for closing remarks. Timothy Fox: Great. Thank you, operator. And I'd to thank everybody for joining us on the call today. We look forward to seeing you on the conference circuit this quarter. We'll be at a couple of conferences in November and in December. And finally, thank you for your interest in ACV, and have a great evening. George Chamoun: Thank you. Operator: And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.
Operator: Ladies and gentlemen, welcome to the Novonesis Interim Report for the First 9 Months of 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Tobias Cornelius Björklund. Please go ahead. Tobias Björklund: Thank you, operator, and welcome, everyone, to the Novonesis conference call for the first 9 months of 2025. As mentioned, my name is Tobias Björklund. I'm heading up Investor Relations here at Novonesis. In this call, our CEO, Ester Baiget, and our CFO, Rainer Lehmann, will review our performance for the first 9 months of the year as well as the outlook for 2025. Attending today's call, we also have Tina Fano, EVP of Planetary Health Biosolutions; Henrik Joerck Nielsen, EVP of Human Health Biosolutions; Andrew Taylor, EVP of Food & Health Biosolutions; and Claus Crone Fuglsang, Chief Scientific Officer. The conference call will take about 45 minutes, including Q&A. Please change to the next slide. As usual, I would like to remind you that the information presented during the call is unaudited and that management may make forward-looking statements. These statements are based on current expectations and beliefs, and they involve risks and uncertainties that could cause actual results to differ materially from those described in any forward-looking statements. With that, I will now hand you over to our CEO, Ester. Ester, please. Ester Baiget: Thank you. Thank you, Tobias, and welcome, everyone. Thank you for joining us this morning. Please turn to Slide 3. Thank you. We continue to deliver on our promises, and on the back of a strong first half of 2025, we delivered organic sales growth of 8% in the first 9 months. The third quarter was stronger than expected, including some positive timing effect and grew by 6%. Growth was broad-based and mainly volume-driven as pricing contributed by around 1%, both in the first 9 months and in the quarter. The exit of certain countries impacted organic sales growth negatively by around 1 percentage point in the first 9 months and by around 2 percentage points in the third quarter. Emerging markets were particularly strong at 12% growth, driven by increased local presence and tailored solutions for different customer needs. We continue to invest in these markets to further drive growth and fulfill our strategic goals. Since late 2024, we have made significant investments in customer-facing activities with commercial resources in emerging markets growing at more than twice the rate of developed markets. Growth in developed markets reached 6% with solid performance in both Europe and North America. Sales synergies are well on track and contributed close to 1 percentage point with positive impact across the businesses. The integration of the Feed Enzyme Alliance acquisition, which closed on June this year, is progressing as planned, and we are already now seeing the benefits from a strong Biosolutions portfolio and being closer to customers. Performance since closing is in line with expectations. We launched 4 new Biosolutions in the quarter, bringing the year to 19 in total. As an example, in Food & Beverages, we have launched innovation that tapped into higher consumer demand for healthier and more nutritional products, including high-protein solutions. Another example of innovation, tapping into growing consumer demands includes high-performance solutions for quick and cold wash cycles in Household Care. The adjusted EBITDA margin for the first 9 months of the year was 37.3%, an increase of 1.3 percentage points compared to last year. The margin includes significant currency headwinds, showing the strong underlying operational performance, while also we continue to invest for growth. Central to our growth performance and strong performance is Novonesis' unique ability to deliver solutions that enhance productivity, enhance efficiency, quality, bring health benefits and sustainability for our customers and consumers. While our Biosolutions typically account for a small portion of our customers' costs of goods sold, they play a significant role in enabling value creation. Additionally, our well-diversified presence across industries and geographies provides resilience and strength to our overall performance. After strong 9 months performance, including favorable timing in the third quarter, we'll leave the bottom end of the range and now expect organic sales growth to be between 7% to 8%. This includes an indication of mid-single-digit organic sales growth for the fourth quarter. We expect the adjusted EBITDA margin to be at the lower end of the 37% to 38% range, continuing to absorb the significant currency headwind compared to the initial outlook for the year. I'm also pleased that the strong earnings translate into healthy cash generation. And with that -- with this, let us now look at the divisional performance in more detail. Let's start with Food & Health Biosolutions. If you could please turn to Slide #4. Thank you. The Food & Health BioSolutions division delivered 9% organic sales growth in the first 9 months of the year, and adjusted EBITDA margin was 35.6%, an increase of 30 basis points. In the quarter, organic sales growth was 6%, including the negative impact of around 5 percentage points from the exit of certain countries. For 2025, we expect this division to deliver organic sales growth within the same range as for the group with relatively stronger growth in human health. Please turn to Slide #5. Thank you. Food & Beverages delivered 8% organic sales growth in the first 9 months and 5% in the quarter, including the impact of exiting certain countries. Growth was mainly driven by volume, where pricing contributed positively and in line with group level. Growth in the first 9 months as well as for the third quarter was anchored across most categories with continued strong momentum in Dairy, including positive impact from timing. Performance was mainly driven by upselling and strong customer adoption of innovation. In Fresh Dairy, we continue to see increasing demand for our tailored solutions in the high protein space and in bioprotection, supported also by healthy underlying global demand for yogurt. Additionally, in Cheese, customer conversion contributed to growth. Baking, Meat and Plant-based solutions also saw strong growth mainly driven by innovation and increased penetration. The Beverage segment declined, impacted mainly by lower end market volumes. Synergies contributed to growth and in line with expectations, supported by cross-selling and increased commercial scale across Food & Beverages. On the innovation front, we launched 2 new products in the quarter, making it 10 in total for the first 9 months. Growth in 2025 in Food & Beverages is expected to be broad-based, including a positive impact from synergies. Please turn to Slide #6. Thank you. Human Health delivered 10% organic sales growth in the first 9 months of the year and 8% in the third quarter. Again, growth was mainly volume-driven and negatively impacted from the exit of certain countries. The release of deferred revenue contributed around 1 percentage point to the growth for both periods. In the first 9 months, the development was driven by a strong performance in both Dietary Supplements and Advanced Health & Nutrition. Synergies contributed positively to growth and in line with expectations. Dietary Supplements grew across regions, led by solid momentum in North America. Performance in Advanced Health & Nutrition was supported by Advanced Protein Solutions, as we continue to ramp up revenue with our anchor customer. Growth in Early Life Nutrition was led by HMO. In the third quarter, growth in Dietary Supplements was driven particularly by strong performance in North America across subcategories with Women's Health and the Healthcare Practitioner Channel as a strong contributors. In Advanced Health & Nutrition, the drivers for the third quarter were similar to those for the first 9 months. For 2025, growth in Human Health will be driven by a continued positive momentum in dietary supplements, supported by a positive impact from synergies and by Advanced Health & Nutrition, including the continued progress with our anchor customer. Deferred revenue is expected to contribute around 1 percentage point for the growth for the sales area. Please turn to Slide #7 for -- and let's look at Planetary Health. Thank you. Planetary Health Biosolutions delivered 8% organic sales growth in the first 9 months of the year. The adjusted EBITDA margin was 38.7%, an increase of 2 percentage points. In the third quarter, organic sales growth was 6%. For 2025, we expect this division to deliver organic sales growth around the low end of the group with relatively stronger growth in Agricultural, Energy & Tech. Please turn to Slide #8. Thank you. Household Care delivered 7% organic sales growth in the first 9 months of the year and 6% in the quarter. Growth was mainly volume driven and with positive contribution from price on par with the group level. Emerging markets contributed significantly to the strong performance, both in Laundry and Dish, supported by solid growth in the developed markets. Performance was driven by increased market penetration as well as innovation. Growth in the third quarter was positively impacted by timing, easing the impact of end market normalization in developed markets. On the innovation front, we launched 1 new product in the third quarter, Pristine Advance, as part of the Freshness platform. This launch targets consumers seeking energy-efficient, time-saving laundry solutions, as it delivers deep cleaning and fresh results even in quick and cold washing cycles. Key growth drivers for the year continue to be innovation, increased penetration, pricing as well as industry volume growth, where we see a normalization in developed markets through the second half of the year. Please turn to Slide #9 for Agriculture, Energy & Tech. Thank you. Agriculture, Energy & Tech delivered organic sales growth of 8% in the first 9 months and 7% in the third quarter. This was driven by a strong growth in energy and supported by tech and agricultural. Growth was driven mainly by volume, and pricing contributed positively, in line with the group. Growth in energy was led by Latin America and India, driven by increased ethanol production capacity and a strong growth in Europe. Growth in North America was also supportive, driven by greater adoption of innovation and growing ethanol production volumes supported by increasing exports. Additionally, a ramp-up in second-generation ethanol and penetration of Biodiesel Solutions also contributed positively across geographies. Growth in agricultural was driven by both animal and plant, while performance in Tech was led by increasing demand for solutions for biopharma production. Growth in the third quarter was driven by similar factors, as those for the first 9 months, including a strong performance in Energy, supported by Agriculture. For 2025, growth in Agriculture, Energy & Tech is expected across all industries, supported by a positive impact from synergies. Growth is expected to be led by Energy. And now, let me hand over to Rainer for a review on the financials and the outlook for 2025. Rainer, please? Rainer Lehmann: Thank you, Ester, and good morning, everyone, and welcome to today's call also from my side. Let's turn to Slide 10. Please note that for the year-on-year comparison figures presented today, we have used pro forma figures as our baseline comparison for year-to-date 9 months numbers. The corresponding IFRS-based figures are available in the statement released this morning. Q3 year-on-year figures are IFRS based and fully comparable. In the first 9 months, sales grew 8% organically and 7% in reported euro as currency provided a 3 percentage point headwind while M&A impacted development positively by 1 percentage point, driven by the Feed Enzyme Alliance acquisition we finalized in June. In the third quarter, sales grew by 6% organically and by 4% in euro. Currency headwinds continued to be significant and amount to 5%, but were offset partly by the 3% positive contribution from the Feed Enzyme Alliance acquisition, which was in line with expectations. Turning to our profitability. The adjusted gross margin was 58.9%. This is an improvement of 250 basis points year-on-year. Lower input costs, including the cost of energy as well as economies of scale and productivity improvements led to the strong development. Pricing and synergies also had a positive impact, while currencies impacted negatively. The adjusted EBITDA margin was 37.3%. This was 130 basis points higher than the first 9 months of last year and explained by scale, the improvement in gross margin and synergies, countered by strong negative currency effects as well as expected reinvestments to support growth. Please note that the divisional adjusted EBITDA margins for the quarter are slightly impacted by minor year-to-date adjustments, reflecting divisional performance. Needless to say, though, that both divisions continue to deliver strong profitability. We continue to invest in our business. And as Ester mentioned, we are further stepping up our commercial presence and customer-facing activities, particularly in emerging markets. Special items were around EUR 50 million and primarily consists of transaction costs related to the Feed Enzyme Alliance acquisition. It also includes integration expenses as well as some initial expenses for the new global ERP system related to the combination. The diluted adjusted earnings per share was EUR 1.19, an increase of 20% compared to first 9 months of last year. If we adjust for PPA amortization, the earnings per share were EUR 1.54, which also represents an increase of 20% compared to the year before. Operating cash flow amounted to EUR 193 million in the first 9 months, which is an increase of around EUR 90 million compared to last year. This was driven by the improvement in net profit, partly offset by an increase in net working capital, mainly from higher inventories and increased receivables resulting from a strong sales performance. Due to the still low CapEx activities, which we plan to ramp up in Q4, free cash flow before acquisitions increased by 16% to EUR 668 million for the first 9 months of the year compared to EUR 576 million last year. With this, let's now turn to Slide #11 to talk about the outlook. Please note that the outlook is also based on current levels of global trade tariffs and current foreign exchange rates. And as Ester mentioned, we're lifting the bottom end of the range of the organic sales growth outlook and now expect 7% to 8% for the full year, with an indication of mid-single-digit organic sales growth in the fourth quarter. This is a result of a strong first 9 months performance, including favorable timing in the third quarter. Growth will continue to be driven mainly by volumes and with a similar positive pricing impact of around 1% across both divisions. Sales synergies are still expected to contribute around 1 percentage point to the organic sales growth for the year. For the adjusted EBITDA margin, we expect to be at the lower end of the 37% to 38% range. This includes significant currency headwinds of around 1 percentage point compared to our initial expectations as our adjusted EBITDA is fully impacted by currency fluctuations. As a reminder, please note that we show the FX hedging gains and losses as part of the net financial items below the EBIT line, protecting our net profit. In conclusion, and based on the results from the first 9 months of the year, we're in a strong and confident position in our ability to achieve our full year outlook. With this, I will hand back to Ester for a wrap-up. Ester? Ester Baiget: Thank you. Thank you, Rainer. Could you please turn to Slide #12? Let me summarize our message here today. Novonesis' diverse portfolio of innovative biosolutions, broad market reach and unique scalable production setup continue to drive strong performance. With the results we're presenting here today, we show that we continue to deliver on our promises with the strength and the resilience of our business model. We continue to execute successfully on our strategic priorities, positioning ourselves firmly to deliver on our 2030 targets. And with that, we're now ready to open for Q&A. Lorenzo, if you could open the Q&A, please? Operator: [Operator Instructions] The first question comes from the line of Thomas Lind from Nordea. Thomas Lind Petersen: So 2 questions from my side. The first one is regarding pricing. At the CMD last year, you said that you were aiming for pricing up until 2030 of 1% to 2% annually. This year, it's 1%. But given the tariffs impacting your business, I would assume that you would take price to sort of offset some of the impact here. So maybe going into -- also to '26, is it fair to assume that 2% pricing in '26 is more likely than the 1%? And then the second question is just regarding your 19 new product launches here in '25, which is impressive. But still, it seems a little bit like a slowdown, at least when comparing obviously to the impressive 45 product launches last year, and then, just 4 here in Q3. I would assume that given the revenue synergies, we would see sort of a ramp-up in product launches or at least that's just my expectations. But yes, if you could put a few words on that, that would be great. Ester Baiget: Excellent. Thank you very much, Thomas, for these very good questions. Let me start with the comments and questions on pricing, and then, I'll pass it to also to Claus to bring further color on innovation. It is true. We're very pleased with our 8% growth year-to-date, robust growth, mainly volume growth and also from pricing. And this is a growth -- the quality of that growth year-to-date, it gives us a very high level of comfort. We grow across all geographies, across all segments, also with double-digit growth in emerging geographies. The 1% price, it is an area that we committed to. We see the impact translating down in the bottom line. And regarding your question on tariffs, it's important to mention that most of what we produce in -- that we sell in North America, it's produced in North America. And then where it's not, then we see also pricing as a driver of ensuring that it's a net neutral effect for the year, which we continue to stay committed to. Moving forward, we are in a really good place of comfort, mainly particularly on the volume growth, the underlying strength of our business model, where pricing will continue to be a driver of growth. And yes, on the 1% to 2% CAGR for the period on pricing that you indicated to for the strategic period. Then, regarding innovation, before I pass it to Claus, I would like to remind you that -- and please let's all remind us that the solutions that are less than 5 years old, they continue to contribute to whom we are with more than 25 -- more than 20% of our revenue is for new launches. And the quality that we bring in continues to be the driver of growth. We enable value growth for our customers through innovation, through solutions that they lead to higher yield, higher efficiencies, higher productivity, differentiated claims. And then I would invite you to look, yes, at the 19 year-to-date, but for sure, the continued contribution that innovation puts on the strength and the quality of our growth. Claus Fuglsang: Yes. Thank you, Ester. The 19 launches year-to-date is actually on plan and what we expected. We expect some acceleration here in Q4. It's not about hitting the same number as last year, but the impact, of course, it makes in the market in terms of sales growth and contribution to revenue. So we are pretty happy with the performance. As Ester said, we are well above the 20% of sales from new products. So thank you. Operator: The next question comes from the line of Thomas Wrigglesworth from Morgan Stanley. Thomas Wrigglesworth: Two from me, if I may. Firstly, on Household Care, could you break out the difference in performance between emerging markets and developed markets? Obviously, there's all the data we see in developed markets from your customers is obviously looks very volume negative. So it would be great to know the kind of split of growth between those 2. And secondly, on the Dairy performance, how much of the growth in Dairy do you think was a function of pull forwards? And associated with that, as you win a customer adoption, is there a kind of a preloading sale that takes place that means that growth becomes harder and harder because as adoption rates and penetration increases, you effectively have a high base, and there's less people to adopt in the future? So I'm just kind of trying to get a sense of where we are in that high protein adoption phase as you see it today. Ester Baiget: Thank you very much, Thomas. I will let Tina bring color on your question on Household Care, and then, Andrew on Dairy. Tina Fanø: Yes. Thank you so much, Thomas. So the performance in emerging markets is a key growth driver in Household Care. And it is a result of the strategy we have had for a number of years, where we have been investing in order, both on innovation and also on feet on the ground in order to cater for these markets. So Household Care is significantly outgrowing the developed markets in Household Care. In terms of their relative size, I assume you know the split between emerging markets and developed markets for the group, and Household Care is a bit more exposed than group to the emerging markets. Andrew Taylor: And then thank you. This is Andrew, and thank you. In terms of your questions on Dairy, a couple of things, so we did see some positive timing effects in Q3 as some of the ramp-ups from our customers, especially in North America, came a bit quicker than we had expected. And then, if you kind of take the second piece of the question, because they're clearly related on the loading, I would separate it into 2 types. So there's sort of the new innovations that you're driving across the Dairy value chain. So things, for example, solutions for high-protein yogurt, those tend to have a natural cycle, but there's many of them over time. With regards to productivity, and then, also DVS conversions, we've talked about before, those do have a bit of a loading, but none of them is big enough to really drive a huge preloading effect overall for the business. And the exciting part is we see a continued pipeline of those opportunities over time. Operator: The next question comes from the line of Georgina Fraser from Goldman Sachs. Georgina Iwamoto: One of them is a follow-up, if we could hear a little bit more about Dairy, and strength there is particularly impressive. And I'd love to hear a bit more about what you're seeing in emerging markets and the sustainability of those trends medium term. And then second question is on Beverages. So I think it's the only market that you're seeing that looks a bit weak. It's declining. Should we expect these trends to continue? Or do you have any product launches or customer wins up your sleeve? Ester Baiget: Thank you, Georgina. We feel also very pleased about where we are and particularly on starting to see the fruits of the seeds that we put in the past. We have been investing in emerging markets. We have been investing in innovation, and we see, reflected in the numbers, the translation of those investments into growth. And now, I'll pass it to Andrew. Andrew Taylor: Yes. Thank you, Ester. So taking those 2 things in turn. So with regard to emerging markets, the drivers there are a few things. One is just the fundamentally quicker underlying volume growth of emerging markets vis-a-vis domestic markets -- or sorry, developed markets. The second thing that I would call out specifically is we have been investing in emerging markets over the years. We are seeing the benefits of having local presence, being able to go more direct because that actually just leads to a quicker share as well as the overall market growth. And the third thing I'd highlight, which is a bit different, is there's parts of the Dairy market that are relatively newer in big parts of Asia. So for example, cheese in China. Cheese in China, we're seeing good growth in off a small base. But because we have leadership in that technology, we're able to be that partner of choice in China. So the combination of those 3 things is really what we're seeing. With regards to Beverages, I think everyone's seen there's challenges in the alcoholic beverage market across the piece. We are not immune to those volume challenges. We're working really hard, though, to actually drive better both penetration of the existing solutions, but launch the next generation of solutions. That, of course, takes time, but we're working really hard to continue to grow in Beverages. Operator: The next question comes from the line of Alex Sloane from Barclays. Alexander Sloane: The first one, actually, a follow-up on Dairy, in the first half, you talked about sort of new enzyme solutions to help maximize whey byproduct value streams for cheese customers. I mean, clearly, we're seeing we've very strong demand for whey right now given added protein formulation trends in food. So I'm assuming there's quite a lot of customer appetite on this. I appreciate it's pretty quite early days, but maybe, Andrew, you could talk to the traction you're having here and in terms of customer engagement and timing around this commercialization opportunity, it would be great. And you did flag some cheese conversion tailwinds in the U.S. So it would be great if you could remind me where you are in terms of kind of global conversion to DVS cultures in cheese, which I think has more headroom than yogurt. And then, if I could squeeze in 1 more for Rainer, just in terms of the cost outlook into '26, how is that looking on energy and sugar, please, based on the sort of hedging you have, assuming the latter, maybe some tailwind? Can that offset residual FX pressures that you might be facing on the margin side in the first half? Ester Baiget: Thank you, Alex. Those were 3 questions, the way I count them, but let's move ahead with that. Beautiful that you double-click on Dairy and the impressive results that we continue to outgrow the markets that we are present. And this is a simple formula. We enable value creation, value growth for our customers through yield, through productivity and also through differentiated claims on health, on high protein. And by staying very close with our customers, also in emerging geographies, I mean, we out -- in China, for example, we're growing in a declining market. That's the formula that's driving the growth. But I'll pass it to Andrew and Claus to build up on your first question, and then, Rainer afterwards. Andrew Taylor: Thank you. I'll take the first part of the question and then turn to Claus. So in terms of the whey solutions, I think the way that Ester put it is exactly how we see it, which is our customers are looking for increasing productivity and increasing valorization of some of the things that historically have been treated more as offtakes. So we have a lot of interest from our customers around the world on this. And this is where being that preferred partner is so important. They're only going to work -- the best customer is only going to work with 1 player on this, and we really have invested heavily over the years to be that 1 player. Maybe, Claus, you can talk a little bit about the status of the technology. Claus Fuglsang: Sure. It's still early days. While we do have technology that will modify solubility of proteins with this, whey is about protein and protein solubility and functionality, it's still early days. We see the customer pull and interest in collaboration on innovation, but we also expect that we will need to develop new solutions while we'll start, hopefully, getting traction on existing. Andrew Taylor: And then taking your second question before turning it back to Ester, we do see significant headroom still in the DVS conversions. That conversion rate is about 60% around the world. Obviously, higher in developed markets, lower in emerging markets, and that's where our direct presence in those markets is so important. Rainer Lehmann: So Alex, coming to the -- of course, I can't give you a guidance for 2026, right? We're all aware of that part. But if you think about it right now, we obviously benefited from quite some lower energy. I don't think this is going to go any lower, to be honest. So that gives you an indication there. And actually, we do not hedge raw materials on our normal production. So there, we basically are buying on the normal market, and we have to see how this develops, to be honest. And these are uncertain times. But, of course, also you've mentioned the FX, the U.S. dollar, which came down quite significantly and actually in the last days. Let's see how this -- it's quite a volatile environment, but we will be able with our also scale to actually counteract that. Claus Fuglsang: Maybe a quick comment. We can also -- that's the good thing about our technology, it's versatile, and we can actually change between certain types of raw materials. So it's not necessarily glucose. It can be other input costs in terms of carbon. Operator: The next question comes from the line of Lars Topholm from DNB Carnegie. Lars Topholm: Congrats with a very good quarter. Two questions from me, please. I wonder on Household Care, if you can comment on how coming bans on microplastics is affecting your business now? And maybe for now, this is mainly Europe, I guess. But also, how you see this as a potential driver for the U.S.? And then I wonder what the status is on HMO approval in China. Ester Baiget: Excellent questions, Lars. Tina and Henrik, please. Tina Fanø: Yes. So let me start with the Household Care. So in general, as you also know, Lars, and we've talked about a number of times, the -- one of the strategy in Household Care is, I would say, that 3 elements: differentiation, allowing new claims for our customers, it is a matter of replacing chemicals, and then, it's a matter of the investment in emerging markets. And you are hindering on #2 here with replacement of other ingredients. And a ban on microplastics is exactly talking to that tendency. So with our technology base, we are capable of replacing a number of compounds in the detergent matrix, including things leading to microplastics. And that is also one of the key growth driver we have seen, not only in developed markets, but in fact, also in emerging markets because there is a wish to go for more cleaner formulas, to go for quicker and faster, and at the same time, lower temperature washing. Lars Topholm: And Tina, in terms of penetration by those technologies, where are you on the curve? Is this in its infancy? Or are you already there? Or how should we think about this looking maybe 3 or 5 years ahead, please? Tina Fanø: It is in the early days. And it keeps evolving also, what it is we can replace. As you know, I have been in the industry for many years. And if you think about what we thought we could replace 20 years ago, this is completely different, so it is in its infancy. Henrik Nielsen: And your question on HMO in China. Good question. It's the largest market in the world on infant, as you know, and the most premiumized. Recently, we have seen now recipes approved, which is what everybody initially was waiting for with HMOs. So now HMOs can actually make their way into infant formula and into the market. We are the only player that has 5 HMOs approved in China. We are not yet in a recipe in the market, but we're working with all the leading players in China to get into products. It's difficult to say now when that will happen. But the good news is that the market is now open. Operator: The next question comes from the line of Nicola Tang from NBP (sic) [ BNP ] Paribas. Ming Tang: First, I was wondering if you would be able to quantify this impact from the pull forward of orders in Q3. I was just trying to have a better understanding of the underlying growth. And how do you actually know, particularly in Household, that it was a pull forward rather than just an indication of better demand? And do you have a view on current inventory levels for your customers across the wider business? I was wondering if there's any areas where customers might have built more safety stock given the tariff uncertainty. But equally, have customers actually reduced inventory too much, and so, we're having to pull forward orders as a result of that? And the second thing I wanted to ask about, I think now there's about 300 basis points difference in EBITDA margins between the 2 divisions on a year-to-date basis. I was wondering if you see any structural reasons why the Food & Beverages and Human Health profitability will be lower going forward? Or do you expect both divisions to hit your 39% target by 2030? Ester Baiget: Thank you very much, Nicola. We're really pleased on the performance that we had year-to-date with 8% growth. And yes, this is including some timing effects in Q3. And with that, we also aim to mid-single-digit growth for Q4. It's important to mention when we -- what we feel very pleased about is that we continue to deliver on our promises and what we said we would do. We said we would have a stronger first half than the second half, and that's where we are in. And also, we said, and we continue to say, we are very close to our customers, and we are there to enable that growth. We have been investing across the whole globe and particularly in emerging geographies on driving growth. And we see some timing effects from 1 quarter to the other. There has been in Dairy, maybe on some -- in cheese on the transformation being a little bit ahead from one quarter to the other, it's okay, we are very close to our customers and whenever that happen, also in emerging geographies, maybe a little bit faster than 1 quarter to other. We don't look for the quarter. We're here for the full year. And the lifting of the low end of the guidance and the comfort of how we're going to finish the year strong, including the impact of emerging -- of exiting certain countries, all in that together, leading to your second point of the dynamics in the market. We live in the same world that you live. But at the same time, we continue to see the strength of the drivers that trigger the underlying growth of our business. We enable value growth for our customers, and that's strong. That's today, and we feel very comfortable on -- we're not going to go into the guidance for next year, but we feel very confident on delivering on the strategic targets that we committed on the 6% to 9% growth until -- CAGR until 2030. Then the profitability of the business, strong and bold across all areas. And I will pass it to Rainer to build on that. Rainer Lehmann: So regarding the differential in the 2 divisions regarding profitability, yes, you basically answered -- your answer was in your question, right? Because it's clearly on the Human Health and HMO side. There we have a dilutive impact, that is known, that, of course, over time. And then with scale, we will improve the profitability. But let me remind you that really both divisions run in a very high profitability, especially compared also what else is out there. So yes, we're going to improve, it's going to improve and it's going to -- the gap is going to narrow, I would say. Operator: The next question comes from the line of Sebastian Bray from Berenberg. Sebastian Bray: Can I start with the financial items line? And what would be expected for '26, because the consensus seems to only have a modest step up in this? And my understanding is that there are EUR 20 million to EUR 30 million of FX hedging benefits, and you have the annualization of the EUR 1.3 billion of debt that was placed to purchase the DSM Feed Enzyme business stake. What level of financial items cost step-up would be reasonable in 2026? Could it go from, let's say, EUR 75 million all the way up to EUR 105 million, EUR 110 million? And my second question is on the bioenergy market. This seems to have been fine in Q3. It's not really commented upon in the release, but -- is anything changing there? Is, basically, Novonesis still taking market share of everybody? Is 2G ramp-up proceeding as expected? Any changes incrementally on what's expected as we move into 2026? Ester Baiget: Rainer will -- thank you, Sebastian, and Rainer will answer your first question, and then, Tina build on Bioenergy. Rainer Lehmann: So my answer is actually going to be only very limited because I'm not going to give you -- or can give a guidance for a specific 2026 on the financial items. We'll do that once we finish the year, and then, of course, publishing in February and then giving the outlook will, as we do always, give an indication of our finance line items. But generally, your line of thought goes, is in the right direction. Tina Fanø: And on Bioenergy, you are right on the market in Q3. And also, if you look in the beginning of the year, there is growth in the North American market. I assume that's the one you're referencing, Sebastian. But overall, in that industry, I think it's important to think about the diversification story we have talked about so many times. So it's the geographical diversification, which is helping us, both in the quarter and year-to-date. You have heard me talk about India as well as Latin America as key growth drivers. We have also talked about the feedstock diversification, where we -- and also both year-to-date and especially in the quarter, we see good growth from biomass or second-generation ethanol as well as biodiesel. So all of that is contributing to the growth. North America is a more -- it's a big part of our business, but it is a more slow in growing, where we are growing roughly in line with market. If you think about specific market developments, I would say -- the fundamentals remain the same. We do see both India and Brazil talking about higher blend rates for first-generation ethanol. 2G is also continuing to get online. You know we have plans both in Brazil, India and also in Europe. And biodiesel plants is also coming on. So the growth drivers remain intact, and they are all supporting the growth year-to-date. Operator: The next question comes from the line of Chetan Udeshi from JPMorgan. Chetan Udeshi: I had actually 2, both are related in a way. One of the things -- or one of the trends we've seen over the past year in the broader specialty chemical ingredient market is increasing competition from China, India, and whereas you guys are growing very, very fast in emerging markets, and I'm -- I mean, I'm sure based on what I've seen, there are regional players that you compete with in both India and China. So I'm just curious what sort of regional competitive dynamics do you see across your businesses because it's quite interesting that you're growing so fast in emerging markets where others are actually seeing much more competition. The second question related is -- we saw IFF announce a collaboration with BASF on the detergent enzymes and solutions side of things. Do you have a view on what that might mean in terms of competition for Novonesis in the Household Care market down the line? Ester Baiget: Thank you, Chetan. Very good questions. We're pleased on our growth in emerging geographies, and we see it as an outcome of self-help efforts that we have made in the past. And we also see it as a -- simply the outcome of the strength of our solutions and being close to our customers in a market, which is in demand of new answers. Our solutions enable higher yields and productivity, are also in emerging geographies and also differentiated claims for consumers that they are seeking for new answers. And we have been investing in the last years on more boots on the ground to be able to play and co-create with our customers, particularly in emerging geographies. Powder lab in India for Household Care or in Latin America or baking lab in Turkey or more capability for Dairy in China, these are self-help efforts that we have made that we see them reflected now in growth. We see -- of course, we live in the same world that you see, and we see other players in the industry. But the formula of success for our customers, it is listen, understand their needs and then provide them with bio-based solutions that enable them growth through high efficiencies, through bringing health claims, through bringing solutions that they would not be able to do without our products. And that's the model that we are investing combined with a robust global asset footprint that we supply reliably, and we are there with our customers to deliver that growth in a resilient and predictable way. And I'll pass it to Tina on Household Care. Tina Fanø: Yes, and I'll be relatively short, Chetan. As we talked about also in the question from Lars Topholm earlier, what we are doing, and let me focus in on that compared to what others are doing. So what we are doing is we invest in innovation. We invest in innovation with our customers, and that includes replacing chemicals. So we go in and replace polymers, we go in and replace brightness, microplastics and so forth. And that is one of our growth drivers in Household Care. That is the winning strategy as we see it. Ester Baiget: One last question, please. Operator: Our last question comes from the line of Soren Samsoe from SEB. Soren Samsoe: Congrats with the result. So first, on Dairy, just if you can indicate a bit more on how your growth is because it must be quite strong double digit given that you have almost 10% growth in Q3 and that brewing is negative. Then, also, given that milk prices are very low than we have historically seen, sometimes cheese manufacturers producing for inventory, is that giving you a temporary boost in Dairy at the moment? And then secondly, on sales and distribution costs, they're going up quite a lot, but maybe you can give us -- or quantify how much is up if you adjust for DSM? And also what it is that you're investing in commercially, that could be interesting? Ester Baiget: Thank you so much, Soren. Andrew, Rainer, please. Andrew Taylor: Yes. On Dairy, the exciting part is our growth is broad-based. So if you look across both geographies as well as the large applications of cheese or fresh dairy, we are seeing good growth in most places. That's really driven by a couple of things, one of which we talked about earlier, which is penetration essentially and underlying market growth, especially in the emerging markets. The second is some of the trends that we're seeing on things like high protein. And the third is, of course, the continued productivity. So we are -- remain excited about the growth coming in to the remainder part of this year and into the next several years. But, of course, that we're trying to drive that market penetration through new innovations we have with our customers on all those places and really position ourselves as the market leader. Rainer Lehmann: Soren, regarding the increase on the S&D cost sales ratio, of course, there is a part of DSM in there. We're not going to specify it directly. But keep in mind that really -- this is a result out of continuous investing in emerging markets, right? What we said we did in the past, and we are going to continue to do so throughout the strategy period. We give you an indication what the overall inorganic contribution is, and it's accretive to the overall EBITDA. So basically, there you also can back into what you think might be the impact on the operational expenses overall. It's not just S&D. Ester Baiget: Excellent. Excellent answer. Thank you very much all for your questions. We're closing the day and looking forward to continue to interact with you within the next days moving forward. Thank you so much.
Operator: Good afternoon. Welcome to Chime's Third Quarter Fiscal 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. And a replay of this call will be available on our Investor Relations website for a reasonable period of time after the call. I'd like to turn the call over to David Pearce, Vice President of Investor Relations and Capital Markets. Thank you. You may begin. David Pearce: Good afternoon, everyone, and thank you for joining us for Chime's Third Quarter 2025 Earnings Conference Call. Joining me today are Chris Britt, our Co-Founder and CEO; and Matt Newcomb, our CFO; Mark Troughton, our COO, will participate in Q&A. As a reminder, we will disclose non-GAAP financial measures on this call. Definitions and reconciliations between our GAAP and non-GAAP results can be found in our earnings release and our earnings presentation posted on our IR website at investors.chime.com. We will also make forward-looking statements on this call, including statements about our business, future outlook and goals. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those described. Many of those risks and uncertainties are described in our SEC filings, including our Form 10-Q filed on August 11, 2025. Forward-looking statements represent our beliefs and assumptions only as of the date such statements are made. We disclaim any obligation to update any forward-looking statements, except as required by law. With that, I'll hand it over to Chris. Christopher Britt: Thanks, David, and thank you all for joining us. Q3 was another strong quarter for us, and I'm so proud to lead this talented team that has made Chime an industry leader in banking mainstream America. Month after month, more everyday people are choosing to move their banking relationship to Chime than any other fintech or bank. In fact, just last month, J.D. Power reported that, in Q3, more people opened a checking account at Chime than any other U.S. company. And we're still just getting started. We're up to 9.1 million active members in a market of nearly 200 million people earning up to $100,000 per year. We're at a $2 billion revenue run rate in an over $400 billion market. There is a secular shift happening in mainstream America towards digital banking that's helpful, easy and free, and Chime is leading the way. Our strong Q3 financial and operating results demonstrate our progress. We delivered 29% year-over-year revenue growth despite lapping the initial launch of our blockbuster new product, MyPay. We also improved our adjusted EBITDA margin by 9 points year-over-year. Both revenue and adjusted EBITDA exceeded guidance for the quarter. Driving this growth was a 21% year-over-year increase in active members to 9.1 million, a sequential increase of approximately 400,000 from Q2. Given this momentum, we're raising our Q4 and full year guidance for revenue and adjusted EBITDA. Despite the headlines about macro risks and consumer health, we see continued resilience among our members. Our business is powered by long-lasting primary account relationships. We maintain low credit risk through our short-duration liquidity products underwritten by recurring direct deposits. Over the last decade, our business has proven to be resilient across macro cycles. In fact, Chime can shine most when times are tough. In softer macro environments, consumers often become more value conscious, and we believe that Chime offers the most compelling banking experience and the best value. Our members continue to show strong financial health with steady growth in spending among tenured cohorts, higher average deposit balances and consistent use of our liquidity products with lower loss rates. Importantly, we're not seeing any signs of unemployment pressure within our member base. Today, I'll share some highlights from Q3 and what continues to set Chime apart, including our category-leading products, trusted brand and cost to serve advantage. Starting with product. In September, we launched our new Chime Card, our latest innovation to make Chime the best checking account for mainstream America. This new card makes fee-free banking with Chime even more rewarding. With 1.5% cash back on everyday spend categories for direct depositors and a titanium card option, we're now delivering an even more premium banking experience for our members. Chime Card builds on the strength of Chime+, which offers our direct deposit members a 3.5% interest rate on savings, 8x the national average. It also offers fee-free overdrafts, access to your paycheck on-demand with MyPay, free credit building and priority member support. We don't believe any incumbent offers consumers anywhere near this level of utility and value, including higher earners. In fact, in Q3, members making $75,000 or more annually were our fastest-growing consumer segment. The new Chime Card is a secured credit card that helps our members earn rewards while improving their credit score. Because it's a credit card, we earn 175 basis points of interchange, which is over 50% higher than our average Q3 take rate. The results in the first 2 months are promising. New members who adopted Chime Card are already using it for 80% of their spend. Portfolio-wide spend on our credit card products represents only 16% of total purchase volume as of Q3, so we're very excited about the growth potential as volume shifts to credit spend. We've also enhanced our short-term liquidity products, including MyPay. In the year since we first rolled out this product, MyPay has proven to be another essential feature that's loved by our members for its convenience and low cost. MyPay is now an over $350 million annual run rate product, with a transaction margin of over 45%. We've more than quadrupled MyPay transaction margin in just the last 2 quarters. These results are a case study in product innovation, only possible due to Chime's primary direct deposit relationships. In terms of our brand leadership, Chime continues to gain momentum, setting us apart from both legacy players and potential new entrants. In Q3, our unaided awareness in the online banking category reached 41%, up 12 points since 2023, with the fastest growth among Americans earning $50,000 to $100,000 annually. Chime now only trails the 2 largest banks in unaided awareness for online banking and is ahead of Wells Fargo, Citi and every other national bank. And just last month, TIME released their latest national survey and ranking of the top U.S. brands by category. For the first time, Chime was ranked the #1 banking brand in the U.S. according to consumers for 2025, ahead of all major banks and fintechs, and we're not even a bank. The final advantage I want to recap is the significant progress we've made in our cost to serve. Chime's cost to serve is roughly 1/3 to 1/5 of an incumbent bank, and this advantage continues to improve. Over the last 2 years, we've reduced our cost to serve by 20% while growing ARPAM by 18%. Our continued operating leverage is clear in our Q3 financials, which Matt will discuss. With our scaled model and the growing benefits we're realizing from AI, we don't believe we need to grow OpEx nearly as fast as we have historically to fuel our growth. In fact, we expect to keep head count flat over the next year. This should translate to significantly slower OpEx growth in 2026 versus 2025. A major contributor to our cost to serve improvement has been our investment in ChimeCore, our proprietary transaction processing core and ledger. I'm excited to announce today that we've completed our migration ahead of schedule, and we're now 100% on our own technology stack. ChimeCore sets us apart from both traditional banks and fintechs that rely on costly and often inflexible third-party solutions. Not only does ChimeCore provide efficiency gains that Matt will share, but it will continue to accelerate shipping velocity, proprietary innovation and our AI advantage. ChimeCore allowed us to launch our new Chime Card, a key driver of growth for 2026 and beyond. And with ChimeCore fully live, it unleashes the next era of innovation for Chime, to extend our lead as the go-to banking platform for everyday Americans. Our near-term product road map includes a new, more premium membership tier that will launch to reward our most engaged and higher-earning members: joint accounts, custodial accounts and investment products. And that's just some of what we have on the docket for 2026. These new innovations will give our members even more reasons to rely on Chime for all aspects of their financial lives across spending, savings, borrowing, investing and more. I also want to share a few updates on other emerging growth areas, including our early engagement programs in Chime Enterprise. Our early engagement strategy is all about making it easier to use Chime right out of the gate and is helping us drive strong member acquisition at increasingly attractive unit economics. We've ungated our credit-building features, added more deposit options like inbound instant transfers and funding with Apple Pay. We continue to experiment with offering MyPay before members direct deposit and have made it easier to transfer money from Chime with outbound instant transfers or our OIT service. In Q3, the combination of these new initiatives helped reduce CAC while allowing us to monetize relationships earlier and in new ways. There's more work to do, but we're also encouraged by the early signs of success converting these new Chime members to direct depositors over time, especially those who want to try before they buy. Lastly, on Chime Enterprise, I'm incredibly bullish about the impact this new business unit will have on our growth. We're seeing early traction in the employer channel, bringing Chime solutions to employees of our enterprise partners. We recently announced partnerships with both Workday and UKG, 2 of the largest global human capital management platforms. These integrations allow their employer customers to seamlessly offer Chime Workplace to their employees. In Q3, we signed several new employer partners, including Maxwell Group, Ubiquity and Etech. While still early days for Chime Enterprise, employee adoption rates of direct deposit has far exceeded our expectations. Enterprise sales cycles can be long, but I'm excited by the momentum in our pipeline. Our business continues to fire on all cylinders and is poised to deliver an exceptional 2026. That said, we do not believe our current stock price reflects the strength of our business. So today, we're announcing a $200 million share repurchase authorization, which we expect to implement in the coming months. We continue to have a robust cash position and a strong outlook on free cash flow generation, putting us in a great position to buy back shares at attractive values while continuing to invest in the growth of our business. We are well on our way to deliver on our vision to transform the way mainstream Americans bank, helping millions achieve lasting financial progress. I'm deeply proud of this generational company we're building. We have a brand that's loved and already rivals the largest banks in the world with more consumers choosing us than any other institution. The future of banking belongs to Chime. With that, I'll turn it over to Matt. Matthew Newcomb: Thanks, Chris. Good afternoon, everyone. Thank you all for joining us today. I'm excited to discuss our strong third quarter results and outlook. In Q3, we delivered 29% year-over-year revenue growth, and our adjusted EBITDA margin rose to 5%, up 9 percentage points year-over-year. These results exceeded our previous guidance, and with this momentum, we're raising guidance for Q4 and full year 2025. The platform we're building at Chime gives us multiple ways to win in the large market we serve. I'd like to provide a few highlights about our strong performance across actives, purchase volume, ARPAM and transaction margin in Q3. First, we continue to see strong new active member growth at attractive and improving unit economics. In Q3, thanks in part to our early engagement initiatives, we grew active members by 21% year-over-year, approximately 400,000 sequentially while reducing CAC by over 10% year-over-year for the third consecutive quarter. This has resulted in faster paybacks. Recent cohorts are trending to a 5- to 6-quarter transaction profit payback, a reduction from the 7-quarter payback we've seen previously. Of course, the real magic in our business is the stickiness of our cohorts for years and years beyond CAC payback, which drives an LTV-to-CAC profile of 8x or higher, powered by the consistent recurring engagement of our primary account relationships. Industry data suggests the average life of a checking account is over 15 years. Our oldest cohorts are now nearly a decade old and showing no signs of slowing down. Second, purchase volume. We have a resilient payments-based revenue model driven by our members' top of wallet, recurring and largely nondiscretionary spend. Like Chris mentioned, despite the concerns of our macro, we're seeing very consistent spend trends among our tenured cohorts. I want to quickly highlight a product enhancement that is having a positive impact on the business: outbound instant transfers or OIT. While the majority of our members use Chime as their primary account, some also maintain secondary accounts for activities like investing or peer-to-peer payments, especially those who are new to Chime. Historically, funding those accounts meant visiting these other apps and pooling funds using their Chime cards. These transactions are included in our purchase volume or PV. With OIT, members can now push money instantly to external accounts directly from the Chime app, offering a faster, more convenient member experience. OIT volume is not included in PV. We're seeing members shift volumes to this new experience. Since launching in January, OIT volume has scaled rapidly to $640 million in Q3. This mix shift to OIT tempers our reported PV growth but actually serves as a tailwind for our overall business. We earn a 1.75% fee on these OIT transactions, far higher than our take rate on debit purchase volume transactions. In Q3, purchase volume totaled $32.3 billion, up 15% year-over-year; and $32.9 billion, up 18% year-over-year, when combined with OIT volume. This drove payments revenue growth of 16% year-over-year in Q3 and 20% when combined with OIT revenue, which is included in platform revenue, a very consistent pace of growth with the first half of the year. Third, average revenue per active member or ARPAM. Primary account relationships drive our already strong ARPAM, and it continues to power higher alongside increasing levels of product attach. In Q3, ARPAM grew 6% year-over-year to $245, and we continue to see growth across every cohort, with our seasoned cohorts now at over $350 ARPAM. This growth coincides with continued growth in attach rates across our expanding product ecosystem. In Q3, 13% of our active members use 6 or more products on a monthly basis, up from 5% 2 years ago. This segment of members has an ARPAM of $466, nearly double our average active member and up 15% over the last 2 years. Said another way, not only is the breadth of Chime's opportunity massive with 9.1 million actives among 200 million everyday Americans but so is the depth. We're serving our members across multiple areas of their financial lives, and there are so many more areas left to go. Finally, we continue to make progress on transaction margin. A few highlights to call out on this front. First, as Chris mentioned, we completed our migration to ChimeCore, a massive unlock for future product velocity and continued cost efficiency. We expect this final step of our migration to increase our gross margin to close to 90% in Q4. Second, MyPay loss rates fell below 120 basis points in Q3, a more than 20 basis points sequential improvement from Q2, representing continued faster-than-planned progress toward our 1% loss rate target. MyPay transaction margin is now over 45%. Moving to the rest of our P&L. We continue to drive strong operating leverage in our business. In Q3, non-GAAP OpEx grew just 7% year-over-year, down from 14% growth in H1 and the slowest rate in years, even as we continue to put substantial growth capital work at 8x LTV to CAC. As a percentage of revenue, non-GAAP OpEx fell by 14 percentage points year-over-year in Q3, with continued operating leverage across every OpEx category. Along with our progress on MyPay transaction margin, this translated to a significant acceleration of our adjusted EBITDA margin growth, improving 9 percentage points year-over-year in Q3, well ahead of what we delivered in H1. And we expect this trend to continue in Q4, where we now expect 11 percentage points improvement to our adjusted EBITDA margin year-over-year and an incremental margin in the mid-50s, even higher than the mid-40s we guided to last quarter. More specifically on our outlook, we're pleased to raise our fourth quarter and full year guidance, driven by continued broad-based strength in the business. In the fourth quarter, we expect revenue between $572 million and $582 million, resulting in year-over-year revenue growth between 20% and 23%. This exceeds our previous guidance, which forecasts 20% growth at the midpoint. We expect adjusted EBITDA between $43 million and $48 million and an adjusted EBITDA margin of 8%. This also exceeds our previous guidance of 6% margin at the midpoint. There are a few things to keep in mind about Q4. First, we expect to see steady progress on active member growth at attractive ROI with continued positive results from our early engagement strategies. We expect to continue to see strong growth in OIT and therefore, a continued mix shift of revenue from payments to platform in Q4. This, of course, is a positive for our financials given the higher take rates on OIT volume. As you'll recall, we are now lapping last year's launch of MyPay, which began ramping in Q3 '24. We'll fully lap the launch in Q4 '25, which is what is driving some further normalization of our top line growth rate in our Q4 guide. Finally, as part of our termination agreement with our third-party processor, Galileo, we will incur a onetime expense of approximately $33 million excluded from adjusted EBITDA. We originally expected to recognize this expense in Q1 '26, but with our ChimeCore migration concluding ahead of schedule, we now expect to recognize this in Q4. We will maintain a contractual relationship with Galileo through March 2026. For the full year, we expect revenue of $2.163 billion to $2.173 billion and adjusted EBITDA of $113 million to $118 million, above our prior guidance. So we're pleased with our strong Q3 results and outlook for Q4, but we're even more optimistic about 2026 and beyond. While we won't give formal guidance for 2026 until our next earnings call, we believe the strong progress we're seeing across the business is setting the stage for continued strong top line growth, additional transaction margin expansion and substantially slower OpEx growth, resulting in a step-up in our adjusted EBITDA margin that is above our previous expectations. Specifically, we expect our '26 incremental adjusted EBITDA margin to be above the mid-50s we're guiding to for Q4 this year. Finally, as a reminder, our full IPO lockup ends on Friday morning, the beginning of the second full trading day following today's earning announcement. With that, I will open it up to Q&A. Operator: [Operator Instructions] And we'll take our first question from Tien-Tsin Huang from JPMorgan. Tien-Tsin Huang: Really nice results, guys. Happy to see it. On the member growth, I want to ask about that and what you're seeing competitively there. Any change in competitiveness? It sounds like CAC was still an improvement there, but I'm curious what you're seeing on the ground and any learnings from widening the funnel, that kind of thing. Christopher Britt: Tien-Tsin, thanks for the question. Yes. Look, we continue to see really strong momentum, and we feel good about our competitive position. As you heard in the opening statement, we are the #1 destination for people that are switching their direct deposits, for people that make up to about $100,000 a year. And just in the past couple of weeks, J.D. Power reaffirmed our leadership in that area. So I think it's fair to say that we've broken out as a top brand in banking, and that fuels a lot of our growth in business, including our referral channel, our organic channel, which continue to power over 50% of our new active member growth. In the opening statement, we talked about 21% growth in our active members. But if you look at the last 12 months, we've added 1.6 million actives, and that's an acceleration from the 1.2 million actives that we delivered in the 12 months trailing Q3 '24. So good top-of-the-funnel growth, and we're continuing to see strong conversion rates on the direct deposit right out of the gate, which, of course, is what we're always optimizing for. But at the same time, we're seeing positive impact from our early engagement strategy, which makes it easier for people to start using Chime even if you're not ready to direct deposit on day 1, for example, things like making it easier to fund, to build your credit and even use a version of MyPay before you start doing direct deposits. So we're feeling good about the results from these initiatives. And maybe, Matt, I don't know if you want to share any color on the -- some of those results. Matthew Newcomb: Yes. I think -- thanks, Chris. The high level here is that the combination of these early engagement initiatives is really already having a positive impact on the business. We're seeing, among new checking account openings, a record number of people activating with us out of the gate. We're seeing lower CAC, as Chris mentioned, down 10% -- over 10% year-over-year for the third consecutive quarter. At the same time, we're monetizing at higher rates. So our recent cohorts continue to engage with us in new ways. They're attaching to more products earlier in their tenure. I think you see this in the overall growth of our ARPAM. But we're also seeing -- specifically for those members who haven't yet engaged with us in a direct deposit capacity, we're seeing, for that segment of members, their average transaction profit is up about 20% versus last year. So combined with what Chris mentioned, which is continued strong conversion to direct deposit among those people that are ready to do so right out of the gate, the result of all of this has actually been an improvement to our cohort performance. And more specifically there, our most recent quarterly cohorts are tracking to closer to a 5- to 6-quarter transaction profit CAC payback compared to closer to 7 quarters in previous cohorts. Operator: We'll take our next question from James Faucette with Morgan Stanley. James Faucette: Wanted to ask a couple of follow-up questions to that. It seems like payment volume per user is down a little bit, but we haven't really seen a big increase in the pace of quarterly user or quarterly adds. Some of that softness seems to be -- or some of that like kind of sequential change seems to be ungating perhaps, or at least that's what it was previously. Is that still the primary dynamic? Or any other nuance around consumer health within the base that we should be sensitive to? Matthew Newcomb: Yes. Let me touch on that. Thanks for the question, James. I think the other point to call out here is, first, number one, we're actually seeing very consistent overall transaction volumes year-to-date. The one thing that is a newer trend is the very fast adoption of outbound instant transfers or OIT. This is what we talked about in the prepared remarks a little bit earlier. This has grown even faster than our own internal expectations. So as we mentioned earlier, OIT enables members to instantly push money to secondary accounts directly from the Chime app. Historically, the only way to move funds instantly was for our members to go to their secondary accounts and pull money using their Chime cards. That's a transaction that's very similar to a purchase transaction, and it earns us interchange. The result of this is a mix shift from payments to platform revenue. And that's because the volume from the historical way to make instant transfers is included in purchase volume, whereas OIT is separate from purchase volume and captured in platform revenue. So the much better and far more like-for-like way to look at this is to take a look at combined purchase volume and OIT volume. And when you do that, what you see is that while payments revenue grew 16% year-over-year in Q3, payments in OIT platform revenue combined grew 20% year-over-year in Q3. And that's been a very consistent pace of growth compared to what we saw in Q1 and Q2. Maybe I'll pass to Chris to talk about a little bit what we see on the consumer. Christopher Britt: Yes. I mean the consistent growth that Matt mentioned, I think as it relates to broader consumer health, I think, despite what you hear in the headlines around macro risk and health of consumers, among our members, we're seeing -- and this is obviously a very mainstream consumer. We're seeing spending that's remaining robust, and we're not seeing signs of a pullback. As you all know, about 70% of our members' purchase volume goes to everyday essential purchases. And when we look at our most tenured members, the growth in their discretionary spending is actually outpacing the growth in their essential spending. So we think that suggests a healthy consumer, somebody who's confident to spend on those nonessential items, and we're seeing year-over-year increases in categories like restaurants and DoorDash and Uber Eats. Our members are willing to pay to order in, but they're also going out. They're using Lyfts, they're using Ubers. We're seeing double-digit growth in places like Amazon, Costco, triple-digit growth in newer entrants like TikTok Shop. And at the same time, we're seeing continued increases in our members' average balances, which are up nearly double-digit year after year. So I think despite all the noise, our data suggests that consumers are healthy, consumers are remaining employed, and in general, appear to be on pretty steady ground. James Faucette: Great. Appreciate that, Chris, Matt. And then just a quick question. The margin improvement was really impressive. And it looks like some of that is coming from the improved loss rates on MyPay. But can you give us some updated thinking on how we should be anticipating the path to margin expansion from here? You also highlighted kind of change in the move to ChimeCore, et cetera, also contributing but just trying to contextualize on what that means on a go-forward basis. Matthew Newcomb: Yes. Thanks, James. So as I mentioned earlier, I think one of the nearest-term highlights from a margin perspective is going to be the uplift that we expect to see in our gross margin as a result of the migration to ChimeCore. And again, more specifically there, what we expect is our gross margin to get to -- right close to 90% here in Q4. And of course, that flows through to transaction margin as well. On MyPay loss rates, we are thrilled with the progress that we're making there. As we mentioned earlier, the trajectory we've been on here is certainly faster than we planned. We went from close to 1.7% loss rate in Q1 to 1.4% loss rate in Q2, and in Q3, that fell below 1.2% loss rate. And so great progress, and we expect more progress from here. We talked about a 1% more steady-state loss rate for this product. We're well on our way to that and expect that -- to hit that here in the coming few quarters. Operator: We'll take our next question from Andrew Jeffrey with William Blair. Andrew Jeffrey: Great progress on MyPay. A couple of questions on that product as well as instant loans. I guess, Matt, where do you think transaction margin at 1% is in MyPay? And I guess as kind of a follow-up on that, if you get there quickly, and it seems like you're on that trajectory, then do you kind of say, hey, look, maybe we're not growing this business fast enough and review sort of the underwriting criteria? What is the dynamic, in your view, as you look out on the future of MyPay? And then I just wanted to get an update on the short-term loan product. Mark Troughton: Yes, sure. I'll pick up the first part of that. I think what happens when you launch a new lending product is typically your first cohort, as you're going through your underwriting criteria, tend to have high loss rates. So there's a couple of dynamics we're seeing with respect to MyPay. The first one is, obviously, as these cohorts season and we have more loss performance data on MyPay, we're seeing a natural reduction in loss rates. I think secondly, as you've indicated, this product has been out for just over a year, and we continue to iterate on those underwriting models to make better and better loss decisions. So I think those are 2 of the things that are driving improvement on the loss rates. I think we're not expecting to start to go and answer this more broadly in a way that would actually start to compromise those gross margins. I think that's a really, really important point here. In fact, we actually see opportunity for us to continue to expand those gross margins over time. Maybe I'll pass it over to Matt just with respect to that 1% -- the 1% target. Matthew Newcomb: Yes, obviously, that represents continued margin expansion -- transaction margin expansion on MyPay. We aren't giving a specific target there just yet. And of course, transaction margin also is dependent on the usage of the product and of course, the top line as well. So we're going to continue to look to make improvements to this really already loved product for us. And I think the message we're trying to deliver today is that we're really pleased with the unit economic performance and expect even more to come. Christopher Britt: Yes. It's a $350 million run rate product in just a year, great margins, and we've done this while being the lowest cost product in the market with lots of daylight between us and the pricing of other offerings, so really excited about this one. Andrew Jeffrey: Okay. And then the instant loan product, short-term loan product, is that -- should we expect to hear more about that next year? Mark Troughton: Yes. I think -- instant loans, I think, as we've indicated before, it's something we've been working on here for 12 to 18 months, and it's something we've rolled out on a conservative basis. We've been very excited about the progress with that product. It's actually our highest NPS product today. In fact, our NPS on instant loans is around 80% -- 80 points. So our members love it. I think that is something that we will continue to roll out and expand. It's not something that we're giving separate guidance on yet at this stage. Operator: We'll take our next question from Adam Frisch with Evercore ISI. Adam Frisch: Really nice job on the quarter here. Some encouraging nuggets in the press release about Enterprise showing direct deposit levels above expectations. It's obviously something that can drive a whole lot of goodness on the other side of that. I know it's still early days, but can you provide some color on the TAM from the 2 partnerships mentioned? Maybe some color on the sales pipeline? And any initial revenue and profit indications of members coming in from this channel? Christopher Britt: Yes, Mark oversees the Enterprise channel. So Mark, why don't you take that one? Mark Troughton: Thanks, Chris. Adam, I think, as Chris indicated in the prepared remarks, we've -- we continue to be really excited about the progress broadly within Enterprise. Just to -- just for some context, we launched the product at the end of April, beginning of May, so it's a relatively new product. I think the way we've -- this is a B2B motion. So the way we've rolled that product out is we've really started with some smaller employers just to prove the adoption model and make sure that -- make sure the go-to-market motion and the employee engagement and all those sort of things are working really, really well. And I think we've succeeded in that. And I think what we're seeing here really is across these 3 employers, we're seeing adoption rates that exceed what we would expect and what you're seeing other providers in the market have. And we think that the reason for that is because of the competitive advantages we have here. We're going to market with a broader value prop around financial wellness, not just around sort of [ GTE ] EWA product. And I think -- so in addition to those 3 partners, of course, we've just signed the strategic partnerships with Workday and UKG, and we think that these are important partnerships as we look to access employer and payroll data. And these are going to be important partners for us in terms of actually accessing new employer relationships. So we're excited about those 2. The pipeline looks good at this stage, and the value prop we have is -- appears to be resonating really well with the market. So I think that's what's continuing to give us excitement for the channel. We're not at the point here where we're ready to give separate guidance related to Enterprise. This is B2B. These sales cycles are long, in particular with the bigger enterprises who are the ones that would likely have the more material impact on our outcome. But we do think medium to long term, this will be a material driver of [ PV ] growth for us, and we expect to see that coming in at a significantly lower CAC than we have in our consumer channel. Adam Frisch: Okay. Awesome. And then if I could just throw in one addendum here. Congrats on getting ChimeCore out and in production ahead of schedule. That's really good stuff. Matt, if you could just provide some color on where you think the margin impact will be. I assume there's -- it's been a little bit in the previous quarters as you've rolled some things over, but how does it progress through the following quarters? And then really looking forward to future conversations like this where we can talk about ChimeCore, and you went faster or bigger or smarter because you have that proprietary platform. So again, congrats on that. Matthew Newcomb: Yes, thanks. We're thrilled to have this enormous milestone behind us with ChimeCore. And as I mentioned earlier, this is really setting the stage for kind of the next -- really the next generation of product development for us, which we're thrilled about and of course, also cost efficiency. On the cost efficiency side, what we expect now is for an uplift to our gross profit margin to close to 90% now starting in Q4 as a result of migrating to ChimeCore and lowering our transaction processing costs, which is a key part of our cost of revenue. Why don't I pass it to Chris to talk a little bit more about what ChimeCore unlocks for us on the new product development side as well? Christopher Britt: Thanks. Yes. I really believe that ChimeCore, when you look -- when we look back a few years down the line here, you're going to look at ChimeCore as being a key element of what has set us apart from a lot of the traditional incumbents as well as some of the other fintechs. It's having full control over our tech stack is something that's really differentiated and allows us to launch exciting new products. The first of which is this Chime Card product, which we rolled out to new members and are now in the process of rolling out across our existing member base. And the potential impact of that over the course of this year and going into '26, we think, is really exciting when you think about the opportunity to move more of our spend from debit onto the secured credit product that not only helps people build their credit but also gives them great rewards. So we really believe that ChimeCore is going to unlock even more rapid launch of new products and services and things like even more premium membership tiers so that we're providing even more value to consumers that can give us more of their paycheck and give us more of their spend. We're going to reward them with that, with the new premium tier. We're going to launch joint accounts, custodial accounts, investment services. These are all things that can be enabled from this core platform that we now own. And so we think the future is bright on the product side as a result of this investment we've made. Operator: We'll take our next question from Timothy Chiodo with UBS. Timothy Chiodo: This is actually a little bit related there to Adam's question in a way around, [ as we ] get to the Chime Cards, so the secured credit card offering. You mentioned the higher interchange. You mentioned allowing your members to improve their credit score, and there are some stats on the website around that. It's pretty impressive. So it seems like a great win-win product for both the members and for Chime. As we've talked about in the past, there's always this concept of the graduation. So someone comes on to Credit Builder. They're a great customer. They've improved their credit score, and now their score's higher. And they might want to move on to a traditional credit card offering. And not asking you to preannounce future products, but to the extent you could just talk about maybe ChimeCore can enable a traditional credit card or other concerns or reasons why you would or would not want to offer a traditional credit card to the members? Mark Troughton: Yes, sure. Timothy, I'll pick that one up. As Chris indicated, our first priority really is getting as many of our members as we can onto the Chime Card because we see that as a significant opportunity. But having said that, we know today that there is significant demand amongst our member base for a more traditional credit card, one that offers high levels of liquidity and rewards and -- number one. Number two, we believe that with the superior transaction data we have on our members, where we see all the inflows and all the outflows, we get a really unique underwriting opportunity and a lot of unique underwriting data. And because we sit at the top, we're receiving direct deposit into our accounts. We also sit top of the repayment stack. And we think these 2 factors actually give us a significant advantage to offer a really compelling credit card to our members. So this is something that, I think, Chime will do over time, but it is not something that we should be indexing on as a material contributor to 2026. I will also say that as we've indicated in the past, we intend to stay a payments business. So as we do this, we will do this in an asset-light way, in a way that doesn't create a lot of overhead on the balance sheet. Christopher Britt: Maybe I'll just -- one last point on that is you talked about graduation risk. One of the points that we wanted to highlight is that when you look at our newest active member cohorts, we're actually seeing the fastest growth among consumers in the $75,000 to $100,000 earning segment. So we think that the product today continues to get better and better, especially for those that have more transaction activity and more deposit activity that they can do with us. So we'll keep pushing on that and think about future, more longer-term products like Mark just highlighted. Operator: We'll take our next question from Will Nance with Goldman Sachs. William Nance: I also wanted to ask on Chime Card product rollout. I was wondering if you could talk a little bit about 2 things. You mentioned that -- you mentioned some of the early progress in rolling that out. I'm wondering if you could speak to just expectations for attach rates on new cohorts and just the prioritization of Chime Card for new customers. Is it -- it's our understanding that you're expecting that attach rate to be relatively high on new cohorts, that this is sort of the primary experience that you want to put in front of customers. I was just wondering if you could confirm that and talk about whether attach rates are there. And then you mentioned the 175 basis points on the card for interchange, was very helpful. I'm just wondering if you could share just the ballpark estimate of where you think the rewards cost could shake out for the direct deposit customers and just clarify the reward's going to be booked as part of transaction margin or would that be like a sales and marketing line? Christopher Britt: Thanks, Will. I'll start. Yes, we started by rolling this out just to new members, and we're really encouraged, for the folks that select the Chime -- the new Chime Card, we're seeing 80% of their purchase volume within the Chime ecosystem coming off as credit spend. That's obviously a really exciting development for us. And we have rewards and more premium versions of the actual physical card as well that I think are pretty compelling as well. It's still very early days in terms of rolling this out across our existing member base, but that's something that we're pushing hard right now. I don't know if you want to -- how much more detail you want to share in terms of expectations. Matthew Newcomb: Yes. Will, as it relates to your second question around the rewards expense, rewards are actually contra revenue. So the 175 interchange rate that we were referencing earlier is actually already net of our rewards expense. That's the sort of all-in take. William Nance: That's awesome. That's great. Okay. And then I guess as a follow-up, I really appreciate the disclosures around OIT. Just wondering if you could talk a little bit around, I guess, attach and adoption rate. I guess it seems like we should be thinking about this mix shift dynamic continuing and thinking about the payment volume per active inclusive of this number. So just wondering, is that -- are you seeing that substitution effect level out where effectively the -- what was previously pull is now fully migrated over to push? Or would you expect that to be something that grows pretty fast and faster than kind of sequential changes in payment volume for the next couple of quarters? Matthew Newcomb: Yes. The short story here is we do expect this to grow faster for the next few quarters. Said another way, we do expect a sort of mix shift from payments to platform to continue. This is a product that's used by the majority of our customers at all in any way, but it is by a smaller set of our members. And of course, it is -- it has grown fast. And so when you take a look at the impact on overall purchase volume rates, we felt it was very important to clarify this. We are seeing that some of our newer cohorts are adopting this at higher rates than our existing members. And so as that continues, that's why we expect this mix shift again to continue here for the next few quarters. Operator: We'll take our next question from Darrin Peller with Wolfe Research. Darrin Peller: All right. Nice job on the quarter. When I think about -- as a follow-up to attach rates and thinking about ARPAM for a moment, I mean, now that you're -- like you said, I mean, you're anniversarying the rollout, the initial rollout of MyPay. Just help us understand how to think about growth in ARPAM going forward in Europe from your perspective. Both from a financial modeling perspective would be helpful but also really thinking about it from a perspective of the different products that can help drive it and those that you're most excited about going forward in the next year or so. Matthew Newcomb: Yes. Well, maybe I'll touch just very briefly on sort of the near-term trajectory in ARPAM, and then I'll hand it over to Chris to talk about some of the opportunities to continue to grow ARPAM over time. So the first thing I'd say is, as we mentioned, we are lapping the initial rollout of our really blockbuster product, MyPay, this quarter. You should think about Q3 as sort of a partial lapping. We began rolling out MyPay in Q3 of last year, whereas Q4 is when we fully lapped the launch. And as a result of that, you should expect ARPAM growth just to moderate a bit in Q4 relative to Q3. I would say, though, overall, at the cohort level, we continue to see very strong ARPAM growth. Our members are continuing to attach to more products over time. That coincides with continued growth in ARPAM by cohorts, across every cohort, with our most tenured cohorts now at over $350. Let me pass to Chris to talk about some of the other product opportunities we're excited about. Christopher Britt: Yes. I think, naturally, as we show in the supplemental pack, you can see consistently that as our cohorts age, the ARPAM increases. And one of the things that we love about how that ARPAM increases is that it increases as a result of just more engagement, right, more spend, capturing more deposits over time, capturing more spend over time. And now with higher monetizing card transactions, we think there's an opportunity for that to continue to go even higher. Look, across the board, we -- one of the things we talked about on the road show is not only do we have the best suite of products, we believe, for the mainstream everyday consumer, but we also have the lowest-cost products. So there's lots of opportunity for us on that side as well because we think that there's still quite a bit of room between the way many competitors price their products and ours. So we're going to continue to add new products to drive more attach, and we think that's going to drive more engagement. And we'll launch new products with prices that will continue to be market leading. And really excited about the opportunity to drive more engagement and revenue over time. Darrin Peller: What's the latest on MyPay day 1? Just a quick update, if you don't mind, and then we'll turn it back to the queue. Christopher Britt: Sure. MyPay day 1 is really one piece of this early engagement strategy that we've highlighted around making it easier to use us right out of the gate. I wouldn't sort of over-rotate on that opportunity, but early results are promising, albeit on a fairly small scale at this point in time. We really think that there's -- this combination of being able to fund your account easily, being able to -- and have multiple ways to fund your account, to move money out of the account with OIT, to use our P2P service, to get -- the more we can get people access to trial of our product, we think the better chance we have over time to convert them to long-lasting primary accounts. So we're going to continue to trial that experience of MyPay day 1 for people who don't yet have a direct deposit relationship. And we'll also be adding other trial experiences as well. But no major update to provide on that. It's still relatively small scale. Operator: We'll take our next question from Sanjay Sakhrani with KBW. Vasundhara Govil: This is Vasu Govil for Sanjay. Maybe could you just comment on the competitive environment a little bit? I know there are a number of different providers that are sort of trying to target the paycheck-to-paycheck consumer with short-duration loans for customer acquisition. Can you tell when your customers are engaging with any of these third-party platforms? And anything you sense in terms of change in competitive intensity in the market? Mark Troughton: Yes, sure. I'm happy to pick that one up. I think maybe the first thing we should do to level set here is our real competition are big banks, number one. They have the vast majority of primary account relationships, and that is our primary -- that is by far our primary competition. The -- if you took all the rest of the fintechs, we are much larger than all the rest of the fintechs combined in terms of primary account relationships today. And so I think, number one, we should index on large banks. Secondly, we're 3% penetrated today in our TAM. So there's a lot of opportunity here ahead of us. We continue to obviously watch some of the smaller fintechs that are approaching our members. There's very few, if any of them, that are really making much progress on the primary account side, I think to your point. Some of them are competing and offering liquidity services that would compete along with, say, SpotMe or MyPay. I think our perspective on that is if you look at the price points that these members -- these competitors are offering, they are far in excess of the rates we have for MyPay and for SpotMe. Having said that, we do see some of our members who may be doubling up and using these additional services in addition to what they get from Chime to access higher levels of liquidity. We like our position there because we top the repayment stack and we get paid first. And we're going to continue to do this at very, very competitive rate. So we're not seeing -- as Chris indicated early on, even J.D. Power has just confirmed that more members are switching to Chime than anywhere else, and that trend continues. So we don't see these offerings impacting our acquisition of primary account relationships. Vasundhara Govil: And just for my follow-up, if I could ask on the model for 4Q as we're thinking about new account adds versus volume growth. Sort of anything to be mindful of from a seasonal perspective that you would tell us? Matthew Newcomb: Q4 -- when we see seasonality in our business, the sort of primary quarter to call out is Q1 and therefore, Q2 right after, just from a tax refund perspective. That's really when we see the most seasonality across our metrics, including purchase volume per active, including ARPAM, including new account adds, et cetera. Q4, I think, seasonally tends to see a little bit higher spend on a per active member basis just around the holidays but not nearly as much as sort of the seasonally higher spend Q1. Beyond that, I think Q4 is a pretty standard quarter for us. So we're excited to continue to grow across those metrics, actives and purchase volume. Operator: We've reached our allotted time for questions. I will now turn the call back to Chris Britt for additional or closing remarks. Christopher Britt: Thanks so much. I really want to appreciate everyone and thank you all for joining us today. We look forward to seeing you all out on the road hopefully sometime soon. Operator: Thank you. This does conclude today's meeting. Thank you for your time and participation. You may disconnect at any time, and have a wonderful day.
Matias Jarnefelt: Hello, everyone, and welcome to Harvia's Third Quarter '25 Earnings Webcast. My name is Matias Jarnefelt. I am the CEO of the company. And with me, I have Ari Vesterinen, our Chief Financial Officer. Ari Vesterinen: Hello. Matias Jarnefelt: I will first start by taking you through the highlights of quarter 3 in terms of business and financial performance, and I will also talk a bit about our strategy implementation. After that, Ari will continue and will shed more detail on our financial performance and numbers, after which we are very happy to get your questions. So let's start and summarize quarter 3. This time, it actually is very easy. We can summarize even with just one number, 19. So 19% top line growth at 19% adjusted EBIT margin. So essentially, when we talk about the top line, we delivered EUR 46 million, and that's, I said, 19% growth versus the comparison period. In terms of comparable exchange rates, that's 22% growth from last year. Organic growth was solid double-digit at 16%. We're very pleased that the growth was broad-based. Essentially, we had double-digit growth across all of our 4 geographical sales regions. And this despite the fact that, of course, this year has been rather volatile in terms of the macro environment. We had modest quarter 2 in North America. Now returning to a solid double-digit growth. That's, of course, something we are very pleased with. APAC and MEA continued very strong double-digit growth. And we're also very happy that Europe that has been a bit on the slower momentum for now the past couple of years, returned to double-digit growth as well. Our adjusted operating profit was EUR 8.8 million, and that represents 19% of our revenue. And that's an improvement from quarter 2 when we had 17% margin, while it's still slightly below our long-term target. The operating profit margin was impacted by the gross margin and in particular, higher cost of goods sold due to tariffs and currency exchange rates. This specifically refers to our heating equipment business, where we make the products mainly in Europe. And then when we sell them in the United States, they are sold in USDs. And of course, the increased tariffs also apply. Also, we've been increasing our operating expenses as we continue to build the foundation for long-term success in areas such as product development, brand building, channel expansion and operational efficiency. If you think about the year-to-date performance, it could be summarized at 17/20. So 17% top line growth at 20% operating profit margin. And looking ahead, we remain focused on executing our strategy and building the foundation for long-term success. And at the same time, we are focused on also delivering strong results in the short-term. In the near-term, our key focus areas include commercial excellence that includes topics like driving growth and driving pricing in this volatile environment, also sourcing and operational excellence to manage the materials cost and also prudent OpEx management. But it is very clear. This is extremely attractive market that's supported by strong long-term growth drivers, and Harvia is extremely well positioned to continue to lead this market and deliver significant growth. Here are the key figures for quarter 3. So revenue at EUR 46 million, and that's 19% growth, organic 16% and at comparable exchange rates, that's 22%. Adjusted operating profit margin at EUR 8.8 million, and that's 19% of our revenue. Operating free cash flow in this quarter was minus EUR 600,000. And there's 2 reasons to this. One is that historically, quarter 3 is our lowest cash-generating quarter. And the reason for that is that during the quarter 3, we are building products to sell during the high winter selling season. Also, we do believe in the long-term growth and success of Harvia. And that's why we're also investing in the platform to grow. So we've been making quite significant investments compared to our investment history in improving our operational efficiency and also building capacity to grow. So last year, we grew -- last year, we bought land around our West Virginia factory in the United States, and we have started to develop the site. And that's just one example of what is going on in our business. In terms of the first 9 months of the year, revenue at EUR 145 million, and that's 16% growth versus last year and organic growth at solid double-digit 11%. Growth at comparable exchange rate at 18%. Adjusted operating profit very close to that 20% mark at 19.7% and operating free cash flow for the first 9 months, positive EUR 13 million. As I opened, I mentioned that we are really pleased that we delivered strong broad-based growth during this quarter. So all of the regions grew double-digit. The highest growth rates continue to be outside Europe and also in terms of absolute contribution, North America and APAC contributed the most. But as I said, we are very pleased that now we also saw Europe playing strong and delivering double-digit growth in both of the European sales regions. When we look at Northern Europe, the region grew by 15%, and that's a significant momentum change after tough 3 years. And during quarter 3, North Europe represented 24% of our total revenue. Where did this momentum come from? We had strong performance in Sweden, in particular. And there, that momentum has been built through channel expansion and development. And also, I personally believe that, here there is some impact from the excitement that KAJ and Eurovision created around sauna in Scandinavia during first half of the year, and now we see that realizing in our numbers. Also Baltic countries delivered strong growth. I'm also very pleased that Finland that has been also struggling already it's quite some time, actually turned back to growth. And here, our focus is to continue on a positive path and really build foundations for sustainable, steady growth for the years to come. Continental Europe grew by 10%, and that's on top of 8% growth a year ago in the comparison period. And I think that tells a story about continued solid progress in the market. So essentially not just a temporary swing, but there is now already a longer trend where we see Continental Europe strengthening. If we look at Continental European markets, submarkets, we have many very strong performance countries there. For example, United Kingdom, Spain, countries in Eastern Europe like Poland. North America returned to double-digit growth after the modest quarter 2. And essentially, our revenue grew by 24% and the region represents now 36% of our total revenue. If you look at the comparison period and exchange rates, the dollar is now around 6% weaker than a year ago. So give and take at constant currencies, North America would have grown around 30%. In terms of organic growth and organic growth in North America, I'd like to note that ThermaSol, a company we acquired in the summer of '24, has been fully consolidated in our numbers since August '24. So essentially, it contributes to inorganic growth for Harvia Group only for the month of July. So August and September this year are already part of our organic growth. And majority of our revenue growth in North America clearly came from organic development. I'd also like to highlight a piece of news that came after quarter 3 was closed, and that is that we have appointed new President of Harvia North America and Region Head, Nathan Hagemeyer. We had a thorough process to find the best possible person to take the lead of this crucially important region for us. And Nathan brings a wealth of experience in selling technical products to residential and commercial facilities in a multichannel sales environment that resembles largely the sales setup that we have in Harvia in U.S. And also, I think there's a strong culture fit, something that we also value a lot. And I'm extremely pleased that Nathan accepted our offer and has already started actually since Monday this week in his new role. APAC and Middle East and Africa is continuing on its strong growth path. And you can see here the comparison figures from '22 through '25. This region is really picking up momentum. And also in terms of just absolute size, representing now 12% of our total revenue, it is a significant part of our business. And what we're also very pleased with is that APAC, when it was smaller, it was more volatile and prone to, for example, individual product deliveries. But when we look at the numbers now, the growth is broad-based, and we feel that the growth is on a strong platform in APAC and Middle East. Now looking at the portfolio view, we continue strong performance in our core of technical equipment for sauna and spa. And you can see that the heating equipment represented 56% of our top line during the quarter 3. We also are having strong momentum in other areas, but heating equipment just grew so fast that the relative shares of some of the other parts of our portfolio didn't develop. Now if we look at the growth bridge for quarter 3 by product category, you can see that the biggest absolute contribution, nearly EUR 5 million came from heating equipment, and that's 23% growth, but also solid double-digit growth in many other parts of our portfolio, and this is also something we are very pleased about. Now then let's talk a little bit about our strategy. Harvia is playing in a very interesting market. We are world leader in a market that has strong growth drivers that we believe have sustainability over a long time. And we want to be a proactive leader and leader that shapes the market and excites the market. And our strategy is based on 4 focus pillars that respond to questions what, where to whom and how. So what delivering the full sauna experience about product leadership and portfolio leadership. Where it's about winning the right markets that matter the most, to whom it's having the leading channels and brands in this business and how it relates to our operational excellence and competencies and people. And I'd like to mention a few things how we've been executing our strategy during quarter 3. In terms of delivering the full sauna experience of product and portfolio leadership, I'm very pleased that we have a strong core, and strong core helps us to build also the future. So when you look at the heating equipment performance, you could see that it is really going from strength to strength. At the same time, we are clearly upping the game in terms of innovation and differentiation. And in the following slides, I will share some of the examples of new products that we brought to the market or launched. In terms of winning in the markets that matter the most, North America, of course, we are very pleased that it's back on strong growth trajectory. And looking at the first 9 months, North America is really performing very strong. Also, APAC is performing extremely strong, and we are continuing systematic activities to drive growth across key markets and making sure that we are not too dependent on any single market in that region. I'm also very pleased that in terms of Europe, the tenacious and systematic work that we've been putting in place over the last couple of years is really starting to bear fruit. So having both regions now in double-digit growth is something that does help us in our strategic and growth journey a lot. In terms of leading the key channels, we, at the same time, want to deepen and grow our partnerships with the existing and traditional customers, that's mass volume merchants and also dealer channel. We want to be the best partner. At the same time, we want to build an even stronger direct-to-consumer channel, and I would encourage you to go and visit our almostheaven.com site and thermasol.com site. So you'll see the level of excellence that we've been able to build during the past 12 months on our direct-to-consumer channels. In terms of best-in-class operations and great people, we are continuing to invest in the heart of our competitive advantage, which is operational excellence. So we've been investing, for example, in energy-efficient and new coating system for Dierdorf that provides cost benefits and also efficiencies. We are investing in our Lewisburg site in West Virginia, in particular in anticipation of driving a significant and ambitious growth strategy in that region. We are also investing in our group IT, so streamlining, bringing common platforms and bringing more simplified and modern platforms for us. And that's also a very important enabler for us to keep scaling this business up. And now a few highlights from our innovation pipeline. So we have now started the sales of Harvia Fenix, which is a new full touch control unit for volume segment. I think it's really the leading product in this category. Exiting 4.3-inch full touch screen product. It's very easy to use with, for example, ready-made presets like mild, cozy and hot. It's smart. So actually it learns about your sauna. So it knows how fast the sauna heats up. So instead of programming it your heater to start heating, for example, 30 minutes before you want to go to sauna. Actually, sauna knows how long it takes to heat up your sauna. So you can just easily put that I want to go to sauna at 3 p.m. and the sauna will be ready, making it very easy for you and also saving energy. What's really cool about it, it's Wi-Fi enabled, and it's over-the-air updatable, so we can keep updating the software and providing even more functionality over the life cycle of the product. And in addition to being able to sell it with new heaters, we can actually sell it to significant installed base of saunas already out there since it's backwards compatible with huge seller Harvia Xenio control panel. So a really exciting product that we are very happy about. Another example is our new MyHarvia smartphone app and definitely the most advanced sauna app there. It very nicely aligns the user experience with Harvia Fenix. It's modern, consistent. Again, a lot of features, functionality to help you get most out of your sauna, including over-the-air updates, and for commercial users, ability to control multiple saunas from the same app and interface. We've also been working on the Harvia cloud platform in the background. So really making us ready for the future. Now in the United States, we've been playing mostly when we talk about ready-made saunas in the more like entry level through Almost Heaven Saunas in price points from $5,000 to $10,000. And with ThermaSol brand, we are now attacking the high end much more aggressively in the past. So we've introduced a range of really exciting 3 new models for the premium sauna category in price points from $30,000 to $35,000. And the response to this introduction has been very, very strong. So very much looking forward to what we can do in terms of delivering results in the coming quarters and years with this strength and play in the high end. And one highlight is that we actually got a prestigious recognition as Time Magazine selected Harvia Group solar powered sauna as one of the best inventions in 2025. And this is quite unique product. So it's basically electric heater powered product but designed so that it actually can be very efficiently and conveniently run with solar power. So really providing full freedom from electrical grids and very sustainable solution. Again, a highlight of what Harvia can do. And then the final slide before handing over to Ari. This is just an example of how we also continue to build other group brands like EOS, our high-end brand for technical equipment. Aufguss World Championships were held end of the summer in Italy. And in the center of the picture, you can see an example of what kind of products we can deliver. So that's an EOS event heater. And that was really exciting to see us as the centerpiece of such an event. Maybe another event to mention, Osaka World Expo was running 6 months during this year with over 20 million visitors. And essentially, Harvia was part of sauna experience site there, which run for 6 months, and it was fully booked 7 days a week, full day for 6 months, really shows the power of sauna and what we can do to excite the market. So with that, I would hand over to Ari. Ari Vesterinen: Okay. Thank you. So when we now compare the quarters, actually, the quarter 3 was great. We had a very clear growth path and the profitability level in absolute money stayed basically on the same level as a year ago, but the percentage is lower. And one thing what is here important to note, almost all financial metrics in the profit and loss statement improved in Q3, except the use of materials and external services. And this measure is not always the same from quarter-to-quarter. It depends on the promotions and product mix and so forth. And frankly speaking, we had a very good year last year. We had that percentage only about 30%. And now we had 37% of the annual -- the quarterly revenues, but this 37% is actually very close to our average, which has been in the past about 35% of the total sales. So I'm personally not worried about this percentage at all. It just requires certain price management with which we have been working. And as said, the quarters are not always alike. Here, we see the most important financials, the key figures for the review period. Okay, we have already seen the profitability and growth rates, but probably some highlights to note. The earnings per share increased about 12% now. The operating free cash flow, okay, it is now lower than a year ago, and it's because of the growth investments we have also in net working capital and in CapEx. And that's visible on the line investments in tangible and intangible assets. This year is an exceptionally high investment year. We are investing for the growth. Net debt stayed more or less on the same level as a year ago and leverage also net working capital has been growing. Also, our number of employees has grown, but only about 8% when we have grown 19% in the sales. So the effectiveness of the staff and the organization has improved. Here, we see the operating free cash flow and cash conversion over the quarters. And what is very typical for Harvia is the seasonality. We have the lowest cash flow usually in Q3 and then the highest usually in Q4. So that has been at least the pattern in the past. And the reason is simply that we have been making products to our stock during Q3 and the biggest sales seasons in North America, in Central Europe and many other areas. The biggest sales seasons are actually in Q4 and Q1. So we are well prepared for the Q4 sales season, and that's demanding some investments in advance. The leverage has been staying on a rather low level, 1.4 at the end of Q2. And in our long-term financial targets, we would like to stay under the level of 2.5. But in the case of acquisition also, we could temporarily also exceed it. But as you see, we have a very healthy balance sheet situation in terms of debt. The net financial items, no big changes now there. We had quite steady environment now during Q3 with U.S. dollar and also the interest and interest rate swaps, they helped also to keep the interest rates quite steady. So actually, the effective interest rates of interest costs -- financial costs to be paid out followed very much the accrued balance sheet-related costs. Here, we see how the investment levels have increased during Q3. And I'm personally not expecting as high level for Q4 anymore, but this year at '25 is somewhat over the historical average level of investments. And the investments, they are really, really required, and they have a quite short payback time, and they improve our operational efficiency also in the near-term. Okay. The Harvia's long-term financial targets, just to repeat, they haven't changed anywhere. They have been quite a while on the same level since last Capital Markets Day 2 years ago, 1.5 years. The average annual growth rate over 10% profitability, adjusted operating profit margin over 20% and leverage, as mentioned already earlier, under 2.5%. Harvia pays twice a year dividend, and now the second dividend installment was paid out October 28 this fall. So now there is time for questions, please. Ari Vesterinen: I have actually got a few questions here in the tablet and most of them are business related, also some finance questions. So I start to make -- ask 2 questions from Matias first. Is there an effect of prebuying ahead of announced price increases in your strong U.S. sales growth in Q3? Matias Jarnefelt: Maybe I would take you back to 3 months ago when we talked about our quarter 2. And I understand the quarter 2 results were a bit of a disappointment to the market, in particular, what comes to the modest performance of North America during that quarter. But at that time, what I told you, I said that look at quarter 1 and quarter 2 in combination because there were clear kind of shifts between quarter 1 and quarter 2, in particular in the comparison period from '24. And when we look at the performance in North America now quarter 3, it's actually a logical continuation of the first half. Another thing that I did mentioned during that earnings call was that we saw quarter 2 in North America modest in the earlier part of the quarter, but we saw signs of improvement as the quarter progressed. So essentially, I would say that this is a logical continuation of the performance already from a longer period of time. Maybe, however, I'd like to make a one brief comment, which is related to quarter 4 last year. And that's, of course, relevant for the baseline now in the quarter that we are now living in quarter 4 this year. And that, of course, is that we had a very strong top line growth last year, overall 28% growth in quarter 4 last year and 63% growth coming from North America, which had a significant portion of rather low-margin campaign sales. So maybe that's something to take into account as you assess Harvia's near-term outlook. But all in all, we see strong performance, continued performance in North America despite all the noise in the market. And despite that the consumer confidence generally on a macro level, we've seen, of course, taking a hit. But what comes to interest in our category, we seem to be in a good place. Ari Vesterinen: There is actually quite closer question to that. What is your strategy ahead of campaign heavy Q4 in terms of inventory levels and pricing? Matias Jarnefelt: Well, first of all, the plan is to participate in campaigns. Campaigns are a significant part of many of our partners' business model. So when we think about, in particular, large volume retailers, typically, they want to have something exciting to offer to their customers during the high selling season, for example, Black Friday, Cyber Monday. And we have a choice, either we participate, or we don't participate. And for us, it is clear we want to keep developing these partnerships. We want them to be a win-win for both. We feel that there's great opportunities for us. But of course, we've also reflected the outcome of quarter 4 last year and always try to learn from the past experiences. In terms of building the inventory, that's also visible in the cash flow. It is very clear that we have been building inventory to be able to deliver and sell during quarter 4 and quarter 1. And I think it's also a sign of confidence that we in the management have for the business. Ari Vesterinen: Then one question actually, you shortly mentioned it, but I ask this anyhow. Can you please tell more what is the heater behind the premium range launched under ThermaSol brand? Matias Jarnefelt: The ThermaSol saunas that we launched will be equipped with EOS heaters. So if you think about our premium brands, we practically have 2 of them. We have the German-based EOS that we have had in our portfolio since 2020 and ThermaSol, high-end brand for the steam and kind of home spas in North America that we acquired last year. In U.S., ThermaSol is clearly more well-known brand versus EOS. So while ThermaSol has great channel access to high-end spas and high-end commercial facilities, we feel it's a great opportunity for us to piggyback with EOS on that. So essentially, the idea is that what comes to steam products and then the kind of full sauna solutions in North America, they are branded ThermaSol. But what comes to the heating equipment, it's powered by EOS. So ThermaSol powered by EOS. Ari Vesterinen: Can you specify the investments in the efficiency you made in Q3? What segments and regions? Matias Jarnefelt: Well, the investments are rather broad-based. So one of the example we pointed out was the EOS factory that's located in Driedorf close to Frankfurt. We made quite significant investments there. Another example I did mention as part of my presentation, we bought land around our West Virginia factory in anticipation of building options to grow. And now we are taking action. So there is already works, the groundworks ongoing on the site, and we are expanding the facility as we continue to see significant growth opportunities for us for years to come in that region. Ari Vesterinen: Then more finance-related question. What was the ForEx impact on sales level in North America? I am after the euro-USD exchange rate you used in Q3 '25. The exchange rates we used for our P&L, they are the average rates from Bank of Finland. And for this quarter, we used exact average. It was $1.168 per euro. And a year ago, it was about $1.10. So actually, dollar was about 6% weaker than a year ago during this quarter. And as we saw from the pictures already in the presentation, we were way over 20% of the growth in Northern America. And in terms of U.S. dollar, it was about 30%. Is EMEA growth more one-off or new projects already coming after current project deliveries? Matias Jarnefelt: EMEA, so is that Europe? Ari Vesterinen: Yes. It is the -- well, let's consider the whole area, APAC, EMEA. Matias Jarnefelt: Okay. APAC and Middle East and Africa. Okay, sure. It used to be much more volatile. And of course, when the scale of the APAC, Middle East and Africa business was smaller, it was quite easily swung either direction by single large orders, for example, significant project deliveries. But over the past few years, our key goal has been to develop the region in a sense that it really provides not only growth opportunities, but also on a stable ground, so diversify the kind of outreach that we have in the region. And when we look at the quarter 3 in terms of the markets and countries that delivered to that regional performance, it is wide spread, and that's very good thing for Harvia. So we saw significant growth in countries like Japan, China, Oceania, Australia and also strong performance in EMEA. So it's not like something really stood out and kind of made the whole thing happen. It really is broad-based growth. And there wasn't -- there's always some project deliveries in Middle East, in particular. That is more a project-based business. But I would consider almost something that is very part of the business we do in that part of the world. And there wasn't any particular outliers in terms of, for example, project business impacting our quarter 3. So all in all, I would assess it as a solid broad-based performance. Ari Vesterinen: Yes. There is really a great interest for sauna, a growing interest in wealthier Arabic countries and certainly some business to come also in future. So it was really not a one-off even in those areas. The new Fenix control and app, is that an opportunity for installed base? Does it give modernization demand? Matias Jarnefelt: This is exactly the thinking we have. So I think in the sweet spot of innovation, we have something that excites the market and we can sell with the new products, but at the same time, provides us an opportunity to tap into the existing Harvia installed base. And if you think about the kind of strategic rationale of how we see Harvia in the long term, it is very important for us now to be a winner as the market goes through a significant growth phase. So have more Harvia products and saunas out there in the world. And the way we think about it is, that we want to make it easy for customers to get into the Harvia world. And once they are in the Harvia world, they want to stay. And one of the example is that if you have already Harvia sauna where you have that Xenio kind of mid-range control panel, it works perfectly with the new Fenix. There's no need to renew, for example, the wirings. That's an exciting opportunity for us to reach out to Xenio owners and basically send a message that there's an exciting innovation. Do you want to upgrade your sauna experience and modernize it with now this full touch smart console that Harvia Fenix is. So the idea is that as we basically sell products and new products, we also want to build the foundation for recurring revenue and loyalty for the long run. Ari Vesterinen: Okay. Now there is a series of 3 U.S. related -- more or less U.S.-related questions. So let's start. What is your best estimate on your performance relative to competition in the U.S.? Is part of the gross margin pressure attributable to increased price competition or merely by the impact of tariffs? Matias Jarnefelt: So around 30% growth after 9 months in the U.S. I think it's a solid performance. The market continues to grow. I believe that we have taken share. So that's one perspective to it. On the kind of pricing competition side, I think it's more related to inertia in having price increases effective that then truly reflect the changes in the cost of doing business due to tariffs and for example, exchange rate changes that happened actually pretty rapidly. If you think about the dollar depreciation, it really started to happen actually towards the end of quarter 1, then quarter 2 was significant rapid deterioration and then more stabilizing during the quarter 3. And then, of course, the tariff increases. We used to have tariffs of around 4% for our heaters that we make in Europe and sell in North America. And essentially, with that 15% general tariffs plus extra tariff on the steel part of the product, we talk about a little bit above 20%. So it's also quite significant impact in terms of that hardware business from Europe. We have implemented already pricing change, but it's also a little bit of a balancing act that what's the right strategy and right pace because at the same time, we want to keep growing, we want to keep our customer relationships strong. But of course, we also need the appropriate compensation for the great products that we make. So ultimately, the sort of margin dynamics, I think it's more related to just the macro factors, the exchange rate and tariffs rather than there would have been significant intensification of competitive landscape. Ari Vesterinen: Do you expect that the price increases implemented to counteract tariffs will be fully visible in Q4, thus supporting margins? Matias Jarnefelt: Well, long story short is that, I think, of course, price increase are always supportive. There's maybe kind of one area of uncertainty, which is basically kind of financing rules. So basically, to a degree, we've still been selling some products that were imported to the market before the tariffs took effect. And basically, it's first in, first out principle. So of course, we have been modeling also the kind of what's the full impact of the tariffs as we will transition in a situation where practically 100% of the products will be having a tariff attached to them. But all in all, I'm confident in the work that we have been doing. Significant effort has been put in pricing analytics and assessing the situation and agreeing and implementing the right course of action. Ari Vesterinen: How do you aim to improve your margin performance in Q4 in the U.S. versus last year when aggressive campaigns heavily diluted your margins? Matias Jarnefelt: Less aggressive campaigns. Now that's maybe a little bit of a kind of a cheek -- tongue in the cheek, but there is some truth to it. That's, of course, for sure. There is many things. So generally -- general price increases that we have been implementing and they have been also coming in force step by step. So we basically built a more like a transition path. It's not yet in full effect, but it's already partially in effect. It's about also being smart in terms of what kind of campaigns and campaign pricing, not only with kind of key accounts we have, but also what do we have available in our direct-to-consumer, which is the fastest channel where our pricing decisions can basically be affecting the price the next minute. And most likely, you would see a little bit less aggressive campaigns, but still good campaigns because at the same time, we want to continue to drive top line growth, and we want to continue to take share in this growing market to place us very strongly in terms of how do we have products out there, building the installed base and building the brand leadership for years to come. Ari Vesterinen: If there is a retrofit demand, perhaps you talk about ASP for such an upgrade, average sales price. Matias Jarnefelt: Yes, I think that's a great comment and something that we are increasingly focused on. So while we are driving growth and volume growth and as I said, building the installed base, it is very clear that in our minds, there's also the long-term future where hopefully, there will be essentially millions of products and saunas where we can sell more continuously. In terms of kind of metrics that we would be reporting like ASPs and ASPs by product category, that's something that we haven't done so far, but the idea, of course, behind that question is a very good one. Ari Vesterinen: Yes. Just to remind, in the more traditional sauna areas, 70% to 80% of our total revenues is actually replacement revenue. People are buying new saunas to their old or -- old place or replacing the heaters. And actually, our sweet spot of heater sales is the second heater for the same sauna. When the construction company has selected the cheapest heater, Harvia heater usually for the new sauna. And after a couple of years or probably 5, 6 years, the user of the sauna wants to have a better one. And that's the most interesting heater for us with more equipment and features and also with higher margins. Matias Jarnefelt: And maybe I could also continue on your very good answer. And just examples of the sort of building recurring business on the installed base. One example is, of course, now Fenix, where we can actually, through OTA, over-the-air updates, actually sell new features during the life cycle of the product. And then, of course, we are looking at -- basically these control panels are becoming fully connected interfaces in the wellness oasis that sauna is, what kind of, for example, digital services in the coming years we can offer that could also provide direct service revenue that would be high margin and scalable. Ari Vesterinen: You discussed already earlier about that we make probably not so strong campaigns, but we make campaigns during Q4. Now the follow-up question to that, shall we expect negative organic growth for North America for Q4? Matias Jarnefelt: I will leave that to your Excel exercise. We, of course, always want to see positive figures, and we have, I would say, high ambition level. And then as you know, we don't give short-term guidance. So that's something that you will need to assess. Ari Vesterinen: Okay. Your CapEx has been now somewhat elevated both in '24 and '25. Is this higher CapEx expected to continue in '26? Or should it decline? Our estimate is currently that it will decline a little compared to this '25, but we don't give more exact figures for that. Okay. When are you able to offset the tariff impact with price increases? That was more or less already discussed a little. By the way, the tariff impact for completely sauna cabin set in U.S. for us is actually not so heavy. So -- because the saunas are produced there in Northern America and from local wood with local work power. So only the hero, which is coming from Finland, it has max up to 20% impact tariff for the landed cost, but it makes -- from the total price of the package only about 10%, 10% to 15%. So the impact of the tariffs for the complete sauna cabin, which we are mostly selling there is only about 2% and with our pricing power, we should really be able to increase that 2% or somehow otherwise compensate. So the biggest impact of the tariffs are for importers who are importing only the heaters for their saunas and for the distribution. And we have that kind of customers also in U.S. who are actually paying the import tariffs by themselves. Matias Jarnefelt: And maybe to also build on what Ari said, we, of course, are in close discussions with our key customers. And some of them have also big companies, public listed companies making statements also in terms of the development on kind of the pricing of the merchandise that they buy from suppliers from the Far East. And I think it is clear that there is kind of this dynamics that the inventory that many companies have in the U.S. to a degree has been imported before the tariffs took in place. And now more and more companies are really the kind of, I would say, the back against the wall implementing the price increases. So essentially, I would say, as my personal assessment that we have not fully yet seen the pricing increase impact of the tariffs that are currently in force and finding that new equilibrium in the market will take probably another 6 months. Ari Vesterinen: From some of my personal channel checks in Europe, it seems that the winter selling season has started earlier than normal. Several distributors told me that Harvia sales have been accelerated notably throughout the summer and since October. Would you like to comment that? Matias Jarnefelt: Well, I can comment. Actually, I'll take you again back to 3 months ago when we were talking about quarter 2. And actually, usually, I don't talk about weather as an excuse. But actually, 3 months ago, I did mention that. And I did mentioned it in particular in relation to our Northern European performance. So in Northern Europe, we had basically vacation house sauna season, so-called cottage season is very important for us. But in North Europe, we had a very poor beginning of the, I would say, spring and beginning of the summer. And the weather was significantly better in July. And that's what I also mentioned. So I would say the quarter 3 that you now see, it's actually a little bit the dynamics from the season. Actually, the spring season started a bit later just due to the weather. Ari Vesterinen: The same is true for U.S. when looking at recent momentum on Costco and Wafer. Most importantly, customers are increasingly mentioning that Harvia has been the best value for money. Thank you. Not working for us, this [ ask. ] Somehow, this feels like COVID-19 2.0 light as consumers are staying more at home. Meanwhile, we are coming out of a period of subdued home improvement, which has started to pick up again, also benefiting Harvia in mature regions. Does this match to your view? Matias Jarnefelt: Well, I think there's a little bit different dynamics between how much are we in wellness business and how much are we in home improvement business depending on the region. So for example, in Finland, it's very clear that sauna has close connection to the property market and new build construction just for the simple reason that saunas in such a big majority of houses, apartments and summer cartridges. So there is such a correlation. Whereas in regions where the sauna density is much lower, clearly, the dynamics is much more about buying a wellness product. And sauna is like, I would say, miracle wellness oasis. Sauna has significant health and wellness benefits. And it's unique since you can get those health and wellness benefits in such a pleasant way. And this combination, it does great for you and it feels great, story resonates extremely well, almost no matter what the economic times are. And personally, I'm a strong believer of this sauna as a perfect wellness oasis and the strength of the story for years to come. Ari Vesterinen: During the conference call in September, Costco's CEO said they would radically reshuffle their holidays offering. For the first time, they will also bring in saunas in store for which they didn't have enough space previously. Does this impact Harvia given that Costco members are now limited to shopping almost 7 saunas product online? Does it imply that Costco will carry saunas in its own inventory and thus impact Q4 and future performance? Matias Jarnefelt: Well, I wouldn't comment too much on the CEO of another company. But of course, we have taken a note, and we have a long-standing relationship with Costco. And the growth ambition of Harvia is to grow each of our accounts, so we want to keep developing Costco, and we see significant growth opportunities. We also want to have more of the big box retailers as part of our partnership network. We want to grow in the dealer channel where we can sell more premium products like ThermaSol saunas, which require, for example, installation support for the end user. And we see significant opportunity also in our D2C with a portfolio that's tailored for D2C so that all channels can grow without cannibalizing each other. And of course, as I said, we know about the comment made. And it's an example of actually in a sense, in the sort of big macro picture, the tariffs most likely are bit of a negative thing, but they do also change the supply chains and competitive landscapes. And one example is that, of course, Harvia makes majority of our products inside the United States. So we are not fully insulated from tariffs as discussed, but we are better insulated than most of our direct competitors. But there's also this competition between categories in big channels. And essentially, we know that many companies like the one mentioned and others have seen significant price increases, in particular products that have been imported from the Far East and making reassessment of their commercial potential in their channels and also, for example, for the kind of sales season campaigns. And this is something we have now seen that actually a category like sauna that seems to be resisting very well kind of the macro environment because the story of the category is so strong and partner like Harvia that can produce good value and much of it -- much of that value created in the United States are in great position. Ari Vesterinen: Looking at the strong growth in heating equipment. Harvia has got more than 20% market share. No matter how you look at it, it can't be coming solely from new build or replacement at your existing customers. You must be converting non-Harvia customers into Harvia customers, coupled with upselling, the price difference between a digital control versus a basic heater. Can you comment on the drivers behind the strong growth in heating equipment? Matias Jarnefelt: Well, on one hand, the whole -- like sauna category is growing. And many saunas in the world are powered by Harvia. And if we think about just putting things in scale with Harvia, we talk about Harvia making -- we make clearly more than 200,000 heaters per year and give and take maybe 20,000 sauna cabins. And practically, that means that we have 10x more volumes in the heaters. And that, of course, tells the story that many saunas, which have been provided may be custom-made on site or maybe provided by some other sauna cabin providers actually use Harvia. And the reason is very clear. We have excellent products, and we provide great value for money, but we also are very good at designing the products so that the market wants them, and we have efficiencies in production. So that, of course, leaves good margins for us. But ultimately, this is the dynamics. We want to keep growing in the equipment business. We see significant opportunities. And in terms of volume, in order of magnitude, it's significantly larger than the cabin business at the moment. But at the same time, we want to sell these full solutions because it does help us tap into much bigger spend potential in the key markets. So these sauna and heating equipment do complement each other, and I think we are well placed in both of them. Ari Vesterinen: Looking at your LinkedIn pages, recruitment has ticked up quite a bit at ThermaSol and Almost Heaven Saunas over the past 2, 4 weeks. This matches the early indicators that sauna demand is already a lot higher versus previous year. Notably, it comes at the time of the shutdown. Here is the [ current ] shutdown meant. Are you impacted by the current shutdown? Matias Jarnefelt: I would say mostly no. That would be the answer. Maybe on the sort of recruitment, of course, if you think about a region that's growing 30% year-to-date and has a history of growth of 40% over a period of 6 years on average, of course, that puts us in a situation where we have opportunity and need to strengthen the organization. And I would take it also as a sign of confidence from the management side to the future of Harvia. Ari Vesterinen: In the Q2 results information for Sweden, it was mentioned that consumer trade is expected to improve towards the end of the year as a new partner is being sought or started to replace Kesko. What is the situation with this? And if the partnership has already started, has it had an impact on the Q3 results yet? Matias Jarnefelt: Yes, I did touch upon it when I talked about North Europe as part of the presentation. The answer is yes. So for Harvia, when Kesko made the strategy alignment or like realignment kind of choosing to leave D2C technical trade in Sweden that left a big gap in our channel landscape in Sweden. And we have been able to bridge that gap, and we have started to work with the new partner, and that's going very well. Ari Vesterinen: And Kesko is still selling our products also in Sweden with a slightly different concept. In APAC/MEA, given that the multiple markets seem now to demonstrate sustainable growth, but you are partly dependent on relatively long logical routes from Europe. Are there opportunities for M&A? Or have you considered adding capacity into the region? The same note, are you delivering whole sauna kit solutions increasingly to the region? Can you give a little bit color on your outlook in that -- in this regard? Matias Jarnefelt: Yes. We do have actually a factory in Asia. So -- since 2005, so this is actually 20th anniversary of our factory in Guangzhou. We have, I would say, mini version of Muurame. So Muurame is an equipment factory that is also a volume factory. We have another volume factory, which is the China factory. On top of that, for the heaters, we have the value factory close to Frankfurt in the EOS home space. So we actually do have supply source in that region. And the majority of the products we sell in APAC are the technical equipment. So if you look at the sort of the cabin full solutions business, it is very clear that the star of the region is North America. We do have ambition to also increase the full solutions business in Asia. We are already doing it mostly through partnerships. Some of the products, cabins are also shipped from Europe. And at the same time, we are assessing what potentially could be the right time for us to have sauna cabin factory in that region when the volumes would justify it. Ari Vesterinen: Okay. Ladies and gentlemen, we have now spent exactly 1 hour with Harvia. I don't have any more questions on the list. Thank you very much for following, and let's sauna. Matias Jarnefelt: Thank you very much. Let's sauna.
Operator: Thank you for standing by, and welcome to the Cytokinetics Q3 2025 Earnings Conference Call. This call is being recorded and all participants will be in a listen-only mode. [Operator Instructions] I would now like to turn the call over to Diane Weiser, Cytokinetics Senior Vice President of Corporate Affairs. Please go ahead. Diane Weiser: Good afternoon, and thanks for joining us on the call today. Robert Blum, President and Chief Executive Officer, will begin with an overview of the quarter and recent developments. Andrew Callos, EVP and Chief Commercial Officer, will address commercial readiness activities for aficamten. Fady Malik, EVP of R&D, will provide updates related to the clinical development program and medical affairs activities for aficamten. Stuart Kupfer, SVP and Chief Medical Officer, will provide updates on the clinical development program for omecamtiv mecarbil and ulacamten. Sung Lee, EVP and Chief Financial Officer, will provide a financial overview of the past quarter. And finally, Robert will provide closing comments and review our expected key milestones for the remainder of 2025. Please note that portions of the following discussion, including our responses to questions, contain statements that relate to future events and performance rather than historical facts and constitute forward-looking statements. Our actual results might differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause our actual results to differ materially from those in these forward-looking statements is contained in our SEC filings, including our current report regarding our third quarter 2025 financial results filed on Form 8-K that was furnished to the SEC today. We undertake no obligation to update any forward-looking statements after this call. Now I will turn the call over to Robert. Robert I. Blum: Thank you, Diane, and thank you all for joining us on the call today. The past quarter was highly productive and defining for Cytokinetics. We made significant progress across the company's priority objectives as we advance towards the end of the year when we hope to achieve our first potential FDA approval of aficamten for patients with oHCM. Our major accomplishments this past quarter were dedicated to preparing for that milestone, including continuing constructive engagements with FDA, completing key commercial launch readiness activities and fortifying our capital structure. During the quarter, we held our late-cycle meeting with the FDA. As we previously disclosed during the meeting, we discussed our proposed REMS program, including elements to assure safe use, or ETASU, as well as anticipated post-marketing requirements. Prior to the meeting, we had received FDA's responses to our proposed REMS and label for aficamten. And based on our exchanges and discussions with FDA to date, we continue to expect a differentiated label and risk mitigation profile for aficamten if approved by the FDA. We've completed all GCP inspections by the FDA with no observations noted. Moreover, to date, we have not been notified of the intention of FDA to conduct pre-approval inspections. We look forward to continuing our dialogue with FDA ahead of the PDUFA date. In recent months, we've also leaned further into commercial readiness with the onboarding of our commercial field sales colleagues and the finalization of promotional campaigns and patient support programs, with objective to further differentiate how we show up commercially. At the same time, in Q3, we achieved an important clinical milestone within the development program for aficamten. We presented the positive primary results from MAPLE-HCM, which demonstrated superiority of aficamten to metoprolol in patients with oHCM, challenging the long-held status quo of treatment in this disease. Our intention is to file a supplemental NDA for MAPLE-HCM following its potential initial FDA approval. But in the meantime, we believe these results may help catalyze certain prescribers and help unlock more of the market upon the initial introduction of aficamten as may result in increased commercial launch velocity. Following closely behind the potential approval and launch of aficamten in the United States is the expected potential approval of aficamten in the EU. During the quarter, we received the Day 120 List of Questions from the EMA, and we subsequently submitted our responses. More recently, we've continued EMA interactions, and we're preparing Day 180 responses. We're encouraged by ongoing interactions, and we expect a final decision from the European Commission in the first half of next year, even possibly on the earlier side of the year, given the pace of our review to date. In parallel, our European launch readiness activities are well underway, focused on market access planning, medical education and engagement with the cardiology community and to ensure a strong foundation for a successful introduction of aficamten in Europe. We also continue to work closely with Sanofi to support the potential approval of aficamten in China to further broaden the global opportunity and reinforce our commitment to making this therapy available to patients worldwide. To achieve all of this, we're fortunate to have a strong balance sheet, which we further bolstered during the quarter through our convertible note offering. As Sung will elaborate, this transaction helps not only to provide additional capital at this important time, but also financial flexibility. And lastly, we continue to build momentum across our broader pipeline at this important inflection point in our corporate development, reflecting our ongoing commitment to sustained innovation and longer term growth. With that, I'll turn the call over now to Andrew, please. Andrew Callos: Thanks, Robert. We continue to make strong progress with commercial readiness activities towards the potential FDA approval of aficamten next month. As Robert mentioned, our interactions with the FDA to date have reinforced our expectations for a differentiated risk mitigation profile anchored in REMS and label, and we have confirmed our go-to-market plans and promotional campaign. Following anticipated approval in December, our launch process will begin immediately. Within days, our website, patient navigators, patient support services will go live to begin supporting physicians and patients on their treatment journey. Shortly thereafter, in early January, our fully trained cardiovascular sales and medical teams will be in the field engaging healthcare professionals with full commercial launch, inclusive of product availability and REMS operations to follow. To ensure a seamless and impactful launch, we've invested deeply in assembling the right team and creating the right infrastructure. Over the last several months, we've built a strong and highly experienced cardiovascular sales team with our field sales representatives averaging over 20 years of industry experience and 14 years of cardiovascular experience. These are seasoned sales professionals who understand the nuances of launching a new medicine in a specialized market. Our sales team is on board and completing training to ensure that our full team will be prepared to begin HCP engagement within days of FDA approval. A subset of our sales team has already been in the field since early September, introducing Cytokinetics to key oHCM HCPs and providing disease education. Core to our launch strategy and consistent with the value and our vision of a differentiated patient-centric treatment experience, one that has been built from the ground up specifically for aficamten. Our approach is designed to be simple and integrated across all touch points for both HCPs and patients. At the heart of this model is a highly qualified team of patient navigators who will serve as a central point of contact throughout the patient journey. These navigators are also on board and have completed their training or are completing their training and preparations ahead of their anticipated approval to ensure readiness. We've developed a distinct and compelling promotional HCP campaign that highlights the differentiated characters of aficamten and key attributes of our REMS program. We believe this campaign will clearly communicate the clinical value of aficamten and support broad awareness among cardiologists. Ahead of launch, we continue to engage with payers to educate them on the evidence from our clinical trial as well as the clinical and economic burden of HCM. We remain confident in our ability to see parity access by the second half of 2026. Importantly, our strategy is comparable access with focus to differentiate based on the clinical profile of aficamten, our REMS program and our comprehensive bespoke patient support services. As we stand several weeks out from our potential approval, I'm pleased with our commercial preparation and launch readiness, and I'm confident in our ability to execute quickly and effectively if aficamten is approved. As we look ahead to measuring the pace and velocity of our launch after approval, we will focus on a few key metrics. First, HCP prescribing breadth as measured by the number of HCPs who are actively writing prescriptions. Second, prescribing depth as measured by the volume of prescriptions and HCP writes for aficamten. To achieve rapid uptake, we will quickly engage existing CMI prescribers with an eye to expanding the prescribing universe to those who treat HCM, but have yet to prescribe a CMI. More specifically, our goal for our field-based cardiology account specialists was to reach nearly all of the estimated 650 HCPs or approximately 80% of the HCM prescribing to date within the first few weeks of January. And third metric is the volume of patients on aficamten. We will be closely monitoring and supporting patient uptake, including time of conversion to commercial drug, adherence, compliance and persistency. These measures will provide us early insights into the speed and trajectory of our launch rate of change and overall strength of our commercial execution focused on category growth and overall preferential share in an expanding market. Finally, our attention is not only on the U.S., but also in the EU, where we've made meaningful progress in preparing for potential commercial launch of aficamten in that geography. We recently hired a General Manager for Italy alongside colleagues that are already on board in the U.K., France and Germany and also began recruiting and hiring our full German commercial team inclusive of our field sales reps. In addition, we are preparing dossiers for upcoming discussions with HA bodies across key EU countries, with potential EMA approval expected in the first half of 2026, we remain on track for a launch in Germany in the first half of 2026 with other geographies to follow in '26 and '27. With that, I'll turn the call over to Fady. Fady Malik: Thanks, Andrew. During the quarter, we are pleased to have presented new data that further reinforces the differentiation of aficamten and its potential for patients with HCM. Most notably, at the ESC Congress, we presented positive primary results from MAPLE-HCM, which were simultaneously published in the New England Journal of Medicine. The results which show superiority of aficamten to metoprolol represent a watershed moment in treatment of oHCM. While patients treated with aficamten experienced a significant improvement in exercise capacity, those on metoprolol showed a decline, challenging the long-standing rationale for beta blocker used as the standard-of-care therapy in this disease. This finding has resonated strongly across the cardiology community as we heard firsthand from many healthcare professionals and key opinion leaders on site at ESC. In addition to improving exercise capacity, aficamten also produced larger improvements in symptoms, gradients and cardiac biomarkers as compared to metoprolol. Improvements were consistent across all prespecified subgroups and confidence of the robustness of the findings. Importantly, adverse events were similar in the 2 groups and the safety of aficamten observed in MAPLE-HCM was consistent with previous studies. To that end, as the evidence of aficamten expands, so too does our confidence in its consistent safety profile. An updated integrated safety analysis representing nearly 700 patient years of exposure from REDWOOD-HCM, SEQUOIA-HCM, FOREST-HCM and now MAPLE-HCM as well, aficamten was shown to be well tolerated with a low incidence of LVEF less than 50% over extended periods of exposure, with no occurrences associated with a serious event of heart failure. Long-term treatment with aficamten has also been shown to not be associated with an increased risk for atrial fibrillation. Looking ahead and coming up this month at the AHA scientific session, pleased to have 3 late-breaker presentations with additional data from MAPLE-HCM providing new insights into these results. With respect to the ongoing clinical trial program for aficamten, the next major data milestone for us will be the readout of ACACIA-HCM, the pivotal Phase 3 trial in nHCM. We completed enrollment of the primary cohort, excluding Japan, in the first quarter of 2025, and we now expect to report the top line results from this cohort of ACACIA-HCM in the second quarter of 2026. During the third quarter, we completed enrollment of patients in the Japan cohort, closing enrollment of ACACIA-HCM worldwide. If the results of ACACIA-HCM are positive, it represents an opportunity to address the needs of a highly underserved patient population and an important opportunity to expand the therapeutic impact of aficamten. Our belief in the therapeutic potential of aficamten in nHCM is founded in the existing body of evidence from the nHCM cohort of REDWOOD-HCM and strengthened by their longer term follow-up in the FOREST-HCM trial as recently reported. At the Heart Failure Society of America meeting in late September, we presented new data covering at least 96 weeks of treatment in these nHCM patients. What you saw, albeit in an open-label setting was that 79% of the patients treated with aficamten improved by at least 1 NYHA functional class. Patients also had a mean increase in their KCCQ Clinical Summary Score of 11.2 points as well as improvements in cardiac biomarkers. Few patients experienced LVEF less than 50 and all instances were reversible after down titration or short treatment interruption. We are hopeful that these data may be replicated in the results of ACACIA-HCM given the similarity in patient populations and dosing scheme involved. Alongside our clinical research, our Medical Affairs organization has been very active, engaging the HCM community broadly as we prepare for launches in both the U.S. and Europe. They conducted recent advisory board meetings in the U.S. and Europe and met with the HCM community of physicians at ESC and HFSA alongside institutional visits in their territories. Our team of therapeutic medical scientists in Germany is in place, and we now have medical directors located in Germany, the U.K. and France, supported by our regional group located in Switzerland. Our field team in the U.S. have now also partnered with their newly hired sales colleagues to compliantly conduct introductory meetings with key opinion leaders and healthcare professionals. Now I'll turn it over to Stuart to provide updates on our ongoing clinical trials in heart failure. Stuart Kupfer: Thanks, Fady. During the quarter, we continued conduct of COMET-HF, the confirmatory Phase 3 clinical trial of omecamtiv mecarbil in patients with symptomatic heart failure with severely reduced ejection fraction less than 30%. These are patients who remain at high risk for frequent hospitalization and mortality despite receiving maximally tolerated guideline-directed therapies. COMET-HF is designed to confirm the findings of the positive Phase 3 clinical trial of GALACTIC-HF in a more severe HFrEF population in whom we believe this mechanism may be able to deliver greater cardiovascular risk reduction. In October, we conducted an investigator meeting in Europe, which revealed tremendous enthusiasm for COMET-HF. Many of the investigators had participated in GALACTIC-HF, and it was really wonderful to see their continued enthusiasm for the potential benefits of omecamtiv mecarbil. We now have over 75% of sites in North America and Europe activated and are continuing to activate sites around the world. We expect to continue patient enrollment in COMET-HF into 2026. We also continue to conduct AMBER-HFpEF, the Phase 2 clinical trial of ulacamten in patients with symptomatic heart failure with preserved ejection fraction of at least 60%. By inhibiting cardiac myosin to attenuate hypercontractility, ulacamten is uniquely positioned to address the underlying diastolic dysfunction in this subgroup of HFpEF patients. HFpEF represents approximately half of all heart failure cases and remains an area of high unmet need with limited treatment options. Enrollment in AMBER-HFpEF is progressing, and we expect to complete cohorts 1 and 2 in 2026 to inform FDA interactions and the decisions to proceed towards potential registrational studies. We're pleased with the continued execution of these ongoing clinical trials, each in a different form of heart failure, which reflects our continuing commitment to further advance innovative medicines within our specialty cardiology franchise. And with that, I'll pass it to Sung. Sung Lee: Thanks, Stuart. We're pleased to report our third quarter of 2025 financial results. Starting with the balance sheet. We finished the third quarter with approximately $1.25 billion in cash and investments compared to $1 billion at the end of the second quarter of 2025. Our cash and investments increased quarter-over-quarter due to the net proceeds of $327 million received from the issuance of $750 million aggregate principal amount of the convertible senior notes due 2031 and concurrent exchange of $399.5 million aggregate principal amount of our 2027 notes. These transactions together accomplish our goal of providing the company with financial flexibility ahead of the potential launch of aficamten for oHCM. Excluding the net proceeds received from this transaction, our cash would have declined by approximately $112 million quarter-over-quarter. In October, we received proceeds of $100 million from the Tranche 5 loan provided by Royalty Pharma, which will enable us to finish 2025 with approximately $1.2 billion in cash and investments. R&D expenses for the second quarter were $99.2 million compared to $84.6 million for the same period in 2024. The increase was primarily due to advancing our clinical trials and higher personnel-related costs, including stock-based compensation. G&A expenses for the third quarter of 2025 were $69.5 million compared to $56.7 million for the same period in 2024. The increase was primarily due to investments towards commercial readiness and higher personnel-related costs, including stock-based compensation. Net loss for the third quarter of 2025 was $306.2 million or $2.55 per share compared to a net loss of $160.5 million or $1.36 per share for the same period in 2024. The net loss for the third quarter of 2025 includes the debt conversion expense of $121.2 million due to the induced exchange of $399.5 million of aggregate principal amount of the 2027 notes. Turning to our financial guidance. We are narrowing our full year 2025 GAAP operating expense range to $680 million to $700 million from the previous range of $670 million to $710 million. Stock-based compensation that is included in GAAP operating expense is expected to be between $110 million and $120 million. Excluding stock-based compensation from GAAP operating expense results in a range of $560 million to $590 million. As we near the close of 2025, we have taken important steps to add flexibility and strength to our balance sheet. This positions us well ahead of the PDUFA date for aficamten in the U.S., potential approval in the EU in the first half of 2026 and the readout of results from ACACIA-HCM expected in the second quarter of 2026. With that, I'll hand it back to Robert. Robert I. Blum: Thank you, Sung. This quarter, we made substantial progress across the company. We reported additional data that continues to validate our pioneering and leading science, and reinforce the differentiated profile of aficamten, while also finalizing our commercial launch readiness and maintaining momentum across our pipeline. These accomplishments underscore the focus, rigor and dedication of our teams as we move closer to the most important milestone in our company's history. To help us prepare for this pivotal phase in the company's evolution, we were pleased to welcome James Daly to our Board of Directors during the quarter. Jim brings more than 30 years of global biopharma commercial leadership experience including long-standing senior commercialization expertise from his time as Chief Commercial Officer at Incyte and in senior commercial roles at Amgen, alongside now Board roles at leading commercial biopharma companies. We look forward to his guidance and oversight now as a Board member at Cytokinetics. As we approach our first potential FDA approval at Cytokinetics, I want to thank our employees, our partners and our shareholders for their continued trust and support. We're approaching a pivotal moment in our company's history, standing at an important threshold after many years of disciplined investment in our science, pipeline and infrastructure as well as capital structure, and that will enable our planned transition to a fully integrated commercial company. At this juncture, we are not spectators, but instead, we are active participants in shaping the next chapter for our company. Our near-term focus remains on potential regulatory approvals and commercial launch and velocity. I'm confident in the strength of our teams and the clarity of our shared vision now translating to execution. With that, I'll recap our upcoming milestones. For aficamten, we expect to advance NDA review activities with FDA to support the potential U.S. approval of aficamten by the end of the year. We expect to advance go-to-market strategies and continue launch preparations for aficamten in the United States. We expect to continue go-to-market planning in Germany and expand commercial readiness activities in Europe in 2025 and in preparation for potential approval of aficamten by the EMA in the first half of 2026. We expect to continue to coordinate with Sanofi to support the potential approval of aficamten in China, pending approval by the NMPA. And we expect to report top line results from the primary cohort of ACACIA-HCM in the second quarter of 2026 and continue patient enrollment and conduct of the adolescent cohort in CEDAR-HCM into 2026. For omecamtiv mecarbil, we expect to continue patient enrollment and conduct of COMET-HF through 2026. For ulacamten, we expect to continue patient enrollment and conduct of AMBER-HFpEF through 2026. And finally, for preclinical development and ongoing research, we expect to continue ongoing preclinical development and research activities directed to additional muscle biology-focused programs. And operator, with that, we can now open up the call to questions, please. Operator: [Operator Instructions] We'll hear first from the line of Gena Wang at Barclays. Huidong Wang: I have tons of questions on approval, but I will save that for my peers. So I will ask one question regarding ACACIA data. I think you did mention that the data will be coming out in 2Q '26. So as we remember that you added pVO2 as a dual primary endpoint for regulatory feedback from Europe and Japan. So technically, the drug should receive approval as long as you hit 1 of the 2 primary endpoints. So -- but in the case of missing pVO2, do you anticipate any issue of approval in Europe and Japan? I assume U.S. will be totally okay as long as you're hitting one endpoint. Robert I. Blum: I'll ask Fady to respond to that. Fady Malik: Gena, I think it's really difficult to know what will guarantee approval or not. Obviously, it depends on the magnitude of the other results. It depends on safety profile, depends on lots of things. But I think the trial will be considered positive based on our statistical analysis plan of either endpoint is positive, but you'd like to see them at least minimally moving in the same direction. You'd like to see magnitudes that we think are clinically meaningful. You like to see consistency across the other endpoints. So I think all of those things go into regulators' evaluation of whether a trial not only was statistically significant, but represents a clinically meaningful therapeutic in the field. Operator: Our next question today will come from the line of Salim Syed at Mizuho. Salim Syed: I'll also ask one on ACACIA, just given the amount of attention this trial is receiving. And sorry for the granularity around the p-value here. But Fady, so the ACACIA trial p-value is split, as I understand it, between KCCQ and peak VO2, both at 0.025, so equal. And if one wanted to play devil's advocate for a second here, just curious why is that the better strategy at this point versus what ODYSSEY had, which was weighted to KCCQ at 0.04 and came in with a p-value of 0.06, which was close to hitting and also a better p-value than what we saw with ODYSSEY with the peak VO2 measure. And the trial only needing, again, statically one measure to hit to be successful. And to that point, while the study is still blinded, if you wanted to, could you change the weighting between the 2 endpoints in ACACIA before unblinding the results? Robert I. Blum: Again, I kind of go through the -- what I said earlier is that any positive result is not necessarily a meaningful result. You could -- I think the ODYSSEY trial missed and the KCCQ delta was 2 or 3, I can't remember the exact number, but pretty modest, and I doubt would -- if you consider the magnitude of effect would be that compelling to regulators. So we powered this trial of 0.025 for each based on what we think is a solid clinical effect at KCCQ that's 5 points and with peak VO2's improved by 1.0. Now that powering -- the trial is powered at 90% power for each of those magnitudes doesn't mean that the trial is positive only if we reach those magnitudes. The minimum, I guess, positive difference for those endpoints is substantially smaller and gets into the range of where it's probably debatable whether the size of the effect is meaningful or not. So we think we have adequately powered each endpoint. We think allocating alpha equally provides us an opportunity to win the best on each endpoint. And at this point, I don't anticipate us making any changes to that. Operator: Our next question today will come from Akash Tewari at Jefferies. Zaki Molvi: This is actually Zaki on for Akash. So just again on Nonobstructive. You've talked about how Bristol's ODYSSEY study had an outlier placebo. And to us, it almost seems like their standard deviation on KCCQ in particular, came in higher than they expected in their protocol. So for ACACIA, you've chosen to keep the trial actually at a similar size of ODYSSEY with an even more aggressive alpha split. So I just want to know in terms of what you're seeing on blinded variability, what gives you confidence that, one, you're not underpowered versus ODYSSEY and two, that placebo is actually tracking in line with your expectations around that 5-point placebo-adjusted delta on KCCQ? Fady Malik: Well, I think your last point is impossible to answer because we're blinded, so we don't know what the placebo effect is in ACACIA. We do monitor the variability of the combined data set and for now, the variability appears to be within our assumptions. So I think we're adequately powered based on the global variability. And again, I'll just say that the variability that we've observed in the KCCQ and several trials that we run using that metric is generally about 15-point range, which tracked with SEQUOIA, it's tracked with other trials we've done in that area. And I think the indication, it's not really any different at this point. So I think we're tracking along our assumptions and for now, we'll just let things play out and see how they read out next year. Robert I. Blum: I might also underscore that variability is a function of a number of factors, including experience in the course of conduct of studies such as this. And please understand that we believe that one way to manage variability as we have done, is to go to centers with ample experience conducting clinical research using aficamten and as has already been historically validated in our prior studies. So we do believe that's something that serves to our favor. Operator: Our next question will come from Carter Gould at Cantor Fitzgerald. Carter Gould: Maybe I'll give ACACIA a break for a minute. Andrew detailed a lot of metrics that you'll be watching. Which of those metrics are you likely to share with the investment community? And any of those I can get you to commit to today? And do you anticipate blocking third-party prescription data during the launch? Robert I. Blum: Andrew? Andrew Callos: So those 3 metrics I talked about in terms of prescribing breadth and depth as well as volume of patients is what we plan on sharing. No, we're not going to give targets and share what those would be. Relative to data, this is a very limited distribution the REMS drives that as well. The specialty pharmacies or 2 of them will not report data. We will report that on a quarterly basis. There are also pharmacies that will be qualified IDN pharmacies through large healthcare systems. Many of those will be reported through syndicated data, but that will be a very small portion of our overall volume, maybe around 20% to 30% or so. So if you look at syndicated data from IQVIA or Symphony or one of those sources, you're not going to see anywhere near the complete picture, but we certainly will give that picture on a quarterly basis. Operator: Our next question will come from the line of James Condulis at Stifel. James Condulis: I'd like to ask one on back to ACACIA and again, on blinded data. I was curious how much of a line of sight do you have on kind of like blinded safety data and maybe what the LVF less than 50% rate looks like? Obviously, not anything specific, but like how it compares to, say, what you saw in SEQUOIA and Obstructive. Just curious if there's any color there. Robert I. Blum: Yes, I'm going to try carefully here. I'll just say that there's nothing out of the blinded data that are unexpected based on what we've seen so far. Operator: Moving on, we'll hear from Cory Kasimov at Evercore. Cory Kasimov: So I want to go back to the pending launch. And I'm curious, do you anticipate the implementation of another REMS program at these HCM clinics where they're already prescribing mavacamten is going to be a barrier that we should expect to kind of slow down the cadence of launch in the early days? Or is the process of registering centers relatively straightforward at this point? Robert I. Blum: So I'll ask Andrew to comment. I might just start by saying we're respectful of the fact that there are existing workflows that have already been adapted. And as Andrew has already highlighted, it's our goal to be enabling a REMS program and implementation that should create for a more flexible and easy experience for physicians, patients and pharmacists within established workflows. Maybe Andrew can elaborate. Andrew Callos: Yes, it's a good question. There's a lot of centers that physicians who are writing today. So part of the goal would be for a differentiated REMS program alongside MAPLE, alongside SEQUOIA to these get more over the line, so to speak, to prescribing. So that would be new workflow for them. Those who have existing workflow. The workflow in the office really is around echo for titration and monitoring. That is similar. So you're going to have echo monitoring potentially with, say, a different frequency or the ability to titrate up at each point of monitoring. So it's the same kind of workflow, if you will. So we're not anticipating that the workflow around monitoring or the window for monitoring will cause must act, especially among high users and high centers. So we are expecting that a differentiated REMS, the differentiated label and an overall profile will drive differentiated use when physicians certainly understand that. So that's the way we've been thinking about it. Operator: Next, we'll hear from Tess Romero at JPMorgan. Caroline Poacher: This is Caroline Poacher on for Tess Romero with JPMorgan. Just one from us on aficamten and oHCM. So acknowledging that the late cycle meeting took place on September 15, can you just comment on if the REMS has been finalized yet at this point in the review process? And if not, what are the remaining items of the REMS that need to be finalized? And when would you expect this to be completed? Robert I. Blum: So we're continuing with interactions with FDA, and we have not finalized those matters. We do anticipate that we're making progress towards enablement of finalization of those in order to meet the PDUFA date. With that said, we've had exchanges and interactions -- and as I've indicated previously, we don't believe that we're engaging around framework, but rather some operational details, things that speak more to things like web pages and that which is administrative. Those are things that we think should come together to be enabling of FDA to review this and hopefully approve it in time for the PDUFA date. Operator: Moving forward, Maxwell Skor with Morgan Stanley. Maxwell Skor: One more on ACACIA. Could you just confirm whether there are any shared trial sites between ODYSSEY and ACACIA, approximately how many -- the percentage overlap? And if so, what potential impact that might have on, let's say, a placebo response or other factors relevant to interpreting ACACIA results? Fady Malik: Max, I can't give you the exact overlap, but the overlap is not very large. Obviously, sites were conducting 2 trials that were simultaneously in the same patients, it would be a bit problematic. Some trials have finished their commitment and obviously and then became a case of sites later and things. But the overlap, I don't think is very large. We ended up generally going to sites that we already had experience with or have visited ourselves, either our HCM team or clinical operations group. And so we ended up choosing a cadre of sites in South America, Europe, North America, Australia, China, Israel that represented either our own prior experience or had -- clearly had experience in other HCM trials. Operator: Yasmeen Rahimi with Piper Sandler. You have our next question. Yasmeen Rahimi: Maybe a question for Andrew. You did such a nice job outlining your commercial strategy. How are you thinking about pricing? It sounded like you're thinking about pricing and parity to mavacamten. Obviously, given the product profile, you may have flexibility to go higher. So I appreciate any color around that. Andrew Callos: Sure. So we'll communicate our price what it's set. But I think you can think about when a second product comes out or a category that's already been priced is typically priced in proximity to the initial product. So I would think we're going to be in that same kind of ballpark, plus or minus maybe a small percentage, but we're certainly going to be in that range. Operator: Our next question today will come from Roanna Ruiz at Leerink Partners. Roanna Clarissa Ruiz: So a quick follow-up of the aficamten potential U.S. launch. Could you share more details about what you expect in terms of time to conversion to commercial drug, patient compliance over time? And anything you're hearing or learning about the possible rate in which early adopters could prescribe aficamten? Andrew Callos: Sure. So thanks for the question. So in terms of conversion, in the beginning, we'll have blocks as payers go through reviews, medical exception is certainly the path that, that will go through. Medical exception can be as fast as, say, 2 to 3 weeks or it could take 90 days. So it depends on the plan, depends on the doctor's office, the documentation and if it's in compliance with what the plan wants. But I think you can think in that time frame, we're going to have the patient support programs where we can have them for commercial patients to bridge them through that process. Medicare patients, of course, we can't do that. We'll provide free drug for those that are appropriate for patient assistance. And so that's how I would think about time to conversion until we have more broader access. In terms of compliance, we are seeing that at least in this category, compliance and persistency is higher than you see for other cardiovascular drug. I'm guessing likely because of the time frame it takes to get our drug, the commitment of going through echos and the like that you're going to see compliance after 2 years probably still be above 50% or so. And then your third question was, can you remind me? Roanna Clarissa Ruiz: Yes. The last part was about early adopter physicians prescribing aficamten out of the gate. Andrew Callos: Yes. So this is a very, very focused market, 650 prescribers or so, about 80% of the market. Those prescribers, we know well. We've actually been interacting with many of them already. We will call on the vast majority, if not all of them in the first few weeks of launch. When you think about those high users, if you will, when we've done even most -- market research even in the last month or so, MAPLE with SEQUOIA increases their urgency to treat. So we're expecting to get high use, if you will, relative to other physicians in those physicians that were early adopters for CMIs, we should see the same for aficamten if it gets approved. So that's our expectation. Operator: We'll go next to Mayank Mamtani at B. Riley Securities. Mayank Mamtani: Productive third quarter. Would love to hear your thoughts maybe for Andrew on what your latest thinking is on peak CMI drug penetration. Maybe if you can also comment on where it stands now and your expectation of scenarios where it could land in the kind of near-term, 1 to 2 years. And like you said about your impact of the MAPLE-HCM data, but also a lot of real-world data coming from your peers, including at AHA. If you could maybe comment on that, that would be helpful. And a subpart question was around some of the patient navigator training that you're doing that happens around when you have a label in hand. I was just curious if any key FAQs or pushbacks you're preparing for would also be helpful to get color on. Andrew Callos: So a lot of questions there, so I'll try to address those. CMI penetration, I think, was your first question. Right now, the penetration is probably in the 15% to 20% range of oHCM, and I'm defining that as the number of eligible patients, those that are Class II, Class III, those that are treated with the CMI. So we are expecting, as we said all along, around 80% or so of the market to be available, meaning patients who are eligible, but not currently on a CMI. The expectation is that, that probably penetration probably increases in the -- around 5 percentage points each year. So when you look at real-world evidence when you look at additional trials, that certainly will increase penetration. If guidelines are impacted, if MAPLE helps influence guidelines in '26 or '27, that certainly will accelerate penetration. So I think there's things that can change the trajectory of penetration, but that's where it is now. In terms of training, we did provide the label to the FDA. We've had a few rounds of feedback. I think that we've alluded to. I think we can certainly train on a draft label and then we'll train again on the final. That's pretty typical around how you would train relative to a label and relative to a REMS. Operator: Moving forward, we'll take our next question from Joe Pantginis at H.C. Wainwright. Joseph Pantginis: So curious, just totally switching gears here to omecamtiv mecarbil. Right now, the guidance is moving enrollment continuing into 2026. When do you anticipate providing more visibility as to sites, enrollment numbers? And what levels of clarity can we get, do you think, starting in '26? Robert I. Blum: We'll ask Stuart maybe to take that, please. Stuart Kupfer: As I mentioned, we are making good progress in terms of site activation. We have 75% of sites activated in North America and Europe. And we're seeing screening picking up, randomization picking up. And I mean we're sort of not at a point where we can sort of start providing those numbers because I think we're going to hold off on that until we have all the sites activated and we have a good trajectory. But so far, so good. Study conduct is going well and so with site interaction and screening. Robert I. Blum: So Joe, I think as we roll into the new year and have a better sense of how these new sites that have been activated are enrolling, we should be able to tighten some of that guidance to the expectation of when we might complete enrollment. And then from there, as you know, this is a study that's accruing events. It's event-driven, and we can maybe point more generally to when we might expect data. Operator: Our next question will come from the line of Paul Choi with Goldman Sachs. Kyuwon Choi: I want to ask on your partnered CAMELLIA trial and just if you can provide any updates on timing on that and just sort of maybe help us think about when your partner might be able to launch in Japan and just sort of what would be a reasonable assumption there? And then on the AMBER trial study for HFpEF, would you be in a position to potentially present some initial data on that in 2026? Robert I. Blum: I'll ask Fady to tackle those, please. Fady Malik: Yes. I mean with regards to the progress of the oHCM trial in Japan, I mean, the strategy in Japan will be a little bit tied more to completion both of ACACIA and CAMELLIA. We expect them really to kind of complete in a similar time frame and both leading to regulatory interactions and ultimately approval there. So I can't really give you specifics yet in terms of where it is, but CAMELLIA is moving along within line of that expectation. And then AMBER, I think we're still a little too early for us to commit to data in 2026. We should be able to say more about that probably at our next earnings call. Operator: Next, we'll hear from Serge Belanger at Needham. John Gionco: This is John Gionco on for Serge today. So with the results of MAPLE now in the public domain, curious what your time lines look like in terms of how quickly you'd like to file the sNDA to incorporate that data into API label and whether you think having it in the label will alter in any way prescribing habits for treating physicians? Robert I. Blum: So I'll take the first part and ask Andrew to address the second part. But our goal is if we see aficamten approved based on the SEQUOIA results by the end of this year that we're moving very swiftly to submitting a supplemental NDA based on MAPLE data promptly in early 2026 to be enabling of a potential expanded label even possibly by the end of 2026. Andrew can comment on how that may factor into expanded use. Andrew Callos: We've tested this several times, including most recently this quarter. Each time we get a top line increased use of CMI, so CMI penetration goes up and increased brand share for aficamten or preferential share, if you will. So a larger market, larger share of that market. When you segment it, those that are kind of the core users, they're basically saying it's confirmatory of safety and efficacy, and that gives them even more reason in belief. When you look at those that are heavy beta blocker, it really challenges their belief in the efficacy of beta blockers. It increases their urgency to treat or urgency to refer I think that second group is going to take a little longer, some of them and guidelines as well as continued education and promotion will certainly continue to move those. So at a high level, we're expecting a larger market, a larger share, and we're certainly seeing this as one of the expansion strategies we've talked about in terms of a bigger market. Operator: Next, we'll hear from Kripa Devarakonda at Truist Securities. Unknown Analyst: Alex on for Kripa. Based on your updated late cycle meeting with the FDA and the nature of the day 120 List of Questions for the CHMP, is there anything we should be aware of to indicate that the REMS requirement could possibly be meaningfully different from the U.S. and EU? Robert I. Blum: Well, there is no REMS requirement in the EU. That's all handled through labeling, as you know. But I do think that to your question, we're expecting that aficamten, if approved in the U.S. and in the EU will be addressed similarly in terms of risk mitigation. Operator: Our next question will come from Ash Verma at UBS. Hearing no response, we'll move forward. We'll hear instead from Jason Zemansky at Bank of America. Jason Zemansky: Congrats on the progress. Maybe just to switch gears, but in light of your recent balance sheet updates, where do you stand in terms of your ability to support both the U.S. and EU launches? I mean, do you foresee any need for additional capital, especially given your expectations for the launch? Sung Lee: Jason, this is Sung. Thanks for the question. We can't rule out future financing. But with that said, we expect to finish the year with $2.2 billion in cash and investments I'm sorry. $1.2 billion Thank you. I got a little excited there. So that puts us in a very strong position, not only to launch aficamten in the U.S., but also to continue to build out in the EU and importantly, to continue to advance our pipeline. Keep in mind that we do have access to further capital potentially up to $175 million. This is from the Tranche 7 loan from Royalty Pharma. So we'll continuously weigh our options in terms of capital requirements and capital structure. Operator: And now we'll move to Ash Verma with UBS. Unknown Analyst: This is Natalie on for Ash. This is Natalie on for Ash Verma at UBS. So we just had a quick question on nHCM. Now I know there's a lot of discussion about the heterogeneity of this patient population. Have you guys been able to identify if there is a specific set of patients that see the most benefit from CMI? Fady Malik: Well, I would say that, that question remains unanswered, maybe perhaps we will require both analyses of the ODYSSEY data, the ACACIA data when they come out. We think enrolling patients that are symptomatic, that have classic HCM -- classic HCM phenotype as evident on echocardiography that have certain biomarker increases. I think all of those things talk about a symptomatic, highly symptomatic and functionally limited patient population. And based on our prior experience in REDWOOD, we think that population should be responsive to aficamten. So I think we'll have more to say when we see the ACACIA data in next year. Robert I. Blum: I think I would add that we've been following a cohort of Nonobstructive patients for over 2 years now. And the large majority of them are responding well symptomatically and based on cardiac biomarker improvement. So I think what we're observing so far, at least in this cohort in FOREST is a pretty general improvement in response to treatment. Operator: And thank you, ladies and gentlemen. That was our final question from our audience today. Mr. Blum, I'm happy to turn it back to you for any additional or closing remarks you have. Robert I. Blum: Thank you. I want to thank all of our participants on the call today. I want to thank you for your continued support as well as your interest in Cytokinetics. This will conclude our Q3 earnings call. And my hope is that next time we convene in one of these earnings calls, we'll talk about what could be the first potential approval for aficamten and a product arising out of our long-standing research and development, a very important milestone for our company and all of our stakeholders, including our shareholders. With that, operator, we can now conclude the call. Operator: Thank you. And ladies and gentlemen, thank you for joining today's Cytokinetics Q3 2025 Earnings Call. You may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded, and a replay of the call will be available in an audio webcast on the TriplePoint Venture Growth website. Company management is pleased to share with you the company's results for the third quarter of 2025. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Mike Wilhelms, Chief Financial Officer. Before I turn the call over to Mr. Labe, I'd like to direct your attention to the customary safe harbor disclosure in the company's press release regarding forward-looking statements and remind you that during this call, management will make certain statements that relate to future events or the company's future performance or financial conditions, which are considered forward-looking statements under federal securities law. You are asked to refer to the company's most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. The company does not undertake any obligation to update any forward-looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward-looking statements made during the call, which reflect management's opinions only as of today. To obtain copies of our latest SEC filings, please visit the company's website at www.tpvg.com. Now I'd like to turn the conference over to Mr. Labe. James Labe: Thank you, operator. Good afternoon, everyone, and welcome to TPVG's third quarter earnings call. During the third quarter, our focus remained on furthering our strategy to increase TPVG's scale, durability, income-generating assets and NAV over the long term. We're pleased with the progress we have made in the quarter working towards these important objectives, and we expect fundings to continue to materialize over the next few quarters as we progress on our path of portfolio diversification and investment sector rotation. In addition to covering the dividend for the quarter and increasing our NAV, the third quarter marked one of growth and increased investment activity for TPVG. We took advantage of strong demand from high-quality venture growth stage companies in the sectors we are focused on to grow the debt investment portfolio. During the quarter, TPVG experienced its highest level of debt commitments and fundings since 2022, resulting in Q3 fundings that significantly exceeded our guided range, reaching the highest level in 11 quarters. Importantly, Q3 also represented the highest level of signed term sheets with venture growth stage companies at our sponsor, TriplePoint Capital. Looking at the last 3 quarters alone, signed term sheets for venture growth stage companies at TPC reached almost $1 billion. At quarter's end, our pipeline also continued to remain at near record highs since 2021. Touching on the overall venture capital market, while some uncertainties and volatility certainly still remain. Investment activity is rising and venture capital deal activity increased during the quarter due primarily to all this momentum going on in the AI space. According to PitchBook, AI investments accounted for more than 2/3 of the venture deal value last quarter. For mega deals was more than 70% of the deal value, a level not seen since 2021 and 2022. Another encouraging sign were increases in M&A and IPO activity, which collectively generated more than $75 billion across 362 exits, the strongest quarter for venture-backed companies since the pandemic. Turning to our own internal tracking. The number of equity rounds closed by our select venture capital investors year-to-date has already exceeded the aggregate total for all of last year by 34%. All these trends hold promise for what we believe are signs for continuing improvement for the venture markets versus those upheavals in the last half of 2021 and right through late 2022. We're also seeing a notable decrease in equity financing down rounds and an increase in up rounds. These days, more and more, I hear the word uptick in conversations in venture circles, and certain companies, in fact, are experiencing oversubscribed equity rounds, and there's an active secondary market, which has come back for some companies as well, including a few of our portfolio companies. There's growing optimism that venture companies are beginning to find some path to liquidity and should IPO and M&A markets for venture companies continue on this improvement, it represents additional opportunities. One of the potential benefits of our venture lending business that's often overlooked are the warrants we receive as part of our loan transactions and our equity investments. We have a sizable equity and warrant portfolio with warrant positions in 112 portfolio companies and equity investments in 53. As the exit market continues to evolve, we're well positioned to realize value for shareholders. We hold positions in a number of companies, which has also appeared in industry publications on their notable top IPO candidates list, companies such as Cohesity, Zev, Revolut, Dialpad, Filevine and others. While we're encouraged by market and portfolio developments, we remain highly focused on monitoring and working through credit situations, primarily investments from the pre-market change period, and Sajal will discuss those more in detail later in this call. Taking a closer look at the portfolio, we're pleased to report continued progress on diversification as we made commitments to 9 new borrowers during the quarter and now 19 new borrowers year-to-date. As part of the diversification, we've also been leaning into increased companies characterized by substantial revenues, strong margins, solid cash runways at or near EBITDA positive and with a clear path to cash flow generation and debt service without the need for further equity fundraising. They're generally more mature companies. They have stronger profiles, and we're the senior lender often with revolving loans with the trade-off being lower yields given their more mature profile. Turning to investment sector rotation. We continue to actively add new borrowers focused on high potential and durable sectors, especially those that are able to leverage AI to drive product differentiation, market disruption and efficiency. We remain excited by the horizontal market opportunity AI presents, and we believe it will be a massive megatrend that persists for many years to come. Similar to our select venture capital investors, AI is a clear center of gravity. The technology combines massive growth potential with equally large capital requirements, particularly around GPUs, data center infrastructure and unique models trained on proprietary data. These dynamics play directly to the strengths and advantages of our venture lending, providing non-dilutive growth capital to high-growth companies in capital-intensive markets. Over the past 2 years, we've been active in lending across the full AI stack from semiconductor companies enabling AI inference like Etched to networking infrastructure companies to power the next generation of AI data centers like Eridu. All these companies are experiencing market tailwinds and thriving in the new era of AI. Given the significant interest in AI, however, a key for us is to be disciplined in our underwriting. In AI, our focus is on whether the company's technology translates into durable, defensible value. That means real differentiation in data or model performance, early proof of enterprise adoption and strong gross margins after infrastructure costs. We believe the companies that will win tend to build leverage over time. Their models are going to be getting smarter, their integration is stickier and their cost of incremental insight goes down, not up. Outside of AI, the path continues to pursue selectivity, diversification and investment sector rotation, and we continue to make great strides. We're actively investing in attractive fields outside of just AI, verticalized software, fintech, aerospace and defense, robotics, cybersecurity and health tech, among others. As we seek to capitalize on these compelling opportunities and grow and diversify the portfolio. we continue to do so with an emphasis on U.S. companies, companies that are better capitalized and have visibility to profitability as well as business models reflective of today's market conditions and the valuations. We continue to focus on companies that have recently raised capital, have ample cash runways and have backing from one or more of our select venture investors. In summary, Q3 represented a quarter of progress for us as we seek to increase TPVG's scale, durability, income-generating assets and NAV over the long term. Importantly, we are positioning TPVG for the future to create shareholder value with the strong support of our sponsor, TPC. As we mentioned in our last quarter, as of this call, our sponsor announced a discretionary share purchase program and further demonstrating alignment with TPVG shareholders, our adviser amended its existing income incentive fee waiver to waive in full its quarterly income incentive for each quarter in 2026. Later on the call, Mike will provide an update on these topics. With that, let me turn the call over to Sajal. Sajal Srivastava: Thank you, Jim, and good afternoon. Regarding investment portfolio activity during Q3, TriplePoint Capital signed $421 million of term sheets with venture growth stage companies compared to $93 million of term sheets in Q3 2024 and $242 million in Q2. On a year-to-date basis, TPC has signed $978 million of term sheets versus $412 million over the same period in 2024. With regards to new investment allocation to TPVG during the third quarter, our adviser allocated $182 million in new commitments with 12 companies to TPVG, compared to $51 million in Q3 2024 and $160 million in Q2 2025. 75% of the portfolio companies we extended commitments to during the quarter were new customers, 90% of which are in the AI, enterprise software and semiconductor sectors, reflecting our focus on obligor diversification and sector rotation. On a year-to-date basis, we have closed $418 million to 19 new portfolio companies and 6 existing portfolio companies as compared to $103 million to 5 new portfolio companies and 4 existing portfolio companies over the same period in 2024. Of our 49 obligors with outstanding loans as of [ 9/30 ], 4 were added to the portfolio in 2023, 6 were added in 2024 and 11 were added here in 2025. So progress on our plans for obligor, vintage and sector rotation. As Mike will cover, our outstanding unfunded obligations include 10 new customers, which have yet to utilize their commitments and should add to our customer count and rebalancing efforts. During the third quarter, in anticipation of prepayment and scheduled repayment activity in Q4, we exceeded our guided range and funded $88 million in debt investments to 10 companies as compared to $33 million to 4 companies in Q3 2024 and $79 million to 9 companies in Q2 2025. These funded investments carried a weighted average annualized portfolio yield of 11.5%, down from 12.3% in Q3 -- sorry, Q2 and 13.3% in Q1. The lower overall onboarding yields in Q3 reflect a number of factors, including a higher percentage of revolving loans, enabling us to be the sole lender to our portfolio companies, more robust enterprises from a size and scale perspective, including EBITDA positive borrowers, intentionally driving higher utilization of unfunded commitments at closing given substantial borrower cash cushion levels, lower OID as a result of reduced enterprise valuations as well as the declining rate environment. On a year-to-date basis, we have funded $194 million to 22 companies at a weighted average yield of 12.1% as compared to funding $85 million to 10 companies at a weighted average yield of 14.5% over the same period in 2024. During Q3, we had $15 million of loan repayments, resulting in an overall weighted average debt portfolio yield of 13.2%. Excluding prepayments, our core portfolio yield was 12.8%, which was down from 13.6% in Q2, reflecting the impact of lower yields from new assets we are onboarding as discussed earlier. On a year-to-date basis, we have had $76 million of loan prepayments as compared to $118 million of prepayments over the same period in 2024. As I will discuss in more detail shortly after quarter's end, we received principal repayments totaling $47.5 million so far in Q4. During the quarter, our debt investment portfolio grew by over $73 million as a result of new fundings exceeding prepayment, repayment and amortization within the portfolio. This is the third consecutive quarter we've increased our debt investment portfolio on a cost basis, representing nearly $110 million of growth year-to-date as compared to $127 million of portfolio reduction last year. Although we continue to see robust demand for debt financing from venture growth stage companies as demonstrated by $123 million of new term sheets, $17 million of new commitments and $18 million of funding so far in Q4, our quarterly target for new fundings continues to be in the $25 million to $50 million range for Q4 2025 and early 2026 as we manage liquidity going into our debt financing process. During the quarter, 4 portfolio companies with debt outstanding raised $50 million of capital, compared to 5 portfolio companies with debt outstanding raising $216 million during the second quarter. We believe Q3 numbers were lower primarily due to timing and expect robust activity here in Q4. On a year-to-date basis, 13 portfolio companies with debt outstanding have raised compared to $402 million of capital last year. As of quarter end, we held warrants in 112 companies and equity investments in 53 companies with a total fair value of $134 million, up from $127 million in Q2, primarily related to a markup in our equity holdings in GrubMarket due to strong performance and improving market multiples. During Q3, one portfolio company with a principal balance of $29.8 million was upgraded from White to Clear. One portfolio company with a principal balance of $2.1 million was upgraded from Yellow to White. One portfolio company, Prodigy Finance, a fintech focused on international graduate students with a principal balance of $40.8 million was downgraded from White to Yellow and one portfolio company, Frubana, with a principal balance of $11.1 million was downgraded to Red and moved to nonaccrual as we finalize our recovery process. We did actually see slight improvement in our expected recovery from Q2's mark on Frubana despite the downgrade. During the quarter, we saw a $2.5 million increase in the fair value of our loans in Orange-rated portfolio company, Roli, which in addition to winning Time Magazine's Innovation of the Year award for the third time, held the first close of a new equity round from its existing investors as well as hold the signed term sheet from additional investors to participate. As I mentioned earlier, we experienced a $5.7 million unrealized gain on our equity investment in GrubMarket as a result of performance. As a reminder, GrubMarket acquired the assets of our portfolio company, Good Eggs, in Q3 2024, and we received this equity for consideration of our then outstanding loans. Although we took a $4.6 million realized loss on our $12 million loan at the time of the transaction, this gain reduces that loss in its entirety on an unrealized basis and reflects well in our team's recovery efforts on the Good Eggs transaction. As I mentioned earlier, here in Q4, we received $47.5 million of prepayments, mostly from 2 portfolio companies, Thirty Madison and Moda Operand. Thirty Madison announced its acquisition by RemedyMeds in Q3. And as part of the transaction, nearly $30 million of our outstanding position has been paid down in Q4 with our remaining $20 million exposure amortizing over the next 3 months. As a reminder, Thirty Madison was an existing TPVG portfolio company, but also acquired the assets of TPVG portfolio company Pill Club and assumed our outstanding loans of $20 million in full. This transaction represents a full recovery, including end of term payments on both transactions. But as a reminder, both were quite seasoned loans, so very little incremental contribution to income here in Q4. We also anticipate Thirty Madison to be upgraded to Clear rating here in Q4. We also experienced a $15.7 million paydown on our loans to Moda Operandi here in Q4, a Yellow-rated asset as a result of the company raising incremental equity and debt financing and our remaining loans of $10 million have had their maturity dates extended. And should Moda continue to perform well, we would anticipate the company to be upgraded to White over time. While some of these journeys may take longer than expected, these developments demonstrate why our team continues to dedicate time and effort on the recovery journey and also that we are building some momentum with regards to some of our historical names. In closing, we remain aligned with our stakeholders, disciplined in our underwriting and mindful of the volatile market environment as we execute on our plan for positioning TPVG for the long term. We continue to target well-positioned and well-capitalized new customers in attractive sectors to drive investment fundings and earnings power to build shareholder value. With that, I'll now turn the call over to Mike. Mike Wilhelms: Thank you, Sajal, and good afternoon, everyone. During the third quarter, we funded $88 million of new debt investments, up from $79 million last quarter, reflecting the continued expansion of our investment pipeline and conversion of signed term sheets into closed commitments. We received $15 million of prepayments and early repayments during the quarter, driving a net increase of approximately $73 million in our debt investment portfolio at cost, which now totals $737 million at quarter end as compared to $627 million at December 31, 2024, a 17% increase. As of September 30, 2025, the company had total liquidity of $234 million, consisting of $29 million of cash and cash equivalents and $205 million of available capacity under our Revolving Credit Facility. Of the $205 million of available capacity under the Revolving Credit Facility, there was $53 million of available borrowing base that could be drawn on as of September 30, 2025. We ended the quarter with a leverage ratio of 1.32x and a net leverage ratio of 1.24x, both well within our target range and reflecting increased deployment of capital to fund the debt portfolio. Subsequent to quarter end, the company has already received $48 million of principal payments -- prepayments, providing additional liquidity to support new fundings and positioning the company well for the upcoming $200 million note maturity in the first quarter of 2026. We ended the quarter with $264 million of unfunded commitments, up from $185 million last quarter. Of these unfunded commitments, approximately $60 million are milestone-based. The commitments are well laddered over the next several years with $14 million expiring in Q4 2025, $152 million in 2026, $71 million in 2027 and the final $27 million in 2028. Turning to our operating results. Total investment income for the third quarter was $22.7 million with a weighted average portfolio yield of 13.2%, compared to 14.5% in the prior quarter. The decrease in yield primarily reflects a lower level of prepayment income, lower yields on our debt investment portfolio in part due to decreases in the prime rate and a slightly larger mix of lower-yielding recently originated loans reflective of the market and borrower characteristics. 66% of our debt portfolio is floating rate and 46% of those floating rate loans were at their floors as of September 30. Following the 25 basis point Fed rate cut in late October 2025, floating rate loans at their rate floors increased to 52%. As a result, we expect the impact of any further interest rate reductions on our net investment income to be limited, particularly as lower base rates would also reduce interest expense on our floating rate revolving debt. Total operating expenses for the quarter were $12.3 million, consisting of $6.8 million from interest expense, $3.4 million of base management fees, $0.6 million of administrative expenses and $1.6 million of G&A expenses. In the current quarter, $2.1 million of income incentive fees were earned but fully waived by the adviser. Year-to-date, the adviser has waived $3.3 million of income incentive fees. In addition, under the shareholder-friendly total return requirement, income incentive fees were further reduced by $3.1 million earlier this year. Together, these actions have increased net investment income by approximately $6.5 million year-to-date. As a result of the continued fee waivers mentioned by Jim earlier, we do not expect to incur any income incentive fee expense for the fourth quarter of 2025 or for all of 2026. Net investment, net investment income for the quarter was $10.3 million or $0.26 per share, compared to $11.3 million or $0.28 per share in the prior quarter. Our net increase in net assets resulting from operations was $15.2 million or $0.38 per share, which included $0.13 per share of net realized and unrealized gains, primarily from unrealized gains on debt and equity positions. These gains were partially offset by a small unrealized foreign currency loss of $0.5 million or $0.01 per share. At quarter end, net asset value increased to $355.1 million or $8.79 per share, up from $8.65 at June 30. Now turning to our capital structure. As of quarter end, total debt outstanding was $470 million, consisting of $375 million of fixed rate term notes and $95 million drawn on our $300 million floating rate Revolving Credit Facility. Our term notes carry maturities in March 2026, February 2027 and February 2028, all at fixed rates. With our 2026 maturity approaching, our capital management strategy remains focused on maintaining liquidity and flexibility while optimizing our fixed to floating debt mix. We expect to refinance the $200 million March 2026 notes with a combination of new fixed rate unsecured notes and available revolver capacity during the first quarter of 2026. We are in the final stages of renewing our $300 million revolving credit facility, which matures at the end of this month. While the renewal amendment has not yet been executed, the preliminary terms outlined to date are constructive and favorable for the company. We expect the renewal to support our growth trajectory and align with our long-term capital plan. Regarding distributions, on October 14, our Board declared a regular quarterly distribution of $0.23 per share and a supplemental distribution of $0.02 per share, payable on December 31 to shareholders of record as of December 16. The supplemental distribution was declared in order to enable the company to distribute all of the company's remaining undistributed taxable income from the prior year. As of September 30, we had estimated spillover income of $43.4 million or $1.07 per share. As a reminder, we announced during our August call that our sponsor, TriplePoint Capital, launched a $14 million share repurchase program to buy TPVG stock below NAV. Through quarter end, TPC purchased about 591,000 shares for roughly $3.9 million, leaving about $10 million available under the program. TPC plans to adopt a 10b5-1 plan once the trading window reopens, which will allow purchases to continue automatically after the 30-day cooling off period. The program continues to demonstrate our sponsors' confidence and alignment with shareholders. Looking ahead, our priorities remain consistent. We will continue to focus on sector rotation in our debt portfolio, maintaining credit quality and preserving balance sheet flexibility as we prepare for the refinancing of our 2026 notes. With robust sponsor support and a growing investment pipeline at the platform level, TPVG remains well positioned to generate long-term shareholder value. That concludes my prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] And your first question today will come from Crispin Love with Piper Sandler. Crispin Love: First, can you just discuss what you need to see in order to increase your funding guide? The last couple of quarters have been very active. I believe you mentioned early on that you expect fundings to remain solid. Is the key driver there, leverage and liquidity holding you back or other factors at play? I guess I'm asking it's more internal factors rather than external as you look at it? Sajal Srivastava: Crispin, this is Sajal. So I would say, obviously, quality of opportunity and credit quality selectivity drives number one. But I would say, absolutely, we're very much focused on the upcoming refinancing of our debt. And so we're mindful of liquidity and leverage ratios going into that for the time being. And then coming out of that, we'll, again, adjust and act accordingly. Crispin Love: Great. That all makes sense. And then just on credit quality, metrics in the quarter, mostly stable, slight uptick in nonaccruals on a dollar basis. But can you discuss what you're seeing in credit in your portfolio and then broadly in the venture lending space? And then has your credit underwriting changed at all recently? You mentioned more revolving loans. I believe you said larger enterprises. So just curious if there's any changes there. Sajal Srivastava: Yes. Let me start with maybe overall credit. So I would say credit performance, I would say, listen, this was a good quarter in terms of demonstrating kind of the adviser and the platform's kind of credit workout and recovery process and our commitment to resolving situations. We understand some situations may take longer than others. But with the developments with GrubMarket and Thirty Madison in particular, again, demonstrating the hard work that goes into these things and the patience and commitment and getting kind of positive outcomes in those situations. Obviously, Roli has been a long journey. We have some positive developments here this quarter. So we're comfortable. We're happy about that. As we alluded to with some of the other names, we're expecting upgrades here in Q4. I think as Jim talked to, I mean, a key element is the improvement in the equity markets and the fundraising activity is number one. I think the second thing is obviously performance by our portfolio companies. But mind you, we have to be balanced. It's all very sector-specific as well. So we're balancing overall positive trends in the venture equity markets with sector-specific challenges and company-specific challenges. But I would say we're pleased with the team's effort here in the quarter. With regards to the overall venture segment, I can't -- I can only speak to the tech world and the Tier 1 VC world where we operate. And again, we're continuing to see strong demand. We're continuing to see strong performance. And so we're very much focused on that. As we look to overall originations focus, I think as Jim talked to, very much we're avoiding the frothiness that we're seeing in certain sectors and areas and really leaning in on our core strengths, working with the best venture capital funds, the best entrepreneurs and seeing where we can be helpful and collaborative with their portfolio companies and then taking advantage of opportunities where we can earn additional return for lower risk, be it in a revolving loan or lending to an EBITDA positive company with a stronger yield profile that we normally target. Operator: And your next question today will come from Doug Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug Harter. Last quarter, you were able to give some guidance in terms of about the number of repayments you expected for each quarter for the upcoming quarters. Has your view -- as the market seems to possibly be heating up, has your view on the pace of prepayments possibly changed? And do you have any line of sight into any upcoming repayments or realization? Sajal Srivastava: Hi Cory, it's Sajal. I'll take this first. So I would say our guidance continues to be to expect prepayment a quarter for 2026, just based on market conditions. But more importantly, given the amount of prepay activity that we've seen over the past 2 years and the newer vintages we're putting in place, we would expect that pace to generally slow down. And so that's why we're guiding to 1 on average per quarter. As we mentioned in our filings, here in Q4, we've had a little more than 1 in terms -- and these were more unique situations, Thirty Madison and Moda and another portfolio company, so I'd say Q4 was an exception. But generally, we continue to expect one a quarter. But again, those loans that will be prepaying will be our more seasoned loans. So we're not expecting significant or material excess income from an NII perspective. Operator: The next question will come from Christopher Nolan with Ladenburg Thalmann. Christopher Nolan: On the debt refinance, as I recall, this $200 million note is investment grade. Is that correct? Mike Wilhelms: Yes, it is. Christopher Nolan: Yes. And also as I recall, that to be index eligible for investment grade, the debt amount, I believe, has to be, what, $200 million or so and above. Is that correct? Sajal Srivastava: That's one of the factors. Yes, it is. Christopher Nolan: And so Yes, I guess my basic question is, if you're using a combination of new notes and the bank facility, is it fair to say that the new notes that you're going to be issuing will not be investment-grade index eligible. Is that correct? Mike Wilhelms: No, that's not. We're expecting to issue roughly $100 million to $125 million. That number is to be finalized, but we're expecting that to be investment grade. Christopher Nolan: But not index eligible, which I believe impacts the rate -- the coupon rate a little bit, doesn't it? Sajal Srivastava: Correct. So again, given the quantum and given where rates are, we don't think having a significant -- that large of long-term fixed rate debt in this environment makes sense given, again, the prepayment activity that we experienced and wanting to have the ability to use our revolver to pay down as we have prepays. Christopher Nolan: And I guess on a related question is where do you see the leverage ratio going? From your -- from Jim's comments, it sort of -- and Sajal's comments, it sort of indicates that the portfolio is going to grow in the fourth quarter. Mike Wilhelms: We're actually not expecting -- given the prepayment activity that we're seeing in the fourth quarter, we're expecting little to no growth. Our guidance from a leverage standpoint is 1.3 to 1.4. As you know, Chris, we came in at 1.32. I think we'll come in right about that level at the end of December as well. Our guidance is 1.3 to 1.4. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jim Labe for any closing remarks. Please go ahead. James Labe: Thank you. As always, I'd like to thank everyone for listening and participating in today's call. We look forward to updating and talking with you all again next quarter. Thanks, and have a nice day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Curaleaf Holdings, Inc. Third Quarter 2025 Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Camilo Lyon, the Chief Investment Officer. Please go ahead. Camilo Russi Lyon: Good afternoon, everyone, and welcome to Curaleaf Holdings Third Quarter 2025 Conference Call. Today, I'm joined by Chairman and Chief Executive Officer, Boris Jordan; and Chief Financial Officer, Ed Kremer. Before we begin, I'd like to remind everyone that the comments on today's call will include forward-looking statements within the meaning of Canadian and United States securities laws, which, by their nature, involve estimates, projections, plans, goals, forecasts and assumptions, including the successful integration of acquisitions and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on SEDAR and EDGAR. During today's conference call, in order to provide greater transparency regarding Curaleaf's operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf's liquidity and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measure under the heading Reconciliation of non-GAAP Financial Measures in our earnings press release issued today and available on our Investor Relations website at ir.curaleaf.com. With that, I'll turn the call over to Chairman and CEO, Boris Jordan. Boris? Boris Jordan: Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our third quarter 2025 results. The return to our roots plan we initiated 12 months ago, which is focused on enhancing product quality, driving growth, expanding margins and optimizing cash flow is delivering tangible results. Over the past year, we have completed significant foundational work to reset the business, leveraging our Dark Heart genetics program, investing in our supply chain and realigning our retail operations. These actions have positioned our domestic business for renewed growth while supporting rapid international expansion. I'm encouraged to report that we're seeing positive momentum across the organization despite ongoing macro pressure from price compression. In the third quarter, we generated $320 million in revenue, up 2% sequentially. Price compression continued to be a headwind consistent with last quarter, yet our domestic segment remained stable and achieved modest growth. Our International segment continued its strong trajectory, delivering 12% sequential growth and 56% year-over-year growth. Adjusted gross margins improved to 50%, an increase of 115 basis points, both sequentially and versus the prior year. Adjusted EBITDA was $69 million, representing a 22% margin, inclusive of a 200 basis point drag from our international and hemp businesses. Our balance sheet remains healthy with a quarter end cash position of $107 million after paying $28 million in principal and interest debt obligations. We generated $53 million in operating cash flow from our continuing operations and $37 million in free cash flow. Subsequent to quarter end, we made a $30 million in acquisition-related debt payments primarily to Tryke, thus completing our obligation and leaving approximately $70 million payable over the next 2 years. We also closed on an upsized $100 million revolving credit line with Needham Bank, giving us greater flexibility to manage our business and pay down more expensive debt. The U.S. segment grew modestly compared to the second quarter, reinforcing the stability we've achieved and positioning the business for a return to growth. Many of our markets delivered solid sequential growth, including Ohio, New York, Utah and Massachusetts, partially offset by seasonal softness in Arizona, muted tourism in Nevada and an ongoing pressure in New Jersey. We've made significant progress strengthening our supply chain, starting with cultivation. I can't overstate the improvement we've seen in our garden yields continue to rise across the network and potencies have steadily increased. This quarter, our average flower potency surpassed 30% for the first time in our history. That's a direct result of our team's focus, discipline and support from the Dark Hart Genetics team. Strong genetics, sound techniques and quality equipment form the winning formula we're now deploying across all markets. On the retail side, we've implemented data-driven analytics tools that are improving assortment planning, merchandising and inventory flow. With better data quality, our teams are operating with greater precision and stronger discipline, driving better connectivity throughout the supply chain. As a result, customers are finding the right product in the right place at the right time and price, which is leading to higher visits, stronger loyalty and greater lifetime value. To build on that momentum, we're leveraging our database of more than 2.1 million loyalty members to enhance customer engagement, deepen brand affinity and drive long-term sustainable demand. We're still in the early innings of this refreshed playbook with just 3 states onboarded, but the results are already starting to show. On the innovation front, our new Anthem pre-roll brand continues to gain strong traction with both customers and retailers. Since its April launch, adoption rates and customer feedback have been exceptional. In our initial launch states, the response was overwhelmingly positive, and in Illinois, Anthem Classic has already become a top 10 pre-roll brand according to BDSA. The brand is off to a fast start and continues to build awareness and momentum. To complement the Classic line, we introduced Anthem Bold, our infused pre-roll offering in September across New York, New Jersey, Illinois and Arizona. While early feedback has been outstanding, in Illinois, the addition of Anthem Bold to our in-store lineup has propelled Anthem to nearly 30% of total pre-roll sales while also expanding the overall category. We're seeing similar strength in other launch states. Given the success, our operations team is rapidly scaling production to meet growing demand and support continued momentum. ACE, our proprietary aqueous cannabis extraction oil launched last quarter continues to gain strong traction with consumers. The message of an ultra-clear, ultra-smooth oil with minimal plant extract is resonating, driving solid sell-through and reorders in New York. In Massachusetts, ACE is flying off the shelves, contributing to improved state performance. Next, we plan to introduce ACE in Florida, where we believe it has the potential to reshape the distillate market. Innovation remains at the core of our strategy and products like ACE are proving to be powerful drivers of traffic, customer engagement and sustainable growth. The Curaleaf International segment delivered another outstanding quarter with revenue up 12% sequentially and 56% year-over-year, driven primarily by continued strength in the U.K. and Germany. In the U.K., sustained patient growth in our Curaleaf Clinic, coupled with solid wholesale performance reinforced our #1 market share position. In Germany, demand for our brands remained robust despite near-term challenges tied to regulatory delays in lifting import permit caps. That issue has now been resolved as import caps were raised last week, allowing the market plenty of supply headroom for the next couple of quarters. In September, we launched the world's first medically certified liquid inhalation device, the QMID in the U.K. and Germany. Developed over several years in partnership with Jupiter Research, the QMID is currently the only Class IIa medical device of its kind available in the European market, offering patients precise and consistent dosing through advanced vaporization technology. Pharmacist feedback has been highly positive and adoption continues to grow across both markets. The device was recently approved for sale in Australia, and we expect continued momentum and strong patient uptake as awareness builds globally. Now turning to new international markets. We're seeing encouraging progress across several key geographies. In Turkey, the government continues to advance its medical cannabis draft law, which could be made public in the coming months. In concert with that, we've begun the architectural design phase of our facility and remain on track for this market to go live in the second half of 2026. In Spain, momentum is also building. In October, the Spanish Health Minister formally approved a measure authorizing the use of medical cannabis in hospitals. The government now has 3 months to publish a detailed monograph outlining the program parameters. We expect the market will initially focus on oil-based products, and we're well positioned for any outcome with our GMP-certified facility in Alicante, Spain and our strong partnership with the University of Alicante. We anticipate further clarity on next steps in early 2026. France is similarly advancing its medical cannabis framework, which we expect will follow a model similar to that of Spain, beginning with hospital distribution. Importantly, there is work being done to allow for insurance reimbursements, which we believe would quickly usher in many patients into the market. We could see the market go live in the first half of 2026 with the help of our in-country partner, we are well positioned to optimize on the French opportunity when the timing is right. Collectively, Turkey, Spain and France represent a combined population of more than 200 million people, offering a significant long-term runway for Curaleaf. While we're excited about the potential of these markets, we recognize they will take time to mature. As such, we do not anticipate meaningful revenue contribution commencing from these countries until 2027 and beyond. Turning to our hemp business. We added several new distribution partners during the quarter and are moving quickly to expand our beverage brand portfolio. We expect to share additional updates on our next earnings call. Overall, we continue to prudently scale this segment while we await federal guidance that will help shape the long-term trajectory of this category. With much of the foundational and restructuring work under our return to Roots program now complete, we are preparing to shift towards a growth mindset in 2026. We're cautiously optimistic that the early signs we're seeing today point to a strengthening domestic business. While we expect competition across our international markets to intensify, we're confident in the multiple growth drivers at our disposal to sustain robust performance next year. We also remain encouraged by the continued progress towards federal reform, even if the pace is slower than anyone would prefer. I continue to believe the administration will ultimately deliver on its commitment to reschedule cannabis to Schedule III on its own timetable, but the direction remains clear and positive for the industry. To our more than 5,000 employees worldwide, thank you for your dedication and hard work. The results we've shared today are a direct reflection on your focus, resilience and commitment to Curaleaf's mission. None of this would be possible without each and every one of you. We're energized by the opportunities ahead and remain steadfast in our mission to shape the future of cannabis responsibly and sustainably for patients, consumers and shareholders alike. With that, I'll turn the call over to our CFO, Ed Kremer. Ed? Edward Kremer: Thank you, Boris. Total revenue for the third quarter was $320 million, a 2% sequential increase compared to the second quarter and 3% decrease compared to the same period last year. Strength in Ohio, our International segment, New York and Utah was partially offset by pressure in Arizona, Nevada and New Jersey. Our domestic retail metrics continued showing signs of stabilization in the third quarter as transactions increased 2%. That said, as consumers make trade up to larger value size formats, units per transactions and AUR decreased 2% compared to the second quarter. Price compression headwinds did not abate in the third quarter as all markets we operate in showed a low double-digit decline on average as compared to the third quarter last year. By channel, retail revenue was $226 million compared to $253 million in the third quarter of 2024, a decline of 11% year-over-year, partially offset by strength in wholesale, which increased 19% year-over-year to $90 million, representing 28% of total revenue, driven by broad-based strength across most of our states with particular strength in New York, Connecticut, Illinois and Massachusetts as well as international. By geography, domestic revenue was up slightly from the second quarter and declined 9% compared to the same period last year, largely driven by price compression as flower price per gram was down 10% and vape pricing was down mid-teens. Curaleaf International produced another robust quarter as revenue grew by 56% year-over-year, driven primarily by the U.K. and Germany businesses. During the quarter, we made strategic investments in our international supply chain, unlocking additional capacity at our NGC facility to support strong demand in Germany. In Spain, we tripled oil production to enable the launch of new QMID device. These high-return investments are strengthening Curaleaf's presence in these emerging medical markets, further establishing our position as the global leader in cannabis. Our third quarter adjusted gross profit was $160 million, resulting in a 50% adjusted gross margin, an increase of 115 basis points compared to the prior year period. The primary drivers of this expansion were cost reductions in our cultivation facilities, partially offset by continued headwinds of price compression and higher promotions. Sequentially, adjusted gross margin also expanded by 115 basis points. SG&A expenses were $110 million in the third quarter, an increase of $4 million from the year ago period. Core SG&A was $105 million, an increase of $3 million from the prior year. The year-over-year increase in our core SG&A was driven by an increase in payroll expenses as we added strategic new hires and retail labor for our new stores. Core SG&A was 32.7% of revenue in the third quarter, a 200 basis point increase compared to the prior year. Third quarter net loss from continuing operations was $54.5 million or a loss of $0.07 per share and adjusted net loss from continuing operations was $48.2 million or a loss of $0.06 per share. Third quarter adjusted EBITDA was $69 million, a decrease of 8% compared to last year, while adjusted EBITDA margin was 22%, a decrease of 115 basis points versus last year. Our International segment was a 120 basis point drag on our total EBITDA margin in the quarter. As expected, our hemp business weighed on margins by 80 basis points as we invest in marketing, brand building and product development. Now turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $107 million. Inventory increased $2 million or 1% compared to the same period last year, comprised of a 4% reduction in domestic inventory and partially offset by 61% growth in international inventory to support growth initiatives. Capital expenditures in the third quarter were $16 million. For 2025, we now expect capital expenditures to be approximately $60 million with the majority of the increase coming from incremental investments in pre-roll automation to support the strong demand for our Anthem pre-roll brand. In the third quarter, we generated operating cash flow from continuing operations of $53 million, bringing the year-to-date total to $104 million, driven by improved margins and continued improvements in working capital management. Free cash flow from continuing operations was $37 million in the quarter. Our outstanding debt was $544 million. During the quarter, we repurchased $3.2 million of our 2026 notes at an 8.75% discount, and we reduced our acquisition-related debt by $13 million. Subsequently to quarter end, we retired an additional $30 million of debt, the majority of which went towards paying the third and final tranche owed to Tryke. Last month, we closed on a $100 million upsized revolving line of credit with Needham Bank at an interest rate of 7.99%, which then resets to 8.99% upon the refinancing of our bond. This is a significant accomplishment given the challenges the industry has had attaining standard banking access and speaks to the confidence and continued support our partners have in our long-term strategy. We will continue reducing various components of our debt throughout the year while maintaining ample liquidity to support our operations and growth objectives. Consumer has been resilient this year. However, macro headwinds continue to pressure disposable income. That said, overall demand for cannabis remains robust, yet pricing pressures are not abating. As such, for the fourth quarter, we expect total revenue to be up low single digits sequentially from the third quarter. With that, I'll turn the call back over to the operator to open the line for questions. Operator: [Operator Instructions] The first question comes from Aaron Grey with Alliance Global Partners. Aaron Grey: Great to see the continued momentum, especially on the international side here. I want to kind of start with my question on that. How do you guys view the potential for this momentum you've had on the international front to continue in 2026? What do you see as a potential risk to disrupt some of the growth that you've been seeing? Would you see it more so in terms of the increased competition, which force you called out in your prepared remarks? Or maybe regulatory changes such as risk to German telemedicine or otherwise. Any type of color in terms of your outlook for continued growth for international would be helpful. Boris Jordan: Aaron, thanks for the question. Well, all of the above, basically, there's always risk and regulatory in new industries like cannabis and especially early-stage industries like cannabis in Europe, where it's behind sort of U.S. and Canadian development by about 5 years. There can be regulatory changes. There's been rumblings in Germany, Australia and other markets. We know we had changes in Poland, which affected the market. However, at the moment, demand is very robust. It continues to grow. Supply chains are getting better. The government is clamping down on some of the illicit product that was hitting the markets. I think that all-in-all, we're pretty bullish on next year and the growth, but we have to look at it quarter-to-quarter because these things do change. We know -- as I said, we know there are changes coming in Germany and in other markets, but there's also new markets coming online. I think it's a mixed bag, but it's one that we're continuing to be quite positive on and continue to invest in. Operator: The next question is from Frederico Gomes with ATB Capital Markets. Frederico Yokota Gomes: Just regarding the improvement in potency and yields that you're seeing. Obviously, you mentioned all the price compression that we're seeing in those markets. Do you see any path here for substantial margin expansion in 2026 with that improved quality and improved product mix? Boris Jordan: Listen, as you see, we've had substantial margin improvement this year, as we said to the market earlier in the year that we would end the year -- exit the year at a healthy 50% gross margin. It looks as though that's where we're going to end the year. Going forward, it's a very volatile market. I wouldn't want to make the prediction of where we're going to be next year, but I can say one thing. The company's metrics internally will continue to improve. We're going to continue to put pressure on costs. We're going to continue to be more efficient in the way we manufacture. We're putting a lot of automation equipment in order to bring down costs as well and become more efficient, but where we end up with price compression is nobody can predict at this point in time. There's a lot of things in the U.S., just like there is in Europe. There's regulations in the federal government right now in hemp. Obviously, if hemp gets shut down, that would have a massive improvement to both demand and margin. I believe in the U.S. If they do something in between, it could have different effects. It's a little bit early for us to say. I think in the first quarter -- in the year-end call, we'll probably take a look at that and make some forecast to that effect. Right now, I can only say what we can control. We can control our internal metrics. We're going to be better next year than we are this year. Operator: The next question is from Russell Stanley with Beacon Securities. Russell Stanley: Maybe just following up on Germany. You mentioned the import caps just lifted last week. I think in August, you were thinking that you might see pricing and margins normalize here in Q4, but it seems like the caps took longer to get lifted than perhaps you'd expected. How are you thinking about this now? Is that more of a Q1 event? Or might it take longer? Boris Jordan: Listen, I think it's going to be difficult to tell. Again, as we all know, there is changes to German regulation coming. They may be very small. They may be large. We just don't know at this point in time. We're pretty close to the government, and we're pretty much involved in a lot of the changes that are taking place. What I can say now is that there's nothing that looks that would be catastrophic to the industry. I think that most of the changes the government looking at could even positively impact the business in terms of illicit product getting into the market and some of the dumping of product. That could actually be a positive. On the other hand, it could also have some negative consequences. It's a little bit too early to tell. We don't see any changes in the fourth quarter. We see robust demand in the fourth quarter. Basically, Curaleaf is in a slightly better position than most because we have been permitted to sell, for instance, vapes into the market because of our medically approved vape, and that is driving demand heavily here in the fourth quarter and will continue into the next quarter as we're the only company today that has a medically improved vape in Europe, which is helping us both in the U.K. and Germany. Soon, we've just got approved in Australia, and that is driving, and that's giving us a little bit of a head over everyone else and that other companies just don't have that product. Operator: The next question is from Bill Kirk with ROTH Capital Partners. William Kirk: Gallup had a pull out yesterday that showed, less Republican voter support year-over-year for cannabis legalization. If that's really the case, what do you think that means for state reform in places like Florida? Or what could it mean for federal progress on cannabis initiatives? Boris Jordan: I don't know about Gallup's report. I don't believe in most polls anyway because according to those same polls, Trump would not be President, and he is. I'm not a huge believer. In terms of our own polling that we've done together with the administration, I can only say one thing that we pulled NAGA, which is the most conservative part of the U.S. population and cannabis held firmly at 65% on adult use and I think 69% on medical. It's got very strong support from the work that we've done. Operator: The next question is from Kenric Tyghe with Canaccord. Kenric Tyghe: Boris, in your prepared remarks, you called out the more pronounced seasonality in Arizona and Florida comments similar to what we've heard out of some of your competitors. Could you provide any indication on just how much of a drag Florida and Arizona were compared to their typical performance? Or alternatively, even just give us some indication around how those states have performed quarter-to-date, where you've seen some sort of normalization there or where they're performing as they more typically would? Boris Jordan: Thank you for that question. Yes, we've seen substantial recovery in October and generally have had a very strong October. Florida for Curaleaf didn't have as much compression as we've had in previous years on cyclicality. Arizona, however, yes, we did. It's been pretty regular now. I think it's about 4 years in a row where, as we all know, Arizona tends to run exceptionally warm in -- with temperatures well over 100 degrees for most of the summer, and that tends to have an exodus of the population. But that -- we've seen a very strong recovery in the last 2 weeks of September going into October and October was very strong. It is cyclicality, is weather-based and it has recovered. Operator: The next question is from Pablo Zuanic with Zuanic & Associates. Pablo Zuanic: Boris, if you allow me, I'm going to ask you a 2-part question and both is related to hemp. Regarding hemp, in my opinion, and I could be wrong, it seems to me that Green Thumb has been able to move a lot faster in hemp because they bought Agrify and they bought the NASDAQ vehicle. They were more compliant on everything around hemp and they were able to distribute Señorita and a bunch of other hemp derivatives through that vehicle. Would that be something that you would consider buying a NASDAQ-listed vehicle that will allow you to move faster in hemp derivatives? Again, my assumption could be wrong. The second one that maybe is more important, in my interpretation, and again, I could be wrong, by reposting that video from the Commonwealth project into social, the President -- and there's a lot in that video. The President was pretty much also backing hemp-derived CBD, right? That were specifically mentioned in that video. Someone could say that backing hemp-derived CBD and perhaps other derivatives is not compatible with backing the THC cannabis industry. If they are making promises to 2 separate industries, how does that work out in the end? Does that maybe call for both the THC industry and the heavy industry maybe to work together in lobbying the federal government, which is something you've mentioned before. I'm sorry, I know there's a lot there, but hopefully, you can comment on all of that. Boris Jordan: Well, let me answer the second question first. I think the President published a video. I can guarantee you he didn't watch it until the end. I'm not sure the President had full knowledge of full content in that video. Our view that CBD alone has virtually no medical properties at all. You have to eat almost 1,000 milligrams of it to have any impact in terms of anti-inflammation or anything, and so usually, it is mixed with other elements or other cannabinoids in order to get its effectiveness. Without those cannabinoids, CBD is largely useless, unless eaten or taken in very, very high quantities. I can tell you right now, at least the briefing papers that the President administration have received, both from the regulated industry, but also from the medical industry would show that CBD alone is not very effective, and we'll soon be publishing some results of our medical studies that we've done in Europe that we've recently submitted to the MHRA in the U.K. and hope to receive approvals on that will show that. I don't think he's sending a mixed message on there. I think that was a video generally supporting CBD and other cannabinoids for medical purposes in the United States. The President has made his position clear that he supports cannabis as far as it's concerned for medical reasons, not for recreational purposes. That's, I would say, on that video. On the other purpose, I don't comment on our competitors. Curaleaf is very comfortable, very happy with the positioning that we have in the hemp-derived products. I can promise you, we're doing just fine there and are not concerned about competition, especially because the industry is so young and so early stage that really whether or not somebody sells $1 million more than the other party at this point in time really makes no difference. We're looking at a multiple tens of billions of dollars of potential revenue out of this industry over the next 5 years, and that's really the prize that everybody is after. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Camilo Lyon for any closing remarks. Camilo Russi Lyon: Thanks, everyone, for joining us tonight. We will talk again in 90 days. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Hua Hong Semiconductor's Third Quarter 2025 Earnings Conference Call. Today's call is hosted by Dr. Peng Bai, Chairman and President; and Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. [Operator Instructions] The earnings press release and third quarter 2025 summary slides are available to download at our company's website, www.huahonggrace.com. Without further ado, I would like to introduce you to Mr. Daniel Wang, Executive Vice President and Chief Financial Officer. Thank you. Please go ahead. Yu-Cheng Wang: Good afternoon, everyone. Thank you for joining our Q3 2025 earnings call. Today, we will first have Dr. Peng Bai, our Chairman and President, share some remarks on our third quarter performance. I'll then take you through our financial results in detail and offer guidance for the upcoming quarter. We'll then open the floor for a Q&A session. With that, I turn the call over to Dr. Bai. Bai Peng: All right. Thank you, Daniel. Good afternoon, everyone. Thank you for joining our earnings call. Third quarter 2025 sales revenue for Hua Hong Semiconductor reached a record high of USD 635.2 million, in line with guidance, while gross margin stood at 13.5%, above guidance. Driven by the recovery in global semiconductor demand and the company's lean management practices, our capacity utilization remained high. Both sales revenue and gross margin showed year-on-year and quarter-on-quarter growth. The enhancements in our core competencies, including process technology, R&D, market development and operation, along with the results of our cost reduction and efficiency improvement initiatives are gradually becoming evident. Our overall profitability is improving, laying a solid foundation for long-term sustainable development. Hua Hong Semiconductor possesses extensive expertise and exceptional management experience in specialty technologies, facing the rapidly evolving global semiconductor landscape. The company must continuously advance across multiple core dimensions such as technology capability and capacity expansion. The acquisition, which is currently progressing smoothly, will further increase our production capacity and diversify our process platform portfolio while creating synergies with our 12-inch production line in Wuxi to strengthen our profitability. Furthermore, the company is actively engaged in strategic capacity planning, focusing on technological breakthrough and ecosystem development to continuously enhance our core competitiveness amidst the global industry transformation. Now I would like to hand the call back to our CFO, Mr. Daniel Wang, for his comments. Daniel? Yu-Cheng Wang: Thank you, Dr. Bai, for your exciting remarks. Now let me walk you through a summary of our financial performance for the third quarter, followed by our revenue and margin outlook for Q4 2025 before opening the floor for the Q&A session. First, let's review our financial results for the second -- for the third quarter. Revenue reached an all-time high of $635.2 million, 20.7%, over Q3 2024 and 12.2% over Q2 2025, primarily driven by increased wafer shipments and improved average selling price. Gross margin was 13.5%, 1.3 percentage points over Q3 2024, primarily driven by improved capacity utilization and average selling price, partially offset by increased depreciation costs and 2.6 percentage points above Q2 2025, primarily driven by improved average selling price. Operating expenses were $100.4 million, 23.3%, over Q3 2024, primarily due to increased engineered wafer costs and depreciation expenses and 2.6%, over Q2 2025. Other income net was $70.8 million, 65.7% lower than Q3 2024, primarily due to decreased foreign exchange gains and interest income, partially offset by decreased finance costs and 67.4%, over Q2 2024, primarily driven by foreign exchange gains versus foreign exchange losses in Q2 2025. Income tax expense was $10.4 million, 9.6% lower than Q3 2024, primarily due to decreased taxable income. Net loss for the period was $7.2 million compared to a profit of $22.9 million in Q3 2024 and a loss of $32.8 million in Q2 2025. Net profit attributable to shareholders of the parent company was $25.7 million, 42.6% lower than Q3 2024 and 223.5%, above Q2 2025. Basic earnings per share was $0.015, 42.3% lower than Q3 2024, and 200%, over Q2 2025. Annualized ROE was 1.6%, 1.2 percentage points lower than Q3 2024, and 1.2 percentage points above Q2 2025. Now let's take a closer look at our Q3 2025 revenue performance. From a geographical perspective, revenue from China was $522.6 million, contributing 82.3% of total revenue and an increase of 20.3% compared to Q3 2024, mainly driven by increased demand for flash, other power management IC and MCU products. Revenue from North America was $63.8 million, an increase of 36.7% compared to Q3 2024, mainly driven by increased demand for other power management IC and MCU products. Revenue from other Asia was $30.3 million, an increase of 5.6% compared to Q3 2024. Revenue from Europe was $18.4 million, an increase of 12.6% compared to Q3 2024, mainly driven by increased demand for IGBT and smart card ICs. With respect to technology platforms, revenue from embedded non-volatile memory was $159.7 million, an increase of 20.4% compared to Q3 2024, mainly driven by increased demand for MCU products. Revenue from stand-alone non-volatile memory was $60.6 million, an increase of 106.6% compared to Q3 2024, mainly driven by increased demand for flash products. Revenue from power discrete was $169 million, an increase of 3.5% compared to Q3 2024, mainly driven by increased demand for super junction products. Revenue from logic and RF was $81.1 million, an increase of 5.3% over Q3 2024, mainly driven by increased demand for logic products. Revenue from analog and power management IC was $164.8 million, an increase of 32.8% over Q3 2024, mainly driven by increased demand for other power management IC products. Now turning to our cash flow statement. Net cash flows generated from operating activities was $184.2 million compared to net cash flow used in operating activities of $26.8 million, primarily due to increased receipts from customers. Capital expenditures were $261.9 million in Q3 2025, including $230.7 million for Hua Hong Semiconductor Manufacturing, $19.3 million for Hua Hong 8-inch business, and $11.9 million for Hua Hong Wuxi. Other cash flow generated from investing activities was $8.6 million in Q3 2025, mainly including $15.6 million interest income and $7 million receipts of government grants of equipment, partially offset by $14 million investment in equity instrument. Net cash flows used in financing activities was $104.2 million, including $99.9 million proceeds from bank borrowings and $14.4 million proceeds from share option exercises, partially offset by $5 million interest payments, $3.2 million of bank principal repayments and $1.9 million lease payments. Now let's have a look at the balance sheet. Cash and cash equivalents were $3.9 billion on September 30, 2025, compared to $3.85 billion on June 30, 2025. Other current assets increased from $688.5 million on June 30, 2025, to $739.7 million on September 30, 2025, mainly due to increased value-add tax credit. Property, plant and equipment was $6.2 billion on September 30, 2025, compared to $6.1 billion on June 30, 2025. Equity instruments designated at fair value through other comprehensive income increased from $290.5 million on June 30, 2025, to $381.3 million on September 30, 2025, mainly due to an increased fair value of the equity instruments. Total bank borrowings increased from $2.3 billion on June 30, 2025, to $2.4 billion on September 30, 2025, mainly due to withdrawal of bank loans. Total assets increased from $12.2 billion on June 30, 2025, to $12.5 billion on September 30, 2025. Total liabilities increased to $3.5 billion on September 30, 2025, from $3.4 billion on June 30, 2025. Debt ratio increased to 28% on September 30, 2025, from 27.5% on June 30, 2025. Finally, let's discuss our outlook for the fourth quarter of 2025. We expect revenue to be in the range of $650 million to $660 million with a projected gross margin of 12% to 14%. This concludes my financial remarks. We now begin our Q&A session. Operator, please assist. Thank you. Operator: [Operator Instructions] The first question is from the line of Leping Huang of Huatai. Leping Huang: I have two questions to Daniel and one question to Dr. Bai. So the first question, I noticed there's a very strong beat on the gross margin this quarter. Also, I think ASP up 5.2% Q-on-Q this quarter. So Daniel, can you explain -- break down the reason of this strong margin and ASP beat between the product mix improvement and the price adjustment of the existing products? Also, you gave the guidance for next quarter. So what's the -- your outlook for your ASP in the fourth quarter? Yu-Cheng Wang: Thank you, Leping. First of all, we had extremely high utilization rate, okay? So the three 8-inch fabs were consistently above 110% utilization rate. And the first -- our first 12-inch fab with 95,000 wafer capacity, the loading was consistently above 100,000 wafers, okay? And then the other -- the fab that is currently ramping, it has about 40-plus thousand wafer capacity, but the loading is above 35,000. And pretty soon it's going to get to about 40,000 wafers in loading, okay? And in terms of that itself helps the margin. And also, I think the most critical thing is the ASP improvement. We start to raise ASP in the second quarter and start to take effect in the third quarter. So you said, absolutely, is correct, overall, gross margin is about -- the price ASP is quarter-to-quarter or even compared to last year, it was about 5.2%. Basically, the ASP improvement was coming from all technology platforms -- all technology platforms, including embedded non-volatile memory, okay, power discrete and logic and RF, analog and power management IC, okay? So it basically came from all technology platforms. I would say, if you want to really look at between product mix and ASP improvement, I would say 80% came from ASP improvement. And the other 20% is largely due to product mix. As far as going forward, I think we will continue to improve ASP. I mean we're looking at every order that comes in. We make sure that we -- if there is any opportunity, we can adjust price, okay? So I'm extremely positive about our Q4 in terms of ASP and the gross margin as well. Leping Huang: Okay. The second one is also for Daniel. So you also mentioned the utilization rate of your fab is very high. It's already 109%. So it seems to be -- do you think that -- so first, what are the actions you take to improve your factory utilization rate? And also, what you expect the utilization rate looking forward? It seems to be you are adding more wafer into your Wuxi fab. So do we -- should we expect the utilization rate will further improve in the coming quarters? Yu-Cheng Wang: You know what? Excellent question. I'll let Dr. Bai answer the question. Bai Peng: Okay. Let me try. There's a few factors playing together. It's kind of -- there's some interplay of a few factors. First of all, utilization number, as you know, is based on standard IE calculation, meaning you're supposed to set up certain capacities and based on that number, if you do better, your utilization can be a little bit above 100%. But clearly, you can be significantly above 100%, otherwise, the number would be incorrect. In our case, Fab 9A capacity is -- continues to come online. So we can -- there's two benefits. One is Fab 9A itself started to contribute to revenue. It actually adds more pressure to gross margin because all the depreciation also starts to come online. But it does provide some avenue to make our existing capacity a little bit more flexible in the sense that now you have a bigger scale when the product mix shifts that you can kind of use each other's capacity in each factory. That's how we can get the capacity utilization a little bit better above 100% or 105%. It's -- let me also add a comment to the gross margin. Gross margin also compressed because I always said there's always a balance between how much more depreciation coming online, which is inevitable as the new capacity start to contribute to revenue on one hand. On the other hand, you have -- whether you can manage to increase prices. Daniel already talked about, we did manage to increase our prices by, you already calculated, around 5%-ish in Q3. Another factor was our general cost reduction effort to make our cost structure a little bit better. That effectively balanced out some of the pressure we get from increased depreciation coming online. In the end, the Q3 story was a very good one. It was -- it also exceeded our expectation. But I do see that momentum in cost reduction as well as the price stabilization, if not increase, also start to take a hold. So that's a good trend for us. One more add to this is that when the demand is a little bit higher than our supply, which relates to why our utilization is so high, it also gives us a little bit of leeway, a little bit of flexibility in optimizing our product mix, namely, we can choose to focus or give priority -- or give it capacity priority, a little bit more for the product that has a higher margin than the ones that have a lower margin. That also help our price increases. If I -- I know I said a lot of things, but all those factors are there, and it's really the end result, and net is an interplay of all those factors that gives us the overall Q3 results. Thank you. Leping Huang: Okay. So the final question I want to ask is that I noticed that in Daniel's statement that the flash business is one major driver for your -- especially your China business. And in the investor community, we are talking about the memory super cycle. So Dr. Bai, so what's your view on how Hua Hong can benefit from the coming memory cycle and why the -- is it initial sign we see this quarter that your memory business or your flash business is going very strong? Is it initial sign of this memory super cycle? Bai Peng: Okay. Thank you for the question. First, I want to clarify the memory business that Hua Hong is engaged in is in the NOR Flash, which is one segment of overall flash business. And that NOR Flash business, there's two parts to it. One is the stand-alone, just the stand-alone NOR Flash product. Another one is MCU that's basically integrated with the logic circuit. We are participating in both, MCU as well as flash memory. You are correct. We see a strong business in Q3 in both, MCU as well as stand-alone flash. I would say overall NOR Flash market has a steady growth. It's probably a little bit different than the overall memory business. The other memory business, like the correlation with the other memory business is not that strong. For example, the NAND might be doing -- has its own dynamics. DRAM, MCM, HBM, DRAM-based HBM, all those related to AI applications, those has its own dynamics. Our part of the business, we do see steady growth in the NOR Flash business, in both MCU and stand-alone. Our, if you will, Q3 growth rate clearly is faster than the overall market growth. That probably has more to do with our own situation where our 55-nanometer NOR Flash started coming into the mass production phase in the last couple of quarters, that started to pick up volume. And also our 55-nanometer MCU business also is going into the mass production. And in the next year or 2, we're going to have 40-nanometer. In next year, 40-nanometer NOR flash business stand-alone as well as the MCU will come online. That will give us another push. So in general, we do see that our flash business will have a strong growth over the next few quarters, even next couple of years, mainly based on our new technology -- new technology transitions. I would say the other memory business, their dynamics might be a little bit different. Some of them are also growing strongly. It's probably not correlated with our situation. Operator: Our next question comes from Ziyuan Wang from Citic Securities. Ziyuan Wang: [Technical Difficulty]. Yu-Cheng Wang: Operator... Bai Peng: Can you help? Yu-Cheng Wang: We couldn't hear the question clearly. So can you please ask him to repeat? Operator: Ziyuan, would you be able to dial again or change to another better connection to repeat your question, please? Ziyuan Wang: Sorry, can you hear me now? Yu-Cheng Wang: I'm afraid the line is bad. Would you like to dial back, and we will take your question. Operator: [Operator Instructions] The next question is from Jian Hu from Guosen Securities. Jian Hu: [Foreign Language] So I have -- first, I have a quick follow-up. Just now, Daniel also mentioned the growth drivers for the next few quarters, some factors like capacity expansion and also the price increases. So how about the product structure adjustment for the future growth? So could you give us more details? And this is the first question. Bai Peng: Sure. All right. In terms of capacity expansion, we basically -- you will see a continued increase from our Fab 9A because we are still in the capacity expansion phase. Earlier, Daniel mentioned that the Fab 9A reached about 3,000 to 4,000 wafer -- 30,000 to 40,000 wafer per month right now. It's been climbing over the last 3, 4 quarters. That expansion will continue all the way towards till middle of next year. That will reach the peak of, I would say, 60,000 to 65,000. So you -- and those capacity will come online, will continue to give us -- contribute to the revenue growth. So that's on the capacity expansion front. In terms of the product mix, optimizing the product mix, that's really come down to the technology evolution, how our technology platform will evolve over the next few years. The key technology that we see that it will become better and more competitive. One, starting with the flash related, I talked about earlier, flash is a factor -- a growth sector for us. I think we -- with our 55-nanometer products online and next year, 40-nanometer products online, that will give even stronger position in this sector. So hopefully, that will bring the added value of the prices up with it. Another significant technology platform is the BCD platform for power management. Now we see a strong growth, and we see -- we are also purposely expanding capacity for BCD and basically skewing our product mix -- capacity mix towards supporting more BCD and BCD technology. BCD platform happens to be one that has a better margin among the technology platforms that we offer. So that will also give us a better product mix in essence. So then we continue to add -- continue to strengthen our overall technology development. This is one of the areas that is definitely a focus for the company. When I talk about how can we further improve our core competence, it's really talking about our technology capability and associated marketing capability. So all the key specialty technology platform, we basically will continue to invest heavily. And some of the platforms, we're already the best. We're already #1 in China, also very competitive worldwide. Some of them, we still have a little bit of distance to travel to become world-class, to become the best. In general, we're best in China in most of the technologies we participate in that we were -- then in some of the areas, we still need to improve a little bit to become really truly world-class. Here, I can also mention that some of the partnerships we have with our mainly European companies to -- in the context of China, their China for China strategy is also a way for us to increase our competitiveness. So I think I will stop right here in terms of answering your question. I don't know if that clarifies for you. Jian Hu: Very clear. My next question is a relatively big one. So driven by the boost from AI, we can see the global semiconductor sales have grown for like 8 quarters. So compared to the previous cycle, it's a relative long growth period. So how do you see the growth momentum in following quarters? Bai Peng: It is a very big question, a broad question. I think the -- I'll give you my personal take on this. AI is still at its infancy. I think the AI will continue to grow. How it manifests the growth -- how does the growth manifest in the different segment of semiconductor, that's a little bit complex. The direct benefit, obviously, is for the advanced technology, advanced node, which Hua Hong Semiconductor is not directly participating. But there's a lot of supporting technology associated with the Al products. We are a big part of those segments, like power management, because when you have -- you make AI systems, you need a lot of power management, either for training or now the industry seems to switch towards more deduction type of applications from training. So I think we all -- we definitely benefit from overall AI growth through their increased demand for power management, for MCU, for all kinds of -- power discrete products, they all need those. They need those in order to make the AI system work. So we are definitely part of that ecosystem. So we were -- in fact, some of the power management demand increase -- strong demand increase over the last year and continue -- that seems to continue into next year or 2 is primarily related to AI and plus, some of the new application on the horizon like cars and robots, those type of things. AI definitely is a big factor. So that's how I see it. I think AI will continue to grow. You might -- the product mix there might go through its own evolution. But overall, I think that bring along the whole -- all the chips that's needed in AI system, that's where we get the direct benefit, is all those associated chips in AI system that we do directly participate. Jian Hu: Yes. So I have a follow-up. So how about the power semiconductors. So compared to last few years, power semiconductors have shown some recovery, but still besides the AI demand, the rest of the part, the demand is relatively flat. So how we increase the pricing following quarters? So how do you see the pricing in this part? Bai Peng: All right. You are a very astute observer. I agree with you, the power discrete platform amongst our technology platform that we participate in probably has the biggest pressure in terms of growth. I think there are a couple of factors. One is, there are increased competition and increased capacity in the power discrete. Because the power discrete area, the barrier to entry is relatively small. So there are -- there has been over the last few years, large capacity coming online. So that's one factor that put some pressure on us. The second factor is some -- second factor is technological because right now, the compound Semiconductor like silicon carbide, mostly silicon carbide, but gallium nitride also start to become a significant factor. Those compound semiconductor-based devices become a significant factor in the overall power devices market that inevitably take away some of the silicon-based devices, especially, for example, the super junction, that used to be a Hua Hong -- still is a Hua Hong strength. But that is directly -- there is a direct competition for super junction-based product, silicon super junction based product from silicon carbide. And silicon carbide looks like over there, people are willing to cut price very, very drastically. So they start to have some competition with our super junction. And so this is one of the topic we've been -- inside the company, when we talk about our technology road map and also talk about our market perspective, is one of the focus area that we will come out with some strategy. We already started gallium nitride development. So we will definitely -- we have been a big player in the power discrete, we definitely will not give up this market segment. We will continue to be bigger and stronger by adding all the -- whatever the customer needs. So there's a few new initiatives in the power area that we will try to meet the challenge. The challenge is mostly a little bit long term. Short term, I don't see a huge problem, but longer term, over the next 3 or 5 years, that, we do need to do something there to make sure that we continue to keep our very strong position historically in this area. Thank you. Jian Hu: Thank you, Dr. Bai. I also agree with you, and we also think gallium nitride on silicon is a good direction for the new power semiconductors. So that's all my questions and looking forward to a better performance in next quarters. Operator: Once again, we will take the question from Ziyuan Wang from Citic Securities. Ziyuan Wang: Sorry for the connection previously. My first question is about the international customer adoption. We can see that this quarter, the proportion of customers in U.S. and Europe increased. And we also know that STMicro previously announced that they plan to produce 40-nanometer MCU in Hua Hong by the end of 2025. So how is it going? And are there any other new developments or new customers that you can share? Bai Peng: You're correct that we have a partnership with ST on MCU, 40-nanometer MCU. That project has been going very smoothly. In fact, it's a little bit ahead of schedule. We already started with production in this quarter. So that's a little bit ahead of schedule. That will continue -- it will start to contribute to our revenue in the next quarter. In terms of ramp rate, it will take a while to get up to a fairly high volume, but it's definitely a steady and very robust addition to our product mix. So that one is going well. Actually, this is one of the first collaboration projects we have with ST as well as other European companies for their China for China strategy. I think since now that we have worked together for quite a while and with this track record, everybody's confidence level has increased significantly. That's probably going to play a very positive role in terms of expanding our collaboration in the number of the products and also the area of the -- where we can collaborate with each other. So I would say that definitely is a hugely positive start, and that will start -- next year, you will see a multiply of those collaboration projects come to fruition in the next year. In terms of the international portion of our business, we always like to increase our international business because this is one of our strategy. Ever since I started here, we set a strategy to see how can we increase our international business, in terms of the percentage of international business. We are right now probably 15% to 20% range. I haven't looked at the number exactly, but that's the range we are in. I think Europe and North America, both regions, I still do see strong growth going forward. Asia is a little bit more challenging, but our two biggest international region, North America and Asia, will continue to grow strongly over the next few quarters. Ziyuan Wang: Okay. And these kind of customers also benefit from the AI, especially the AI power, right? Bai Peng: Correct. If you look at our business from North America, a big part of it -- part of it is the power management chips. Indeed, those are the ones that got used in the AI systems. Ziyuan Wang: Okay. Very clear. And my second question is about the CapEx. Is there any outlook for CapEx for next year as we are continuing to expand our capacity in Fab 9? Will there be any increase compared to this year? Or will it be stable? Yu-Cheng Wang: Thank you, Ziyuan. Let me just give you an update on that. Basically, for the -- for 2025, the three 8-inch fabs, roughly, it's about $120 million overall on a cash flow basis. That is the CapEx spending for the three 8-inch fabs. And then we -- the expected CapEx for Fab 9A is about $2 billion for this year. So we spent about $3-plus billion up to the end of last year. So we're going to be spending about $2 billion this year. So that gets us to about $5-plus billion. The overall project -- the total investment for the project is $6.7 billion. So it will be about $1.3 billion to $1.5 billion for next year for Fab 9, okay? So that is it for basically the CapEx for this year. So it would be $120 million for the [ 8-inch ], plus $2 billion. Next year, it would be just around $1.3 billion to $1.5 billion for the remaining of the CapEx spending that we have to spend for this Fab 9. And of course, in the future, if we do have -- we want to continue to grow, we want to continue to expand. We have plan to basically build another fab, but that will be a different story, okay? So when that happens, we'll let you know what would be the total capital spending for that new project. Operator: Our next question comes from the line of Tony Shen of SPDBI. Tony Shen: [Foreign Language] Dear management, this is Tony from SPDB International. I've also got two questions here. The first one, can we have some color into the semi cycle, especially for Hua Hong into next year, 2026. In our current stage, it's very good. The cycle is trading up. We have a little bit of tight supply with high demand, and the gross margin is also trading up into third quarter and also into the fourth quarter. Do we still see the tight supply will continue into the next year? And can we continue to raise prices for most of our products into next year? This is my first question. Bai Peng: From the market standpoint, we do see the momentum will go into next year. We think next year should be better than 2025. There's uncertainties and but just from the pure market unless something big happened like some of the geopolitical or otherwise, we do see that the growth will continue into next year. That will give us some opportunity to raise prices or at least keep the prices stable. I think we -- I want to be a little bit cautious in terms of raising too high expectation of how much prices we can raise because we are still in a very competitive industry. And there's many, many factors involved. But I do see overall, if the demand -- if demand goes up, if nothing else, you give us -- will give us a way to optimize our product mix, I can choose to make more higher-margin products than lower ones. So basically, I have at least that possibility -- that flexibility. And also with our improved technology offerings, we basically add value to our customers' products. We tend to be able to -- in that scenario, we should be able to also share the benefits that come out from those improvements with our customers, have some kind of win-win situation. So in general, I'm cautiously optimistic to use the cliche that 2026 will be better than 2025. Tony Shen: Okay. Perfect. That is very clear. And my second question is still related to AI servers. Can I have a basic sense of how much revenue may come from directly or either indirectly from AI servers? And how do we see the growth potential, especially into next year? Yes. This is my second question. Bai Peng: For AI server, there's -- power management is the obvious product that goes into that. If you look at our power management business, I think it's about 10% to 15% there. And not all of them are going to the AI server, but the growth -- the bigger growth part is related to power server. So look at the numbers here that -- so I would say the power management, we put it into analog and power management category, is about 25% of overall revenue. Probably right now, more than half -- about half of it -- about half of it is related to AI servers. So it's about 10% to 12%. That portion, we believe will continue to grow strongly. Thank you. Operator: [Operator Instructions] Our next question comes from the line of [ Scarlett Ker ] from BNP Paribas. Unknown Analyst: [Foreign Language] First of all, congratulations on the strong performance. My question is on the -- one of the numbers. So the operating cost is around USD 100 million. Could you share a bit of a breakdown of the wafer engineering cost and the depreciation? And could you also elaborate a bit on what drives the increase of the wafer engineering cost? And going forward, what you expect the trend to be for both, engineering cost and the depreciation? Yu-Cheng Wang: So out of that $100 million, the depreciation costs related to the R&D. It is about $18 million for this quarter, Q3, okay? And we continue to invest in the R&D. We have a lot of new products, tape-outs. So this number, we expect in the future will continue to be stable and will probably continue to grow as well, okay? So basically, you have to realize the more we invest, that number will go a little bit higher. Compared to a year ago, that number is much higher now. So that is basically the breakdown. But the other, I would say, $80 million is all related to mostly labor, IT and some other stuff. Operator: Our next question comes from Qingyuan Lin from Bernstein Research. Qingyuan Lin: Congrats on the good results. My first question is around the -- one segment around the industrial and auto. How much is auto versus industrial? And do we see stronger growth on the auto segment because we are indeed seeing the auto demand in China are still quite strong? Yu-Cheng Wang: So the industrial and auto, that part is about -- overall for that segment was about -- it's going to be nearly about -- for Q3, it was about 22%, okay? But going forward, I expect that segment will continue to grow. We have -- we expect this segment will grow -- have a pretty big growth percentage for Q4 quarter-over-quarter, okay? So out of that 22%, about 26% is related to industrial, about 6% is related to automotive. In fact, industrial has been recovering throughout this year compared to a year ago. Bai Peng: Just to add a little bit to Daniel's answer is that the category you call industrial auto, it actually cut across all our product lines. Some of them are in power discrete, some of them are in MCU, some of them are in power management because those end product -- end user products like auto, industrial, they use all kinds of products. And so it's not just about, say, power management or MCU or power discrete. So it's basically a different -- but the number that Daniel gave you is the correct number. Qingyuan Lin: Got it. Got it. It's very clear. And the second question is around the power discrete actually. It looks like the percent of revenue from power discrete coming down a little bit. Is it capacity constraint? Or we're actually pushing out a bit of a demand because we don't see sort of enough demand there? Bai Peng: We talked about this in one of the earlier questions, too, that power management -- the power discrete as a percentage of our revenue is going down a little bit because the other -- it has not grown as fast as the other segments. So that's how the number play out. But in absolute numbers, the power discrete business is still grow a little bit, but as a percentage, because it hasn't grown as fast with others. So relatively speaking, it will have a smaller percentage of our overall business -- our overall revenue. So that's number one. The second point is that the reason we discussed earlier that this is one segment that we do see more competitive pressure, mostly on pricing. We still have fully loading, and demand is still strong, but the pricing is -- we won't be able to -- we haven't been able to raise price on this area too much. And going forward, it's probably going to be continued, a bit of pressure, just because of the entry barrier to this market segment is relatively low. And plus, we talk about early silicon carbide and start to have a bigger -- to a larger extent and gallium nitride to a smaller extent, start to have added pressure for this market segment. Qingyuan Lin: Very clear. Maybe last question quickly on any updates on Fab 5 consolidation, time line impact, synergy, et cetera? Yu-Cheng Wang: Well, it has been moving along according to schedule, okay? So we had our first announcement. We basically already announced the price for the deal. We're negotiating almost close to the completion. Pretty soon, we're going to have our second announcement, second Board meeting. And we expect that will happen very, very quickly. So we expect -- we -- literally, we're going to start to take over the operation start beginning of next year, expect the transaction will be closed by August next year, okay? And all of that will happen -- even the shareholder meeting will probably happen in December. So we're moving according to the schedule. We're working with the shareholders, the other side, very closely to make sure in the end, we're going to have a very fair deal, a fair deal, a fair transaction. And whatever we're going to pay for the value is going to be -- from a company's perspective, we're looking out to the interest of all the independent shareholders, okay? So we want to protect the interest of all shareholders. Bai Peng: Just to add a comment there that the acquisition deal, obviously, is moving along at a pace that's commensurate with the regulatory requirements. We are following all the requirements of both exchanges because we're listed in both Hong Kong and in Shanghai. So we definitely follow all the regulatory requirements and taking all the steps. Our goal is to have a good deal for all the shareholders. as well as the seller as well as the buyer side of the shareholders. So this obviously require a lot of work to negotiate to kind of get the assessment right. Daniel and Daniel's team has done a great work so far. We're getting close to the second milestone of announcing something very quickly that will set the deal price, I think then we will follow the regulatory requirement of having all the appropriate approvals that we still need to get -- go through. We hope that in this process, all the people who support our company, support Hua Hong Semiconductor, please do your part to make this thing go through smoothly. Acquisitions are always not an easy thing to do, especially when listed in both places. But we are pretty confident that we will have a very good outcome for everybody, for all the stakeholders as well as all the people who have been cheering for Hua Hong. Thank you. Yu-Cheng Wang: Right. I mean just one last thing. It's going to be a good acquisition. It's going to basically give us, as I mentioned before, to many investors, $600 million, $700 million revenue addition. The company is profitable. Most of depreciation is behind us. So it's going to be good for Hua Hong Semiconductor. And then long term, consolidation is the way. Bai Peng: Yes. I think Daniel makes a very important point that this acquisition, strategically, is definitely a very, very good deal for the company because it has a lot of synergy. It can -- our growth model is both organic, which we have been doing very aggressively over the last few years as well as inorganic through acquisition. If we think -- you ask if the total 1 plus 1 is going to be larger than 2, we will do that. And this is a good example of having a target -- having an asset that can significantly add to our growth as well as increase our synergy that we're -- it should help our long-term growth and the profitability picture. Thank you. Yu-Cheng Wang: And also with the additional -- the specialty technology platform under Dr. Bai's leadership, I think it's going to be more profitable. Operator: Thank you. Ladies and gentlemen, that's all the time we have for questions. I'll now hand back to Mr. Daniel Wang for closing remarks. Bai Peng: So this concludes our today's call. Once again, thank you all for joining us today. It's been very exciting. Thank you for all your thoughtful questions. We appreciate your continued support and look forward to speaking and seeing you again soon, next quarter, okay? Thank you. Operator: Ladies and gentlemen, thank you for your attendance. You may all now disconnect.
Operator: Good day, and welcome to the Sezzle Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Charlie Youakim, Executive Chairman and CEO. Please go ahead. Charles Youakim: Thank you. Good afternoon, everyone, and welcome to Sezzle's Third Quarter Earnings Call. I'm Charlie Youakim, CEO and Executive Chairman of Sezzle. I'm joined today by our Chief Financial Officer, Karen Hartje; and our Head of Corporate Development and IR, Lee Brading. In conjunction with this call, we filed our earnings announcement with the SEC and posted it along with our earnings presentation on our investor website at sezzle.com. To retrieve the documents, please go to the Investor Relations section of our website. Please be advised of the cautionary note and forward-looking statements and reconciliation of GAAP to non-GAAP measures included in the presentation, which also covers our statements on today's call. If you're a long-term investor of Sezzle, you're already well aware of how good this team is at navigating and adapting our business model and our product solutions. I continue to be impressed by our team and our ability to adjust and adapt. We're always looking for ways to create win-wins with our stakeholders and also balance profitability, growth and customer satisfaction. 2025 has been more of the same on that front. We've been testing our launches of on-demand and our shopping solutions and making incremental improvements and adjustments along the way with a strong weighting towards making our customers' lives better while also continuing to grow with strong profitability metrics. We still believe that BNPL is in its early days and that we are likely to have years upon years of industry growth ahead of us. And we also believe that we're bringing to market a product that is fundamentally a better and more user-friendly credit product than a credit card. Our company and our BNPL industry in general, is 100% aligned with responsible repayment of short duration loans that really lean into the concept of budgeting versus outspending your income, like a credit card product can tend to do. Our company and our products are winning and our industry is winning, too. If you take a look at Slide 3, you'll understand a bit of the excitement. We just posted revenue growth of 67% year-on-year in Q3. Our net income margin for the quarter was over 22%. Our return on equity for the last 12 months exceeded 100%, and our consumer metric measured by MODS rose almost 50% year-on-year. Further, we are raising our EPS and EBITDA guidance for 2025 and have received awards from some of the most respected media outlets, Time, U.S. News, Newsweek and CNBC. What's our secret sauce? I believe it's our constant drive. We are never satisfied and are always pushing forward. Do we have a chip on our shoulder? Yes, maybe a little bit. Slide 4 provides some insight into our restless energy. The consumer is always wanting more, and we aim to fulfill their needs. We have launched several features in our app, most recently the Earn tab, which allows consumers to earn Sezzle spend. Consumers can find and activate offers for things like gas, groceries and dining. We have a variety of ways for them to engage and win such as Sezzle Arcade and our educational tool, MoneyIQ. Last quarter, our Earn tab had over 13 million visits, and we just launched it at the end of Q2. I'm crazy proud of our team and how they continue to find new and innovative ways to provide value to the consumer. We continue to evaluate and push forward on additional products. Many of these are being run in parallel, and you've heard me discuss them before. Launch dates are still TBD, but they are all being worked on in various degrees. In June, we brought back one of our former heads of technology, Killian Bracky, to centralize our AI efforts. It's exciting to see the progress they are making across Sezzle. We called out a couple of example projects that the team is working on, a support chatbot and an AI shopping assistant. Both are great examples of how we're able to pull AI into our Sezzle ecosystem. The chatbot is already making a difference for our customer support team, saving them a significant amount of time, enabling our team to become more efficient. Let me take a step back and tell you a bit about our approach to AI. We aren't looking for ways to use AI to cut our team. Why would we? We have incredible growth and cutting people is not something we need to do other than for performance. We view AI as a tool to enhance our team's productivity, allowing us to further leverage our infrastructure and scale the company faster with more efficient product launches and expansions. So in the case of customer service, it's likely that we'll scale incredibly well here over the next couple of years as the AI tooling continues to evolve and expand its ability to serve end customers. But the way we operate, you'll likely to see that the support team size doesn't grow and may even shrink over the next few years as our efficiency with technology replaces the need to backfill members of the team. Our existing members will take on more complex cases and help train the AI systems in place to do more and more. Our marketing efforts are focused on the consumer with the primary goal of acquiring new users, but also reducing churn. The combination of new feature launches and our marketing efforts are reflected in our strong engagement metrics. On Slide 5, you can see the step-up in our quarterly marketing and advertising spend. While we love all consumers that use Sezzle, the ones with the greatest lifetime values are those that engage Sezzle as either an on-demand user or as a subscriber. As most of you are aware, we created the definition of Monthly On-demand & Subscribers also called MODS in the fourth quarter of 2024 when we launched Sezzle On-Demand. We anticipated on-demand would allow us to reach more consumers that might be averse to joining a monthly subscription product. However, we also expected it to cannibalize our subscription product. We just didn't know to what extent. Initially, we put most of our marketing dollars towards on-demand because there's less friction to join relative to subscription. And you can see from the results that we quickly grew that product to 264,000 monthly users at the end of the second quarter. However, you can also see that our subscriber count shrank from 529,000 users at the end of the third quarter 2024 to 484,000 users at the end of the second quarter 2025. By the end of the second quarter, we had enough information to evaluate the effectiveness of on-demand. The engagement on the front end was good, but the follow-through on conversion was not as good as we would like. What do I mean by follow-through on conversion? When we launched on-demand, there were 3 key tenets: number one, drive enterprise opportunities; number two, increase conversion activity at the point of sale; and number three, convert a customer over to subscription eventually. On-demand has clearly positioned us to be more aggressive with enterprise merchants, and I'm happy to note a few wins on Slide 5 as a result. However, it didn't deliver like we hoped on conversions at the point of sale or over to subscription. Further, the profit profile for on-demand is less than our premium and anywhere subscription products. We still believe on-demand is a great tool, and it's a great tool to have in our tool belt, but we have adjusted how we go to market with it. We're going to continue to lean into it for winning over merchants. But on the consumer side, we're going to lean back into subscription with on-demand only being used as an alternative tool when its parent subscription can't do the job or is meeting some resistance with an individual consumer. As you can see from the results, we pivoted our marketing and advertising spend towards subscription products in Q3 with subscribers rising to 568,000 at the end of the third quarter. We remain disciplined in our costs with a payback on marketing for consumer acquisition at 6 months or less. Across the board, our engagement metrics on Slide 6 reflect the strong momentum we have in our business. Terrific year-on-year and quarter-on-quarter performance. My 2 favorite metrics on this slide are MODS and purchase frequency. MODS is a good indicator of consumer activity within Sezzle over the last 30 days and seeing such strong growth in our highest LTV products is fantastic. While the rise in purchase frequency suggests we are moving to the top of the consumers' wallets. You can see the same sequential dynamics on Slide 7. Before turning the call over to Karen, I would like to give more details on our corporate strategic project costs that were called out in our earnings release and later in the presentation. During the quarter, these items added up to about $1.3 million in costs. While these costs are relatively minor, they potentially have some pretty big outcomes. We decided to break these out because they aren't part of our core activities. While they aren't material, we wanted to make investors aware of them. First, our antitrust suit. For obvious reasons, we can't discuss the case. But if you'd like to learn more, you can go to our investor site where we have posted the suit there. We will find out in December if the case will continue forward as the defendant has petitioned the court to dismiss the case. Second is our capital markets exploration. We have talked in the past about our desire to refinance the credit facility given the size of only $150 million and price of SOFR plus 675 bps. We have decided to exercise the $75 million accordion with our current lenders as we head into the holidays, and this will give us more time to evaluate our options. You will see in our 10-Q that will be filed tomorrow morning, the amendment to our current facility, which increases the size of the facility from $150 million to $225 million. Lastly, our banking charter discovery process. We have hired consultants and attorneys to assist us. Yes, we have an ILC bank partner in WebBank and they are fantastic. We believe that holding an ILC, which is an acronym for industrial loan company is the right long-term path for us as it doesn't subject us to becoming a bank holding company, which has all sorts of implications about capital, capital allocations, et cetera. We believe it will be accretive and add greater efficiency to our business. This is a long process and not a guarantee process. If we apply, we anticipate submitting an application in the first half of 2026. If we don't get it, it doesn't change what we're doing, and it would not affect the outlook we have. With that, I'd like to turn the call over to Karen to review in further detail our Q3 results. But before I turn it over to Karen, I wanted to let investors know that Karen is retiring and that we're going to miss her dearly. Karen and Amin Sabzivand, our Chief Operating Officer, both joined the company on the same day, and I always say that day was one of the best days Sezzle has ever had. We're going to miss her infectious positivity and her total perfection in completing every task given to her and her team. But I also wanted to tell her how much I've appreciated her support and help along the way. We're definitely going to miss you, Karen. The plan is for Karen to stick around with us for the next 12 months as we transition. And we really feel great about that plan, and I'm also really happy Karen gets to step away in such a great way. Karen, take it away. Karen Hartje: Thank you, Charlie, and good evening to all those joining us. The enhancement of our product experience and deeper consumer engagement drove remarkable results for the quarter, as seen on Slide 8. Total revenue continues to grow at an exceptional pace, increasing 67% year-over-year to $116.8 million. Our profitability followed a similar growth trend with GAAP net income and adjusted net income growing over 50% to $26.7 million and $25.4 million, respectively. Our margins held steady year-over-year with an adjusted EBITDA margin of 33.9% and total revenue less transaction-related costs of 54.2%. Most importantly, alongside our growth is our ability to scale efficiently, evidenced by our non-transaction-related operating expenses decreasing 2.9 percentage points year-over-year to 27.1%. Now turning to Slide 9, which highlights our top line growth. GMV increased 58.7% year-over-year, making our first $1 billion quarter. As Charlie discussed earlier on Slides 6 and 7, growth in active consumers and higher transaction frequency drove this milestone. Our take rate, defined as total revenue as a percentage of GMV rose 60 basis points, both sequentially and year-over-year to 11.2%. The focus on high LTV products that Charlie outlined on Slide 5 is a key driver of take rate strength, and we believe that focus positions us well to sustain this rate going forward. On Slide 10, we note our transaction-related costs with detailed components outlined on Slide 11. Overall, transaction-related costs as a percentage of total revenue and GMV increased year-over-year due to our strategic decision to expand our underwriting aperture and drive top line growth. Specifically, third quarter provision for credit losses as a percentage of GMV increased 70 basis points year-over-year to 3.1% and is trending toward the lower half of our stated 2025 provision target likely between 2.5% and 2.75%. Despite the slightly higher transaction-related costs, total revenue less transaction-related costs, as seen on Slide 12, continues to grow robustly, increasing 64.5% year-over-year to $63.3 million and representing 54.2% of total revenue. I know we touched on this during our prior 2 earnings calls of 2025, but we think it's important to continue emphasizing that the expansion of our underwriting isn't without carefully balancing the profitability of the growth we're experiencing. Recent headlines on a few lending companies have also called into question the sustainability of certain sectors of the consumer credit market, but we haven't seen any deterioration as consumer activity continues to perform in line with our expectations, but that is not the nature of our product or our business model as we outlined on Slide 13. Not only do our strong gross margins provide us with great flexibility and room to maneuver, but the short duration of our lending product allows us to pivot quickly and adjust our strategy upon seeing any early sign of deterioration in our portfolio performance. On Slide 14, you'll see that despite the incremental costs we've incurred in long-term corporate strategic projects that Charlie previously covered, we continue to maintain cost discipline and leverage our fixed cost structure. Non-transaction-related costs increased 50.9% year-over-year to $31.6 million, but decreased 290 basis points as a percentage of total revenue. In the third quarter, we incurred $1.3 million in costs related to these projects with the largest being the exploration of potential financing avenues, an effort that will continue in a more streamlined manner in fourth quarter. The remaining expenses that make up the core of this bucket, personnel, third-party technology, marketing and G&A increased sequentially, largely driven by the timing of equity and incentive compensation and our personnel costs. Bringing the full picture together on Slides 15 and 16, GAAP net income grew 72.7% year-over-year to $26.7 million and adjusted net income increased 52.6% year-over-year to $25.4 million. GAAP profit margin expanded 70 basis points year-over-year to 22.8%, while our adjusted profit margin decreased 2 percentage points to 21.8%. Despite this decrease, our margin still remains above our internal goal of operating the business to an adjusted profit margin of at least 20%. Lastly, adjusted EBITDA grew nearly 74.6% year-over-year to $39.6 million, representing a 33.9% adjusted EBITDA margin. Turning to our balance sheet on Slide 17. Total cash grew $14.7 million in the quarter to $134.7 million, even with paying down our line of credit by $13.3 million. Cash flow from operations for the quarter was $33.1 million, bringing year-to-date cash flow from operations to $55.6 million. These results demonstrate the strength of our balance sheet and our ability to self-fund growth while maintaining flexibility in our capital structure. Finally, turning to our outlook on Slide 18. We're reaffirming our guidance for top line growth and adjusted net income with modest adjustments to our GAAP net income to reflect the impact of our year-to-date discrete tax benefit to our EPS to reflect adjustments related to our estimated diluted share count and to adjusted EBITDA. The discrete tax benefit raises our GAAP net income guidance to $125 million, while the updated diluted share count increases our GAAP EPS to $3.52 and adjusted EPS to $3.38. As for our adjusted EBITDA, we're raising our range from $170 million to $175 million to $175 million to $180 million. Lastly, we are also providing adjusted EPS guidance for 2026 of $4.35, reflecting 29% growth over our 2025 adjusted EPS. While this guidance does not reflect any of the future potential products outlined at the beginning of our presentation, we wanted to give investors a view into the strong fundamentals of our business and our confidence in sustained growth moving forward. Thank you. I will now turn it over to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Mike Grondahl with Northland. Mike Grondahl: Maybe the first one for Charlie. Charlie, can you talk a little bit about when you deemphasized on-demand in Q3? And how you think that's going to affect sort of growth going forward, if at all? Charles Youakim: Yes, it was probably right around the middle of the quarter. At that point, we felt like we had enough data based on what we had been seeing on conversion at point of sale, conversion into subscription. And the bridge just wasn't as strong as we were originally envisioning, I guess, is the main point. Conversions, I think, were slightly better into on-demand at point of sale than they are into subscription, but just not enough to make the payout worthwhile. And so when we started to analyze the lifetime values of the customers, the conversion rates, we really started to realize that on-demand is probably just a better tool around the fringes and at least in the direct-to-consumer portion of our business. It's still part of the mix, but it's really the tool that we're going to lean into more on the merchant side to win over more enterprise merchants that are sensitive to margin pressures, et cetera. And then on the consumer side, we really just want to lean back into subscription and maybe use on-demand as a fallback if some consumers are resistant to subscription or whatever it might be. And then in terms of your second part of your question, Mike? Mike Grondahl: Yes. Just how do you see that maybe affecting growth? And as a follow-up to that, is your customer who maybe was going to pick an on-demand product, can you direct them into subscriptions? How does that work? How will you be successful there? Charles Youakim: Yes. We basically pick and choose what we want to present to each individual consumer. And then in terms of growth, I think GMV growth is lower if you go to the subscription route. But if you think about pushing more into stronger lifetime values, maybe not upcoming -- it's hard to say about the next quarter, but the next quarters, we should see better growth on revenue and income. That's the main point of that decision is because the lifetime value differences multiplied by the conversion differences tell us the better story is to go into subscription. Mike Grondahl: Got it. Then maybe just one more. Can you talk a little bit about take rate trends? And then the 3.1% credit losses was maybe a little bit higher by deemphasizing on demand, will that naturally drop a little bit more? Charles Youakim: Well, the take rate trends, I think we really shoot for like the 60% gross margin that we talked about in the past. And so when we think about the take rate, it's take rate minus our COGS getting us to 60%. And that's also how we sort of do the planning around our PLR plans for the year. And so the 3.1% PLR for the third quarter, basically right in line with what we're expecting. If some of the people on the call remember, people have followed us for a while, back in May, we talked about rest of the year, think about a 2.5% to 3% PLR for the entire year. And we already posted some lower PLRs lower than that range, which means, of course, we expect some of the third quarter, fourth quarter to be above that range because then you blend out to within the range. We did just update the guidance to tighten it a bit, so investors would know that we're looking -- it looks like it's being more in the bottom end of the range, the 2.5% to 2.75% for the overall year. So the 3.1%, I'd say, basically fits right into what we were expecting. And then on-demand, you do bring in more because the conversion is slightly better into on-demand, and I say slightly, but it does mean you bring in more new consumers into those products. And then more new consumers tends to lead to a higher PLR, less new consumers leads to generally a lower PLR because new consumers have higher PLRs in general. So I'd say that would be the only thing to call out there, Mike. Operator: Our next question comes from Hal Goetsch with B. Riley Securities. Harold Goetsch: Charlie, great detail. I just wanted to ask a big picture strategy on what you're seeing, what your thoughts are on BNPL broadly in the United States. I mean PayPal talked about it quite a bit and -- on the last call more than ever. And I was struck to see how actually small it is, how fast growing it is for all the different players in the space. And they called out as a replacement for -- they're seen as a major trend in the replacement of credit cards. It's more user-friendly. Could you tell us how big you think the market is for pure-play BNPL is right now in the United States? How fast do you think it's growing and why you think it has many, many years to go? Charles Youakim: Yes. I don't have an exact number for you, Hal, but I just go by -- I think the trend is going to be here for years upon years. If you look at credit cards, they were launched in the 1950s and how long does that trend last? People are writing the credit card trend for some time. I'm not going to say that we're going to have a 75-year BNPL trend. But I think that it's pretty obvious that a lot of consumers out there prefer to use BNPL over a credit card. And in some places, it also takes a little bit away from debit card. It doesn't really take away from debit card, I guess, in the end because people are paying us back with debit in the vast majority of cases, but it replaces like the full purchase of a debit card user as well. But what I think -- I think customers aren't stupid. They look at the total cost of ownership of a product. And I think they also look at BNPL as a safer product for them. I almost feel like some of these customers view us as like -- they really do view us as a budgeting tool, but almost like we're their nanny, like watching over them, not allowing them to overspend where credit cards allow people to overspend. No one in a credit card company would ever say it probably, but that's the win when someone overspend because now you've got a revolver. For us, when people overspend a lot, we're worried. We're worried that we allowed them to overextend and now they're not going to be able to catch up, we might lose the customer. So we're always trying to allocate spend to the customer in a way that is in total alignment with responsible spending. And then I think that overall lowers the cost of ownership of that credit product for the customer. It also dramatically reduces the risk of a bank personal bankruptcy, which is how do you even put a price on that. So I think a lot of the customers are probably shying away over time from migrating into a credit card because they just feel a lot safer and more comfortable with our credit product. Harold Goetsch: Can I ask one follow-up? Toward the end of your press release on initiatives update, you talked about some of the products you've been building for shoppers to increase engagement and monthly active users grew 38% year-over-year, revenue-generating users rose 120% year-over-year and monthly sessions climbed 78% year-over-year. I think it's the new KPIs. I mean, what you could comment on that? And what -- tell us what you built and why it's contributing to some of those growth figures that you demonstrated in the press release? Charles Youakim: Yes. So we talked about the shopping as being a big initiative for us for 2025 and 2026. It will be probably a 2-year initiative to keep on rolling out these shopping features and these initiatives. I said the earn tab is kind of in that mix, although maybe not directly a shopping feature. What we're trying to do is trying to keep -- drive and create value for our customers. I think middle of America, mid- to low income, younger consumers, maybe new families. We want to drive value through giving them couponing, giving them discounting, price comparison, the ability to earn almost like gig economy type earnings. Not massive type job numbers, but on the fringe helps. And what we're -- the reason -- what we're seeing from doing all of that, which you pointed out, Hal, is we're seeing increased activity in the apps. And our view is that's just a big win. So we're monitoring those KPIs closely because the viewpoint is if you get the customer coming back in the app and returning and returning and returning over and over again, you're also going to increase retention and also give yourself a chance to introduce that customer to a subscription product. At some point, maybe they're here in early November, they're not interested. They open the app back up later in November. Okay, let me sign up for anywhere and now they're in. And that's really done by creating value, adding value, presenting that value in the app and getting that customer to keep on coming back. Operator: The next question comes from Rayna Kumar with Oppenheimer. Rayna Kumar: It was really helpful to get the preliminary '26 EPS guidance. Could you just talk about some of the underlying drivers of that target, maybe revenue growth, GMV growth and your expectations for provisioning? Charles Youakim: Yes. We don't have the callouts for the underlying numbers on it. But I'll tell you the overall theme is we do believe that we're going to continue to see continued growth in our subscription and our MODS, but probably leaning more towards subscription into 2026. We're going to be cost conscious as always. And if people have followed us for some time, you know that we really think quite a bit about growing gross margin dollars at a much faster pace than growing our operational expenses. So that's a part of that. The guidance we gave for the entire year 2025, the 2.5% to 3%, we're basically kind of thinking in the same ballpark there. Like we like that ballpark because of our top line. The top line numbers that were our take rate kind of really sits along the lines of maintaining the PLR kind of thoughts that we've had from 2025. And then if there's any maybe conservatism in there at all, it's just the economy. We're not seeing anything with our consumer, but we're watching it closely. Obviously, we have the government shutdown. I don't think it's going to continue into 2026. But I think if there's a bit of conservatism, it's based on the economy and what might happen. Rayna Kumar: Understood. And then just as a follow-up, can you comment on just what you're seeing out there in terms of competition? Are you seeing any changes in pricing or strategy from your competitors? Charles Youakim: Not really. I haven't noticed anything major. I think we saw Klarna launch a subscription product as well, but it's like a much higher dollar subscription product. So that was like one of the companies kind of leaning our direction in terms of product offerings. But other than that, it seems like more of the same. Operator: The next question comes from Hoang Nguyen with TD Cowen. Hoang Nguyen: Maybe a quick one for Charlie. So since you are pivoting back to subscriptions now, maybe can you talk about maybe the difference this time in terms of marketing posture versus, I guess, the last time before you launched on-demand? How is this time different from the last? And I think last time, I think you were tracking a net adds on subscription, maybe you made 60,000 to 70,000 a quarter. I mean, should we expect you guys to get back to that level going forward? And maybe in terms of pricing, I noticed that you recently took pricing actions on new subscribers. So I mean, can you talk a little bit about that as a lever in terms of top line going forward? Charles Youakim: Yes. I'll probably avoid the guidance on how many adds to subscription quarter-by-quarter, but we did increase pricing on both the subscription products just by $1 or $2 per month, really viewed as just an inflationary type increase. If you launch the products 3 years ago or so and there's been some inflation in the United States. So that's the main reason for those changes. And then I guess the start of your question, can you repeat it again, just to make sure I got it nailed. Hoang Nguyen: In terms of marketing for the subscription. Charles Youakim: Marketing. Hoang Nguyen: Yes. Is it different this time versus last time, maybe a year ago before you launched on-demand? Charles Youakim: Yes. To give investors a view of like how we market the product. So when we are leaning into on-demand, it is a more seamless like first step into a purchase because basically, let's say, you want to check out at Lowe's or somewhere -- one of the apps or one of the merchants in our app or you're shopping out there. We would not bring up a subscription in most cases, like the option to sign up for a subscription right away to the consumer. We would basically just bring up a purchase request like in the lending lingo, TILA , Truth in Lending Approval or purchase request is what we call it internally. We bring up a purchase request, which it would show the on-demand fee. The customer would just accept it, they get the on-demand fee and then they make the purchase. Now basically the difference in the marketing. And then the landing page, a lot of the landing pages, a lot of things we're doing towards advertising. It's all about bringing that funnel. But once they get into the funnel into the app, that's what the customer would see is basically they go right into a purchase request. Now what the most customers are seeing is if you want to go and use our product at point of sale or if you want to shop at one of the many merchants in our app, what we're bringing up now is the option to join our subscription. And so that's basically the biggest difference. So marketing-wise, it's just the funnel is driving them into a different choice. And like I mentioned, there is a slighter decrease in conversion into subscription. But based on what we've seen from conversion at point of sale into subscription and then conversion from on-demand users into subscription, we viewed it as a much better decision from a lifetime value standpoint to just go straight to offering subscription to many of these customers. Hoang Nguyen: Got it. And I didn't see the chart on approval rates on the presentation this quarter. Maybe can you talk a little bit about that, whether you have -- there has been any change in terms of your underwriting this quarter? Charles Youakim: No. I mean, we've always been -- we are launching new models. So we did launch new models this quarter. And those -- the point of those models, what we like to do is we like to keep approval rates at the same level and reduce PLR. That's usually what our goals are with our new models. So I think approval rates are probably around the same levels as we've presented in the past. But with the new models in place, we believe we should have lower PLRs for those new customers coming in. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Charlie Youakim for any closing remarks. Please go ahead. Charles Youakim: Thank you. And as people know, I like to usually give a Buffett or a Munger quote or story, but I've got one here from Buffett. It starts when he was just 10 years old. He scraped together $114.75, all the money he had and he bought 3 shares of Citi's Surface preferred at $38 a share. At first, the stock dropped to $27. And like a nervous young investor, he starts sweating. Then it crawls back up to $40, so he sells. He's relieved, he even makes a few bucks. But here's the kicker. A little later, that same stock shoots up past $200. Buffett said, if I just held on, I would have made a lot more money. That he says was his first real lesson in patience. Here's another data point from the Buffett -- from Buffett that also speaks to the power of patience. I think this crazy stat speaks for itself. Over 99% of Buffett's wealth came after his 50th birthday. That's the quiet miracle of compounding. It's not flashy, it's not fast, but it's relentless if you let it do the work. Buffett always says, my life has been a product of compound interest. And also, the stock market is a device for transferring money from the inpatient to the patient. So the real trick, start early, stay patient and let time, not emotion do the heavy lifting. Because in the end, wealth doesn't come from timing the market. It comes from time in the market. That's the $114 lesson. I'd like to thank everyone for joining the call today and also thank the Sezzle team for continuing to create wins for our consumers and for our investors. Thank you all. Have a good night. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Branicks Group AG Q3 Results 2025. [Operator Instructions] Let me now turn the floor over to your host, Jasmin Dentz. Jasmin Dentz: Thank you, operator. So welcome, everybody, to our Q3 results presentation for 2025. This call will also be webcast live on Branicksgroup.com, and a replay of the call will be available on our website shortly after the end of the call. Our CEO and CFO, Sonja Warntges, will now give you an overview of our financials and our guidance. After the presentation, we will be happy to take your questions. Please note that management comments during this call will include forward-looking statements, which involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's presentation. As always, all documents relating to our 9-month reporting have been made available on our website. So I now turn the call over to you, Sonja. Please, the floor is yours. Sonja Wärntges: Thank you very much, and good morning, ladies and gentlemen. Also a warm welcome from my side to Branicks' Q3 2025 Results Conference Call. Today, as usual, I'm joined by my colleagues from the Accounting and Investor Relations departments. I will give you an overview on what has been achieved in the last quarter, and I will present you our key numbers. At the end of the call, as usual, we will also offer you the possibility to raise your questions. Dear all, in terms of a rough overview about what we have delivered and achieved during the 9 months of 2025, I would like to highlight the topics mentioned on Slide #2. First of all, again, we achieved major milestones in terms of our financial consolidation and the reduction of our liabilities. In total, we paid back promissory notes of EUR 225 million in the first half year 2025 and further EUR 68 million at the end of July. Our focus remains on further reducing our liabilities with a continued concentration on our covenants as well as on our liquidity situation. With regards to our external disposals, we look back on successful first 9 months. As per end of September 2025, we managed to sell 14 objects out of our commercial portfolio for a total of EUR 386 million. EUR 381 million of these are already closed. The remaining volume is expected to be closed by the end of this year. Branicks has strengthened its position as an active player in a still challenging transaction market, and this strong momentum will carry us successfully into 2026. Our transaction pipeline is well-filled, and our transaction teams are working successfully in order to realize our 2025 target. Our commercial portfolio continues to be a sustainable and predictable cash flow provider. Our clear strategic focus on the 2 asset classes, office and logistics, is once again reflected in the high percentage rate these 2 asset classes constitute with regard to their market value. Our portfolio continues to generate stable and predictable rents, benefiting from the rent indexation. The ongoing portfolio optimization results in a like-for-like rental growth of 1%. At the same time, we managed to increase the average rent from EUR 9.63 per square meter to EUR 10.34 per square meter. Our teams continue to successfully negotiate lease agreements, like the most recent seamless reletting in Cologne to Etain AG, as the largest single letting during 2025. With regards to our logistics asset class, the largest single letting in 2025 was a 10-year contract with organic food company, EgeSun GmbH, for 2,699 square meter in the Greater Bremen area. And also for our development project, GreenBiz Park in Beil-Ring, new letting contracts of 10,000 square meters could have been arranged. In my view, these new and follow-up lettings in 2025 prove the customer proximity and attractive high-quality properties, particularly in terms of sustainability criteria, and are demand even in a challenging market environment, and are leading to dynamic business in both asset classes. With EUR 8.4 billion assets under management, our institutional business remains the second strong pillar of our business model, recording a slight like-for-like rental growth during the reporting period compared to prior year. Thanks to our strong and solid setup within this segment, we are ready to benefit from a market upswing, particularly with regards to increasing transaction fees. And last but not least, again, we continue to be cost sensitive and managed to generate about 6% OpEx reduction compared to last year's period. With regards to our financial maturity profile, we continue to pursue our deleveraging path. After already having reduced our financial abilities in total by EUR 667 million in 2024, we achieved further milestones looking at the first 9 months of 2025. As promised, we paid back all of our 2025 promissory notes. This means that for the remaining of the year, we only have to roll an amount of EUR 64 million. In view of our EUR 400 million green bond, which is due on the 22nd of September 2026, I know that most of you are eager to learn more about our plans. Please be assured that, of course, we have this maturity in our heads and exploiting different options in this regard. Nevertheless, it's too soon to talk about the next concrete steps. Let me underline in this context that our focus to deleverage our balance sheet while monitoring our green bond covenants remains one of our highest priorities. We improved the bond LTV from 57.4% as of end of June 2025 to 56.1%, enlarging the headroom to the covenant level. We are aiming to reduce our LTV further and to achieve an even bigger headroom in the midterm. And we also improved the ICR covenant from 2.3 at end of June to 2.6, also widening the headroom to the 1.8 threshold. And we also continuously improved the average interest rate during the recent quarters from 2.67% as of end of December to 2.37% as of end of September 2025. Let's now have a deeper look in the results of our real estate platform shown on Slide #4. Our like-for-like rental income remained strong and rose by 0.3% for the entire portfolio under management. This means an increase of 1% for the commercial portfolio and a slight plus of 0.1% within our institutional business. Again, rent increases were realized primarily through indexations. In terms of square meters, the letting performance of the Branicks platform increased in the first 9 months by 18% year-on-year to 256,500 square meters. The total letting performance for the first 9 months of the year consists of 113,900 square meters of new leases and 142,600 square meters of renewals of existing leases. In total, assets under management was EUR 10.7 billion, were slightly down compared to last year, mostly due to disposals, which became effective in the course of the year. The commercial portfolio saw a decrease of EUR 3.2 billion down to EUR 2.3 billion, which was the direct result of the disposal activities year-on-year. The Institutional business was also affected by the termination of a larger property management mandate. As of today, only 1.7% of the total annualized rental income would expire in 2025 for Finger if lease contracts -- sorry, would expire in 2025 only if lease contracts are not prolonged. Over 89% of annualized rental income has a lease length until 2027 and longer. For larger expiries in 2025 and 2026, we already proactively started the discussions with the tenants. On our next slide, let me highlight the development of our main income streams. Net rental income decreased to EUR 96.3 million due to the disposals. Income from associated companies that mainly consisted of deferred income from fund shares decreased to EUR 3.2 million. As the market remains challenging, the real estate management fees were at a solid level of EUR 30.2 million. Apart from recurring asset and property management fees and development fees, this number also includes fees generated from transactions. The decrease is partly driven by the termination of the asset management mandate in the VIB Retail Balance fund at the end of 2024. Our income from rent and management fees on the platform, with EUR 126.5 million, is lower compared to prior year, but still showing a very high degree of recurring income streams. Now let's take a closer look on the development of the FFO year-on-year that is overall in line with our expectations. The most important number is the reduction of the interest expenses reflected in the net interest result with an improvement of EUR 36 million, coming along with less adjustments for consulting costs and fees for the financial consolidation. In total, and to sum it up, we see the FFO amounting to EUR 33.4 million after the first 9 months of the business year, and that is exactly in line with what we expect with regards to our full year guidance range. The following slide highlights an important strategic step. We have initiated the process to conclude a control and profit transfer agreement with VIB Vermogen AG. This marks a key milestone in the ongoing integration of VIB into the Branicks Group. The goal is to establish a clearly structured, harmonized governance and decision-making framework that will enable us to capture synergies and further develop the group in an efficient and value-oriented way. Always in the best interest of our shareholders. Under the planned agreement, VIC Real Estate Investments, KGaA, will act as the controlling company with VIB as the controlled entity. The agreement also provides for annual compensation payments to VIB's minority shareholders and includes the option for them to exchange their VIB shares for newly issued Branicks shares. We expect the VIB will convene an extraordinary general meeting in February to seek shareholder approval for the agreement. This would allow us to complete the structural integration in 2026 and continue executing our joint growth strategy with even greater efficiency and alignment. In view of our expectations for the current business year, we overall stick to our guidance, except for real estate management fees. We expect gross rental income in the range from EUR 125 million to EUR 135 million, real estate management fees between EUR 45 million and EUR 55 million, and an FFO I after minorities and before taxes of EUR 40 million to EUR 55 million. With regards to acquisitions, we foresee no acquisitions for our on-balance sheet activities and EUR 100 million to EUR 200 million within our EBO segment. Our disposal guidance lays in the range of EUR 600 million to EUR 800 million, thereof EUR 500 million to EUR 600 million in our commercial portfolio and EUR 100 million to EUR 200 million in our institutional business. Beyond our guidance for the current year, our midterm ambition remains unchanged. We strive to transform Branicks Group towards a profitable ESG-focused and value-generating asset expert with sustainably strengthened cash flows and financial position. Our ambitions are clear, and we are working hard to achieve them. We want to substantially improve our earnings and cash flows and return to net profit in 2026. And we have a clear midterm ambition to further reduce our debt, what will go along with improving the respective KPIs. Having said that, I would like to hand over to the moderator for your questions. Operator: [Operator Instructions] So the first question comes from Thomas Neuhold, Kepler. Thomas Neuhold: I have 3 questions. The first is on the accounting side. I saw that you had write-downs of EUR 178 million due to sales in the first 9 months. Can you provide more details on these write-downs, please? Sonja Wärntges: Yes. So we had sold 2 assets for the VIB, or on the VIB level, so to say. And as you know, as we have bought the VIB shares, we were on the peak of the transaction market and the values of the assets. And when we sold the 2 assets in the third quarter, we had to take the depreciation of around about EUR 133 million of the 2 assets because it was one of the biggest asset was VIB had and the other one was a new development. And therefore, we had to take the depreciation as a so-called Sunder Alfa in Q3. Thomas Neuhold: The second question is on your vacancy rate. I saw that was creeping up a little bit over the recent quarters. Can you elaborate a little bit on which assets are concerned? And what are your measures to reduce the vacancy rates again? Dirk Oehme: This is Dirk speaking. It's more or less kind of a mixture. We have a certain increase in the vacancy rate in the area of our logistics portfolio, but also in our remaining office portfolio. So it's kind of a mixture, and the measures going forward, I mean, we have already signed rental contracts for certain areas, for certain square meters, but they're not yet effective. So we will see this -- in 2026, we will see the reduction in vacancy rate because of the effectiveness of those rental agreements. And yes, our teams are still working on all of our vacancies to enhance values. Thomas Neuhold: And my last question is a more general one on the investment market outlook. I was wondering if you can provide more color on how you see the situation currently, which asset classes assets are currently in demand, it's still difficult, and what needs to change that we see a more active investment market going forward? Sonja Wärntges: Yes. So if you look on transaction market numbers, it's real down also in 2025 compared to 2024, what was astonishing, so to say, and if you look on our numbers, we are one of the most active transactors, so to say, in this market. But anyway, if you look on the market, you see that more foreign investors are coming to Germany and want to invest, especially in logistics. And for all asset classes, I would say, in the development area, because if you look on how the investors or who the investors are, these are mostly funds, big funds, foreign funds with a lot of money. They have in the pocket, so to say, but these are the special development areas, so refurbs and so on with a certain IRR. And on the other hand, logistics, new development, redevelopment, and existing portfolio. But we also see more interest in the office area. and also interest in the retail area. But at the end of the day, yes, Core+ is, I would say, only in the logistics area. Operator: And the next question comes from Jochen Schmitt from Metzler. Jochen Schmitt: I have 2 questions, please. The first one is also on the vacancy rate, especially regarding the office space in your portfolio; the vacancy rate increased by around 2 percentage points over the quarter. Could you provide some more reasons for that? Did major contracts expire, for example? And second question, very briefly, any indication for the property valuation at year-end would be helpful. Sonja Wärntges: So yes, we had -- at the end of the day, the vacancy rates in office is -- we had big contracts, 2 big contracts, yes, which ended, so to say. We have new tenants there, and therefore, we have to refurb a little bit the areas to bring the new tenant in, and it will take us around about half a year until they are in. On the other hand, we have sold one or the other asset, which was completely full. And so the vacancy has compared more percentage, so to say, in the total portfolio. So therefore, we have also an increase in the vacancy rate. The second question -- the evaluation. So we are in the middle of the evaluation, so to say. We have started them. We will have the -- we finish that at mid of December because there are a lot of assets. For the EBO segment, we have the evaluation during the year. So there are no surprises. And I think at the end of the day, we will stay around about at the same level as last year. And for our commercial portfolio, we see also the first numbers, which are in the range of last year. What's coming up is now the evaluation of our development. So we have not seen that numbers. So to sum it up, I think around about -- I cannot say it very clearly, but we will stay around about on the level of last year. Operator: The next question is from Manuel Martin, ODDO BHF. Manuel Martin: Two questions from my side, please. A follow-up question on the portfolio evaluation. I was wondering, I mean, if Branicks does a selling transaction and has to devaluate the property because it was in the book at peak valuation, and now the prices are different. Couldn't it be that there are more properties like this in the portfolio? That would be the first question. Sonja Wärntges: So I think there are special assets where we're talking about. At the end of the day, it's a big difference whether you look on the normal valuation, so to say, or you go to the market and sell something. And if you look on the Cushing assets, which we have sold here, it was -- yes, I do not know any other, but it has 2 levels as a logistic asset. So it's very special. It was built for one tenant, and that's an automotive tenant. So it's not really clear what's happening there. And from our perspective, it's difficult if they want to reduce the space because to use the asset for -- on the 2 levels for 2 different tenants, yes, will be very, very hard to say. So -- and we have sold it to somebody who is very keen on automotive and to the tenant. So I think it was a good move here because at some time, the tenant -- the contract ends. And therefore, the decision was made on VIB to sell this asset. And therefore, it is a big amount what we have to take because it was a very high-level asset, so to say. At the end of the day, as I said, it's -- what we sell is specialties to get it out because we think that others could do more on this or want to invest in the asset. And as I said, if you look on the next 5 or 10 years on an evaluation basis with a discount cash flow method, it's another look on the asset than you look if you want to sell it today. And if you want not to take the CapEx and TIs, which are in the evaluation included, you have to reduce the value, so to say. And therefore, you have the business at the end of the day in these 2 values. But the evaluation itself, yes, we have taken the discounts on the last 2 years, when you remember, so in total, I do not have the total number, but it was around about 15% or so what we had in the last 2 to 3 years. So I think we have made the depreciation here. And therefore, I'm confident that we will not see big discounts this year. Manuel Martin: Second question would be on the -- also a bit following up on the disposals. Could you elaborate a bit on -- or bring some color to the disposals? So for example, what was the net cash inflow? Because I saw that you have EUR 97 million on your balance sheet as of end of H1. So is the net cash inflow there? Or will it come? And how much will that be? And so -- and maybe you could give us some color on the 14 properties. Was it -- I think it was not all logistics, but maybe a major part. So that would be to bring a bit of color on that, please. Dirk Oehme: This is Dirk speaking again. I mean, we -- as you can see in the profit and loss statement and in the cash flow statement, we have net proceeds of the sales as of September 30, '25 of EUR 215 million, and then less release amount that's around about, I would say, as an average, it's 50%. So it's more or less EUR 100 million, EUR 110 million was the net cash inflow for the sales we did until September 30, '25. Does that answer your question or-- Manuel Martin: On the net cash inflow, yes, yes. So -- but when there was net cash inflow of EUR 110 million, and I see EUR 97 million on the balance sheet. So there must have been some cash outflow. Dirk Oehme: Yes. I mean we had some -- I mean, we paid back our debt and therefore -- so that's the main reason why the cash flow or the cash might be reduced. Manuel Martin: And the final aspect on the mix, was it rather logistics? Was it office? Was it VIB? Was it commercial portfolio? Maybe color on that? Sonja Wärntges: Yes. From the number of 40, we sold 5 office assets, and the rest was logistics. Operator: And the next question comes from Philipp Kaiser, Warburg Research. Philipp Kaiser: A couple from my side. I would start with the VIB topic. As far as I understood, so firstly, you consolidated all the entire business in VIB, received a payment. With that, you redeemed the intercompany loan. And now you initiated a process of controlling profit transfer agreement. So could you shed some more light on the ratio behind some -- just from an operational perspective, also from your balance sheet financing perspective, what do you expect from this agreement? And what is the potential impact on, let's say, the financial KPIs? Sonja Wärntges: Yes. Yes, I think the rationale behind is that we do our step or our plan step by step, and the focus was on reducing the liabilities and keeping the LTV and the covenants in line with our KPIs, so to say. And the second step now is to integrate the VIB into the Branicks Group. You can imagine that this brings us to a clear structure and more governance harmonization, and so on, so that we now made the decision that we want to start the negotiations about this with the VIB. And what it brings is, yes, we want to conclude a control and profit transfer agreement with VIB and therefore, give the minority shares from Branicks. So we have to do a capital increase from Branicks side. And at the end of the day, yes, we have during this -- or after having this contract in place, we have one company and can lift that's -- what you see in the balance sheet today, the consolidation of the business. And I think that's more easier and yes, for all of us, and it brings more clearness in the governance and in the decision-making steps. Philipp Kaiser: So I think -- so until now, you can't share more details on the ballpark of the compensation payment, the planned time schedule for capital increase, et cetera. Is that right? Sonja Wärntges: No. So what we have started is we have started the talks with VIB. So VIB on their side have to evaluate what's happening. Also, we have to evaluate. So -- and this means really evaluation. So what's the evaluation on both sides? And this is also made by an evaluator out from the court, so to say. We have -- the court has done the decision who should be this. Now we are in preparing all the documents for this evaluator, and he needs some time. We do not exactly know how much time he needs, but we expect that we are ready beginning of next year. And so therefore, we then will publish the invitation for the annual meeting on both sides. And we expect it to be mid-February. And yes, that's what we have in line at the moment. But at the end of the day, as I said, it depends on the evaluator. We do not know the evaluator yet. We have one meeting -- we have had one meeting. And so we cannot really say, but that's the plan at the moment. Philipp Kaiser: My next question with regards to your gross rental income and your unchanged guidance there. Could you kind of give me more insight on the last quarter? So you printed already EUR 106.8 million in gross rental income. Taking the lower end, it was only the EUR 18.2 million in the last quarter; the upper end would be below EUR 30 million. And is that purely driven by already concluded disposals as well as planned disposals? Sonja Wärntges: No, I think we will reach the upper end here if nothing special happens. So at the end of the day, yes, we are confident to reach the upper end, maybe a little bit more, but I'm not really sure here. But at the end of the day, as I said, when nothing special happens, we will reach the upper level there. Philipp Kaiser: And then kind of the gap between like the first 3 quarters printing roughly between EUR 34 million to EUR 36 million is due to concluded sales, which then reduced the rental income. or there any other impact on the top line? Sonja Wärntges: No, that's exactly right. Perfect. Philipp Kaiser: My next question is with regards to the adjusted real estate management fee. I mean the lower end is kind of just purely the recurring management fee, as far as I would see that. Do you have any -- or do you see any fee income from the transaction and performance fee side? So do we expect a pickup here in the market in the last quarter of the year? Sonja Wärntges: Yes. As normal, the last quarter of the year is always the busiest one. So we expect this also this year. But yes, to say it clearly, you are right, it's a little bit more than the recurring fees, what we have here on the lower end. And what we see is that the discussions and the transactions take much more time than before. So you have to bring all the institutional investors on the page, so to say, you have to bring the tenants or the buyers on the same platform, and it takes a lot of time. So we are not sure whether we can -- what we can realize on the decision-making side here until the end of the year, and what will be postponed into the next year. And therefore, we have reduced the guidance here a little bit. But we are also still following all our plans, but it takes a lot more time than in the past. Philipp Kaiser: The next one is on the OpEx side. You already elaborated that you have been able to bring down the OpEx overall by roughly 6%. After the first 6 months, they were printed a reduction of 14%. What do you expect now for the entire year? So what ballpark is possible to bring down the overall OpEx cost by the end of the year? Is it more in double-digit range or a high single-digit perspective compared to the last year? Sonja Wärntges: No, I would say high single digit. Philipp Kaiser: And then the last one from my side. With regards to the other adjustments, firstly, could you just quickly remind me what are the adjustments about? And following this explanation, ballpark, what do you expect for the overall adjustments on Branicks level for the entire year would be very helpful. Dirk Oehme: So the other adjustments are mainly driven by our refinancing activities, and these are kind of adviser costs in this respect. And in the previous year, it was much higher. So this year, it's just, I would say, the rest of the refinancing activities. And then we have some adviser costs in respect of intra-group transactions. So that's basically the reason for those adjustments. And in Q4, we -- I mean, as of now, we expect something around another EUR 1 million plus/minus that will be adjusted for kind of those adviser costs. Philipp Kaiser: Okay. So EUR 1 million overall for the last quarter, is that correct? Sonja Wärntges: Yes. Philipp Kaiser: And as you already mentioned kind of only the rest of the refinancing, mainly driven by the advisers too, is it fair to assume that this line will be neglectable for the other -- the coming years, at least in this size double-digit million size? Dirk Oehme: Well, I mean, it's hard to say, to be honest. And it depends on negotiations and other kind of things. So if we -- I mean, our overall goal is not having such big amounts of all the costs in the future. But I mean, we can't guide it as of today. But yes, so it's hard to say, to be honest. Operator: So the next question comes from Markus Schmitt, ODDO BHF. Markus Schmitt: I have just a couple. Firstly, on the cash situation. So how much of net cash inflow will be received in Q4 or Q1 from concluded or notarized asset sales? Any figure there? Sonja Wärntges: To be honest, I cannot say this at the moment. So we have to find it out and come back to you later, yes. Markus Schmitt: And then on the profit and loss transfer agreement, I think on the consolidated level, this should not have much of an impact on group LTV. But since the agreement is subject to a capital increase on Branicks AG level, it will strengthen apparently, the capital base of the individual entity. Was this a requirement from your banking partners? Or was this not a key consideration here? Sonja Wärntges: No, we are not following any advisers from the banks with this process. It was our decision and has nothing to do with any banks or something. Markus Schmitt: And there was also a fee mentioned, subject to that new agreement. Can this be disclosed how much that would be? Sonja Wärntges: I do not really understand what you mean, a fee. Markus Schmitt: Yes, there was -- in the press release when this was announced, there was a fee mentioned you need to pay annually for that agreement. Sonja Wärntges: Yes, you mean the so-called guarantee dividend. If you do such a process, you have to offer for the minorities who do not want to change their shares, a so-called guarantee dividend. And that is what we find now out with the evaluator established by the court, how the right number will be then there. Markus Schmitt: And finally, I mean, except for the integration of VIB, the key goal is, I think, to be able to transfer the cash earnings from VIB. I mean, just to understand the key objectives. I mean, these 2 would be the key objectives from my perspective. Sonja Wärntges: Yes. This is -- as I said, this is a lot of advantages. At the end of the day, we are consolidating the numbers. We see all these balance sheets and profit and loss. And on the other hand, we have 2 companies which exist differently. So it's much more easier if you have what is in the balance sheet also in the real life, also for the minorities as for us, so on the governance side, but yes, also on the balance sheet side. And therefore, we said we wanted to establish in the real life what you see in the balance sheet at the moment. Operator: So as there are no further questions, I give the floor back to Jasmin Dentz. Jasmin Dentz: Thank you. So this concludes our Q&A session and today's call. Thank you so much for joining us, and stay healthy, and let's talk again soon. Thank you. Bye-bye.