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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.
Remon Vos: And good morning, and thanks for joining on this Q3 call, talk about the results and the things we have been busy with over the past couple of months and maybe start with talking about CTP, a growth company. We enjoy growth. We like growth, and we see growth opportunities to continue to develop, build for our clients and secure new business. So, growth comes from supply chain professionalization, if you like. So, we have seen obviously many events over the past decade and you could maybe conclude or say that this whole supply chain becomes more professional. So, companies adapt or adjust to different market circumstances or different events, which we have seen over the past years. We benefit from that in different ways. That's one, supply chain. Second is Nearshoring. We continue to see manufacturing coming to Central Europe for the region, for Western European countries as well. But we also see growth in the markets of Central Europe. So, the consumer spending, maybe when I came here first in '95, 30 years ago, Central Europe was about low-cost manufacturing. In the meantime, of course, with all the GDP growth, which we have seen over the past decades, the local population have money to spend and they do spend. And obviously, that results in demand for property warehouse, for example, e-commerce, et cetera. We see also growth coming from defense industry. There's a lot of talk about it. But in the meantime, we've also seen some concrete demands in our German portfolio. For instance, there is multiple companies who are involved in the defense industry, and they ask for more space. So, that's good. So, we continue to see mostly from existing clients, strong demand from a diverse tenant base, it's including retailers, pet food manufacturers, semiconductor business, but also demand from automotive-related industry, maybe moving from West Europe to Central Europe to Eastern Europe or Asian companies coming in and set up business in Europe for the European market. In numbers, we signed 1.6 million square meter over the past 9 months in '25. This is 6% up compared to what it was in 2024, 6% plus. And we have done that at 6% more rent. So, our rent average per square meter per month has grown with 6%. Again, we look also forward to continue this trend. And typically, we close a lot during the last part of the fourth quarter of the year as we've done last year and the years before. So, we're on schedule to close more leases by the end of the year. Stable, consistent growth, 2/3 of our business comes from existing clients, our partners, long-term clients, loyal clients. It's also them who help us grow in new markets. We get 99.8% of all the rent which we charge is being paid, retention rate, 85% and 80% of all the new construction happens in existing business parks. Our integrated business model combines the operator. So, I'll talk about how we break down our different business lines. The operator is the income-producing part of the business. Those are all the properties which we have built over the past years is good for EUR 780 million of rental income around that number. The second activity, the developer with 2 million square meters of properties under construction with a land bank of 26 million square meter. Those are the people who are busy with building property, constantly improving the quality of the property, come up with different property concepts and innovations, make the properties consume less energy, less maintenance cost. You want generic design buildings because the building will last beyond the lease term of the first tenant, et cetera, especially nowadays with so many changes going on, it's very important that you get the property right, the location right, and to make sure that you have amenity services, utilities, electricity on site in those business parks to make sure that your clients grow. And that's what happens. The last, if you break it down and say, okay, we have this operator income-producing developer construction. The last bit, maybe most exciting part is the growth engine. We have been growing beyond the markets where we are active. Remember, the IPO we did also to raise capital to get access to capital, affordable, cheap capital to grow our business beyond, and that's what we continue to do. This year, we delivered 500,000 square meters, a bit more 0.5 million square meter. Mostly pre-leased. We do 10.3% yield on cost. And who are those tenants? It's LPP for Bucharest, Hitachi for Brno, Japanese client, long-term client, but also Zoomlion in Tatabánya in Hungary. This is one of our Chinese clients. Thank you very much to the clients for the continuous support, commitment and loyalty and thanks for working with us. We've been able to complete these projects on time and in budget. Again, end of the year normally is a lot of projects come to the market. We have 2 million square meters under construction, 2 million. Not all of that will be complete by year-end, but many will and the rest will go to 2026. When all of the stuff which we build and complete this year comes to the market and is leased, and we are another EUR 165 million of rental income at 10% yield on cost, we are well underway to hit the EUR 1 billion of annual rent by 2027. That is our target, and we are on schedule to hit that target. A couple of highlights maybe on different markets. What we see good is Czech, stable. We've been here for a long time. It's our home market, good occupancy, good returns. Poland, relatively new for us, largest economy, of course, in Central Europe, quite important to be there. We've done well, more than we planned. So, quite happy with that. Germany, as well, we see more demand over the past couple of months also turn into deals. We signed the lease contracts, which is good and also makes us positive for the future. Some of you had the opportunity to visit us at our Capital Markets Day in Wuppertal in September. So, you have also seen our projects in Mülheim, Aachen and of course, a couple of other places. So, it looks like over the past years, we have been able to put a team together. We have secured land and permits that we now can go ahead and build those properties and lease them, which we look forward to doing. Yes. So, we actually think it's just the beginning of CTP. I think it's more complicated probably to come from 0 to build 10 million or 15 million square meter portfolio than it is to double from 15 million to 30 million square meter. Let's see, we have systems in place. We have a fantastic team of people, great relationships with clients, but also with the local authority. So actually, we look forward to hit that 30 million square meter one day. We target for 2030. Let's see how far we get. So far, it looks good. Maybe a couple of things about the new markets. I wanted to talk about Italy, which is another European market, Northern Italy, where we have many clients coming from that part of Italy. We now have an opportunity to get started with some projects, which we look forward to doing, and we hope some of them will already be complete next year in 2026. So that will happen. We think it's a next logical step in the region. We obviously already active in Germany and Austria and yes, in Italy, Northern Italy, we see some good opportunities to introduce our full-service business park concept. We'll start with some smaller projects maybe, but there's also an opportunity to accelerate and to come up with a different entry strategy similar to what we have done in other countries, Germany and Poland over the past years. And then Asia, we definitely like to have a closer look at the opportunities in Asia as we think our company and our clients don't stop in Europe. They go beyond. They are often global players, and they have asked us whether we would be willing to support them in Asia and Vietnam to be exact, and we have been spending the past 12 months looking at opportunities. And we became more positive and enthusiastic about the idea of doing a project in Vietnam. So, we expect more to come from that. Don't expect huge things. We will start with one project and maybe do a second. We learn by doing with existing clients, with pre-leases, but definitely it's an opportunity, it's 100 million population, early 30s average age, so young, very productive with huge FDIs, not only from the consumer electronics industry, but also LEGO and Volkswagen Skoda have just opened up a plant or building a plant. So, many opportunities we see there, which we want to have a close look at. Happy to answer any questions. I think, I'll hand over to Maarten for now with some more details on the financials, and then I'm here later. Thank you very much for your attention. Maarten Otte: Moving on to the financial highlights. The like-for-like rental growth came to 4.5% in Q3 '25, while occupancy remained stable at 93%. The net rental income increased 15.4% to EUR 549 million as we continue to reduce our service charge leakage. The NRI to GRI ratio, therefore, improved to 97.7%, while we also continue to improve our EBITDA margin. Annualized rental income increased to EUR 778 million, illustrating the strong cash flow generation of our portfolio. The company-specific adjusted EPRA earnings increased by 13.1% year-on-year to EUR 305.2 million. While the group's EPS amounted to EUR 0.64, an increase of 7.2%. Thanks to the deliveries and net development income being backloaded to the fourth quarter, the group is on track to reach it's guidance for the year. Now looking at the valuation results. For the Q1 and Q3 results, only the investment properties under development are revalued. Valuation results in the first 9 months of the year came to EUR 802 million. Of this, EUR 385 million was driven by the construction and leasing progress on our developments, but EUR 373 million came from the revaluation of outstanding portfolio and EUR 43 million from our land bank. The total gross assets value now stands at EUR 17.7 billion, up 10.6% from full year '24 and 16% year-on-year. CTP's reversionary yield stands at a conservative 7% and we expect further yield compression and positive ERV growth in line with inflation or slightly ahead of inflation for the rest of '25. This is also illustrated by the new leases signed in the first 9 months of '25, where rents are 6% higher than the new leases signed in the first 9 months of '24, which is supported by the undersupplied nature of the CE markets and industrial and logistics space per capita is only half compared to the U.K. or other Western European markets. The transaction markets continue to recover across Europe as there's more clarity around funding costs. We expect an increase of transactions into next year, especially on the private equity side, where funds are coming to maturity. We expect to see more turnover. This will offer opportunities for us. We also remain active in the market for land acquisitions, plenishing the land bank in our existing markets, growing the land bank in countries that we entered recently like Poland, which we plan to enter like Italy and Vietnam, while maintaining our disciplined capital allocation. Our EPRA net tangible asset per share increased from EUR 18.08 at year-end '24 to EUR 19.98 at the third quarter, representing an increase of 10.5% since the beginning of the year. Year-on-year, the increase was 14%. With this NTA growth and our dividend, we delivered a total accounting return to our shareholders of 70% in the last 12 months, highlighting our superior return profile, which is unique to the real estate sector. And now I hand over to Richard. Richard Wilkinson: Our funding strategy remains centered on maintaining a stable investment-grade rating. And we are very happy that our improving credit metrics were recognized by Standard & Poor's with their upgrade in September. We focus on ensuring access to multiple sources of liquidity, meaning attractive funding is available at all times. We have a geographically diversified investor base, now further strengthened by Asian investors added in 2025 and a growing share of unsecured debt towards our target of 80%. Thanks to our highly accretive developments and proactive debt management, our interest coverage ratio increased to 2.5x. Our normalized net debt-to-EBITDA remained stable at 9.2x, and our loan-to-value stood at 45.2%. We expect loan-to-value to return to our 40% to 45% target as our development pipeline is completed and revaluation gains are fully booked. As presented during our Capital Markets Day, with our market-leading development yield on cost of over 10%, every euro we invest in our pipeline increases our ICR and decreases our net debt-to-EBITDA, allowing us to grow at our 10% to 15% annually while improving our overall cash flow credit metrics. This was also highlighted by Standard & Poor's on their upgrade of our credit rating to BBB flat with a stable outlook in September. Moody's have a positive outlook on our credit rating, confirming the positive trajectory of our ratings. In the first 9 months of 2025, we signed EUR 1.7 billion of unsecured debt to fund our organic growth. This included EUR 1 billion in dual-tranche bonds issued in March, an inaugural JPY 30 billion Samurai loan equivalent of EUR 185 million and a EUR 500 million syndicated term loan facility signed in June, which had commitments of over EUR 1.2 billion. Together with the 6.5-year, EUR 600 million bond we issued in October, this continues to demonstrate our ongoing strong market access. We continue to actively manage our funding costs. And over the past 12 months, we have renegotiated or repaid EUR 1.6 billion of our most expensive bank loans, including the prepayment in June of EUR 441 million of expensive unsecured debt. CTP maintains a conservative debt profile. The EUR 272 million of bonds maturing in June and the EUR 185 million maturing in October were both repaid from available cash. Looking ahead, maturities remain limited over the next 3 years with a EUR 350 million bond due in January '26 and a EUR 275 million bond in September '26. Our cash position stands at EUR 1.1 billion, including our EUR 1.3 billion RCF, our liquidity totals EUR 2.4 billion, more than sufficient to meet our cash needs for the next 12 months. The average debt maturity stands at 4.8 years and the average cost of debt at 3.2%. This represents only a minimal increase compared to year-end 2025 as our current marginal cost of funding remains below 3.5% for 5-year money. We remain confident in the outlook for CTP. We have a strong tenant lead list. In addition to what we have already pre-let within our development pipeline, we have 151,000 square meters pre-let for future projects for which construction has not yet started. We continue to see rental growth across all of our markets, supported by the nearshoring trend and ongoing e-commerce growth, particularly in the CEE region. Our tenant-led development pipeline remains highly profitable. With our industry-leading yield on cost of over 10%, we are able to deliver sustainable and profitable organic growth, while maintaining a robust financial position. We confirm our EPS guidance of EUR 0.86 to EUR 0.88 for 2025, which due to an intended acquisition in Romania not proceeding, is now expected to come in towards the lower end of that range. Thank you for your attention. We now welcome your questions. Operator: [Operator Instructions] Our first question comes from Marios Pastou from Bernstein. Marios Pastou: I have two questions from my side. So, I see leasing is up over the first 9 months. It's marginally down in Q3. I think you mentioned that you want to have a good final quarter, but I also see that last year, that final quarter was also very strong. So, do you expect to be up in terms of leasing volumes for the year as a whole? And then secondly, can you just remind us why the intended acquisition in Romania didn't proceed as planned? Maarten Otte: I will take the last question on the Romanian acquisition first, and then I'll let Remon comment further on leasing. So, it comes back to antimonopoly reasons where there were two restrictive conditions for us. So, we decided not to go ahead with it. We see enough opportunities in terms of acquisitions across Europe. We continue to buy land. So, we always do also relative capital allocation where it doesn't make most sense for us. In the end, with the restrictions here, it didn't make sense. So, we decide to prefer to invest in other opportunities. Operator: Our next question comes from John... Remon Vos: We didn't answer the second part of the question with regards to leasing. If you like... Operator: Apologies. Continue. Remon Vos: No, I can give some color on that. Anyway, with reference to what Maarten just said, well, even if we wanted to buy, we can't buy, because that is very complicated with the competition and antimonopoly whatever, which actually is not bad because there is other places where we can invest money. That's why I think, we waste a lot of time on that P3 acquisition, which didn't happen. But as I said, at the end, maybe it's even better without. With regards to the leasing, yes, as stated, we continue to see demand and that will turn into deals over the rest of the year. And yes, which is good. So that is often the case that fourth quarter is more takeup than first or second. I don't know exactly why that is, but it has been historically like that, and we think that trend will continue for '25. Yes. So, we did sign some leases just now in Poland, which is good. And in Romania as well, in Germany. So yes, overall, relatively positive, I would say, I think, and we are on schedule to hit the occupancy target for end of '25. Operator: Our next question comes from John Vuong from Kempen. John Vuong: On Vietnam, you said that you -- well, that we shouldn't expect huge things with only one or two developments. So just trying to understand here, over what time line do you expect to start these developments? And if you're really excited about the opportunities in the country, why only start with one or two and not with like a park strategy like you are in Europe? Remon Vos: Good question. Well, it's definitely going to be a park concept. So, we think of using or doing the identical thing or similar thing to what we do in Europe. So, park concept and business park, full-service business park with different property types. But -- so that is definitely the case. But you need to also get ready in terms of setting up a team. And so, we are now in the middle of recruiting people for our Vietnam office or Vietnam team. And that will take a bit of time. So, that's why I think, honestly, the recruitment process has started. We have met people. People came over to visit us in Europe in order to make themselves familiar with what we do, how we do it to get to know other people in the organization. So, it's also part of the recruitment process. And yes, it takes time until these people will actually join, which some of them will join in Q1, beginning of next year, Q1 of '26. And simultaneously, we have agreed an option on four land sites, and that would give us the opportunity to develop around 300,000 square meter. It will be very nice. And I think some of that we can start next year in '26, but those buildings will come to the market in 2027. And so, that is what I think now. So, that means 300,000 square meter, EUR 150 million. I think construction cost will be a bit lower in Vietnam, what you see at the moment it's going to EUR 500, it's more going to be like towards EUR 400 per square meter. And we think of, of course, doing that at 10% plus yield on cost, so above 10% yield on cost. But that is the base plan. And maybe we see opportunities to accelerate and to grow more through some acquisitions as we have done before when we entered a new market, that we do our organic growth, buy land and develop or maybe here and then buy something which would help us get a bit more volume. But yes, so that is how we see it now. So, we will need time to get familiar with the market, to put up a team, to get started. And we want to do that carefully. And -- but once we get going, so from '27 onwards, maybe there's an opportunity to do 200,000, 300,000 square meters per year, maybe. The market is big enough by 100 million people, there is hardly any stock. There are, of course, a couple of players, that's GLP or SLP, they have been -- they are Frasers, Mapletree. It's not -- so there is, of course, a significant amount of developers. But if you look at the stock compared to the amount of inhabitants, 100 million people. And if you look at all the opportunity, then the market is very -- yes, it's at the beginning. And as I explained, demand coming from our clients, we think it's a good opportunity to proceed with. But that's how I can -- I will continue, of course, to update you on how far, how quick we can get. But that's for now how I see it or how we see it. John Vuong: Okay. And just on the 10% yield on cost, is that net of land leases, given that you cannot own land in Vietnam? Remon Vos: Correct, it's 50-year leasehold or concession. So, what if we calculate as very primitive and as very simple. So, we add the concession cost for 50 years. Then on top, we add cost for everything related out of pocket to develop the property, so infrastructure, construction costs and all of that. So yes, that is included. And we think yield on cost in Vietnam is more towards what we do in Serbia. So, well above the 10% yield on cost. John Vuong: Okay. Great. So right. Remon Vos: It's included. Richard Wilkinson: But John, so in Serbia -- in Vietnam, like Remon says you're looking at kind of like Serbian type of relationship where you're developing at trying to get to 12% and revaluing 8.5%. Operator: Our next question comes from Suraj Goyal from Green Street. Suraj Goyal: Just a quick one. It's on leases again. So the new leases signed at rent levels 6% higher than last year. But it seems lower in Serbia, Hungary, Romania and Bulgaria. I appreciate there may be some nuances here, but would you be able to just share some color as to why this may be the case. Maarten Otte: That's always what we say. Some years will be up, some years will be down. It depends a lot on which leases you are signing, especially for the smaller markets, it depends a lot on which projects are coming online and when they are exactly coming online, in which quarter you are signing the leases. To be honest, you always see volatility. Last year, for example, we did less leases in Czech. This year, Czech in terms of absolute amount of leases is doing very well. Same with what we had in Hungary. Hungary, we did last year, a bit more leases, this year, a bit less. That's the normal business cycle. You can lease the space only once. You try to lease at the highest rental levels possible to what we think our clients which add value for us long term in our park model. So, it really depends on what is the opportunity building set you have for leasing. So, there is no -- if you look across the markets, there is no structural trends in either one of them that is really for us a point of concern. Some markets are better than worse. That's year-on-year. Overall, what you see is, we do more leases, we do them at higher rents, and that comes really back to the demand drivers, which are long term, and they won't change from one day or another. The demand drivers that were in place last year are still in place, and it comes back to the nearshoring, that comes back to the growth in domestic consumption, et cetera. But it depends a lot on which quarter you sign with specific deal. That's always been the case also if you look back historically. So overall, that's what Remon also said, we are confident in our occupancy targets to hit by year-end. And the leasing is progressing well towards that. Also, that's why we confirmed basically the guidance for our deliveries between 1.3 million and 1.6 million square meters for the year. So, we are very well on track. And with the amount of hope that we are doing and the conversations that the team on the ground has, we have confidence in getting there. And some markets will contribute a bit more than others, but that's normal. Operator: Our next question comes from Steven Boumans from ABN AMRO, ODDO. Steven Boumans: I have two. So the first one, a follow-up on the expected leasing numbers. Do you think that the average rent per square meter will rise above the EUR 6 per square meter per month for Q4? And what about '26? Maybe that's the first one. I do another. Remon Vos: It would be good if they are above EUR 6. In some markets, they will be. I don't know, maybe Maarten has the average number. Where do we see rental growth? We see a lot of rental growth in the German Deutsche Industry portfolio. Remember the old buildings we bought or older buildings we bought. Of course. Why is that? Because we bought relatively cheaper. When we bought, the rents were quite low, EUR 3.5, so let's say, EUR 42 per year. And that we see that going up to, yes, EUR 70, EUR 60, EUR 70. That's true. We have to also invest in those big properties. But just yesterday, we did a deal at that kind of number. So it's around EUR 6 per square meter for the Deutsche Industry. I think we see rental growth throughout -- also Romania because the other question was that, we do less in Romania. I don't think so. We have seen a lot of rental growth in Czech. So yes, Czech, I would think it's EUR 6. Maybe, Maarten, you can add some on that, whether it's EUR 72 or EUR 70 per year on average, maybe throughout the portfolio. I mean, big box logistics in Bucharest, you will not get to EUR 6 for sure, but something smaller in Czech, you will definitely get to EUR 6. Poland, you will not get. Although the -- by the way, the small stuff we do in Warsaw, so we have SBU, small business units. Obviously, that is higher than EUR 6, but those are small units of 1,000, 2,000 square meter units. So, lower than 5,000 square meter units. The square meter price will be significantly higher than a large 10,000, 20,000, 30,000 square meter warehouse building. So, I think there is also the difference in the rent per square meter per month. But that is going quite well, the smaller units, which also, yes, we like because there is good demand for it as part of the -- what's going on in the region of Central Europe, and of course, you have small and medium-sized companies, that segment is growing. But there's also big multinationals taking smaller units here and there. Yes, so then they pay more rent. Maarten, do you have some more details on the average? Maarten Otte: Yes. You can see that also in the presentation. If you look on -- Steven, if you look on Slide 10, you see exactly the rents that we are making per country. Whether we in the Q4 will be above EUR 6, like Remon said, it depends a lot on which market we are signing. If we are signing more in Czech, yes, we will be above EUR 6. If we sign more in other markets, it will be a bit harder. But that's normal. So what we are looking is what is the real underlying rental growth country-by-country. And that's ultimately -- that comes back to the 6% that we are showing. And smaller countries, as I said before, it depends sometimes a bit on location, because whether you're leasing the capital city, whether you lease indeed, like Remon said, smaller units or bigger units. So in Poland, we have, for example, seen the increase there. So, the leases which we did this year were on average at EUR 5.50. But that includes some smaller stuff, includes, in some cases, some extras that we do for tenants. But on average, Poland, we see some rental growth coming through. Romania as well, if you look an underlying, while if you look maybe to the absolute figures, they look flat, but that because there is a big unit again in this year's numbers. So big units typically pull it slightly down. But if you look -- and I know it's harder for you than for us, because we look at it on a unit-by-unit basis when we are doing the deal, when the leasing team sits down to speak to the tenant, we look, okay, what is the ERV of the unit. We continue to track towards that. And then, when we -- we look on that detailed level, we continue to see the rents creeping up in countries like Romania, in countries like Poland, in countries like Serbia, et cetera. Steven Boumans: Okay. To ask a bit differently. So -- and to fully understand. So, like-for-like growth per country is, let's say, inflation like, maybe a bit more, but let's say, inflation. And then the mix you don't want to commit that, that will change materially as of today. So, the mix should be broadly similar. It could be a bit better or a bit worse. Is that correct? Maarten Otte: Yes. That's correct. Look, what we see is -- what we said is we expect market rental growth indeed to grow in line with inflation. The mix depends indeed where we sign leases. That's hard for us to commit. If you look on a year or 2-year basis, yes, we can give a rough split, but not on a quarter-by-quarter. That doesn't make sense. That's not also how we run our operations. So, that's harder to determine. But the underlying rental growth remains there, and that's also the confidence we have, and that's also -- you see reflected in the like-for-like rental growth coming through in the P&L. So, it's not only the market rent. It's also if you look to the like-for-like when we are really capturing the reversion of leases coming up for expiry. Richard Wilkinson: Yes. Steven, I think that the big picture is, we see increasing demand, and we see that increasing demand at higher rent levels pretty much across the markets in which we operate. If you look at the more granular data, you will find something that looks a little bit worse. But the overall trend is the one that we would try and highlight, which is continuing strong growing demand and that at higher rent levels. Operator: Our next question comes from Vivien Maquet from B Degroof Petercam. Vivien Maquet: I hope you can hear me. I have two. Maybe on the first one, it's a follow-up on Vietnam. Just wanted to understand a bit what will be your target in terms of tenants? I would assume that you will mostly look for existing tenants that you already have in CEE for the first project. And secondly, what level of pre-let will you feel comfortable before launching such a project? Remon Vos: Thank you. Yes, we hear you loud and clear. Good questions. Indeed, so what we want to do in Vietnam is very similar to what we do in Europe, full service business parks, whereby we offer a variety of different property types. In Vietnam, they use the word ready-built factory and they use a ready-built warehouse, and they refer to build-to-lease. And we call it a little different. We say CT box, CT Flex, CT Space, but it's similar. So let's see -- let's test the market. We want to go out with a pilot. Yes, around 50% pre-lease. I think that is the kind of thing. But as I explained, the four of the locations which we have secured, you could do 300,000 square meters of total lettable, say, assume that you can start construction mid of next year, second half next year. You may start initially with 100,000, 50,000, let's see, in one location. And locations, I referred to maybe also a bit more to explain. And we are -- we do a paper. I think we have a paper, Vietnam paper, which we can share with you. It's going to be online. So, also to get a bit more background on what is the economy like, FDI, what is the market like and why do we see opportunities and where do we see opportunities. But to explain a little bit, we could talk about one location close to Hanoi in the north of Vietnam, which historically, it's a concentration. There's a lot of people living there. As I mentioned, total 100 million people in Vietnam. So in that part, in the northern part, a couple of dozen million people, so it's quite large. But more importantly, there is many of our clients with different activities. So, if you refer to the Vietnamese semiconductor industry, companies like Wistron or Foxconn, who are our clients, they have facilities in that part of Vietnam already. Historically, because they have a China Plus One policy, many of those, which means that not all of the manufacturing facilities are in Vietnam or in China, some in China for Chinese market, some outside of China for South Asian market. And that is -- those are Taiwanese clients who we have been working with for more than 20 years, especially in the Czech Republic. Anyway, those are there, and they have suppliers and subcontractors and all of that ecosystem. And that's one of the target groups, which we would, which we talk to and say, okay, yes, we will build properties in and around Wistron, Foxconn facilities in the region of Hanoi. But in Hanoi, obviously, you can imagine there's also consumer spending. So there's also FMCG, there is a need for warehouses. There is e-commerce. There is all kind of that. So, our clients who are involved in 3PL logistics -- involved in 3PL logistics or supply -- so that's the kind of ecosystem of the clients we have, which we will plan to work for in Vietnam. So yes, indeed, mostly existing clients, but could, of course, also be new clients. But there's many of our existing clients who have facilities in Vietnam or who are considering opening up facilities in Vietnam. Vivien Maquet: Thanks very clear and looking forward for the Vietnamese paper. Then second question is on, I think that you commented that you expect very strong ERV growth for H2. As I remember, we don't value the standing assets in Q3. So just to understand in which country you expect the biggest ERV growth? And how is it based to your recently signed lease? I think that we comment a bit on the rent level left and right, but just wanted to get from a valuation perspective, when do you see the biggest discrepancy between what you -- at what level you are leasing and what the valuers is assuming as ERVs? Maarten Otte: Yes, sure. So, what we said is that, we expect to grow it in line with inflation or slightly ahead of inflation, the ERVs. And that comes back to where we are signing the rents as we are continuing. As I said earlier, to sign the rents 6% higher. We also have indexation coming in. So, we see market rents growing in line with inflation or slightly ahead. If you look on a country level, there will be less ERV growth in Czech. In Czech, the opportunity for us, we have commented on that before, is more to capture the reversion because in Czech, we have one of the largest reversionary embedded potential as the market rent there already has grown quite a bit. And of course, with our leases, when they are 10 years or 15 years, it can take some time a while before you can capture that. So, you need to go through the world. And we expect more ERV growth in countries like Romania, for example. So, the more upcoming markets. We'll also see some ERV growth in Poland. In Poland, there will be really a divergence between the new and the old. There has been different build quality. As you know, we are a long-term owner. We commit to locations. We build buildings that will last because we have the commitment to own them long term, both vis-a-vis our tenants, but also vis-a-vis our municipalities. While in the past, the Polish market was more dominated by trader developers. So, what you see there is more a divergence where you might have given more incentives on really older product or lower quality product. While if you look to new product that is coming to the Polish market, you can lease at good rates, and that's what you also see reflected in the rental growth that we are doing. So, there will also be some ERV growth. But in general, also across some other markets like Serbia, we expect some ERV growth to come, Bulgaria. Hungary, I don't think so. Hungary is a bit more vacancy at the moment, especially around Budapest, but there is also a split between the region and Budapest and the other areas of Hungary see a bit stronger rental growth than Budapest at the moment. So, there's always those local factors. But on average, we expect to grow in line with inflation or slightly ahead of inflation. Vivien Maquet: And if I may squeeze a very quick third question. You could deliver up to 1 million square meter in Q4. Just wanted to understand how much of new projects you expect to launch in Q4? Keeping, I would say, the 2 million square meter of development pipeline, I would say, unchanged? Or could it be split a bit more into the beginning of 2026? Maarten Otte: It will be relatively unchanged. I don't expect our pipeline to materially change. It comes also back to next year because for next year, as you know, we guide to 1.4 to 1.7 million. So we also need to start those projects. Simple projects will take us 9 to 12 months. If you have a simple logistics building. In some cases, you can even do it a bit quicker. But there are more complicated projects if you do some extras for tenants, et cetera. So, we will always run a pipeline, which is slightly ahead of next year's deliveries, taking into account the time to complete. Operator: Our next question comes from Frederic Renard from KC. Frederic Renard: Just two questions on my side. The first one is on the reversion, which has come down 120 bps Q-on-Q since Q2. Can you comment maybe on that? And then second question is on occupancy rate. You are still at 93% versus the target of 95%. I see that client retention is at 82%. It's a good level, but it's for me the lowest figures you had over the last 2 years. So, is there more downside risk on occupancy rate than upside risk? And then have you any specific concern on some countries? Maarten Otte: So regarding the reversion, that's partly driven by the fact that we don't reset ERVs in the third quarter. In the third quarter, as you know, we don't revalue our portfolio, only the developments. So, if you don't reset your ERVs and we are capturing reversion as leases are coming up for maturity, naturally, the reversionary potential comes down in those quarters. It's more a mathematical effect than anything else. Then your question regarding occupancy, yes, we remain stable around 93%. And that's also what we explained during the Capital Markets Day. The two main markets which are below are the two market entries, Germany and Poland. Poland, we expect end of this year to be more around 90%. And then into next year, we will keep up to the 95% target. Same with Germany. So that's part of the market entry strategy. We target to be around 95%, especially for our mature markets. In some markets, you even would want to be a bit above. And why do we target around the 95%, maybe also good to remind you, that's really to have the growth opportunity with existing clients. We want to have always some space available to grow with existing clients in our existing parks, because that gives us -- if a tenant comes to us and say, I want to expand in an existing park, that gives us much more negotiation power than when you have to build a new unit. So, that's why we always target around 95%, and that's why our pipeline deliveries, we target to be 80% to 90% to always have that space available to grow with existing clients. If you also put it in perspective, on a yearly basis, we will sign more than 2 million square meter. If you look to the occupancy, if you take it from our portfolio, if you take 5% of a portfolio of 30 million square meter, that's 700,000. We leased 3x as much in a year. So actually, yes, we have a bit of occupancy, but that gives us an enormous amount of flexibility. And given the amount of leasing that we are doing, that's not a concern for us. It's just an opportunity to have those long-standing client relation and to leverage that to drive rents higher. Then on your last question or last part of your question, which was the retention rate. Retention rate was indeed slightly lower this year, correct. No fundamental issues, but there are, of course, sometimes you can have individual tenants who decide to leave. For example, if 3PL has a client and they want to consolidate or they want to move to a different location, they might terminate. It's not a reflection of your business, but it's more a reflection of sometimes the change in supply chains. Of course, we try to keep all our tenants. Sometimes actually, also, for example, we see in Germany, it's sometimes better to replace tenants if we really want to capture that upside potential, for example, in the Deutsche Industry portfolio. So, there we are sometimes actually happy when people move out and we can replace them for a higher paying tenant. So it's always a case-by-case analysis, of course, that we are doing. The absolute figure is slightly lower, but there is no fundamental underlying driver, which would mean that the rent retention rate will be lower going forward. It depends on the leases we signed in the quarter. Remon Vos: Yes, I can confirm that. So, I can just confirm Maarten said some of the leases we had to terminate in Germany, because we -- yes, the relationship was not great, and we felt that we would be better off with a new tenant in that building, doing some refurbishment and get more rent out of the property. So that happened in Germany and is still happening while we speak, which is part of cleaning up the portfolio in Germany. And also with regards to vacancy, yes, we have been at around 93%, 95%. Sometimes also, you don't need to be in a rush to lease it immediately. Sometimes certain areas need some time for the market to absorb some space. And then I'd rather have 6 months of vacancy cost and then do a better deal as pushing down on the rents. And so, we also need to balance and understand the market. And if there's no demand, there's no need to push, then you'd rather wait until there is demand or until the market has been able to absorb the space, which was available. But I think overall, also, we see from a supply side that yes, here and there, some of our peers and colleagues stopped or slowed down or there is no land or things like that, which is good. So long term, you -- we believe that these properties, which we have built are good quality properties, and they will continue to generate and produce income, which values may go up and down, it depends on the interest rates and so on and so on. But the income from the property so far has always grown, and we continue to see that. And that is more important to build the cash flow and to make sure that we create this income in time at the correct level. So yes, you play with the supply and demand and balance around the 93%, 95%. But yes, not huge. And overall, good, we are gaining market share, which is good, which also later on give us more opportunity to grow rents. It's good. Frederic Renard: And maybe just last one on my end. Can you remind us the size of the acquisition in Romania that you didn't do? What was again... Maarten Otte: The quantum of investment was around EUR 250 million. Operator: Our next question comes from Eleanor Frew from Barclays. Eleanor Frew: A few questions go one by one. So just to confirm, was the Romania acquisition explicitly baked into your guidance? And is the acquisition not happening going to impact your GLA target for the year of 15 million square meters? And moving forward, do you have any annual acquisition assumption guidance we could use? Maarten Otte: In terms of GLA, that's mostly driven by our development. So, we confirmed our guidance on terms of development between 1.3 million and 1.6 million square meters, which means indeed, like Remon already mentioned, we will deliver nearly 1 million square meters in the fourth quarter, which will bring us probably rounded towards 15 million, whether it's exactly 15.0 million or whether it's 14.9 million or 14.8 million, we'll see. It depends more on where we end in that range of the deliveries. That's ultimately the key one. So, that's with respect to the GLA target. If you look to acquisitions, no, we don't guide for a specific amount of acquisitions, because it's really opportunity driven. If we talk land, yes, we will do each year around 200 million, 250 million, in some years, maybe 300 million of land. Because that's a lot of individual plots and that as I said, it's part of replenishing the land bank in some of the existing markets, but also growing the land bank in markets which we entered recently or plan to enter. So, that is a more stable acquisition pipeline on the land bank side. On the standing assets, it's really opportunity driven because, yes, we like to do acquisitions, but they need to make sense in capital allocation. So, that's why we don't guide for a specific target. We will be there opportunistically. We are not the ones who want to pay a full price. We want to do things which make strategically sense for us. We can do things off market. That's much more our sweet spot in terms of M&A rather than committing and then forcing ourselves to buy 600 million of standing property per year, that will not drive shareholder returns for us. We need to be focused on what makes sense, where is pricing realistic and where can we add value. Because we are not an investor in buying simple core product, there needs to be value-add opportunities. Richard Wilkinson: Yes. And I think, Eleanor, you asked if the Romanian acquisition was part of our EPS guidance for this year. Yes. And that's also why we say that as a consequence of the Romanian transaction, not happening, we now expect to be at the lower end of our guidance range. Eleanor Frew: Great. Then on the reasoning for that portfolio falling through, does that impact your growth plans otherwise in Romania, i.e., is that region now saturated for you? And is there a risk on future permits maybe? And then on top of that, are there any other markets where you have a position that could prevent you from acquiring in scale? Richard Wilkinson: No, I don't -- it won't affect our ability to continue to grow organically in and around our existing parks by land to start new parks. So, that we don't see that as an impediment to continuing to grow our business in Romania through 10% plus yield on cost developments. And we don't have any other market where we would think that we would have a problem. Operator: [Operator Instructions] Our next question comes from Wim Lewi from KBC Securities. His question is, on Italy, can you give more details on tenants targets, greenfield versus brownfield? What is your SQM GLA targets for the next couple of years? Will you consider buying a standard asset portfolio? Remon Vos: Yes, thanks for the question with regards to Italy. I don't know how you see it, Maarten, but I think it's a bit too early. We don't go -- we don't disclose too much details there. What we can say is that, we have been looking at Italy for the past years. And we -- as we communicated back in 2021, when we did our IPO, we said, okay, we would like to go to Western European markets, which we said initially, we're going to look at the Netherlands and Germany. Germany worked out well. Poland, less. Happy with the ALC property in Amsterdam, which is -- there's been some good take-up, and that's okay. But besides that, we have done very little in the Netherlands. No, it's not the place where we see opportunity. So, we put -- we slow down. But we always communicated we wanted to do more in Western Europe. And Italy has been on our wish list. We now see a good opportunity to enter. I think we are ready for it in terms of -- we have the money, we have the capacity, we have the team. But more importantly, we have also identified the opportunity. So, what we have done in the meantime, we have established a small team of people. We currently work on securing land. And yes, and it's not in any of our pipeline projects. So, it's the base plan, the 26 million or 20-something million square meter land bank. There's nothing in Italy. It doesn't include Italy, so it's on top. But I think we will keep the good news for later. That's what I think, Maarten, let me maybe add or comment on anything you want to share at this moment. Maarten Otte: Yes. So, we'll announce the transaction when it's there. We always announce it when we have -- when we close something. But in general, we are looking at broader opportunities. Where we add most of the value is through land, whether that's greenfield or brownfield, we can do both. It comes back to what is the location. That's a key thing. Whether it's greenfield or brownfield is not a massive factor in that. It's just a bit different in terms of, do you have to take in account demolition costs, et cetera. We are looking for the right locations in Italy, which can give us a kick start. And we are looking for sizable opportunities where we can develop our park model, which is important for us. So, not only small land plots, but more sizable ones in line with our strategy. What we see in opportunities in Italy is a couple of things. There's a very strong manufacturing base. And if you look to our portfolio, we do a lot in manufacturing. Roughly 50% of our portfolio is manufacturing. So, we see opportunities there as many of our peers here in Italy are more focused on logistics. So, that's an opportunity for us. We see some opportunities in more some smaller business units closer to town. Italy has quite a lively SME environment. So -- and then, you know what we have done, for example, in Brno. So, you can think of doing certain of those projects here in Italy. So that's the opportunities that we see and that is the land plots we are looking for. And as part of each market entry, we are looking at, of course, a broad set of opportunities. And hopefully, we can update you later this year more specifically. Operator: Our next question is from Alvaro Mata from Santander AM. Their question is, the 93% occupancy looks a bit lower than others. I wonder if there is a specific reason for that. Any explanation would help. Your LTV at 45.2% continues to be a bit higher than your target of 40% to 45%. When shall we expect a decline and to what level? How important is this for you? ICR at 2.5x is in the low side. Do you expect an improvement in 2026? Remon Vos: No, the LTV is not of our concern. And the vacancy is around 93%, 95%. We talked about it before. We're not going to repeat. Also historically, has been around the same number. We wait for a good moment to do good deals at higher rents. And for the rest of the questions, I refer to what has been previously discussed. Thank you. Richard Wilkinson: Yes. Regarding the ICR, I think we reported earlier that we already took most of the repricing from the higher interest rate environment that we have today compared to the environment 2019, 2020, 2021. We see our ICR bottoming out at 2.5x. That's also what the rating agencies are saying, and we've consistently highlighted that everything that we invest in developing a 10% plus yield on cost is incremental to our ICR. That's also one of the reasons that the rating agencies are comfortable with where we are. And despite that ICR of 2.4x at the time, Standard & Poor's gave us a rating upgrade. So no, we don't see any problem with those ratios, and we expect that to improve over time. Operator: Our next question is from Jesse Norcross from ING. The question is, how big is the defense spending opportunity in Europe and Germany for the logistics sector and for the CTP in particular? What kind of timeline? And on Moody's, how confident are you of getting ratings upgrade there? Or is this not a priority at this point in time? Maarten Otte: So rating upgrade is always a priority. I think -- and we are happy with the upgrades we got from S&P to BBB flat, which I think reflects our ambition. We want to be a solid BBB flat company. We think that reflects the underlying of our business with the stable cash flow that we are each year able to generate, where Remon also referred to. We target to have a rental income of EUR 1 billion by 2027, which gives us an enormous amount of stability for the group, and a very good coverage basically of our ICR and net debt-to-EBITDA. So clearly, it's a priority for us to also work on Moody's. I cannot speak about the time line. We plan to deliver on the plan like we always do. Moody's has given us a positive outlook, but it's ultimately up to them, of course, to take the action. We work as hard as possible to get there. And then, I'll let Remon comment on the defense opportunity. Remon Vos: I don't know. Operator: Our next question is from [indiscernible] from ESP. Do you maintain the target level of deliveries for FY '26 within the 1.4 to 1.7 mn SQM range? Maarten Otte: Yes, we do. We have confirmed the guidance we have given at the Capital Markets Day. No change. We are on track for this year. So, we are also -- with the leasing we are doing on track for next year. Operator: Thank you. We currently have no further questions. So, I'll hand back to the CTP management team for closing remarks. Maarten Otte: Thank you all for attending. If there are any follow-up questions, don't hesitate to reach out to us. We are also doing quite some of the conferences and roadshow in the coming days. So, we're always happy to continue the dialogue with our investors. So thank you for now.
Operator: Good morning. We welcome you to the EDP and EDP Renewables 9 Months 2025 Results Presentation. [Operator Instructions] I now hand the conference over to Mr. Miguel Viana, Head of IR and ESG. Please go ahead, sir. Miguel Viana: Good morning. Welcome to EDP and EDPR 9 Months 2025 Results Conference Call. We have with us today our CEO, Miguel Stilwell d' Andrade; and our CFO, Rui Teixeira, that will present you the main highlights of EDP and EDPR financial performance in the first 9 months of 2025. The presentation will be followed by a Q&A session in which we'll be receiving just written questions that you can insert from now onwards in the text box available in the webcast. As we'll have just later on at 10:00 a.m. London time, our Capital Markets Day presentation. So the Q&A session will be focused on teams around the 9 months financial performance. I'll pass now the floor to our CEO, Miguel Stilwell d' Andrade. Miguel de Andrade: Thank you, Miguel, and good morning, everyone. So thank you for attending our 9 months 2025 results conference call. As Miguel said, we'll be doing the EDP results and then the EDPR, so really a 2-in-1 call, but for the reasons that Miguel has already mentioned. And so I'll go straight into the EDP overall numbers. If we go to Slide 3, we'll see the recurring net profit has reached EUR 974 million in the first 9 months of the year. So that's up 5% in underlying terms. And that reflects basically higher wind and solar installed capacity, higher generation and also the resilient electricity networks. On the wind and solar front, underlying EBITDA is growing 21% year-on-year, and that's supported by almost 20 gigawatts of installed capacity and generation up also 14% year-on-year. Electricity networks, they continue to show good resilience. Underlying performance, excluding asset rotation gains and FX is increasing 3% year-on-year. And our integrated business in Iberia is also delivering solid results. So although year-on-year comparison was impacted by higher sourcing costs, lower hydro volumes and lower contracted prices, this was partially mitigated by the performance of our FlexGen fleet in Iberia. It's also important to note that the asset rotation gains were lower at this point in the year, so EUR 55 million versus EUR 250 million last year, so the same time last year at the EBITDA level. And I think that just reinforces the strength of our underlying performance. So if you look at the numbers ex capital gains. Finally, just to mention, we'll also show -- or we continue to show an improvement in efficiency with lower costs and better productivity metrics, for example, in things like OpEx per megawatt, et cetera, and Rui will get into that in his slides. So overall, these results underscore the strength of our integrated model even in the context of reduced asset rotation gains. And with that, I'll pass it over to Rui to present the EDP and the EDPR financials. Rui Manuel Rodrigues Teixeira: Thank you very much, Miguel. Good morning to you all. So let me start first with EDP's results. And then moving to Slide 5. So our EBITDA reached EUR 3.7 billion in the 9 months of 2025. That's a 2% increase on underlying year-on-year or actually 4% when excluding FX effects. So let's look to the recurring figures. Renewables clients, energy management decreased EUR 99 million year-on-year. And this is coming from EUR 198 million decrease in this segment, the hydro, clients and energy management, comparing last year, the fact that we have now lower hydro volumes, lower contracted price and higher sourcing costs. This is mainly in Iberia, and there is also some FX impact in Brazil. Strong performance of EDPR, EUR 1,100 million (sic) [ EUR 111 million ] year-on-year. If we compare last year's asset rotation gains of EUR 179 million with this year's EUR 59 million, this means an increase of EUR 231 million in underlying terms. driven by the increase in installed capacity. And obviously, this is following the record additions we had in 2024. On the network side, EBITDA is declining EUR 91 million, but this is mostly due to the absence of asset rotation this year compared to the EUR 71 million or the capital gains from the asset rotation, compared to the EUR 71 million that we booked in the 9 months '24 and also the loss of EBITDA from the transmission lots that were sold, which together, they -- with the asset rotation gain represent around EUR 102 million reduction versus last year. Additionally, this segment is also impacted by the euro-Brazilian real depreciation. If we now move to Slide 6, the performance on the wind and solar segment. Recurring underlying EBITDA grew 21% or 23% when excluding FX impacts. It's a robust growth. It reflects a significant step-up in generation following our record capacity additions last year. Although this has been negatively impacted by worse renewable resources in Q3, mostly in North America, you may have seen that it was one of the worst quarters in 20 or more than years, I think, since 1989. So I won't spend too much time here. We'll provide a bit more color on EDPR's performance in the next section. So let me move now to Slide 7 and deep dive into the hydro activity in Iberia. So hydro inflows, 38% above the long-term average, higher than the 33% level that we saw last year. However, despite this increase, the hydro generation was lower year-on-year since the rainfall was primarily used to reestablish reservoir levels, and this was mostly in Q1, as you can see by the chart on the right-hand side. So even with lower generation year-on-year, hydro output remained above average and the uncontracted volumes were sold at higher prices compared to 2024, with the Iberian pool price reaching EUR 65 per megawatt hour versus EUR 52 per megawatt hour in the 9 months of '24. The contracted volumes were sold at a lower price of EUR 70 per megawatt hour in this year compared to the EUR 90 per megawatt hour in the 9 months last year. Regarding the outlook for the remaining part of the year, October was dry with the hydrological index 36% below average. Meantime has starting to rain. In any case, we see reservoir levels still above average, but obviously decreasing. So I would say that we can expect a weaker fourth quarter as compared to previously expectations into Q3. If we now move to Slide 8 to our hydro, clients and energy management segment. As a whole, EBITDA stood at EUR 1.1 million or EUR 1.14 million. That represents a fall of 15% versus last year as expected. It's a mix of different dynamics. So Iberia in the 9 months '24 were impacted by extraordinary gas sourcing costs. In one hand, hydro generation volumes net of pumping were 7.2 terawatt hours versus 8 terawatt hours last year. So that's a 10% drop. While on the other hand, pumping generation increased by 28% and CCGT's generation increased by more than 3 terawatt hours as requested by the system operators, both from Portugal and Spain. I would also highlight that in line with the trend that we saw in the second quarter, in the 9 months, we had an increase in flexibility revenues from generation, but also some costs on the supply side, which we expect to persist in the fourth quarter 2025. Finally, in Brazil, EBITDA declined from EUR 141 million to EUR 106 million, but this is primarily due to FX impact. So overall, despite the decline in headline figures, following a very strong 2024, the segment continues very solid. Now moving to Slide 9 on the networks. Recurring EBITDA reached EUR 1.18 million -- billion in the 9 months this year. That represents a 7% -- minus 7% year-on-year. This decline is primarily explained by the absence of asset rotation gains in '25, as I introduced before, which amounted to EUR 71 million in the 9 months last year. But there's also some other moving pieces here. So let me break this down probably in 3 main building blocks. So the first one is a EUR 33 million increase of EBITDA in Iberia following inflation update in Portugal and RAB growth in Iberia in Spain. Flat EBITDA in Brazilian real, driven by the improvement in operations being mitigated by the loss of EBITDA from transmission lines that were sold. And naturally, the Brazilian real devaluation and no capital gains and the segment is minus EUR 53 million versus last year. So all in all, EBITDA for electricity networks, excluding asset rotation gains and ForEx increased 3%, showing the resilience that is expected from this segment. If we now move to Slide 10. Net debt stood at EUR 17.3 billion from EUR 15.6 billion at year-end 2024. This is obviously reflecting the execution of the investment plan, the annual payment of dividends and the fact that we will have proceeds from asset rotation and tax equity, we expect it to be mostly concentrated in the last quarter. So the key drivers for the change in net debt include EUR 2.1 billion organic cash flow, reflecting an improved working capital performance with organic cash flow increasing EUR 0.5 billion year-on-year from EUR 1.6 billion in the 9 months last year, EUR 0.8 billion of dividend, annual payment -- dividend annual payment executed in May. EUR 2.4 billion of net cash investments, including EUR 3.1 billion of cash CapEx, including EUR 0.5 billion related to working capital changes with PP&E suppliers. And this is offset by EUR 0.4 billion of asset rotation proceeds and EUR 0.3 billion of tax equity proceeds. And then we have about EUR 0.8 billion from regulatory receivables and others. For the year-end, we expect to reach the EUR 16 billion net debt, considering the EUR 2 billion asset rotation proceeds in total expected for the year and the EUR 1 billion tax equity proceeds in total expected for the year. And that, as I said before, it's -- we are expecting that to come -- so the remaining piece is in Q4. And with this, we will be reaching a 19% FFO net debt ratio and therefore, meeting our BBB goal in terms of funding net debt ratios. Now on Slide 11, recurring net profit, EUR 974 million. So that's a 5% increase year-on-year. This is coming on the back of a lower EBITDA, as I explained before, EUR 139 million, lower than last year, a combination of lower asset rotation gains and the decreased results from the integrated segment in Iberia. Higher D&A and provisions, increasing EUR 107 million, resulting from our investment path and the increased net financial costs driven by higher cost of debt, 4.5% last year and this year, 4.9%. And this is primarily due to the higher cost of debt in Brazilian real, which is it's floating and also the average -- the higher average nominal debt. So we also have some lower income taxes, lower noncontrolling interest. And basically, this takes us to the net profit. So highlighting again that excluding asset rotation gains, the underlying performance on the net profit shows a 5% increase versus last year. So definitely a very solid operational performance. In reported terms, net profit reached EUR 952 million, including the negative impact of around EUR 22 million, mostly related to some EDPR impacts. So I will now turn to EDPR's performance for the first 9 months of 2025. So on Slide 14 (sic) [ Slide 13 ], you can see that EDPR delivered a strong set of results. I mean, this is marked by robust underlying EBITDA and net profit, continued capacity delivery, solid progress on the asset rotation plan throughout 2025. Operationally, EDPR reached 19.8 gigawatts of installed capacity with generation up 14% despite this lower renewable resource that we experienced in Q3. The average selling price declined 9% year-on-year to an average of EUR 54 per megawatt hour, reflecting the changes in the generation mix, lower average prices in Europe, mainly from hedges normalization and the lower feed-in tariff prices in Portugal. Recurring EBITDA reached EUR 1.4 billion. That's up 9% year-on-year, with underlying EBITDA growing by 21%. I think it's important really to note that asset rotation gains were EUR 59 million this period compared to EUR 179 million in the same period last year because this really shows the strength of the underlying business performance. Recurring net profit came at EUR 189 million or if we exclude asset rotation gains, EUR 153 million. So that's definitely a very important increase, EUR 111 million versus 9 months 2024. Overall, these results underscore EDPR's ability to combine the growth, efficiency and value creation, reinforcing our confidence in the outlook for the remaining of the year. So now let's go a bit deeper into EDPR's results. So if you focus on EBITDA, Slide 15 (sic) [ Slide 14 ], this was driven by EUR 1.6 billion from electricity sales, EUR 308 million of tax equity revenues from North America. That's a 20% increase in generation and new capacity additions. On the back of this, EUR 59 million of capital gain from asset rotations that we closed in Spain and France and Belgium, with the remaining gains to be concentrated in the fourth quarter. And then we have less the impact of EUR 574 million from core OpEx, which is mostly in line with last year's. And I would highlight here the strong efforts in cost and efficiency improvement that we have been implementing across the company. And you also can see that on the ratios on the OpEx per megawatt that have been really under control, and I think they are probably one of the best-in-class in the sector. EUR 22 million from other net costs that improved around EUR 80 million on the back of no material impacts this year. As you may remember, last year, we had some headwinds in Colombia, also Romania. This year, we don't. And therefore, that's a significant improvement impacting our EBITDA. So these results highlight improvement in the underlying business as a whole from an operational perspective as well as this enhanced efficiency that we've been deploying. So now turning to Slide 16 (sic) [ Slide 15 ]. I'd like to look at EDPR's cash flow evolution for the first 9 months of this year. So organic cash flow reached EUR 458 million, representing a EUR 0.2 billion increase year-on-year, reflecting a solid performance of our operating portfolio as well as the changes in working capital, distributions to minority interest and the tax equity partnerships. I'd like just to note that organic cash flow excludes tax equity cash proceeds, which are typically received at the project completion and have an immediate positive impact on net debt. First 9 months of this year, we received EUR 278 million, and we remain on track to reach EUR 1 billion for the full year. As of September, net debt stood at EUR 9.2 billion. It's up EUR 0.9 billion since December last year. The increase is primarily driven by the EUR 1.6 billion in net expansion investments, obviously supporting the portfolio growth. And this is partly offset by the asset rotation proceeds from the transactions, as I mentioned, closed in Spain, France, Belgium and also U.S. Looking ahead, we do expect net debt to converge to around EUR 8 billion by year-end, supported by the timing of the asset rotation and tax equity proceeds. As I mentioned, this will be concentrated now until the end of December. Also highlighting that already in October, we closed a transaction for a 1.6-gigawatt portfolio in the U.S. Again, just to emphasize, it's a 49% sale, straight equity, no structure. And I think it came in the context, as you know, quite a lot of uncertainty throughout 2025. So definitely a great transaction executed on top of the one that we have been executing in Europe. And as you know, we have already signed some European transactions that we are expecting to close before the end of the year. Now moving to Slide 17 (sic) [ Slide 16 ]. So as previously highlighted, EDPR's recurring underlying EBITDA rose by EUR 231 million, again, on the back of the solid performance on the operational side. Depreciation and amortization increased, obviously, on the back of the new capacity additions. We do have some one-off impact from accelerated depreciation of repowering wind farm in the U.S. Financial results increased on the back of higher nominal financial debt, lower capitalized financial expenses, partly offset by some FX and derivatives. Contribution to minorities improved year-on-year following the completion of the buyback of CTG minorities in late 2024. So at the net profit level, we recognized around EUR 40 million of one-off impacts this quarter, and this is mainly from impairments in Europe related to noncore countries. So all in all, recurring net profit reached EUR 189 million. Excluding capital gains, this represents a fourfold increase versus last year. Again, just underscores the strength of EDPR's underlying performance. Summary, EDPR's performance during 9 months, I think it's a testament to the ability to execute, to adapt, deliver sustainable growth. We will have -- Miguel will be presenting the strategy for the next few years. But I think that we are definitely on a good track in terms of how we are delivering the results this year. So I would hand over to you, Miguel, for final remarks. Thank you. Miguel de Andrade: Thank you, Rui. So just to wrap up and moving on to Slide 18. Just to reinforce the guidance. So we're expecting a recurring EBITDA for 2025 of around EUR 4.9 billion, and that's supported by strong performance across all of the business segments, and you can see that already at the 9 months numbers. Breaking this down by segment. So the integrated generation supply should deliver about EUR 1.4 billion of EBITDA of about -- of which EUR 1.1 billion was already recorded in the first 9 months. Wind and solar, including EDPR, expected to contribute roughly EUR 1.9 billion, including EUR 0.1 billion of asset rotation gains and having the 2 gigawatts capacity additions on time and on budget. And electricity networks forecasted at around EUR 1.5 billion with the distribution performance mitigating the transmission asset deconsolidation and the Brazilian real devaluation. Recurring net profit, approximately EUR 1.2 billion, impacted mostly by a higher cost of debt on the Brazilian real debt, an average higher debt since the asset rotation proceeds and the tax equity proceeds are expected to be received more towards the end of the year. Net debt expected to stand near EUR 16 billion, so assuming about EUR 2 billion in asset rotation proceeds and about EUR 1 billion in tax equity proceeds for the year. All in all, guidance reflecting resilience, reflecting the strength of our integrated and diversified portfolio, as Rui has also mentioned. And obviously, we'll be providing further color on the outlook for the years ahead in the next presentation, the CMD. But for now, I'll pass it back to Miguel to see if there are any questions, so we can take those, mostly concentrated on the 9 months numbers. Thanks. Miguel Viana: Thank you. So we have here some written questions. And the first one from Pedro of CaixaBank BPI regarding the capital gain at EDPR in the first quarter, if it relates only with the sale of the 121 megawatts wind portfolio in France and Belgium? And if we can clarify the good capital gain per megawatt implicit in the transaction. Miguel de Andrade: Okay. So thank you, Pedro. Yes. So in the first -- in the third quarter, the capital gain is mostly related to the French and Belgium portfolio, and it's around EUR 0.4 million per megawatt. So the multiple was great. It was an EV per megawatt of around EUR 1.6 million per megawatt. And that implies around 28-or-so percent capital gains on invested capital. So yes, it was a great deal. I think this just reinforces that we continue to see strong demand for these portfolios. We continue to see great multiple for these portfolios. And in Europe, we've been consecutively able to deliver on good numbers here. It was a good operating portfolio with around 11 wind projects in France and 1 wind project in Belgium, all with COD around 2020. I mean in this case, the buyer is a financial investor. And as I said, we continue to see strong interest for our assets at attractive implicit yields. Miguel Viana: We have also a question about what impact we have in our 9 months '25 accounts regarding the extra cost with the ancillary services in Iberia related with the increase of these costs during this year, namely supported on the supply side? Miguel de Andrade: Yes. So ancillary services, as you know, post blackout, there was a big increase, but there has already been a structural increase before that. And I'll talk a little bit about that later in the CMD. I mean the value is estimated at around EUR 150 million. But just bear in mind that the revenues on the generation side have to then be passed on to customers. And in some cases, those contracts are already fixed. So on a net basis, we continue to benefit from our FlexGen portfolio, but obviously partially offset by sort of then the pass-through to the customers taking just happening over the next couple of years. But we can give you more detail on that also when we talk in the CMD. Miguel Viana: So we have also a question regarding the guidance for 2025. So we see now the EBITDA on the EUR 4.9 billion, which is at the top of the previous range provided. Net income at EUR 1.2 billion. So if we can comment on this evolution for the guidance for 2025. Miguel de Andrade: Yes. So what I'd comment here on the guidance is, listen, we're very confident on delivering the guidance for all the different business segments, including the integrated in Iberia. I mean we did have a weaker October, and that's also incorporated. But we are also seeing -- so that's sort of at the EBITDA level. There's no doubt we're sort of at the top end of the range. But we are seeing slightly higher financial costs, especially in Brazil and also tax rate expected to be around 25%, 26% by year-end. And therefore, the net income coming in still within the range, but close to the EUR 1.2 billion end of the range. Miguel Viana: We have also a question regarding our current exposure, regarding offshore in U.S. And if we have any comments regarding latest news regarding permitting in U.S.? Miguel de Andrade: So there was some news that came out. I think it was an article, that's probably what you're referring to, article that came out in the New York Times or something like that, around offshore in the U.S. and around the permitting. As you know, offshore in the U.S. is pretty much in hibernation mode at the moment and sort of it's been much more about just riding out this phase. We have an exposure, and we said this multiple times. We have a total exposure at the EDPR level of around EUR 300 million. It's about EUR 200 million at the EDP level. We already partially impaired that at the end of last year, assuming that we're going to delay the project 4 years. So we're keeping this exposure contained and sort of at a minimum. And we're just focused on building the legal case to defend the project permits and the value and also just then focusing on what could be the next steps. Essentially, we're at the same stage as many other of our peers are in relation to offshore in the U.S. I think the key issue here is what is the value it's taken. As many of you know, it's around the EUR 300 million at the EDPR level, which has already been partially impaired. Miguel Viana: We have also a question in terms of the -- how we are evolving in terms of hedging for 2026, where we are in terms of contracting in terms of hedging volume and prices in Iberia? Miguel de Andrade: So for hedging, as you know, we typically hedge 12 to 18 months ahead. So in this case, for 2026, we're already around 85% hedged at a price that's north of EUR 64 per megawatt hour. This is something that we do sort of on a rolling basis. But for 2026, it's pretty much all set. I would say we normally don't -- we wouldn't hedge more than this just because of -- just to make sure from a risk perspective, we don't become overhedged. So 85% is -- I would consider to be already the level of hedging that we want for 2026, and that's at the EUR 64 or north of EUR 64 actually in this case. Miguel Viana: We have the last question just in terms of execution of 2025, if we -- how do we see our delivery in terms of the target 2 gigawatts in EDPR in 2025? Miguel de Andrade: So we are on track, on time, even slightly under budget in some of the projects, but overall, very much within the budget for the 2025 project. And so I'd say that, that's -- it's a good year from an execution point of view. There's been no issues around supply chain, everything sort of is on site, and we're just wrapping up sort of -- and we'll be wrapping up sort of by the end of the year. So I'd say everything on time, on budget and on track. Miguel Viana: So we have no more questions. Miguel, just if you want to just closing remarks. Miguel de Andrade: I'd say, listen, it was a good set of -- it's been a good year, good 3 quarters. And I think we're well positioned to have a good full year and looking forward to talking to you about the next couple of years at the CMD. So look forward to seeing you all then. Thanks.
Operator: Thank you for standing by, and welcome to Enovix Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program will be recorded. And now I'd like to introduce your host for today's program, Robert Leahy, Head of Investor Relations. Please go ahead, sir. Robert Lahey: Thank you. Hello, everyone, and welcome to Enovix Corporation's Third Quarter 2025 Financial Results Conference Call. With me today are President and Chief Executive Officer, Dr. Raj Talluri; and Chief Financial Officer, Ryan Benton. Raj and Ryan will provide remarks followed by Q&A. Before we begin, please take note that today's call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to various factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can also find these materials on our website at ir.enovix.com. All statements made on this call are as of today, November 5, 2025, and we undertake no obligation to update them, except as required by law. Additionally, during the call, we may reference non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP measures in the materials posted on our Investor Relations site. With that, I'll turn the call over to Raj. Raj Talluri: Good afternoon, everyone, and thank you for joining us. Enovix is expanding the limits of battery capabilities and transforming how the battery industry will evolve over the coming years with a silicon battery. During this quarter, our team made significant advancements in developing a silicon battery while strengthening our key partnership alliances. Today, I'll highlight our progress in Q3 and then provide updates on our initiatives in smartphones, smart eyewear, defense and strategic initiatives before turning it over to Ryan for a financial update. We delivered strong execution and financial progress in Q3. Revenue grew 85% year-over-year to $8 million. We achieved a non-GAAP gross profit of $1.7 million or 21% margin compared to a loss in the prior year. We also secured long-term funding, which is expected to finance Fab2 and enable our path to positive cash flow. Completing a shareholder-friendly warrant dividend and issuing a new convertible notes due in 2030 brings total cash and marketable securities to $648 million at the end of the quarter and allows us to execute from a position of strength. Our AI-1 smartphone battery was validated by an independent testing firm, Polaris Labs, as the highest energy density battery reported for a smartphone battery in the industry and in addition, having leading fast charge capabilities. Our lead smartphone program with Honor, a top 8 mobile OEM has entered the final validation phase ahead of planned 2026 smartphone launch. Honor has been an outstanding partner, and we appreciate their cooperation as we work tirelessly to bring this breakthrough technology to the mobile phone industry. Honor's feedback on our product development and inputs into mobile battery needs has been instrumental in the execution of our road map as we advance towards commercialization. Besides Honor, our second smartphone OEM development program is also accelerating with this additional customer also now in qualification. And we are continuing to sample to other top mobile OEMs. Our mobile partnerships offer us key market insights and reflect the strong commercial relationships we have today in this market. In smart eyewear, we delivered over 1,000 battery packs to our lead customer under our supply agreement. These packs are now undergoing customer qualification. Furthermore, we have delivered samples to 9 other unique OEMs and ODMs, and we expect to have some of them launch products using our batteries in 2026. On the manufacturing front, we made significant progress in yield, throughput and cost optimization. We achieved yield improvements in Fab2 in Malaysia across all production zones, notably in Zone 1 laser dicing. We optimized our battery formation process in Zone 4 to increase the throughput materially. We believe Zone 4 capability now exceeds the volume requirements for the second and potentially the third high-volume lines, significantly reducing future CapEx requirements. Shipments from our Korean factory accounted for the majority of our year-to-date revenue, with the largest contributions coming from defense and industrial customers, where we continue to benefit from strong demand. We completed the integration of our Q2 acquisition of SolarEdge assets, adding cell capacity, incremental coating equipment and room for future expansion. Additionally, leveraging the capabilities of this team, we began building our first cell manufacturing capability for our 100% active silicon anode technology in Korea also. This will serve as a new product introduction line, our NPI line. Finally, I want to welcome Dan McCranie to our Board of Directors and Srikanth Kethu as Head of Enovix India, expanding our leadership team as we scale globally. Dan is a high-impact operator, sales executive and a broad leader with deep experience scaling complex technology businesses. His track record at onsemi and other global semiconductor companies adds immediate strength to our Board as we expand commercialization and manufacturing in 2026 and beyond. Our new Head of India, Srikanth, will strengthen our world-class R&D center in Hyderabad, which accelerates our R&D efforts and help ensure the success of scaling our Malaysia facility. Now let's talk about smartphones. Since I started in 2023, I focused the company on smartphones as the most financially attractive market to our batteries. After visiting key OEMs in April 2023 and getting an understanding of the key product requirements from them, we started developing our smartphone batteries to meet these stringent performance targets. As we developed our technology to meet these requirements, we entered into a development agreement with Honor as a lead customer in September 2024. Over the last year, we made significant progress both in our product development and meeting their product qualification milestones. We passed the vast majority of Honor's qualification requirements and in several cases, exceeded them. In order to consistently achieve 1,000 charge discharge cycle with their components, we have agreed to a design iteration, which is already underway. We're on track to ship these samples in Q4, enabling Honor to complete full life cycle testing. This additional cycle is part of a thoughtful, collaborative qualification process that's typical when introducing breakthrough battery technology into flagship smartphones. This rigorous collaborative process of building a leading-edge smartphone battery with Honor, we believe, enables us to launch products with the rest of the smartphone industry in a relatively seamless fashion. Our second smartphone customer is now validating the AI-1 performance. The next milestone for this customer will be to provide us with the precise mechanical dimensions of battery we need to supply and move to a qualification and an expected commercial launch in 2026. Additional smartphone customers have similar requirements to our lead customer, and we expect their qualification process to go much faster. What's exciting about AI-1 is that it's not just a smartphone battery. It's a platform. Providing this level of performance can open the doors to a much wider set of markets. We started in smartphones, a $12 billion opportunity where our 900 watt hour per liter performance gives us a clear edge for on-device AI. From there, the same technology moves naturally into smart eyewear, AR/VR and IoT, about an $8 billion market today, where success depends on getting high energy into the smallest possible space. In defense, roughly a $3 billion market opportunity, customers are choosing Enovix for a rugged, safe, mission-ready designs and diversified supply chain with manufacturing in Korea and Malaysia. And longer term, our silicon anode architecture scales across EVs and computing markets that should exceed $500 billion by 2040. Now let's turn to smart eyewear specifically, which is proving to be a faster-moving adjacent market than we previously expected. We currently have 2 cell designs for this market as we see 2 distinct product classes emerging, displayless smart eyewear designed for lightweight, voice-driven experiences and display-enabled AR eyewear, which carries much higher compute and battery demands. We expect this to be a broad market with many different consumer electronics and fashion brands launching products in 2026. The AI-1 platform enables significantly longer run time in this space-constrained application. We now have sampled the AI-1 platform to 10 unique smartware OEMs and ODMs, and we expect to showcase the first end product with an OEM publicly in CES 2026 in January. Turning to defense. Momentum continues to build this quarter across multiple geographies. In Korea, we combined seasoned manufacturing capabilities for conventional lithium-ion batteries with our expertise in silicon anodes. Our leading products now include silicon doped anodes and the customer response has been encouraging. Year-to-date, our Korea facility has shipped roughly $20 million of products, the majority of which went to domestic defense and industrial customers, including two of the major three contractors in the Korean military. With customers outside Korea, we are seeing strong progress in both aerial and subsea drone markets. These customers are increasingly diversifying their supply chains and our manufacturing footprint has opened doors with them. Based on customer feedback, our products are meeting the demanding requirements of this segment, including high pressure tolerance, long cycle life, large capacity formats of up to 60 amp hours that operate reliably in low temperature environments. We have a robust pipeline of opportunities in this segment growing to over $80 million globally. Before I turn it over to Ryan for the financials, I want to provide an update on the M&A front. Our mission remains unchanged, commercializing our 100% active silicon anode architecture for space-constrained high-volume devices. Our conviction drove us to strengthen our balance sheet, giving us optionality to accelerate growth organically and inorganically through strategic M&A. This quarter, we began evaluating several opportunities that could advance commercialization through vertical integration and accelerating entry into complementary markets. A select few that meet our strategic financial criteria are under consideration, and our funnel of opportunities continues to grow. While we continue to evaluate opportunities that fit our strategy and financial filters, we have not entered into any agreements at this time, and there is no certainty that any such opportunities will result in completed transactions. Now I'll turn it over to Ryan to give a financial update. Ryan Benton: Thanks, Raj, and good afternoon, everyone. Before I get into the financial results, I want to highlight the capital markets activity we executed during the third quarter. On the left side of the slide, you can see the summary of our warrant dividend program. We completed the program at the end of August with all warrants either exercised or expired. Roughly 26.5 million warrants were exercised, generating about $224 million in proceeds, net of fees and expenses. During the third quarter, we repurchased approximately $58 million of common stock. The net of these 2 programs resulted in $166 million in net liquidity, strengthening our cash position, enabling the funding of our Fab2 build-out and other strategic initiatives. On the right side, we show the convertible notes offering completed in September. We issued $360 million of 4.75% notes due in 2030, which after purchase discounts and capped call costs added about $303 million in net liquidity. The notes convert at $11.21 per share with a redemption trigger at approximately $14.57 per share. The capped call overlay has the ability to substantially offset potential dilution. As shown on the slide, we structured the cap call using multiple tranches, which provides several interim payoff opportunities during the term rather than the typical all or nothing settlement at maturity. If Enovix's stock price meets or exceeds one of these price thresholds, there is a substantial payout. If we meet all of the targets specified, the company could receive cash proceeds of over $200 million. We believe that this structure lets us capture value as we execute while managing dilution responsibly over time. The net result of all this is that we closed the quarter with $648 million in cash, cash equivalents and marketable securities. The goal wasn't just to raise capital. It was to remove what we perceived as a financing overhang to give Raj and the team the confidence to execute upon our strategy without distraction and to give our customers comfort in our financial strength. I believe to a large extent, we have achieved these goals, and it's been impactful. We now have the resources we expect will allow us to fund Fab2 to pursue select strategic opportunities and to operate with confidence. It's exactly where a company at our stage should be. Now turning to the Q3 results. This was another strong quarter of execution for Enovix. Revenue came in at $8 million, up 85% year-over-year as we continue to deliver solid growth across defense and IoT programs while simultaneously advancing sampling activities with our lead smartphone and smart eyewear customers. Non-GAAP gross profit was $1.7 million, representing a 21% gross margin compared to a loss in the same period last year. The improvements reflect higher sales, favorable product mix and continued cost discipline. Non-GAAP operating expenses were $31.5 million, up year-on-year. The majority of the increase was driven by higher depreciation and amortization with modest increases in R&D and manufacturing readiness investments. As a result, non-GAAP loss from operations came in at $29.8 million versus $26.9 million in the same period last year. Adjusted EBITDA, however, which excludes depreciation and amortization, improved by $2.3 million, a 10% improvement year-over-year. Non-GAAP net loss per share attributable to Enovix was $0.14, an improvement of $0.02 from Q3 2024. Overall, we delivered against our plan and continued building the foundation for scale and profitable growth. You just saw the detailed walk-through of our Q3 results, so I'll focus here on guidance for Q4 and some context. For the fourth quarter, we expect revenue between $9.5 million and $10.5 million, up 25% sequentially at the midpoint. We expect non-GAAP loss from operations between $30 million and $33 million, reflecting continued investment in manufacturing readiness and product launch preparation as we scale towards volume production. For non-GAAP net loss per share attributable to Enovix, which includes the impact of interest expense on the new convertible notes, we expect between $0.16 and $0.20. And finally, we've added a new metric for guidance. We are forecasting capital expenditures, which for the fourth quarter, we expect to be between $9 million and $12 million, primarily tied to Fab2 equipment as well as the build-out of the NPI production line in South Korea. Note, our guidance does not include mass production for any commercial smartphone shipments to Honor in Q4 2025. Importantly, however, we believe that the customer commitment and launch plans remain firmly intact. Our second smartphone OEM program is also progressing well in parallel. While we're not giving 2026 guidance today, investors should expect a more back-weighted revenue profile next year following end customer qualification and product launches. With $648 million in cash, we believe we are well positioned to continue executing on our plan, and we remain prepared to pursue strategic opportunities where they meet both our strategic and financial criteria. And with that, operator, we're ready for questions. Operator: We will now begin the Q&A session. Please note that this call is being recorded. Before we go to the live questions, we're going to read two of the most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, do you have just 1 or 2 smartphone battery customers at this point? And do you have enough capacity to satisfy their needs? Raj Talluri: Thank you for the question, and thank you all for listening. We have agreements with 2 smartphone OEMs, and both are in different stages of qualification. And of course, we've also sampled 7 of the 8 top smartphone OEMs over the past period from -- with our batteries. And we -- and we are getting positive feedback from all of them on how they feel about the batteries, different safety tests they're performing. On the capacity front, we -- as I mentioned, we have a line that when fully facilitized, can produce up to 9 million batteries a year next year. And we also started making some -- last call, I mentioned that we started making some initial payments towards augmenting the Line 2 and so on. So we absolutely do have the capacity to support both the customers as they ramp. And 2026 will be a breakout year, and we'll continue to add capacity to support all our customer demand in '27 and so on. Operator: Thank you. And the second question is, will Enovix pursue rapidly evolving drone manufacturers requiring improved batteries? Raj Talluri: Yes. Thank you for that question. So this is a market that, as you mentioned, is rapidly evolving. We are getting a lot of interest from many drone OEMs, both in aerial and subsea, like 2 class of drones that we are finding. And we have been shipping batteries, high-performance, high rate batteries from our Korea facility to many defense customers in South Korea. We are now able to satisfy and sample those to other drone manufacturers that are asking us for those batteries now. And in fact, we just got another purchase order today from a high-tech defense manufacturer here in the U.S. to provide more samples for evaluation of their programs. So yes, this is a fast-moving market, and we're getting a lot of interest for our already existing commercial batteries that we're making in Korea. Operator: Okay. And we will now go to the queue. [Operator Instructions] Our first question comes from Mark Shooter from William Blair. Mark Shooter: Congrats on naming Honor as your lead smartphone customer. This is a big name in China. Unfortunately, though, it looks like they want 1,000 cycles now. Is this correct? And how much of this was a surprise to the team? And what's required in the design front to achieve that? Raj Talluri: Yes, the requirement has always been 1,000 cycles. As I mentioned in the last earnings call, we have -- it's a development program that we're working together with them, and we gave them samples in July, and we were doing cycle life testing while they were doing cycle life testing on the same batteries we provided. And as we went along in this testing process, we realized that we need to make one more small design change to get to the full performance that they want. And we validated that change now internally, and we have confidence that, that change we made will actually go to the 1,000 cycles requirement. We're now making batteries to that specification, and we expect to get those batteries and send them out to Honor this quarter, and they will start the testing again. And as you know, batteries are one of those things where when you give a new design iteration, we got to start the cycle life testing again, and it takes 3 to 4 months to do it because of just the nature of the process. We expect that to get done in 1Q next year, and then we expect to get the commercialization after that. But we're very happy with the progress we've made. It's been very collaborative, and they have allowed us to mention their name, giving us -- with all the progress they have seen and what we have made and how good the batteries are. So I'm very, very confident with what the team has done, and it's going well, and we expect the batteries -- and I'm confident the batteries we shipped in 4Q will meet all the requirements. Mark Shooter: That's great. I appreciate that. You touched on that time line. I'm wondering if you could add any more color there? Should -- you mentioned 3 to 4 months. Should we be expecting that first regional testing PO to happen in Q1 with a follow-up maybe in Q2? I mean how are you guys looking at this now? Raj Talluri: Yes. I mean, look, we don't want to launch anything -- they don't want to launch anything together. We want to launch a battery that's fully tested, solid, safe, meets all the requirements because the first battery to production, and we want to make sure we do everything right. So as I mentioned, it takes 3 to 4 months to validate it after we shipped it. And then they'll need to put it in their phone and then the next model will intersect. So we should expect something in the first half of next year if everything goes well. Operator: And our next question will come from George Gianarikas from Canaccord. George Gianarikas: I'd like to just continue on the path of the questions around Honor. Again, congratulations. And just trying to understand the cadence of production and orders that we should be expecting. You mentioned the first quarter, we should get more detail around an order and then maybe ramping production in the second. Just your level of confidence that this is sort of the last design change before achieving order status and then production. Raj Talluri: Yes. Look, I'm very confident. My team is very good. They've done tremendous work, and this has been a close cooperation with the customer. So we are seeing everything and they're seeing everything. They are giving us solid feedback. Again, we are trying to launch everyone should understand 100% active silicon anode battery into a smartphone, which has never been done before with a brand-new factory. So we made tremendous progress. That's why I put the time line out there. So for all the -- all our investors and for you guys to get a feel for what -- how complex this is and how much progress we have made. I'm very confident. But as I always mentioned, we don't want to launch anything that's not 100% solid, and we work closely with our customers. And if all the testing goes well, I think it will be fantastic to launch next year. And again, there's another customer right behind that's also testing it, the same design iterations that we're making. That customer is also getting it. We got feedback from them that this is really benchmark in energy density that they're seeing. So there's a lot of interest, but we want to make sure it's solid when it goes to production. And as Ryan mentioned, we have a strong balance sheet, and we are well capitalized. So we have what -- we have the resources we need. We have a factory that's running well to get it to full production at the right time next year. George Gianarikas: And maybe as a follow-up to switch gears regarding an acquisition. Obviously, you've built up an incredibly strong balance sheet. I'm curious as to where you're looking? In other words, what opportunity set are you looking to explore from an M&A perspective just because you have this enormous opportunity in front of you just with the cells that you plan to manufacture soon. What could you add to the tool set that will make that addressable market even bigger? Raj Talluri: Yes. Well, first thing I want to say is I want to be -- everyone to be clear, our mission is to make this great technology we have of 100% active silicon anode batteries into smartphones, AR/VR, IoT, compute and in some aspects into some EVs. That's our #1 goal, and we are squarely focused on that. But we do find as we go into that, that there are other aspects we could add to accelerate that growth in terms of channel, in terms of time to market, in terms of other components that help get that penetration of this great technology into market faster. But again, we will do it very thoughtfully. We're not -- we're going to do it in a way that is financially makes sense and also does not distract us from our main goal. So that is probably all I can say at this point. And we are getting quite a bit of inbound interest, as you mentioned, because we have a very strong balance sheet, but we're going to be very thoughtful about how we use it. Ryan can comment. Ryan Benton: I mean I can't say it better. I mean, I think we'll pride ourselves on being good stewards of capital. It will have to make sense from a strategic standpoint, from a technology standpoint in order to further the core mission, and then we'll apply discipline, financial and diligence filters to it. Operator: Our next question comes from Jeff Osborne from TD Cowen. Jeffrey Osborne: Just two on my side. You mentioned, Raj, the yield improvements in Malaysia. I was wondering if you could just level set us where were things, where are things? Where do you need to be? I think TJ touched on sort of a risk ramping up aggressively next year to meet the customer demand. So relative to maybe where his expectations and yours are, what's left to do? And what have you achieved so far? Raj Talluri: Yes. Great question, Jeff. Look, this year, what has happened is we've had so much inbound interest on various markets. As I mentioned, 2 cell phone OEMs that we have development agreements that we had to make the batteries and these are actually the batteries that you see here that have been sampling to the customers. And then we had 2 different smart eyewear customers, and this is actually the batteries that we ship from our factory that go right into the leg here, 2 different sizes of that. Then we had another IoT customer, which is potentially very high volume. That's a slightly different size. We had to make that one. Then we were making the battery for the defense contract that we had. So a lot of like 5, 6 different cells that we're making. And the reason I tell you that is when you're making so many different sized cells, you have to constantly adjust the lasers, adjust our stackers to -- and the tooling to make each of those. So we -- and these are just samples, right? We're talking hundreds and thousands of units. So we did not really spend that much effort and energy on optimizing for yields because by the time we got one done, you're just retooling it for the next one. Now we've given all the samples to the customers. We are focused on 2 markets, 2 products, which are shorter term for production like in '26, which is a bigger smartphone cell, this one and the smaller AR/VR cell. So these 2 cells is what we are focused on now. We have an Agility line, we have an HVM line. And since the last couple of months, the yields are coming up very nicely. And I review this every week. Actually, every week, I have a meeting on execution and very pleased with the progress, particularly on the laser side and on the stacking side, they are where we expect it to be. And again, like I said, the high-volume production now is mid- to late next year. So we will be ready for benchmark yields by that time. So I feel pretty good that it's headed in the right direction, and we are focused on it now. Jeffrey Osborne: Great to hear. Maybe just as my second question, to follow up on Mark's prior question. Can you just be more specific as it relates to was there a scope change with Honor as it relates to their expectations? Or was there a form factor change or chemistry change? I'm just trying to understand better the tweak that you made that then now has to go through this new validation testing cycle. I get that there was a change, but what was it driven by? And what was the nature of the change? Raj Talluri: So when we send the samples to them, I think I mentioned last time, we were doing cycle life testing while they were doing cycle life testing, which means you charge your battery, discharge your battery, charge your battery, discharge the battery. You want to do it 1,000 times. Now we weren't -- we hadn't completed the cycle life testing before we shipped the battery. We had done some amount of cycle life. We sent it to them. They started doing it. Along the way, we noticed that the trend line is now such that to get past 1,000 cycles, we have to make a chemistry change, not a form factor change, not a scope change. So -- and we started validating that chemistry change, and we now have samples internally that we believe now will go all 1,000 cycles. And we are making batteries with that new chemistry now, and those should come out in Q4. And this is a normal process in building a battery for the first time. Things take a little bit longer initially than we expect. But once you get the first one done, it's a whole lot easier because all the other smartphone customers have very similar requirements. Operator: Our next question will come from Colin Rusch from Oppenheim. Colin Rusch: Could you talk a little bit about the supply chain and preparedness? Certainly, there's been a lot of innovation around some of the anode materials that you guys could potentially use. And can you talk a little bit about what that opportunity set looks like as you work to advance some of the advanced applications that you're talking about here, both in the phone and the military markets? Raj Talluri: Yes, absolutely. So what we are finding now is, I think maybe just for the broader audience, we are an architecture first battery manufacturer in the sense that we can take advantage of higher capacity or higher voltage cathodes. We can take advantage of different kinds of silicon anodes. We can take advantage of the latest advances in electrolytes to build a great battery because the better the materials get, the better our battery and our energy density we provide gets because we control the swelling and we have intellectual property and how to mix these different materials. So to your point, what we are finding, Colin, is that there are quite a few now of silicon anode suppliers. We were using before a silicon anode called SiOx, which is some kind of oxide -- silicon oxide. Now we're using SiC, which is silicon carbon. But there's different variations of silicon carbon. For example, the size of the particle of the carbon or the shape of the particle is a little bit different. The way they're manufactured is different. So we are testing quite a few of them. We are sampling with one, but we have second source and third source on various one of these things. So it's an exciting time to be a battery manufacturer because we can take advantage of all these tremendous material innovations and provide better and better batteries. Colin Rusch: And can you talk a little bit about the laptop opportunity? You've heard a lot about the phones and eyewear. But certainly, you guys have a fairly sizable opportunity in laptops as well. And as you get through some of the validation on the phones, how quickly could you transition into some of these other opportunities given that it seems like once you get the first one done and dusted, a lot of folks are going to line up real quick for incremental demand? Raj Talluri: Yes. I mean it's a very good question. I mean I think you see now what AI is doing to all the edge markets, right? I mean you can see now all the AI PCs that are coming out. We talked about AI applications and smartphones. AR market is just happening because of generative AI because you're able to now talk to these things. So almost all these end markets which use batteries at the edge, the demand is increasing and the performance requirements and the battery requirements are increasing. So laptops is a very exciting market. But again, for a small company like ours in early stage, we need focus. And I have been very focused on going after smartphones because I always believe that is the toughest battery to make, and we have a very good relationship with customers who are giving us requirements that we need to meet. From then -- from there, once we make that battery, we will be able to very quickly address other markets. Similarly, you can -- you are seeing now how quickly we were able to address the smart glasses market because we have the smartphone technology. And I see the computers coming similarly. Once we get our smartphone battery ready and in production, we should be able to quickly go into the compute market. Because in that market, basically, what it is, is it's a bunch of smartphone batteries put together. That's one way you can think about it. It's not like one giant battery. It's a bunch of 5 batteries packed together. So packaging, battery management systems, those are the kind of things that we partner to get our battery technology into those markets. So we are talking to some of those customers. But if anything, I'm holding back the team from getting too many samples out there because we don't have the scale to support all of them at once. I'd like to do 1 or 2 really well and then expand. Operator: Our next question comes from Ananda Baruah from Loop Capital. Ananda Baruah: Yes, I guess a couple of clarification for me. Raj, was it that you said first half 2026, expect initial production volumes with Honor? Raj Talluri: Yes. Again, it depends on how well the testing goes with them. I'm confident that what we're gaming this time will be really good in the sense of meeting the 1,000 cycle requirement. And if that goes really well, we'll find the right phone intersect for first half. Ananda Baruah: Got it. Awesome. And then the second smartphone customer, was it production in 2026 is the goal? And then part B of that question is, you had mentioned that you're able to sort of go through the process more quickly with the second smartphone customer. Can you just give some context around that? How much more quickly, what parts of the process like that? And I got a quick follow-up. Raj Talluri: Yes, sure. Yes, it's also targeted for second -- for next year's production, but probably the later half of next year because given where we are starting -- because what we need to get from them, we've given them some cells, they're not testing. And next step from them is to get the exact dimensions of the cell that will launch into production next year, towards later part of next year, fall is when typically they launch. And we'll have some time to make the battery to the exact dimensions in the first half, give it to them and they'll put it through their phone and qualify it. Like, for example, as I mentioned, this 1,000 cycles testing, right? We've now figured out what it takes to get to 1,000 cycles, and we have that chemistry now that we'll be sampling end of this quarter -- in fourth quarter of this year. You can see now that the next customer will actually get samples that we would have validated for 1,000 cycles. So you can see this problem that we are now addressing would have been solved, right, because we got ahead of that. And there's a lot of things we learned with our collaboration with Honor, how they do with the drop test, how they do cycle life test, how they do fast charge test, how the battery management system is controlled by them, what temperatures they store the batteries, how much swelling is allowed at various temperatures. So there's a tremendous amount of know-how in how batteries are tested to get into smartphones, which we now have, thanks to our first customer. And that's helping us with the second one because the second one also gave us the requirements and we looked at it, we're like, wow, these look very similar to the ones we got for the first one. So we're now able to meet them much faster. And my expectation is that the rest of the market will have very similar requirements because they're all phones going into similar markets. So that's why my comment on the first one is the hardest for the ones after that will be a whole lot simpler. Operator: [Operator Instructions] Our next question will be from Derek Soderberg from Cantor Fitzgerald. Derek Soderberg: So Raj, on the chemistry change, my understanding is the chemistry reformulation can take maybe multiple months, depending on how big of a change it is, I guess. Can you share like the time line from when you notice the issue to actually solving and integrating the new chemistry? And I guess what's maybe the risk that the new chemistry doesn't quite interact with the rest of the battery and you might need to reformulate it again? Raj Talluri: Yes. I mean, look, the way we operate is we have a bunch of different chemistries that we are constantly have as backups. If this one doesn't work, what do we do next? What do we do next, what is next? My engineering team has been studying these, again, for the last whole the last year. We picked one that we felt was -- had the best chance, but we had backups running at the same time to see what it would be if that one had some challenges. And now the backup, we've tweaked it and the results so far look very good. So I'm confident that the batteries we shipped this quarter will meet. But we have other backups running to them if those need another tweak. I don't believe we'll need one more, but we're always good to be prepared with multiple chances, right? The unfortunate thing about this, Derek, these are not like chips where we can do simulation and figure out what will happen, what will not. Like, for example, when I used to build processors, we'd have a simulation model. We would do analysis. We'd know what to do and then tools will help you do it. And when you tape out, you're pretty much guaranteed to get it. Unfortunately, in batteries, you just have to run for 1,000 cycles before you -- before you know if you got it. That's just the nature of it. But the good news is once you get it, you have it. So the first one is hard, but I feel pretty confident, but let's see how it goes. Derek Soderberg: Got it. No, I appreciate that. And then as my follow-up, Ryan, as you're looking into some of these potential agreements, I think ASPs have maybe changed since you guys have kind of last spoken about maybe a revenue breakeven point for the company. So as you guys sort of start to ramp to multiple customers, can you maybe share maybe what that revenue breakeven point is for you guys or anything else maybe on the near-term profitability model, if you update -- if you need to update margins or anything like that, can you share any of that detail now that you guys are sort of moving towards commercialization here next year? Ryan Benton: Yes. No, I think, look, fundamentally, I think we like where the market is going in terms of valuing our technology in our product. I'll stay consistent with what we've said in the past that an important milestone for us is to get multiple HVM lines in place build out in Fab2, and that's why we've started that process. In addition to getting lots of operational benefits of being able to switch over lines and run multiple products, it helps get to a certain level of scale. And it's really beyond that point. So Line 2, Line 3 that we think gets us to where we're gross margin positive and able to absorb the overhead. This is on a non-GAAP basis. And then really, it's as we march towards filling Fab2 with equipment and getting full utilization there that we see as being adjusted EBITDA positive or a proxy for cash flow positive. Operator: There are no further questions at this time. With that, I'd like to turn the call over to Dr. Raj Talluri for closing remarks. Raj Talluri: Yes. Thanks, everyone, for the thoughtful questions and joining us today. To close, I want to bring it back to the big picture. Enovix is entering one of the most important phases in our company's history, which is taking our breakthrough technology and scaling it to commercial production. We have a clear line of sight to that goal. Our AI-1 platform has been validated by third-party Polaris Labs as the highest energy density battery ever reported in a smartphone. Our lead smartphone and smart eyewear programs are progressing towards launch. Our manufacturing capabilities at Fab2 are ramping steadily. And we've delivered -- we have strengthened the balance sheet, and we secured the capital we need to execute. And we built a team that knows how to deliver. While qualifications and ramp cycles take time, what matters most that we are on the right path, with the right partners, with the right technology and with the resources to see through. I am incredibly proud of what the team around the world has accomplished, and I'm confident in the road ahead. Thank you once again for your continued support and for your interest in Enovix. We look forward to updating you on our progress next quarter. Thank you.
Operator: Welcome to CellaVision Q3 Report 2025. [Operator Instructions] Now I will hand the conference over to CEO, Simon Ostergaard. Simon Østergaard: Thank you very much, and thanks to everyone taking the time to listen in to our quarterly report that we've launched this morning for our third quarter. I'm happy to say that I also have our Interim CFO, Monica Jonsson, with me, and we'll be happy to also answer any questions you may have when we get to that part of the session. So, the quarter in brief. So, we have named our quarterly report softer quarter with mixed regional performance, and this is also related to currency effects. We saw Americas and EMEA had some quarterly variations resulting in modest growth, which we are highlighting here. We are coming out with a quarter here where we are reporting net sales decreased by 1.7 percentage points to SEK 176 million. However, due to the FX headwind of minus 4.3%, then sales increased organically by 2.6% during this quarter versus the comparable quarter last year. On the EBITDA side, we increased our EBITDA to SEK 50 million. So, we increased by SEK 1 million, and this relates to -- or corresponds to an EBITDA margin of 28%, also a small increase. In terms of what we want to highlight with regards to our strategic direction and our progress, we actually see a lot of progress. It's a very exciting time for the company and our partner. We're highlighting the fact that we've completed our clinical trial. We've submitted our documentation to receive the CE Marking for our bone marrow application. So, we do expect this one to be done according to plan and obtain the CE mark by here we say, early 2026. I think we've said Q1, so that's still in line. But we are positively optimistic around it, even though there are, of course, always risks with anything, but this is an exciting time. So now we are really looking into training and the commercial launch activities for 2026. Another big chunk of our investment has gone into an upgraded software for our platforms where we've done the verification that has been completed and now being installed at customer sites for final validation before we roll it out, which is planned for next quarter, which is this quarter here in November. All right, here we go. And then a slide around the financial development. So, it's a busy slide, but what you have here is our Q3 numbers reported fresh at the very left-hand side, the comparable quarter and then the year-to-date numbers for 2025 in the middle, followed by the compare last year and then the full year 2024 on the very right-hand side. So, I talked about the organic growth and the revenue of SEK 176 million. If we sort of peel the onion and then work our way through the P&L, that translates into a gross margin of 69%. So, we increased the gross margin by 1 percentage point. We had full impact from our price increases during Q3, and we had a little bit of a product mix. So that was a positive contribution. On the operating expense side of things, we invested SEK 82 million, went down with -- as compared to last year, a little bit on sales, a little bit on admin and according to plan, invested a little bit more on the R&D side. So that actually translated into a growth of EBITDA of around 2 percentage points. So, from SEK 49 million to SEK 50 million despite the negative decline in revenue. On the R&D side, as you can see, 24% so we have -- of sales is what we have invested into R&D, of course, slightly affected by sales. However, really, the investments are following our plan, and we've capitalized a little bit less than normal, only SEK 14 million this quarter, which is primarily due to the vacation piece and partly also completion of the software upgrade, which also had a little bit of an impact on how much we capitalized. On the cash flow side of things, we had a cash flow before the working capital items of SEK 52 million. And then the working capital adjustments or impact was actually minus SEK 22 million, and the majority of that was from accounts receivable since we had quite a number of orders being placed in September. So, this is why our accounts receivable increased. So, we had an operating cash flow of SEK 29.6 million, SEK 30 million. And on the investment side, we invested SEK 22 million, both on the capitalized R&D activities, as I said, but also investments into data storage was a significant chunk this year to serve our capacity for some of our new technologies. And then after subtracting our SEK 4 million of finance activities, the cash flow that were related with that, we ended up with a total cash flow of SEK 4 million. So that's really the story around our P&L. Let's take a look at the regional highlights. So, in Americas, we had 68 million on the top line coming from the Americas region, South and Northern America, which is equivalent to an organic growth of 4%. So, we also had currency effect there, of course. I'd say, in general, it was carried by -- it came from really good traction on the large instrument platforms and less from the smaller instruments, where we saw a modest decrease. However, we also saw good traction in Latin America. So that is also positive for future growth. In general, I'd say our sort of also when we look at our leading indicator in collaboration with our strategic partner. We believe that we have an increasing potential in the U.S., which was also confirmed in the half year report of Sysmex launched yesterday. In EMEA, likewise, sales amounted to SEK 96 million versus the SEK 98 million last year. That is an organic growth of 1%. I think this was actually acceptable also in the light that we were up against a pretty tough compare since we had inventory buildup in the comparable quarter last year. So, a decent single-digit growth in reality. We had reagents growth as well, quite a bit from EMEA. However, on the hematology side, it was modest -- very modest with only 1%. So, there is some phasing of orders on the hematology side there. But generally, a good 14% growth on the reagent business. For APAC, I'd highlight that it was a soft quarter, SEK 13 million, so 10% growth, but of course, on a very low base. This was also what we hinted in our previous quarterly report where we had some inventory shipping since we are entering our program where we are manufacturing out of China. So, we ship quite a number of parts and instrument modules to China, which impacted sales, but this was the main contributor to a soft sales across APAC. We sold also outside of China. So, we do see momentum in pockets across Southeast Asia and Australia. So that is a positive outlook there. And then I also want to emphasize that we are seeing a good traction, 5x improvement of revenue sales from our reagent in APAC. Of course, it's small numbers in APAC, but it gives us the confidence that we -- that our penetration and expansion in APAC on the reagent side is on the right track. If we cut the numbers in terms of sales per product group. So same numbers but sliced per product category. We have SEK 93 million versus SEK 102 million on the instrument category. And again, contribution from the large instruments was important. And then as I just alluded to on the Made in China initiative, it is very important for us to be able to participate in the market in China by manufacturing our instrument in China. So that is a project that is also coming to the end as part of our strategy. On the reagent side, I mentioned the growth of SEK 40 million in revenue versus the SEK 35 million. So that's the 14% growth. So good to see also that our -- what we define as non-hematology is actually contributing with a decent sort of single-digit healthy growth this quarter here. So that is really good. And then finally, on the software side, SEK 43 million. So -- and that is also a correlation up against how we're doing on the instrument side, but it is actually a decent software revenue we accomplished. And also, we had a contribution coming from spare parts and consumables worth SEK 23 million. So, the key takeaways is that, as we say, yes, we've had somewhat softer quarter with some different variation across the regions. But the underlying is a healthy business, which is supported by the gradually expanding strategic partnership, which is advancing across multiple dimensions on internal processes, on the -- now the focus also on launching the products. This is another thing that the power of focus strategy that we launched in June 2022, it is starting to provide the output, both from what you see when we decided to enter the specialty arena or specialty analysis with the bone marrow that is expected to come out. So, our focus and activities are really on training and commercial launch activities, and so they will be here as we start the new calendar year. I also emphasized the software upgrade without going into details prior to launch, then I would say that it is delivering a faster, smarter workflow, and it does have a new cutting-edge user experience. In terms of our fifth pillar in our strategic direction or strategy, the power of focus, we also have these new areas where we expand beyond hematology, which is really the focus of deploying our full Ptychographic Microscopy technology, the FPM technology. And we have reported that we are lifting this into our next-generation hematology analyzer. And that is really proceeding according to plan. And based on this development, we are now also able to really scan different sample formats in the context of cytology and pathology as an example. And that is also an exciting area where we are having discussions with partners -- potential partners playing in those field. So taken together, a solid quarter. We worked hard, but also on the R&D and now on the marketing side is ramping up. So, it's a pleasure to present the results today. And with that, I think we should open the floor for questions. Any questions are, of course, welcome. Thanks. Operator: [Operator instructions] The next question comes from Simon Larsson from Danske Bank. Simon Larsson: I'd like to maybe kick off with a question on the software upgrade you announced here it's rolling out. Should we expect any financial impact from the rollout here already in Q4? And will this be sold as an option to the customers? Will it be mandatory? How will you charge for it? Just any more color on the software upgrade would be helpful. Simon Østergaard: Sure. The software upgrade is seen as an upgrade on our instruments, both on the usability and the performance to improve the workflow. We have decided to -- that this will be part of the package when you purchase the blood line, [indiscernible] as an example, then this will not come with an additional fee for the end user. So, this is really a means of differentiation. So, you should see this as a growth contributor by keep on being relevant in the labs and demonstrating our innovation muscle prior to our next-generation system. That's how you should look at it. Simon Larsson: Okay. That's very clear. And also, on the R&D CapEx here going forward, I think roughly the levels now, I'd say, like SEK 70 million per year capitalized. Should we expect this to decline here going forward as the software product is now rolling out, bone marrow is coming out. Of course, we're still investing in the next-generation instruments, I suppose. But how should -- how do you believe we should look at the capitalized R&D here in the coming, let's say, 1 or 2 years? Should it decline more to a historic level, or should it be kept roughly at the same level? Simon Østergaard: Yes, see, our aspiration is really to maintain focus on us being an innovator -- innovation company. I think we are at a pretty decent level here. On the capitalization, we have a portfolio of projects we want to start -- so this is also a bandwidth question for us. I think we're at a reasonable level. But as we see more of our projects being terminated, it is a balance as to how mature are new projects? Are we capitalizing or are they more immature than that. So, you may see some changes in our capitalization, but our intention is actually to keep on investing in the R&D phase. We expect that as we see more changes also throughout next year, we'll probably give more sort of guidance or update on how we see it as we've come to the end of the power of focus. So, we will certainly be more specific around this particular question as we enter 2026. Simon Larsson: I think that would be a good idea. I think just as you're now sort of finishing up a few of these bigger projects, it would be good to help us understand how we should look at this going forward. Maybe the final one from my end. You mentioned, I think, that the cash flow was a bit held back by an increased amount of orders placed during the end of the Q3 quarter. Could we expect that sort of this dynamic to sort of has continued into Q4, i.e., that sort of how you enter Q4 is looking sort of good on that same trajectory? Or was it just a matter of timing that it sort of ended up in the late Q3 here order intake and delivery? Simon Østergaard: That is simply just the nature of the payment terms when we receive the orders throughout September, then that's why you see this fluctuation on accounts receivable this time around. It's not a systemic thing per se. It's really a timing thing. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: A few questions on my end. Starting off with the product mix and the gross margin, and you say you've had a favorable product mix here in the quarter, improving margins. But regardless of the mix, some portions here in your profile are increasing its gross margin sequentially, systems software or reagents. And because the margins are a bit higher than it's been before, and you're still sort of affected by negative FX in the quarter. So, can you help us decipher what segment is improving its margins? Simon Østergaard: I think -- so pricing was one element. In terms of mix thing, we still have -- we have 14% growth on the reagent side. That actually pulls down the margin. We have a little bit lower margin on the reagent side versus instruments and software. But that was still -- despite that, we had sort of solid growth on the large instruments, which kind of contributed to the 1% increase versus the last year. Ulrik Trattner: Still sort of when I sort of -- any way you look at it, if you split it up into 2 segments, like cell morphology systems or morphology systems and reagents, some of these segments have improved its gross margin sequentially and year-over-year. Simon Østergaard: Yes. So, help me out here. What are you looking for specifically which product group is it that you're... Ulrik Trattner: I'm just trying to figure out sort of what in the product mix have increased the margin. Regardless of the mix, some of your system or reagents have increased its margins sequentially. And I'm just trying to figure out whether sort of which part of it is moving the needle. Simon Østergaard: I think maybe this time around, I think we had probably more contribution from large systems versus the small. So that has been a contributor -- positively contributing to the overall gross margin. I'd say that's probably the driver you're looking for. Ulrik Trattner: Yes, That’s great. And the software upgrades live here in November enables you to commercialize wider sort of the MCDh reagents. Have you received any feedback from customers? And can you just give us sort of the highlights here of how you intend to commercialize it sort of near term? Will it be initial sort of customer feedback then gradual ramp-up? Or how should we view this? Simon Østergaard: Yes. That’s a great question. No, you're absolutely right that the software upgrade also comes with the opportunity, you can say, changes on the steering and staining device by Sysmex, which is called SP-50. So that has also been upgraded so they can host our methanol-free stain. That's an important part of this integrated software upgrade. So that allows us now to actually start positioning methanol-free stains or Sysmex to position the methanol-free stains to be used on the SP-50, which is a major milestone. So, we're in the phase of evaluating the stain with customers. I believe that Europe will be first. This is where we have the majority of our business on the [indiscernible], the classic stains. So, there will -- there can be some conversion, but obviously, the value proposition of methanol-free is strong. So, we can -- that can still contribute in Europe. And then it's also an enabler for the U.S. And we expect the launch in 2026 for the U.S. Here, there's both customer assessments and a little bit of, you can say, regional preferences that we are working on finalizing, but we expect the launch to be happening next year. That's kind of where we are for the U.S. Ulrik Trattner: And if we were to look at sort of China, and you've been working here and we can read in the reports on sort of transferring systems. And I guess it's Sysmex that is trying to build up manufacturing in China in order to participate in local tenders. So where are they in terms of operations in China? Simon Østergaard: They have a fixed site in China where we work together. So, we are doing our manufacturing of our Chinese devices within China, in their plant as part of that. And they also have cell counters manufactured out of China. And as you say, rightfully, that allows us to actually participate in hospital tenders or deals where it's a prerequisite that you have Chinese manufactured instruments. So, this is why this strategic initiative has been an important enabler for us to continue to compete in a more competitive market as opposed to other elsewhere. Ulrik Trattner: And are we to expect any effects from that initiative or... Simon Østergaard: Sorry, can you repeat that, Ulrik? Ulrik Trattner: Are we supposed to expect any acceleration in China sales from this initiative in the near term? Simon Østergaard: I think it's fair to be mindful also, if you read the report that came out yesterday from Sysmex, it is obvious that China is a fierce competitive market to be in. However, this gives us the opportunity to actually compete in collaboration with China in that market. So, protecting the market share that they report they have, and of course, aiming for growth via differentiation, is our game plan. But it is fierce that we all know that both on the pricing side and on the competitive side with local players, it is a difficult market, but it is relatively sizable out of our APAC numbers, which is also why we have invested in this program to protect our position. Ulrik Trattner: Okay. Great. And last question on my building a little bit more on the capitalized R&D. It's down quite a lot sequentially. And as you highlighted sort of summer months and reported R&D is up. To what degree is this sort of just summer months in prioritization? And how much of this is pipeline maturing? The bone marrow application has now been submitted. What is left in terms of R&D spend for bone marrow application and as well sort of the software upgrade, is also now a commercial product. So, I guess that will not run you that much R&D. Simon Østergaard: No, that's true. I think after Q2, we also released some consultant costs or some consultants, which is also reflected in the less capitalization. And as you say, of course, also the amount capitalized is equal to what we did last year, but coming from a higher base. So that is really because we are also releasing some consultants. Having said that, we are an innovation company. And I think that's super important, which is also what I tried to elaborate to Simon in the previous questions that were posed there. So, we are seeking for opportunities to invest and maintain our strategic focus of differentiating. We cannot disclose what are those programs. That would be unwise from a competitive position. But our intention is to really pursue our direction. And back to -- part of your question was also related to bone marrow. We are confident, as report, of course, there are risks, but we are confident that we are getting the CE mark for Europe. We still have investments to do to complete our trials and the work that we do to also enter the U.S., So we're not fully at harbor, so to speak, with the investments related to bone marrow. Operator: The next question comes from Christian Lee from Pareto Securities. Christian Lee: The first one is regarding the instrument sales that declined year-on-year, but your tone remains optimistic and especially for the larger systems. So, should we view this as an indication that demand strength will translate into stronger instrument sales in Q4 already? Simon Østergaard: I probably defer to sort of be super specific on what happens in Q4. However, I do note that our leading indicators are positive. I do note that Sysmex for the past 2 quarters, so including the quarter they completed, or they reported yesterday, so their Q1 and Q2 equivalent to calendar year Q2, Q3. I do note that they are signaling, or they are reporting instrument growth of 10% in the U.S. and 4% in Europe. And I think there is a healthy environment. This is also what we see. So, we're positively optimistic. So, you read my tone correctly, but I will defer for being super specific until we've seen what orders we get in and so forth. Christian Lee: Okay. Perfect. And demand for smaller instruments appears a bit softer than for the larger ones. Do you view this as a temporary situation? And what factors do you believe could drive a recovery in the near term? Simon Østergaard: Yes. No, I think it's temporarily. I think we, together with our partner, has pushed a concept which included both -- for the small labs, which included both the smearing and staining, and our DC-1 instruments. Prior to this, we had very healthy double-digit growth on the DC-1 instrument sold by itself. And then we positioned this instrument package called the DIFF-Line. And it is no secret that we had some operational performance issues with the SmearBox. So, I truly believe that part of the issue is not the market demand. It's our product issue that we had. And now we do have another simple solution that can substitute. So, it's a matter of getting aligned and getting back and really working with the opportunities as opposed to -- because we have seen a glitch in the pipeline that we built up due to this. But I really trust that it's a temporary thing. The demand is there. And also, if I look at it, especially in the U.S. All the IHNs are set up for our solution. And I do believe we're the only company who can actually serve that segment in a networked manner, from small labs integrated with the connectivity and our software solution to cater and be managed and decided upon from a diagnostic perspective at the large labs. So, it's temporary, Christian. Christian Lee: Okay. Great. My final question, Reagents performed really well with strong momentum in APAC. Do you see any risk of inventory buildup in the reagents that could dampen sales in the fourth quarter? Simon Østergaard: No, you're right. I'd say inventory buildup, then I'm thinking specifically around China. And the challenge there when you build up an own manufacturing is that, first of all, the line, we are selling a lot into China, that is then sitting in the manufacturing line. And then after that, you have a layer of 60 to 70 distributors below. So, there is a very little transparency to the end user in China. So, from that perspective, I would probably answer that, yes, there is a risk of some inventory buildup for the time being because it's very hard to translate how much is actually entering the end users for the time being. So, there's a little bit of risk for that, specifically related to target. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I wanted to continue a bit on this last question with APAC instrument sales. So of course, it was lower in Q3 with some inventory destocking following the large Q2 order. But given that you now have local assembly in China, as I understand it, like will this lead to APAC instruments even more lumpy ahead? It has been lumpy historically as well, but could it be even further enhanced now? Simon Østergaard: I think the lumpiness is primarily driven for China and not APAC as a whole. So that's for China specifically, I would say. But temporarily, I can certainly not guarantee that there will not be some lumpiness. China -- sorry, APAC has always been quite lumpy and also because China is the biggest market that we serve. However, I do see opportunities both when we look at Japan and when we look at Southeast Asia, not the least in Australia and New Zealand. So, some lumpiness can occur. And that cannot be sort of neglected, so to speak. But still, I think it's positive that we're actually seeing opportunities both on the instrument side and then also on the reagent side, where we believe there is a good opportunity to actually bundle our offerings because we are the only provider who can actually provide both instrument software and reagents. Ludvig Lundgren: Okay. Great. So yes, just a follow-up to that. So, you saw this SEK 3 million reagent sales in APAC in Q3. Like we have seen some spikes in reagent sales historic as well. Like is this to be considered somewhat of a one-off, this level? Or does it rather reflect that you are seeing a significant increase in reagent customers in the region? Simon Østergaard: No, you're right. It's not a continuous sort of flow. There is lumpiness if you look at the revenue for APAC reagents per se. However, we do believe that the shipments that we send, they go to multiple markets. So, you should see it as a sign of us starting to actually grow the base of RAL reagents being consumed across multiple markets in APAC. I think that's the positive thing. And then also, we're also working on our logistics setup to serve the reagent market in APAC, which is another driver that can also help us facilitate and provide the reagents. So, you should expect growth, but I cannot guarantee that there will not be this lumpiness because it is a matter of -- it's large shipments that goes when they go and sometimes, they don't go. So that's how you should look at it. Ludvig Lundgren: Okay. I understand. Very clear. And then another follow-up. Just like looking at the instrument sales in APAC. So, on a rolling 12-month basis, I guess it has stabilized now around SEK 25 million, SEK 27 million, something like that. Like is this a fair level to extrapolate ahead? Or do you expect this to grow example, looking into '26? Simon Østergaard: For example, the last part, I didn't hear that. Ludvig Lundgren: Yes, for 2026, like do you expect to have a similar type of -- or similar amount of quarterly deliveries on an average level? Simon Østergaard: Yes. It's always tricky with the average question. I think it's a decent level. Having said that, there are specific opportunities, I'd say that when we look into and we discuss with our partner, there are specific opportunities sitting in APAC that are significant. And if they don't come, then you end up with this relatively flat look. However, the spikes can certainly come because we have some good opportunities across network hospitals, both in Australia, New Zealand, but also in Japan. And if they materialize, then I think we should certainly expect growth when you do your math over the 2026. Ludvig Lundgren: Okay. Great. And like -- because I think last year, we saw quite a significant spike in APAC instrument deliveries in Q4. Like is there any seasonal component to that, that customers trying to fill their budgets? Or was that more of a one-off so to say? Simon Østergaard: We compare that with last year, what I recall was that we had to serve -- we were obligated to serve a specific tender that was 5 years old type of thing. So that happens in the comparable quarter, Q4 last year. I don't expect there to be much -- you can call it seasonality per se. It's more a function of where the specific opportunities materialize rather than seasonality. Ludvig Lundgren: Okay. And then final question, like you have talked a bit before about reagent sales in the U.S. and the potential there. Like any updates on that? And if we could start to see this starting to ramp into '26? Or yes, just how to think about that? Simon Østergaard: Yes. No, I think about it in a way where we've been also at our Capital Market Day when we launched the Power of Focus, we were really emphasizing that MCDh, the methanol-free stain is the enabler to go and penetrate the reagent market in the U.S. That assumption has not changed. But now we've progressed much further. So we're actually able to bring MCDh onto the Sysmex smearing and staining device that is consuming our methanol-free stain. So, I think we've come a long way on the development side. So now it's about getting some customer feedback on the stain, whether there are any last tweaks for U.S., I do expect it to materialize, let's say, mid-2026, which, of course, means that the contribution from the reagent in 2026 U.S. is not enormously, but milestone-wise and the fact that we start launching this has enormous impact also on how we work with the team over there to actually position our total solution now also including instruments. So, by the end of the day, very exciting times for us. Operator: [Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. Simon Østergaard: Thank you very much. And first of all, thanks to all of you taking the time to listen in and staying with us throughout the Q&A. In my closure comment, I want to thank especially our strategic partners, the partner organizations all across the regions and the different functions. I really see gradual constant progress here 1.5 year after we especially launched the strategic alliance agreement with the Sysmex Corporation team. I also, in particular, I want to thank our own team, our staff. It's been extremely probably more than usual a tough quarter, and I think they know what I referred to on the internal lines. However, the dedication and the focus seems to take no ends all across our functions. So really a heartfelt piece of appreciation here. And then finally, I want to emphasize that on February 5, 2026, this is when we announce and present our year-end bulletin for 2025. So that will be published, and we are looking very much forward to present the results. And with that, I thank you for your attention and your interest in CellaVision. Thank you.
Operator: Welcome to the QuidelOrtho Third Quarter 2025 Financial Results Conference Call and webcast. [Operator Instructions] Please note, this conference call is being recorded. An audio replay of the conference call will be available on the company's website shortly after this call. I would now like to turn the call over to Juliet Cunningham, Vice President of Investor Relations. Juliet Cunningham: Thank you. Good afternoon, everyone. Thanks for joining the Quidel Third Quarter 2025 Financial Results Conference Call. Joining me today are Brian Blaser, President and Chief Executive Officer; and Joe Busky, Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website. To assist in the presentation, we also posted supplemental information on the Investor Relations page that will be referenced throughout this call. This conference call and supplemental information contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are not strictly historical, including the company's expectations, plans, financial guidance and future performance and prospects are forward-looking statements that are subject to certain risks, uncertainties, assumptions and other factors. This includes the expected impact of tariffs and macroeconomic conditions and the proposed acquisition of LEX Diagnostics. Actual results may vary materially from those expressed or implied in these forward-looking statements. Information about potential factors that could affect our actual results is available on our annual report on Form 10-K for the 2024 fiscal year and subsequent reports filed with the SEC, including the Risk Factors section. Forward-looking statements are made as of today, November 5, 2025, and we assume no obligation to update any forward-looking statements, except as required by law. In addition, today's call includes discussion of certain non-GAAP financial measures. Tables reconciling these non-GAAP measures to their most directly comparable GAAP measures are available in our earnings release and the supplemental information, which is on the Investor Relations page of our website at quidelortho.com. Lastly, unless stated otherwise, all year-over-year revenue growth rates given on today's call are on a constant currency basis. Now I'd like to turn the call over to our CEO, Brian Blaser. Brian Blaser: Thanks, Juliet. Good afternoon, everyone, and thanks for joining us today. This quarter, we delivered another solid performance that reflects the strength of our diversified global diagnostics portfolio. We reported organic sales growth of 5%, excluding COVID sales and the U.S. donor screening business that we are in the process of exiting. This growth demonstrated the underlying strength and durability of our labs, immunohematology and point-of-care businesses across our global geographies. We also delivered significant improvements to adjusted EBITDA, expanding to 25% of sales in the quarter, primarily driven by our continued focus and execution against our margin improvement initiatives. And these initiatives have now delivered over $140 million in cost savings and put us well on our path to sustainable mid- to high 20s EBITDA margins. And at the same time, we have made targeted investments in key strategic areas to position us for sustained long-term growth. None of this would have been possible without the dedication and focus of our exceptional team here at QuidelOrtho. So I want to thank them for their hard work and commitment during what has been a transformative period. Together, we are building momentum and remain focused on the opportunities ahead. So let me further summarize our quarterly highlights before I turn things over to Joe for additional financial details. And as a reminder, unless otherwise noted, I'll be discussing growth rates on a constant currency basis. In our Labs business, revenue grew 4%. Demand for our VITROS immunoassay and clinical chemistry platforms remained solid, supported by stable customer renewal rates and new business wins across our regions. We continue to benefit from underpenetration in the immunoassay segment as well as our brand recognition for testing solutions that have the lowest total cost of ownership and as the leader in customer service and support. Our immunohematology business grew 5%, reflecting consistent strong demand from blood banks and hospitals as we expand automated testing solutions and strengthen our position in key geographies. And within our point-of-care business, our Triage product line posted 7% growth, supported by our strong value proposition, ongoing momentum in cardiac and BMP testing and growing contribution from international markets. Other cardiac revenue increased by $8 million compared to the prior year period. Respiratory revenue declined versus the prior year quarter, primarily due to the 63% decline in COVID revenue. Flu revenue also decreased by 8% year-over-year due to timing versus the prior year period. And as a result, our North America revenue was down 12% in total, but up 5% year-over-year, excluding the impact of respiratory revenue and the U.S. donor screening exit. Our Q3 performance outside the U.S., excluding COVID, was led by strength in Latin America, which grew 21% overall and 22% in labs. Japan, Asia Pacific and China each grew approximately 5%, and our Europe, Middle East and Africa region grew 3%, while also increasing EBITDA margins by over 700 basis points year-to-date as a result of our cost discipline and focus on profitable growth. We continue to see significant growth opportunities outside the United States, reflecting our historical underpenetration in these markets. Moving now to our Q3 profitability. We are seeing consistent benefits from our -- in our results from the cost actions we have taken over the last year. Adjusted EBITDA in Q3 was $177 million and adjusted EBITDA margin was 25%, which is a 180 basis point improvement from the prior year period. Adjusted diluted EPS was $0.80. And these results reflect significant improvements in our underlying cost structure while also mitigating recent tariff headwinds. Our Q3 and year-to-date results continue to demonstrate considerable progress across our organization. Our global commercial team remains focused on profitable growth and expansion in key markets and strategic accounts. During the third quarter, we achieved several important competitive wins across both established and emerging geographies. In R&D, our team continues to focus on advancing a robust pipeline, including ongoing menu expansion and the development of next-generation systems. A great example of impactful menu expansion is the clearance of our new VITROS high-sensitivity troponin assay that we announced on Monday. This new test elevates our cardiac panel to world-class performance by providing clinicians with higher sensitivity and precision that allows for earlier detection of patients having a heart attack. It also leads to a reduction in unnecessary hospital admissions and ultimately lower cost for patient care. Getting this assay in the hands of our customers was a key focus for me as I joined the company, and I am especially proud of our R&D and regulatory affairs team for the work that they have done over the last several months to gain FDA clearance. Turning now to operations. Our team is aggressively executing further cost improvements to reduce direct and indirect procurement costs, optimize our global supply chain and consolidate our manufacturing footprint. The team has also done an outstanding job of managing the impact of tariffs, and we continue to expect to fully offset these impacts in 2025. We also continue to support LEX Diagnostics in their ongoing review of their 510(k) and CLIA waiver submission with the FDA. They continue to engage in a productive and collaborative dialogue with the agency. And based on the current review time line, we continue to anticipate FDA clearance by late 2025 or early 2026. So I'll conclude by saying that we are encouraged by the progress we've made and confident in the path ahead. We remain focused on our execution to deliver sustainable, profitable growth. And with that, I'll turn the call over to Joe to take you through the details of our third quarter financial results. Joseph Busky: Okay. Thanks, Brian, and hello, everyone. I'll start by taking you through our third quarter results, which are detailed on Slide 3 of our earnings presentation, which is available on the Investor Relations section of our website. I'll also discuss our full year 2025 financial guidance, and then we'll open up the call for your questions. Total reported revenue for the third quarter of '25 was $700 million compared to $727 million in the prior year period. The 4% year-over-year decrease was primarily due to lower COVID and donor screening revenue, the latter of which is related to the continued wind down of the U.S. business. Excluding COVID and donor screening, reported revenue growth was 5%. Foreign currency translation had a favorable impact of approximately 90 basis points during the third quarter. And based on FX exchange rates as of the end of October, we would expect FX to have a neutral impact on revenue and adjusted EBITDA for the full year. We said that we were pleased to see strength in our core business with continued mid-single-digit growth, and Brian provided updates on our business unit and regional performance, so I'll focus more on our P&L and balance sheet. Third quarter adjusted gross profit margin was 48.7% versus 49.2% in the prior year period. The 50 basis point year-over-year decrease was primarily driven by tariff impacts offset by cost mitigations. Non-GAAP operating expenses of $217 million comprised of SG&A and R&D decreased by $16 million or 7% as a direct result of our ongoing cost savings actions. Included in the other operating expense line of the P&L, we recorded $9 million of legal expense in connection with the final resolution of a long-running dispute with a COVID supplier that dates back to 2021. Q3 results included $40 million in restructuring, integration and other charges, which included approximately $11 million related to the discontinuation of the development of the Savanna platform. Integration costs were $28 million, which were primarily related to our ERP system conversion that went live in Q3. As expected, we saw our vendor-related system conversion costs decreased by $1.3 million from Q2, and we continue to expect integration costs to decrease significantly in 2026. We also recorded a $10 million expense on the asset impairment line related to the expected value of the sale of our Raritan, New Jersey facility. As we discussed last quarter, once we complete the Raritan facility consolidation, which is planned in 2027, we expect to save about $20 million in annual operating costs. As summarized on Slide 6, this is another example of the actions we are taking to move toward our adjusted EBITDA margin goal of mid- to high 20s. Moving now to profitability metrics. As Brian discussed, adjusted EBITDA was $177 million and adjusted EBITDA margin was 25%, a 180 basis point year-over-year improvement despite the lower respiratory revenue. And on a year-to-date basis, adjusted EBITDA was $444 million or a 13% increase compared to the prior year period with a 22% margin, which represents an increase of 320 basis points. Adjusted diluted EPS was $0.80 in the third quarter and year-to-date adjusted diluted EPS was $1.66, which was growth of 36%. This growth demonstrates the success of our cost savings initiatives as we continue to drive toward our margin expansion targets. All right. Turning now to the balance sheet on Slide 7. We finished the quarter with $98 million in cash and $100 million in borrowings under our $700 million revolving credit facility. During the third quarter, onetime cash flows associated with systems integration decreased by $5 million or 23% compared to Q2. However, adjusted free cash flow was a negative $50 million, largely due to the timing of accounts receivable collections that moved into Q4 and accounts payable disbursements that moved up into Q3 from Q4 as a direct result of our ERP system conversion. These temporary cash flow impacts from our system conversion were manageable due to the flexibility provided by our recent debt refinancing. Because these impacts are purely timing related, we continue to expect full year adjusted recurring cash flow to represent 25% to 30% of adjusted EBITDA. We completed our debt refinancing in August, improving our debt covenant terms and reducing the required amortization over the life of the loan. A summary of our debt refinancing is on Slide 8 of our earnings presentation. And as part of the refinancing, we booked a $5 million loss on extinguishment of debt within the quarter. At the end of Q3, our net debt to adjusted EBITDA ratio was 4.4x, and our goal continues to be net debt leverage of between 2.5 and 3.5x. Note that the Q3 leverage ratio was slightly higher than anticipated due to the ERP system conversion impacts to our Q3 cash flow. Our consolidated leverage ratio was 3.8x, including the pro forma EBITDA adjustments permitted and defined under our credit agreement. This compares to the credit agreement leverage ratio covenant of 4.5x. And during the third quarter, the company's stock price and market cap, which remained below management's view of the company's intrinsic value prompted an interim goodwill assessment. As a result, we booked a $701 million goodwill impairment charge in Q3. And note, we have no goodwill remaining on the balance sheet as of the end of Q3. All right. Now turning to Slide 9. Based on our current business outlook, we are providing our full year 2025 financial guidance as follows. Given that we only have 2 months left in the year, we are taking the opportunity to narrow our 2025 financial guidance. Therefore, we now expect full year 2025 total reported revenue of between $2.68 billion and $2.74 billion with neutral FX impact to the full year. While we're pleased with our revenue performance in Q3, we continue to expect a typical respiratory season with timing consistent with pre-pandemic patterns and similar to last year. That is occurring later in the fourth quarter and into the first quarter. And importantly, the midpoint of our narrowed guidance range remains the same as our prior guidance. Year-to-date COVID revenue was $60 million, and we continue to expect between $70 million and $100 million for the full year. We believe this range is reasonable and reflects endemic levels. We are also narrowing our adjusted EBITDA range to $585 million to $605 million, which is, again, the same midpoint as our prior guidance. This adjusted EBITDA guidance includes incremental cost savings in the range of $30 million to $40 million in '25, primarily related to indirect procurement efforts, and these savings are in addition to any tariff-related offsets. Our outlook continues to reflect an adjusted EBITDA margin of 22% for the full year, which is a 250 basis point improvement versus the prior year. Following our debt refinancing in August, we expect interest expense for the full year to be up by approximately $17 million for a total of $177 million. This includes a roughly 100 basis point increase in the weighted average interest rate and the additional amortization of deferred financing fees tied to the new term loans A and B. For the full year, we expect our effective tax rate to rise by roughly 1 percentage point from the previous guidance to 25%, reflecting the impact of tariff mitigation measures that have shifted income across different geographies. So we are also updating our adjusted diluted EPS guidance solely to reflect higher interest expense and the taxes just discussed. We now expect full year 2025 adjusted diluted EPS of $2 to $2.15. Approximately $0.19 of the impact is attributable to higher interest expense and $0.05 in higher taxes at the midpoint of the guidance. To wrap up, we're encouraged by the progress we made in the first 9 months of the year, and we remain disciplined in our approach to margin expansion, cash generation and balance sheet improvement. We're confident that our financial discipline combined with our strategic priorities positions us well to drive long-term value for our shareholders. With that, I'll ask the operator to please open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Andrew Brackmann with William Blair. Andrew Brackmann: Brian, I think in your prepared remarks, you mentioned some competitive wins. Can you maybe just give a little bit more color around that commentary? And I guess, in particular, on the labs front and on that segment, can you maybe just sort of talk about shared dynamics there and how things like this additional assay that you added, I think, on Monday on VITROS should help there. Brian Blaser: Yes. Our competitive wins have been dispersed across our geographies pretty evenly. We've had some nice wins in North America. I would say we had some very significant wins in Latin America as well as EMEA. And you see that -- you certainly see those reflected in the underlying growth rates. So we're excited about the traction that we're getting in those markets. And importantly, I would say we're very focused on wins now that are profitable as opposed to just winning at all costs. So I give a lot of credit to our commercial team for the discipline that they've placed in their organizations to make that happen. As far as troponin, the launch of high-sense troponin goes, first, what I would say there is I'm just so proud of the work that the team did there in conjunction with FDA, by the way, to gain the clearance of that assay in exactly 90 days from the time we submitted it. It's an excellent assay. It performs very well compared to peers. And it really strengthens our cardiac panel, and more and more clinicians are requiring high-sensitivity troponin on their platforms. I would say, by itself, it's not going to have a huge impact on our short-term growth rates, but it was a long-term competitive factor for the competitiveness of our cardiac panel. So getting that assay on the panel was really important, and it was a huge priority for me when I joined the business. So we're excited about that and expecting to be taking orders later this year and shipping product as quickly as we can. Andrew Brackmann: Okay. That's great color. And then I'll just ask China, so hopefully, we can move on. I mean it looks like you're not seeing any impact from VBP or DRG dynamics. I think it was 5% constant currency growth in the country, this region -- this quarter. I just want to make sure that's right, and that's the expectation moving forward. And then also on China, I think there was a new procurement policy that came out late in Q3. Any color on how we should think about that? Brian Blaser: Yes. So there's not a whole lot that's changed from our -- the last update that we did for Q2. We had adjusted our guidance in the -- on the Q2 call to mid-single-digit growth to reflect the sort of competitive dynamics in all of these different policies that were taking place. We have seen some impact from VBP and the debundling on our business, and that is reflected in the mid-single-digit growth forecast for the rest of 2025. We probably have seen less impact than others because a pretty high proportion of our instruments are used in stat labs where they're less likely to debundle panels and that sort of thing. So really, not much has changed there since our last update. As it relates to the new policy that came out around localization, we already have manufacturing in China and our objective will be to continue to be in compliance with the regulations so that we can continue to manufacture and invest in China as long as the economics there remain favorable. Operator: Our next question comes from the line of Jack Meehan with Nephron Research. Jack, can you confirm your line is not on mute? Our next question comes from the line of Lu Li with UBS. Lu Li: Great. I want to go back to the 2025 guidance. It does -- so you are keeping the EBITDA margin at 22% unchanged. It does seem like the Q4 implied margin will be sequentially lower compared to Q3. I'm wondering any color that you can offer on that front, and then I have a follow-up. Joseph Busky: Yes. Lu, it's Joe. Yes, we did take the opportunity given that we only have 2 months left in the year to narrow the guidance. And we do want to stress the point that even though we've narrowed the guidance on revenue and adjusted EBITDA, the midpoints of that guidance are still precisely the same. And the adjusted EPS guidance, again, was narrowed and also adjusted for the nonoperational areas of interest expense being higher due to the refinance and the tax rate being slightly higher due to some mix of income by jurisdiction because of tariff mitigation actions. But if you look at Q4 sequentially versus Q3, I would say that the margins might be slightly lower because we will probably likely, like every year, we see slightly higher instrument revenue in Q4 as customers are attempting to use their budgets and you see a lot more instrument revenue in Q4 versus other quarters. And just as a reminder, the instrument revenue for us and most of the folks in our space is much lower than the reagents and consumables margins. So you do get a sort of a negative mix impact by that instrument revenue. And then also, I would say, and this is fairly typical each year for us, we tend to see a little higher incentive compensation expense in Q4 versus previous quarters. And so that's going to have the impact of pulling down the margin slightly. So hopefully, that answers your question. Lu Li: I appreciate the color. Second question on instrument. What is the instrument performance in the quarter? And then, Brian, I think you mentioned there was a next-generation instrument in the pipeline. Do you have a time line for that? Brian Blaser: I can start with the last part of that. Yes, the nice thing about the work we've been doing on margin expansion and getting the organization focused is we're now in a position where we can start to think about these new systems. We're still in the very early stages of concept development. So not in a position where we can share schedules at this time, but we hope to be talking a lot more about that in the future. Joseph Busky: Yes. And Lu, the Q3 instrument revenue was down slightly, about $5 million year-over-year versus Q3 prior year. And this is not largely unexpected. We are seeing a higher number of contract extensions with our existing customers, which is -- actually is a positive thing for us from a margin mix perspective. And so that's what's driving that. Yes. Operator: Our next question comes from the line of Jack Meehan with Nephron Research. Jack Meehan: Sorry about earlier, had a phone issue. I wanted to start, I was just wondering if you could give us an update on the Sofia franchise, where you stand in terms of installed base and pull-through. And kind of secondarily, I saw on the guidance slide, you expect over half of the flu test to be combo. Just curious your thoughts around kind of the durability of the ABC test and physician preference around that. Brian Blaser: Yes. So what I can say about the Sofia installed base is it continues to be stable, expanding, very durable. It's a workhorse platform. And the durability of our flu combo test is also very solid. We've really seen very steady performance in terms of sales of that test over the last 2 years. So we're looking forward to yet another solid season here in the upcoming respiratory season with Sofia. Jack Meehan: Great. And then you're further -- or LEX is further into their FDA submission. Can you give us just an update on how you're thinking around launch timing and positioning of that relative to Sofia? Brian Blaser: Yes. As I mentioned in the prepared remarks, the dialogue with FDA continues to be constructive. There's -- we haven't seen anything really out of the ordinary. Assuming an approval late this year or early 2026, we'll be looking to ramp up placements of the platform so that we can participate as much as we possibly can in the following year respiratory season. So that's our current plan. Jack Meehan: Got it. And then last one. I saw on the slide still targeting the 100 to 200 bps expansion for 2026, which is great. Can you just talk about how you're thinking about free cash flow conversion like as a percentage of EBITDA, like how -- what we should be plugged in for that for 2026? Joseph Busky: Yes. Jack, so Q3 was certainly a disappointing quarter for us for cash flow, primarily driven by the impacts of the system conversions, which had the impact of delaying cash into Q4 for us. But despite that timing issue due to the system conversions, we still feel that the full year 2025 recurring free cash flow will be in that range of 25% to 30%. And we still are confident in getting to the target of 50% of adjusted EBITDA for recurring free cash flow. We won't hit that target next year. I would believe that hitting the cash flow target would be consistent with the time lines we have on hitting the EBITDA margin targets. So I would more target, I would say, mid-'27. So for 2026, I would expect us to make progress towards that 50% target, but not fully get there. And the levers that we've talked about already are mitigating CapEx, reducing the number of days on hand of inventory on the balance sheet and reducing the level of integration or onetime related cash costs that we've seen in the last couple of years. And then obviously, the EBITDA margin improvement as providing additional cash flow. Those are the levers. Operator: Our next question comes from the line of Tycho Peterson with Jefferies. Jack Melick: This is Jack on for Tycho. Saw a nice step-up in imunoheme growth. Is that mid-single-digit growth something we could look at as more sustainable moving forward? Or is it more one-off outperformance in the quarter? Joseph Busky: Jack, yes, we did have a really nice quarter for immunohematology at 5% growth. But I would say there's probably a little bit of timing between Q3 and Q4. And I would expect that the full year immunohematology growth will be right around where we'd expect it to be sort of in that 3% to 4% range. Jack Melick: Okay. And then how should we think about LEX as it receives approval and you start to commercialize that next year in terms of sequential sort of step-up in OpEx spend relative to that 100 to 200 basis point margin improvement? Joseph Busky: Yes. Jack, the LEX, we do expect, as Brian said, we're going to expect to get FDA clearance late this year, early next year, and we'll have a very limited rollout in the first part of the year and the first part of the respiratory season, and we'll have a more fulsome rollout in the second half of 2026 as the respiratory season heats up in Q3, Q4. I would expect that LEX will likely have a dilutive impact on margins next year to some extent. I certainly wouldn't expect it to be accretive. We will work hard to keep or mitigate, I should say, any dilutive impact of LEX. But I wouldn't expect any accretive impact from LEX until we get more up to scale with revenue, which I would not expect to happen for sure until we get into 2027 or potentially 2028. Operator: Our next question comes from the line of Patrick Donnelly with Citi. Unknown Analyst: This is Brendan on for Patrick. I want to touch on the U.S. donor screening business. As we kind of move into next year, how should we think about modeling that over the course of the year? And I think before, you've kind of mentioned that margin benefit should start to roll through. I'm just curious how we should be thinking about margins over the course of next year with a focus on the U.S. donor screening business. Joseph Busky: Yes. Brendan, yes, just -- it's a good question. As a reminder, the donor screening -- the U.S. donor screening business, it has been quite a headwind on our top line this year. For the quarter, we're down $13 million or 48%. And for the year-to-date, we're down $55 million or 57%. It is -- so it has been quite a headwind on that top line. We do expect that we'll be somewhere between $40 million to $50 million of revenue this year, and that residual revenue will completely wind down in the first half of 2026. So that top line headwind that we've been seeing from the donor screening exit will dissipate as you get into second quarter and for sure, as we get into the second half of next year. We do have some stranded costs that we have to pull out of the business. But once we are complete with that, I would expect that we'll be somewhere in the range of 50 basis points of margin accretion that will likely happen as you get into later '26 or into early '27. Unknown Analyst: Appreciate that. And then within the lab business, I believe you talked about integrated analyzers being around like 30% of the installed base with more runway to go. I was wondering if you could update us kind of where you guys are at in terms of the analyzers in the installed base? And how should we think about kind of like the long-term opportunity in terms of adding growth there? Brian Blaser: Yes. Thank you for the questions, Brendan. Our integrated analyzer placements are almost completely inverse to our competitors' situation in the marketplace. So where they might have more -- let's say, 60% of their placements are integrated with a lot of immunoassay volume. Our installed base is heavily clinical chemistry with less immunoassay, probably in the 30% to 40% range. So we have, I think, a tremendous opportunity there in terms of our runway for additional placement of integrated systems, and that's been our strategy for the last several years and will continue to be. Operator: Our next question comes from the line of Andrew Cooper with Raymond James. Andrew Cooper: Maybe just a quick one for me first. Nice to see the high-sensitivity troponin launch on VITROS. If we go back a bit, we used to talk about TriageTrue and bringing that high-sensitivity troponin to the point of care. Would love just the latest there given that product is, I think, in Europe, not yet in the U.S. And how important or how much of an opportunity do you view that point of care today relative to maybe how it was thought about a few years ago, even if predating some of your time here? Brian Blaser: Yes. So thanks, Andrew. I appreciate that question. That is an assay that ultimately we would love to have on Triage. We do have it outside the U.S. It's a very successful test. There are some technical challenges that we have to overcome in order to have it meet the sort of performance requirements for the U.S. market. So we're looking at that and seeing if we can press over those hurdles to get that assay into the market at some point. But don't have anything really concrete to share with you in the short term at this point. Andrew Cooper: Okay. And then on the cost save efforts and transformation efforts that are underway, I think when these plans were initially kind of laid out, you obviously had certain programs that you had an eye on and likely a little bit to kind of go find and capture. Maybe just give a little bit of what have you found as you continue to dig? Maybe what surprised you where there's more room to pull some costs out and maybe where there's a little bit less as well. Brian Blaser: Well, our initial focus was heavily around just staffing of the organization kind of at all levels across the board. And we took out close to 12% of the organization as a result, and that was the focus of our initial efforts. Lately, we have been more focused on indirect and direct procurement, have made a lot of progress on indirect procurement. We're now starting to turn our attention to the direct side of things, which are mainly product cost-related things and a little harder for us to action on. But there's nothing that's really surprised me in terms of where the cost pools were located in the business that we needed to go after. It's just a lot of heavy lifting and hard work to activate it. I would say as we get further down the path, it gets harder and harder to find new things, but we every day continue to come to work and challenge every corner of our P&L for cost savings, and we'll continue to do that. It's just a matter of operating the business. Operator: That will conclude today's question-and-answer session. I will now pass the call back over to Brian Blaser for closing remarks. Brian Blaser: Thank you, operator. Thanks, everyone, for taking the time to be with us today. I'll just conclude by saying that we're proud of the very solid progress that we're making and confident in the direction that the company is heading. Our team and its disciplined execution, operational focus and commitment to innovation are delivering tangible results and positioning us well for the future. So thank you for your time today and your continued support and interest in the business. Take care. Operator: That concludes today's call. Thank you for your participation. You may now disconnect your lines.
Operator: Welcome to CellaVision Q3 Report 2025. [Operator Instructions] Now I will hand the conference over to CEO, Simon Ostergaard. Simon Østergaard: Thank you very much, and thanks to everyone taking the time to listen in to our quarterly report that we've launched this morning for our third quarter. I'm happy to say that I also have our Interim CFO, Monica Jonsson, with me, and we'll be happy to also answer any questions you may have when we get to that part of the session. So, the quarter in brief. So, we have named our quarterly report softer quarter with mixed regional performance, and this is also related to currency effects. We saw Americas and EMEA had some quarterly variations resulting in modest growth, which we are highlighting here. We are coming out with a quarter here where we are reporting net sales decreased by 1.7 percentage points to SEK 176 million. However, due to the FX headwind of minus 4.3%, then sales increased organically by 2.6% during this quarter versus the comparable quarter last year. On the EBITDA side, we increased our EBITDA to SEK 50 million. So, we increased by SEK 1 million, and this relates to -- or corresponds to an EBITDA margin of 28%, also a small increase. In terms of what we want to highlight with regards to our strategic direction and our progress, we actually see a lot of progress. It's a very exciting time for the company and our partner. We're highlighting the fact that we've completed our clinical trial. We've submitted our documentation to receive the CE Marking for our bone marrow application. So, we do expect this one to be done according to plan and obtain the CE mark by here we say, early 2026. I think we've said Q1, so that's still in line. But we are positively optimistic around it, even though there are, of course, always risks with anything, but this is an exciting time. So now we are really looking into training and the commercial launch activities for 2026. Another big chunk of our investment has gone into an upgraded software for our platforms where we've done the verification that has been completed and now being installed at customer sites for final validation before we roll it out, which is planned for next quarter, which is this quarter here in November. All right, here we go. And then a slide around the financial development. So, it's a busy slide, but what you have here is our Q3 numbers reported fresh at the very left-hand side, the comparable quarter and then the year-to-date numbers for 2025 in the middle, followed by the compare last year and then the full year 2024 on the very right-hand side. So, I talked about the organic growth and the revenue of SEK 176 million. If we sort of peel the onion and then work our way through the P&L, that translates into a gross margin of 69%. So, we increased the gross margin by 1 percentage point. We had full impact from our price increases during Q3, and we had a little bit of a product mix. So that was a positive contribution. On the operating expense side of things, we invested SEK 82 million, went down with -- as compared to last year, a little bit on sales, a little bit on admin and according to plan, invested a little bit more on the R&D side. So that actually translated into a growth of EBITDA of around 2 percentage points. So, from SEK 49 million to SEK 50 million despite the negative decline in revenue. On the R&D side, as you can see, 24% so we have -- of sales is what we have invested into R&D, of course, slightly affected by sales. However, really, the investments are following our plan, and we've capitalized a little bit less than normal, only SEK 14 million this quarter, which is primarily due to the vacation piece and partly also completion of the software upgrade, which also had a little bit of an impact on how much we capitalized. On the cash flow side of things, we had a cash flow before the working capital items of SEK 52 million. And then the working capital adjustments or impact was actually minus SEK 22 million, and the majority of that was from accounts receivable since we had quite a number of orders being placed in September. So, this is why our accounts receivable increased. So, we had an operating cash flow of SEK 29.6 million, SEK 30 million. And on the investment side, we invested SEK 22 million, both on the capitalized R&D activities, as I said, but also investments into data storage was a significant chunk this year to serve our capacity for some of our new technologies. And then after subtracting our SEK 4 million of finance activities, the cash flow that were related with that, we ended up with a total cash flow of SEK 4 million. So that's really the story around our P&L. Let's take a look at the regional highlights. So, in Americas, we had 68 million on the top line coming from the Americas region, South and Northern America, which is equivalent to an organic growth of 4%. So, we also had currency effect there, of course. I'd say, in general, it was carried by -- it came from really good traction on the large instrument platforms and less from the smaller instruments, where we saw a modest decrease. However, we also saw good traction in Latin America. So that is also positive for future growth. In general, I'd say our sort of also when we look at our leading indicator in collaboration with our strategic partner. We believe that we have an increasing potential in the U.S., which was also confirmed in the half year report of Sysmex launched yesterday. In EMEA, likewise, sales amounted to SEK 96 million versus the SEK 98 million last year. That is an organic growth of 1%. I think this was actually acceptable also in the light that we were up against a pretty tough compare since we had inventory buildup in the comparable quarter last year. So, a decent single-digit growth in reality. We had reagents growth as well, quite a bit from EMEA. However, on the hematology side, it was modest -- very modest with only 1%. So, there is some phasing of orders on the hematology side there. But generally, a good 14% growth on the reagent business. For APAC, I'd highlight that it was a soft quarter, SEK 13 million, so 10% growth, but of course, on a very low base. This was also what we hinted in our previous quarterly report where we had some inventory shipping since we are entering our program where we are manufacturing out of China. So, we ship quite a number of parts and instrument modules to China, which impacted sales, but this was the main contributor to a soft sales across APAC. We sold also outside of China. So, we do see momentum in pockets across Southeast Asia and Australia. So that is a positive outlook there. And then I also want to emphasize that we are seeing a good traction, 5x improvement of revenue sales from our reagent in APAC. Of course, it's small numbers in APAC, but it gives us the confidence that we -- that our penetration and expansion in APAC on the reagent side is on the right track. If we cut the numbers in terms of sales per product group. So same numbers but sliced per product category. We have SEK 93 million versus SEK 102 million on the instrument category. And again, contribution from the large instruments was important. And then as I just alluded to on the Made in China initiative, it is very important for us to be able to participate in the market in China by manufacturing our instrument in China. So that is a project that is also coming to the end as part of our strategy. On the reagent side, I mentioned the growth of SEK 40 million in revenue versus the SEK 35 million. So that's the 14% growth. So good to see also that our -- what we define as non-hematology is actually contributing with a decent sort of single-digit healthy growth this quarter here. So that is really good. And then finally, on the software side, SEK 43 million. So -- and that is also a correlation up against how we're doing on the instrument side, but it is actually a decent software revenue we accomplished. And also, we had a contribution coming from spare parts and consumables worth SEK 23 million. So, the key takeaways is that, as we say, yes, we've had somewhat softer quarter with some different variation across the regions. But the underlying is a healthy business, which is supported by the gradually expanding strategic partnership, which is advancing across multiple dimensions on internal processes, on the -- now the focus also on launching the products. This is another thing that the power of focus strategy that we launched in June 2022, it is starting to provide the output, both from what you see when we decided to enter the specialty arena or specialty analysis with the bone marrow that is expected to come out. So, our focus and activities are really on training and commercial launch activities, and so they will be here as we start the new calendar year. I also emphasized the software upgrade without going into details prior to launch, then I would say that it is delivering a faster, smarter workflow, and it does have a new cutting-edge user experience. In terms of our fifth pillar in our strategic direction or strategy, the power of focus, we also have these new areas where we expand beyond hematology, which is really the focus of deploying our full Ptychographic Microscopy technology, the FPM technology. And we have reported that we are lifting this into our next-generation hematology analyzer. And that is really proceeding according to plan. And based on this development, we are now also able to really scan different sample formats in the context of cytology and pathology as an example. And that is also an exciting area where we are having discussions with partners -- potential partners playing in those field. So taken together, a solid quarter. We worked hard, but also on the R&D and now on the marketing side is ramping up. So, it's a pleasure to present the results today. And with that, I think we should open the floor for questions. Any questions are, of course, welcome. Thanks. Operator: [Operator instructions] The next question comes from Simon Larsson from Danske Bank. Simon Larsson: I'd like to maybe kick off with a question on the software upgrade you announced here it's rolling out. Should we expect any financial impact from the rollout here already in Q4? And will this be sold as an option to the customers? Will it be mandatory? How will you charge for it? Just any more color on the software upgrade would be helpful. Simon Østergaard: Sure. The software upgrade is seen as an upgrade on our instruments, both on the usability and the performance to improve the workflow. We have decided to -- that this will be part of the package when you purchase the blood line, [indiscernible] as an example, then this will not come with an additional fee for the end user. So, this is really a means of differentiation. So, you should see this as a growth contributor by keep on being relevant in the labs and demonstrating our innovation muscle prior to our next-generation system. That's how you should look at it. Simon Larsson: Okay. That's very clear. And also, on the R&D CapEx here going forward, I think roughly the levels now, I'd say, like SEK 70 million per year capitalized. Should we expect this to decline here going forward as the software product is now rolling out, bone marrow is coming out. Of course, we're still investing in the next-generation instruments, I suppose. But how should -- how do you believe we should look at the capitalized R&D here in the coming, let's say, 1 or 2 years? Should it decline more to a historic level, or should it be kept roughly at the same level? Simon Østergaard: Yes, see, our aspiration is really to maintain focus on us being an innovator -- innovation company. I think we are at a pretty decent level here. On the capitalization, we have a portfolio of projects we want to start -- so this is also a bandwidth question for us. I think we're at a reasonable level. But as we see more of our projects being terminated, it is a balance as to how mature are new projects? Are we capitalizing or are they more immature than that. So, you may see some changes in our capitalization, but our intention is actually to keep on investing in the R&D phase. We expect that as we see more changes also throughout next year, we'll probably give more sort of guidance or update on how we see it as we've come to the end of the power of focus. So, we will certainly be more specific around this particular question as we enter 2026. Simon Larsson: I think that would be a good idea. I think just as you're now sort of finishing up a few of these bigger projects, it would be good to help us understand how we should look at this going forward. Maybe the final one from my end. You mentioned, I think, that the cash flow was a bit held back by an increased amount of orders placed during the end of the Q3 quarter. Could we expect that sort of this dynamic to sort of has continued into Q4, i.e., that sort of how you enter Q4 is looking sort of good on that same trajectory? Or was it just a matter of timing that it sort of ended up in the late Q3 here order intake and delivery? Simon Østergaard: That is simply just the nature of the payment terms when we receive the orders throughout September, then that's why you see this fluctuation on accounts receivable this time around. It's not a systemic thing per se. It's really a timing thing. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: A few questions on my end. Starting off with the product mix and the gross margin, and you say you've had a favorable product mix here in the quarter, improving margins. But regardless of the mix, some portions here in your profile are increasing its gross margin sequentially, systems software or reagents. And because the margins are a bit higher than it's been before, and you're still sort of affected by negative FX in the quarter. So, can you help us decipher what segment is improving its margins? Simon Østergaard: I think -- so pricing was one element. In terms of mix thing, we still have -- we have 14% growth on the reagent side. That actually pulls down the margin. We have a little bit lower margin on the reagent side versus instruments and software. But that was still -- despite that, we had sort of solid growth on the large instruments, which kind of contributed to the 1% increase versus the last year. Ulrik Trattner: Still sort of when I sort of -- any way you look at it, if you split it up into 2 segments, like cell morphology systems or morphology systems and reagents, some of these segments have improved its gross margin sequentially and year-over-year. Simon Østergaard: Yes. So, help me out here. What are you looking for specifically which product group is it that you're... Ulrik Trattner: I'm just trying to figure out sort of what in the product mix have increased the margin. Regardless of the mix, some of your system or reagents have increased its margins sequentially. And I'm just trying to figure out whether sort of which part of it is moving the needle. Simon Østergaard: I think maybe this time around, I think we had probably more contribution from large systems versus the small. So that has been a contributor -- positively contributing to the overall gross margin. I'd say that's probably the driver you're looking for. Ulrik Trattner: Yes, That’s great. And the software upgrades live here in November enables you to commercialize wider sort of the MCDh reagents. Have you received any feedback from customers? And can you just give us sort of the highlights here of how you intend to commercialize it sort of near term? Will it be initial sort of customer feedback then gradual ramp-up? Or how should we view this? Simon Østergaard: Yes. That’s a great question. No, you're absolutely right that the software upgrade also comes with the opportunity, you can say, changes on the steering and staining device by Sysmex, which is called SP-50. So that has also been upgraded so they can host our methanol-free stain. That's an important part of this integrated software upgrade. So that allows us now to actually start positioning methanol-free stains or Sysmex to position the methanol-free stains to be used on the SP-50, which is a major milestone. So, we're in the phase of evaluating the stain with customers. I believe that Europe will be first. This is where we have the majority of our business on the [indiscernible], the classic stains. So, there will -- there can be some conversion, but obviously, the value proposition of methanol-free is strong. So, we can -- that can still contribute in Europe. And then it's also an enabler for the U.S. And we expect the launch in 2026 for the U.S. Here, there's both customer assessments and a little bit of, you can say, regional preferences that we are working on finalizing, but we expect the launch to be happening next year. That's kind of where we are for the U.S. Ulrik Trattner: And if we were to look at sort of China, and you've been working here and we can read in the reports on sort of transferring systems. And I guess it's Sysmex that is trying to build up manufacturing in China in order to participate in local tenders. So where are they in terms of operations in China? Simon Østergaard: They have a fixed site in China where we work together. So, we are doing our manufacturing of our Chinese devices within China, in their plant as part of that. And they also have cell counters manufactured out of China. And as you say, rightfully, that allows us to actually participate in hospital tenders or deals where it's a prerequisite that you have Chinese manufactured instruments. So, this is why this strategic initiative has been an important enabler for us to continue to compete in a more competitive market as opposed to other elsewhere. Ulrik Trattner: And are we to expect any effects from that initiative or... Simon Østergaard: Sorry, can you repeat that, Ulrik? Ulrik Trattner: Are we supposed to expect any acceleration in China sales from this initiative in the near term? Simon Østergaard: I think it's fair to be mindful also, if you read the report that came out yesterday from Sysmex, it is obvious that China is a fierce competitive market to be in. However, this gives us the opportunity to actually compete in collaboration with China in that market. So, protecting the market share that they report they have, and of course, aiming for growth via differentiation, is our game plan. But it is fierce that we all know that both on the pricing side and on the competitive side with local players, it is a difficult market, but it is relatively sizable out of our APAC numbers, which is also why we have invested in this program to protect our position. Ulrik Trattner: Okay. Great. And last question on my building a little bit more on the capitalized R&D. It's down quite a lot sequentially. And as you highlighted sort of summer months and reported R&D is up. To what degree is this sort of just summer months in prioritization? And how much of this is pipeline maturing? The bone marrow application has now been submitted. What is left in terms of R&D spend for bone marrow application and as well sort of the software upgrade, is also now a commercial product. So, I guess that will not run you that much R&D. Simon Østergaard: No, that's true. I think after Q2, we also released some consultant costs or some consultants, which is also reflected in the less capitalization. And as you say, of course, also the amount capitalized is equal to what we did last year, but coming from a higher base. So that is really because we are also releasing some consultants. Having said that, we are an innovation company. And I think that's super important, which is also what I tried to elaborate to Simon in the previous questions that were posed there. So, we are seeking for opportunities to invest and maintain our strategic focus of differentiating. We cannot disclose what are those programs. That would be unwise from a competitive position. But our intention is to really pursue our direction. And back to -- part of your question was also related to bone marrow. We are confident, as report, of course, there are risks, but we are confident that we are getting the CE mark for Europe. We still have investments to do to complete our trials and the work that we do to also enter the U.S., So we're not fully at harbor, so to speak, with the investments related to bone marrow. Operator: The next question comes from Christian Lee from Pareto Securities. Christian Lee: The first one is regarding the instrument sales that declined year-on-year, but your tone remains optimistic and especially for the larger systems. So, should we view this as an indication that demand strength will translate into stronger instrument sales in Q4 already? Simon Østergaard: I probably defer to sort of be super specific on what happens in Q4. However, I do note that our leading indicators are positive. I do note that Sysmex for the past 2 quarters, so including the quarter they completed, or they reported yesterday, so their Q1 and Q2 equivalent to calendar year Q2, Q3. I do note that they are signaling, or they are reporting instrument growth of 10% in the U.S. and 4% in Europe. And I think there is a healthy environment. This is also what we see. So, we're positively optimistic. So, you read my tone correctly, but I will defer for being super specific until we've seen what orders we get in and so forth. Christian Lee: Okay. Perfect. And demand for smaller instruments appears a bit softer than for the larger ones. Do you view this as a temporary situation? And what factors do you believe could drive a recovery in the near term? Simon Østergaard: Yes. No, I think it's temporarily. I think we, together with our partner, has pushed a concept which included both -- for the small labs, which included both the smearing and staining, and our DC-1 instruments. Prior to this, we had very healthy double-digit growth on the DC-1 instrument sold by itself. And then we positioned this instrument package called the DIFF-Line. And it is no secret that we had some operational performance issues with the SmearBox. So, I truly believe that part of the issue is not the market demand. It's our product issue that we had. And now we do have another simple solution that can substitute. So, it's a matter of getting aligned and getting back and really working with the opportunities as opposed to -- because we have seen a glitch in the pipeline that we built up due to this. But I really trust that it's a temporary thing. The demand is there. And also, if I look at it, especially in the U.S. All the IHNs are set up for our solution. And I do believe we're the only company who can actually serve that segment in a networked manner, from small labs integrated with the connectivity and our software solution to cater and be managed and decided upon from a diagnostic perspective at the large labs. So, it's temporary, Christian. Christian Lee: Okay. Great. My final question, Reagents performed really well with strong momentum in APAC. Do you see any risk of inventory buildup in the reagents that could dampen sales in the fourth quarter? Simon Østergaard: No, you're right. I'd say inventory buildup, then I'm thinking specifically around China. And the challenge there when you build up an own manufacturing is that, first of all, the line, we are selling a lot into China, that is then sitting in the manufacturing line. And then after that, you have a layer of 60 to 70 distributors below. So, there is a very little transparency to the end user in China. So, from that perspective, I would probably answer that, yes, there is a risk of some inventory buildup for the time being because it's very hard to translate how much is actually entering the end users for the time being. So, there's a little bit of risk for that, specifically related to target. Operator: The next question comes from Ludvig Lundgren from Nordea. Ludvig Lundgren: So I wanted to continue a bit on this last question with APAC instrument sales. So of course, it was lower in Q3 with some inventory destocking following the large Q2 order. But given that you now have local assembly in China, as I understand it, like will this lead to APAC instruments even more lumpy ahead? It has been lumpy historically as well, but could it be even further enhanced now? Simon Østergaard: I think the lumpiness is primarily driven for China and not APAC as a whole. So that's for China specifically, I would say. But temporarily, I can certainly not guarantee that there will not be some lumpiness. China -- sorry, APAC has always been quite lumpy and also because China is the biggest market that we serve. However, I do see opportunities both when we look at Japan and when we look at Southeast Asia, not the least in Australia and New Zealand. So, some lumpiness can occur. And that cannot be sort of neglected, so to speak. But still, I think it's positive that we're actually seeing opportunities both on the instrument side and then also on the reagent side, where we believe there is a good opportunity to actually bundle our offerings because we are the only provider who can actually provide both instrument software and reagents. Ludvig Lundgren: Okay. Great. So yes, just a follow-up to that. So, you saw this SEK 3 million reagent sales in APAC in Q3. Like we have seen some spikes in reagent sales historic as well. Like is this to be considered somewhat of a one-off, this level? Or does it rather reflect that you are seeing a significant increase in reagent customers in the region? Simon Østergaard: No, you're right. It's not a continuous sort of flow. There is lumpiness if you look at the revenue for APAC reagents per se. However, we do believe that the shipments that we send, they go to multiple markets. So, you should see it as a sign of us starting to actually grow the base of RAL reagents being consumed across multiple markets in APAC. I think that's the positive thing. And then also, we're also working on our logistics setup to serve the reagent market in APAC, which is another driver that can also help us facilitate and provide the reagents. So, you should expect growth, but I cannot guarantee that there will not be this lumpiness because it is a matter of -- it's large shipments that goes when they go and sometimes, they don't go. So that's how you should look at it. Ludvig Lundgren: Okay. I understand. Very clear. And then another follow-up. Just like looking at the instrument sales in APAC. So, on a rolling 12-month basis, I guess it has stabilized now around SEK 25 million, SEK 27 million, something like that. Like is this a fair level to extrapolate ahead? Or do you expect this to grow example, looking into '26? Simon Østergaard: For example, the last part, I didn't hear that. Ludvig Lundgren: Yes, for 2026, like do you expect to have a similar type of -- or similar amount of quarterly deliveries on an average level? Simon Østergaard: Yes. It's always tricky with the average question. I think it's a decent level. Having said that, there are specific opportunities, I'd say that when we look into and we discuss with our partner, there are specific opportunities sitting in APAC that are significant. And if they don't come, then you end up with this relatively flat look. However, the spikes can certainly come because we have some good opportunities across network hospitals, both in Australia, New Zealand, but also in Japan. And if they materialize, then I think we should certainly expect growth when you do your math over the 2026. Ludvig Lundgren: Okay. Great. And like -- because I think last year, we saw quite a significant spike in APAC instrument deliveries in Q4. Like is there any seasonal component to that, that customers trying to fill their budgets? Or was that more of a one-off so to say? Simon Østergaard: We compare that with last year, what I recall was that we had to serve -- we were obligated to serve a specific tender that was 5 years old type of thing. So that happens in the comparable quarter, Q4 last year. I don't expect there to be much -- you can call it seasonality per se. It's more a function of where the specific opportunities materialize rather than seasonality. Ludvig Lundgren: Okay. And then final question, like you have talked a bit before about reagent sales in the U.S. and the potential there. Like any updates on that? And if we could start to see this starting to ramp into '26? Or yes, just how to think about that? Simon Østergaard: Yes. No, I think about it in a way where we've been also at our Capital Market Day when we launched the Power of Focus, we were really emphasizing that MCDh, the methanol-free stain is the enabler to go and penetrate the reagent market in the U.S. That assumption has not changed. But now we've progressed much further. So we're actually able to bring MCDh onto the Sysmex smearing and staining device that is consuming our methanol-free stain. So, I think we've come a long way on the development side. So now it's about getting some customer feedback on the stain, whether there are any last tweaks for U.S., I do expect it to materialize, let's say, mid-2026, which, of course, means that the contribution from the reagent in 2026 U.S. is not enormously, but milestone-wise and the fact that we start launching this has enormous impact also on how we work with the team over there to actually position our total solution now also including instruments. So, by the end of the day, very exciting times for us. Operator: [Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. Simon Østergaard: Thank you very much. And first of all, thanks to all of you taking the time to listen in and staying with us throughout the Q&A. In my closure comment, I want to thank especially our strategic partners, the partner organizations all across the regions and the different functions. I really see gradual constant progress here 1.5 year after we especially launched the strategic alliance agreement with the Sysmex Corporation team. I also, in particular, I want to thank our own team, our staff. It's been extremely probably more than usual a tough quarter, and I think they know what I referred to on the internal lines. However, the dedication and the focus seems to take no ends all across our functions. So really a heartfelt piece of appreciation here. And then finally, I want to emphasize that on February 5, 2026, this is when we announce and present our year-end bulletin for 2025. So that will be published, and we are looking very much forward to present the results. And with that, I thank you for your attention and your interest in CellaVision. Thank you.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I will be your conference operator today. At this time, I'd like to welcome you to the Payoneer Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Michelle Wang. Please go ahead. _ Michelle Wang: Thank you, operator. With me on today's call are Payoneer's Chief Executive Officer, John Caplan; and Payoneer's Chief Financial Officer, Bea Ordonez. Before we begin, I'd like to remind you that today's call may contain forward-looking statements, which are subject to risks and uncertainties. For more information, please refer to our filings with the SEC, which are available in the Investor Relations section of payoneer.com. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of today, and the company does not assume any obligation or intent to update them, except as required by law. In addition, today's call may include non-GAAP measures. These measures should be considered in addition to and not instead of GAAP financial measures. Reconciliation to the nearest GAAP measure can be found in today's earnings materials, which are available on our website. Additionally, please note we have posted an earnings presentation supplement alongside our earnings press release on investor.payoneer.com. All comparisons made on today's call are on a year-over-year basis, unless otherwise noted. With that, I'd like to turn the call over to John to begin. _ John Caplan: Good morning, and welcome to Payoneer's Q3 2025 earnings call. Payoneer is a global payments and financial operating platform, built on durable infrastructure. Together, our technology, strategic relationships, and regulatory framework form the moat we've built over 20 years. Our mission is straightforward. We remove the friction between an entrepreneur's ambition and their achievement by delivering a secure, easy-to-use and trusted financial platform built for global commerce. Our strong Q3 and year-to-date results reflect consistent execution against our strategic priorities in a massive, fragmented cross-border payments market. Our results give us confidence in our long-term opportunity even as we navigate short-term volatility. We are evolving our business to be on offense, as global trade evolves, supply chains adapt, and as innovations in money movement continue to gain momentum. I'll share our progress, where we're investing and how we're positioning Payoneer to win. Bea will then walk you through our financials and increase guidance for 2025. In the first quarter of 2023, when I became sole CEO, and Bea joined as CFO, Payoneer generated mid-single digit revenue growth ex-interest. Adjusted EBITDA ex-interest was negative. Our priority at the time as a new management team was on reigniting growth and resetting the business for durable profitability. 2.5 years later, we have delivered record Q3 results and are raising our 2025 guidance. Q3 revenue ex-interest was up 15%, and we have delivered 7 consecutive quarters of mid-teens or greater growth, in line with or exceeding our stated targets. We've delivered 6 consecutive quarters of positive adjusted EBITDA ex-interest, including $12 million in Q3. Our total adjusted EBITDA margin was north of 25% in 2024, as well as in the first 3 quarters of 2025. The strength and consistency of our results in an evolving macro backdrop underscores our successful execution, as we deliver for customers. So a few highlights. First, improved unit economics and higher quality customer portfolio. We are moving from casting a wide net to prioritizing quality. We define quality as larger, more complex customers with scale, ambition, and global reach. And we are focusing on industries and countries where we have the strongest product market fit. We are exiting customers that don't meet our risk tolerance or desired economics. We are driving meaningful ARPU growth, as we move upmarket, and as we deliver segment-specific pricing and product bundles. ARPU has increased 65% since Q1 of 2023 from $286 to over $470. In our long-tail segment, we've raised prices and tightened product access and the cohort is now profitable. We are focusing our acquisition efforts, service model, and product roadmap to capture and serve larger customers, especially multi-entity customers. ICPs receiving over $250,000 a month in volume, represented nearly 30% of our Q3 revenue ex-interest, and are growing significantly faster than the rest of the customer portfolio. The higher quality of our customer portfolio is evident in our financial results. You'll note that total ICP counts have been roughly flat year-over-year, while we have delivered consistent mid-teens revenue growth ex-interest. Our focus on larger ICPs has driven higher average volume per ICP. We have improved our transaction costs and profitability dynamics even as our business expands to serve more complex use cases. Our diversified business mix and B2B expansion continue to drive growth. B2B revenue grew 27% in Q3, and now represents roughly 30% of revenue ex-interest, up from 20% in Q1 2023. Our platform solves for the complex AR and AP needs of global businesses. Our AP capabilities are built on infrastructure, licenses and compliance, trusted by large global enterprise partners, and we are making these capabilities available to global SMBs. In B2B, we are also focusing our acquisition efforts on larger customers. More than 50% of B2B revenue came from ICPs doing more than $250,000 per month in volume, and the average invoice size in our B2B franchise increased mid-teens percentage year-over-year. Third, our customers have shown that the ability to hold balances across currencies in their Payoneer account is a core Payoneer value proposition. And as such, the interest we earn on those balances represent a core component of our economics. Ending Q3, customers held over $7 billion on our platform, up 17% year-over-year for the second straight quarter. This demonstrates both the trust our customers have in our platform, and the accounts payable utilities that we provide. And together, this drives our revenue. We monetize customer funds through interest income and transaction fees as funds leave the Payoneer account, either when a customer withdraws to their local bank account or spends via Payoneer's AP products. Customer funds have grown in excess of volume year-to-date and represent substantial future revenue as customers deploy their funds. We have protected a substantial portion of our interest income over the next 3 years through hedging programs, which Bea will discuss in more detail. Our customers turn to Payoneer as they grow their businesses globally, and we are investing in our platform to deliver more value for them. We continue to drive multiproduct adoption as we increase the utility of the Payoneer account and move away from being "a toll booth on the money highway." Over 50% of Payoneer account spend is now coming from customers who use 3 or more AP products, up 200 basis points year-over-year. Customers are increasingly using Payoneer as their central account to manage their business network payments and shifting to our card to pay for cross-border expenses. We are expanding the Payoneer account ecosystem and the services we provide to customers through strategic partnerships. Here's one example. We are partnering with a third-party lender to expand access to capital for our customers in a capital-efficient and tech-enabled way. On stablecoins and blockchain, the rails are evolving, and we are evolving our platform to capture the opportunity. Just as when Payoneer started, global businesses need multicurrency wallets and interoperability between different currencies and stores of value. Our strategy is to orchestrate across payment schemes and rails, so cross-border businesses can focus on growth, without compromising on safety or convenience. We are making steady progress on these efforts. We are now using Citi's on-chain money movement capabilities to move hundreds of millions of dollars quarterly, allowing us to manage liquidity even more efficiently. For customers, we are working on offering stablecoin wallet functionality in 2026. In summary, what you can expect from us going forward? One, relentless focus on profitable growth, guided by a refined portfolio segmentation across region, vertical, use case, product and unit economics. We do what's best for the long-term health of the business every single day; Two, expansion of core operating margin as we focus on unlocking the meaningful leverage we see in our business over the long term; Three, prudent capital allocation as we fund innovation, pursue selective M&A and return capital to shareholders via repurchases. We have nearly $500 million of cash and generated roughly $50 million of operating cash flow in Q3. In July, our Board approved a $300 million buyback, and we are executing with intent. We repurchased $45 million of shares in Q3. I'm proud of the progress the global Payoneer team has made this quarter and year-to-date to deliver for our customers. We remain confident in the secular drivers supporting our long-term opportunity, and believe our platform and competitive moat position us well to generate long-term, durable, profitable growth. I'll now hand it over to Bea to walk through the numbers and our increased guidance for 2025. Bea Ordonez: Thank you, John, and thank you to everyone for joining us. Payoneer delivered another strong quarter with record quarterly revenue, 15% revenue growth, excluding interest income, and adjusted EBITDA ahead of our medium-term targets. In a dynamic global macroenvironment, we grew volumes, expanded ARPU, increased our SMB take rate and improved our core business profitability. We are increasing our full year 2025 guidance and are well positioned to capture the significant long-term opportunity ahead of us. Now turning to our third quarter results. We delivered revenue of $271 million, up 9% year-over-year and our highest ever quarterly revenue. Revenue excluding interest income reached $211 million, also a quarterly record and up 15% year-over-year. Our strong growth was driven by our B2B franchise, increasing adoption of our high-value products and services such as Checkout and Card and the ongoing implementation of our strategic pricing and fee initiatives. ARPU increased 15% in the quarter, and excluding interest income, was up 22%. Since Q1 2023, we had increased total ARPU by 65%. This is a direct result of our multifaceted growth strategy to move upmarket, drive cross-sell of our higher-yielding AP products, prioritize growth in our higher take rate geographies, increase the value of our SMB grade services by expanding our financial stack, and refine our pricing and monetization strategies to capture the value we provide to our customers. Total volume was up 9% year-over-year. SMB volume grew 6% year-over-year with volume from SMBs that sell on marketplaces up 4%. Volume from B2B SMBs up 11% and Checkout volume up 46%, all consistent with the outlook we provided during our second quarter call in August. Enterprise payouts volume increased 19% year-over-year, above our expectations, primarily due to a strong demand in key travel routes we serve and the onboarding of a new enterprise customer. Our Q3 take rate of 121 basis points was roughly flat on a year-over-year basis, despite a $6 million headwind from lower interest income. We continue to drive significant expansion in our SMB customer take rate, which increased 12 basis points over the prior year period, and 1 basis point sequentially. Customer funds held by Payoneer increased 17% year-over-year to $7.1 billion, partially offsetting the impact of lower rates on our interest income revenue. We generated interest income of $60 million in the quarter. Customer balances reflect the trust our customers place in our platform and the value they place on the utility we provide. They also represent future revenues that will be realized as customers utilize our AP products. The Payoneer account gives customers the ability to manage balances in multiple currencies and to choose how, when, and in which currencies to use those balances. These are important aspects of the value we provide to customers and our interest income revenue is a direct outcome of this. As of September 30, we had reduced our sensitivity to fluctuations in short-term interest rates in relation to approximately $3.7 billion or roughly 52% of customer funds. This consists of approximately $1.8 billion of assets underlying customer funds that are invested in a portfolio of U.S. Treasury Securities and term-based deposits as well as interest rate derivatives on approximately $1.9 billion of funds underlying customer balances, providing a floor against interest rate declines below 3%. Through these programs, we had secured approximately $120 million of 2026 interest income regardless of moves in short-term interest rates, approximately $80 million to $85 million in 2027 and 2028 and approximately $60 million in 2029. Additional amounts will be locked in based on ongoing reinvestment as the portfolio runs off, and these divisions provide a durable and sustainable revenue stream. We continue to expect that customer balances should broadly grow in line with volumes overtime and that our unhedged balances will predominantly be subject to prevailing short-term interest rates, mainly in the U.S. We will continue to actively manage our hedging programs, while always prioritizing liquidity and security. Total operating expenses of $235 million increased 10%, primarily driven by increases in labor-related expenses, higher transaction costs, incentives and other spend designed to drive card adoption and usage and the effect of our Easylink acquisition in China and our workforce management acquisition. Transaction costs of $42 million increased 12%, the lower growth in revenue, excluding interest income. Transaction costs represented 15.7% of revenue, an increase of approximately 40 basis points from the prior year period, primarily due to lower interest income. Excluding interest income, transaction costs represented 20.1% of revenue, a decrease of around 70 basis points versus that prior year period, despite mix shift towards higher take rate, higher transaction cost products, driven by improved operational efficiency. We see transaction costs as a key aspect of our opportunity to continue to unlock operating leverage. When excluding interest income, transaction costs have been roughly stable over the past few years at approximately 20% of revenue, even as we shift towards higher-yielding products. We are optimizing our transaction cost economics by using our scale to negotiate with our partners by deepening our strategic relationships and partnerships, including those with Stripe and with Mastercard announced in August, by improving the efficiency of our money movement and Treasury operations. And over time, we expect through our ongoing blockchain-related initiatives. As we continue to grow and scale our business, we are confident that the durable, highly profitable nature of our transaction-based revenues should enable us to continue expanding our core business profitability. Sales and marketing expense increased $7 million or 14%, primarily due to higher labor-related costs and increased incentives related to our Card offering. G&A expense increased $6 million or 22%, primarily due to higher labor-related costs, including from our workforce management and Easylink acquisition, higher facilities costs related to our offices in Israel and higher legal and consulting fees, including relating to our license application in India. R&D expense increased $5 million or 15%, primarily due to higher labor-related costs, while other operating expense decreased by $5 million or 10%, primarily due to lower IT and communication costs. Adjusted EBITDA was $71 million, representing a 26% adjusted EBITDA margin in the quarter. We generated $12 million of adjusted EBITDA, excluding interest income. And year-to-date, we have generated approximately $27 million of adjusted EBITDA, excluding interest income, nearly double the amount we generated on a full year basis for 2024. We are unlocking leverage through growth, managing our transaction costs and being disciplined with OpEx. We believe we have a significant opportunity to continue to increase the profitability of our business. Net income was $14 million compared to $42 million in the third quarter of last year. While income before income taxes grew 38% year-over-year, net income in the prior year period included a $19 million income tax benefit, largely derived from a federal tax deduction for 2024 and for the prior year for income earned from foreign customers, and lower foreign tax expense related to stock-based compensation. Basic and diluted earnings per share were both $0.04, down from basic earnings of $0.12 and diluted earnings of $0.11 per share in the prior year period, largely due to the impact in the prior year period of the discrete income tax benefit just noted. We ended the quarter with cash and cash equivalents of $479 million. Our operating cash flows continue to significantly exceed net income, allowing us to continue to invest for profitable growth and to return capital to shareholders. During the quarter, we repurchased approximately 45 million of shares at a weighted average price of $6.73 and as of September 30, had approximately $273 million remaining on our current share repurchase authorization. Turning now to our increased 2025 guidance. We expect total revenue between $1,050 million and $1,070 million, an increase of $10 million at the midpoint relative to the guidance we issued in August. This includes interest income of $235 million and $815 million to $835 million of revenue, excluding interest income. We are increasing our expectations for interest income by $10 million to reflect robust growth in customer funds. In 2025, customer funds have grown significantly in excess of volume and above our expectations at 11% year-over-year in Q1 and 17% for both Q2 and Q3, reflecting the trust and value our customers place in our platform and partially offsetting the impact of lower interest rates. We are reiterating our expectations for revenue, excluding interest income of $815 million to $835 million. This reflects the current macro and trade environment and our view of the range of outcomes that this environment could imply, especially as we enter the holiday spending season. For the fourth quarter, we expect marketplace volumes to be flat to up mid-single digits and B2B volumes to grow mid-teens. For the full year, we expect transaction costs as a percentage of revenue to be approximately 16%, a 50 basis point reduction compared to our prior guide, and a 200 basis point reduction versus the guidance we provided at the beginning of the year. We expect 2025 adjusted OpEx, which represents our guidance for revenue less adjusted EBITDA and transaction cost of approximately $618 million at the midpoint of our adjusted EBITDA guidance range. We are raising our expectations for adjusted EBITDA to be between $270 million and $275 million, representing a 26% margin at the midpoint. While we see a broad range of potential outcomes on the top line, we are focused on what we can control. We expect to continue to deliver growing profitability through optimizing our transaction cost economics and managing OpEx. Excluding interest income, we expect adjusted EBITDA of $38 million at the midpoint, almost 3x the amount generated in 2024. We are making meaningful progress in evolving our business to capture the significant long-term growth opportunity. Behind our strong headline results is a healthier, higher quality and more durable customer portfolio. We are capturing and growing our business with larger customers, improving our risk profile, unlocking robust operating leverage, making strategic investments, generating substantial cash flow and positioning the company to create long-term shareholder value. We are now happy to answer any questions you may have. Operator, please open the line. Operator: [Operator Instructions] Your first question comes from Mayank Tandon from Needham & Company. Mayank Tandon: Congrats on the quarter. I know you're not going to probably give guidance for '26. But just as you think about the business momentum, John and Bea, I was curious if you could share any sort of insight into what your expectations might be for the sustainability of some of the key metrics around volume, take rate? And also if you could remind us of any sort of seasonal impact that we should factor in as we lay out our quarters for 2026? Bea Ordonez: Sure, Mayank. So thanks for the question. Look, I think what we were looking to convey in the prepared remarks is really exactly to your point, the sustainability and the durability of the growth we're creating. The business performed very well in the third quarter, very much in line with the commentary that we provided in August. Our full year guidance, which we're raising, as we said, we're raising both revenue and adjusted EBITDA guidance is in line with the medium-term targets we communicated back in 2023, even with what I think everyone would acknowledge is a pretty dynamic macro. So overall, business is performing really well, and performing really well in a sustainable way, right? ARPU has been consistently growing above 20%, for I think, now 5 quarters. We're continuing to deliver SMB take rate expansion from that multifaceted strategy that we outlined. We're really building, in our view, healthier, more durable and sustainable customer portfolio, and it's showing up in the metrics. So overall, look, to your point, we're not giving guidance out to next year, but we see the business really performing well. We see a resilient business, a healthier business with a lot of momentum and opportunity in front of us. John Caplan: Yes. I would just add to Bea's remarks that the strength in the portfolio as we move upmarket is evident. Those $250,000 a month customers that are growing exceptionally well, 30% of our Q3 revenue overall, 50% of the B2B revenue and the strength of that portfolio and the opportunity there is really bold. And we're going after it, we're focused on it, we believe we have the product for those customers. And as the shape of the portfolio moves upmarket, the profitability dynamics are unlocked in our business. So we feel really good about where we are. Mayank Tandon: Got it. That's very helpful. And maybe if I could just follow up with a question, John, around sort of your investments in sales capacity. And I ask that in terms of as you diversify the business overtime from China into other markets, as you grow ICPs, as you look to cross-sell, upsell into your base, how is your go-to-market strategy changing, if at all, if you could share any insights into your investments in sales and your overall approach to attacking the market? John Caplan: Yes. That's a great question and an exciting part of the evolution of Payoneer. The majority of our customers are acquired organically, as you know, right? They come through the application or through our website. And if we get millions of applications annually, so we sift through those to find lookalikes of our best customers. And then alongside of that, are partnerships we're putting in place with resellers, affiliates and others around the globe in the key hubs of activity for the multi-entity entrepreneurs of the globe. So this is, I think, a very exciting engine of our growth looking forward, because it helps us bring in bigger, higher-quality customers. And when you look deep into our portfolio, the volume retention, net revenue retention data of our largest customers is the best in the portfolio. And so moving to focus on acquiring those customers in the hubs around the world where they exist, gives us, I think, a leg up in the market. And we have obviously select paid acquisition and lead generation underway, but we are a loved and well-known brand that's trusted by partners. The brand scores we get are exceptionally good. And when we host events, hundreds or thousands of people come to learn about what Payoneer has to offer and why we're helping people bridge their ambition to their achievement. So we feel good about the go-to-market effort. We're focused on not total number of customers, but the quality of customers. And we're moving the portfolio deliberately upmarket. You saw in our results the 10,000-plus customers, revenue was up 18%. Volume was up 7% despite the count coming down a bit. And that is deliberate effort on our part as we monetize intra-network volumes. We're $4 million a quarter of monetization there, which is the beginning of something we think very exciting and exit customers that don't fit our profitability and growth targets. Operator: Your next question comes from the line of Sanjay Sakhrani with KBW. Sanjay Sakhrani: John, Bea you guys talked about a dynamic macro. Maybe you could just drill down a little bit on what you're seeing with the SMBs on your platform? And how they're reacting to all these day-to-day fluctuations in policy? Bea Ordonez: Yes. Thanks, Sanjay, for the question. Look, I think in terms of the Q3 performance of the business, which as we said, has been robust, it's very much in line not only with the medium-term targets, but with the commentary we shared back in August. Volume consistent with that commentary, revenue performance consistent with that commentary. It's obviously difficult to quantify sort of what the tariff impact is and all of those moving parts from the volatile nature of the tariffs to how timing around shipping and stocking can impact. But we're likely seeing an impact on marketplace volumes from tariffs. Certainly, our discussions with our customers in China suggests that there's an impact. Obviously, those customers are resilient, as we pointed out in the past, and they're deploying all manner of strategies to really sort of continue to grow their business, whether that's logistic strategies, globalization strategies, pricing and so on. So there are always many factors. Look, in October, we saw what I would call a modest softening in volumes versus our expectations. Obviously, October is not at all a good proxy for the e-com heavy, China heavy e-com season that's coming in November and December. Golden Week is in October. Obviously, that e-com holiday spending season is both China heavy and goods heavy. So we're seeing those tariff impacts get absorbed through the portfolio. It's in line, as I say, with sort of what we expected in Q3. And the guidance we've laid out for Q4 really sort of incorporates that broad range of outcomes from those potential sort of shifts and dislocations that we're seeing sort of, frankly, across trade routes and supply routes and so on. Sanjay Sakhrani: Okay. Helpful. And then, John, you talked about stablecoins and its availability on your platform in 2026. I'm just curious, like are your customers asking you for this technology? And maybe you could just talk a little bit about the evolution of your revenue model to the extent there is any if you provide this technology? John Caplan: Sure. I'll add some dimension and then Bea, please jump in. We see stablecoins as a really interesting long-term opportunity for Payoneer, and we're exploring it with intent. And similar to how we built the financial stack on our network of bank and payment providers over the last 20 years to facilitate the movement of money around the world, we really believe that tokenized assets and the distributed ledger technology could be another component of what we've already put in place and in the market. It's really the core essence of the value prop we provide to those entrepreneurs, is being able to operate in whatever currency they want to use to run their business. But we all know that you can't buy a hammer in Ho Chi Minh City with an Argentinian peso today. So we need the world -- for the stablecoin technology and those rails to be turned into mainstream B2B use cases, companies like Payoneer are purpose-built to turn tradable assets into commercial assets. And we feel very excited about what our role in that can be. So we expect adoption corridors, use corridors, specific use cases to develop as our customers explore the impact in their own businesses and how it can both remove payment friction and create opportunity for them. If we look at over 5 years, I'm excited about what that traction can mean and where Payoneer sits. I think people misunderstand how valuable the Payoneer platform is to turning the promise of stablecoins into a reality, and we are in a very disciplined, organized way pursuing it. But Bea, if you'd like to add, go ahead. Bea Ordonez: Yes. I mean I think yes to all of that, I'd add a couple of sort of additional points. In terms of adoption, use case demand, I think there's sort of multiple lenses. One of them is certainly sort of a regional lens, as we think of regions that have potentially high inflation and stability locally. And who today use Payoneer and other such platforms to basically dollarize, right, to hold dollars as a hedge against local instability. The ability to hold dollars in a different or tokenized asset or in a different store of value is, by definition, valuable to them as well. So I think the stablecoin opportunity dovetails really nicely with the core utility or one of the core utilities that we already provide. And against the broader payment scheme sort of landscape as we see really more of a fragmented payment scheme, regional players, regional payment schemes coming up, increasingly mobile-first local schemes. Really, the name of the game in the cross-border space is to neatly, cleanly and efficiently orchestrate across all of those payment schemes, and stores of value like stablecoin are one such scheme, right? So we view it as very sort of tightly coupled to our money movement evolution and strategy overall. And we're seeing sort of use cases develop as customers, to John's point, really are able to explore the real-time benefits and programmability potentially around their own use cases and business in the corridors where it begins to become available. Operator: Your next question comes from the line of Trevor Williams with Jefferies. Unknown Analyst: This is [ Ryan ] on for Trevor. Just wanted to ask on take rate. It looks like that's been pretty healthy here. Just wanted to see what you guys think about the sustainability of that take rate expansion, kind of break down what the core drivers have been in that strength. Bea Ordonez: Yes. Thanks for the question, Ryan. Look, we appreciate the call out, right. I think of the many metrics where we're seeing really sustainable performance, it's in the take rate dynamics, right. We've demonstrated the ability to continue to drive that take rate expansion in our SMB business. And excluding interest income, we've grown it by 12 basis points in the quarter, right. And there are numerous levers within that and numerous inputs. One is certainly the growth of our B2B business, which is outpacing the growth of the business as a whole. As John pointed out in his prepared remarks, that B2B revenue is about 1/3 now of our core revenue, and it grew 27%, right. So that's driving some of that uplift. Beyond that, product adoption, right, as we continue to drive adoption of our Card product, of Checkout, of our invoicing service within B2B of our workforce management product, that's also providing uplift. And then ultimately, also pricing, right, as we continue to refine and optimize our pricing strategy. So we're seeing take rate expansion across our business lines from our marketplace business to our B2B business. In B2B, look, we'll see some moderating of that increase going into Q4 as we lap workforce management, but still comfortably ahead of that volume across the book and really demonstrating that expanding value that we're providing to our customers and the take rate expansion that goes along with that. Unknown Analyst: Understood. That all makes sense. And then just as a follow-up on B2B volume. I think the prior expectation had been to get to high teens B2B volume growth by 4Q. Just wanted to see if that was still the expectation. I mean, if so, I guess, what is the level of visibility? And what are the main drivers into that acceleration into 4Q? Bea Ordonez: Thanks for the question. That is still the expectation. So the B2B business, as I said, performed in line in Q3. We grew volume 11%. We grew revenue 27%. Coming into the back half of the year, we expect that volume to increase mid-teens, and we expect the revenue to increase somewhere between 20% and 25%. So for the full year, the B2B business is going to generate approximately 25% year-over-year revenue growth. That's really robust growth in a sustainable and growing part of our business. We have good visibility into that business. We obviously are, as John has noted, really moving upmarket and bringing in, acquiring and serving larger customers with more predictable business models. So we feel good about how that business is performing. We're making investments in that business, both in the go-to-market motions that serve it, as John has noted, with partners and affiliates, in the product roadmap that really sort of delivers that SMB-grade experience. And in the service model to make sure that we are driving the improving retention that we're seeing. So we feel really good about that business, it's moving upmarket, it's healthier, it's more profitable, and it's growing really nicely. Operator: Your next question comes from Nate Svensson with Deutsche Bank. Christopher Svensson: Really nice to see the continued progress here. I guess, first, I wanted to ask on the growth in customer funds. Obviously, been really impressive, 2 quarters of 17% growth. And I think you've been pretty clear that this is a core part of the Payoneer value proposition. It sounded like going forward, you think balances will grow in line with overall volumes, but they've clearly been growing above that recently. So I'm maybe just wondering how much more room we have to run in this environment where maybe balances can continue to grow faster than volumes? And then qualitatively, I know you talked about things like trust in the platform, but maybe you can talk more specifically about what you're doing to drive or incentivize clients to keep more funds on the platform? Bea Ordonez: Yes. I appreciate the question, Nate. So look, historically, we've certainly called out that our expectation over sort of a long enough time horizon is that we're able to grow balances in line with volume into the platform. We've seen outperformance this year. There's likely many factors from some of that macro volatility, especially around the China corridors as well as relative weakness and volatility in the dollar that can impact kind of near-term usage behavior. So I think we're seeing sort of some of that in the kind of cyclicality that you see. Obviously, we love seeing that number grow, right, not only because it demonstrates to your point, the trust, but because it is future revenues in effect when the customers utilize those balances using one of our AP products, that's revenue that comes to us in future periods, future quarters. So we like to see this growth and obviously, we monetize it in the short term. What are we doing? Look, really, it's very much aligned to some of the themes we've shared. One, as we move upmarket and provide more utility, customers are increasingly using us as their sort of broad-based bank replacement for want of a better word, to hold multiple currencies across the sort of multiple entities to manage that. And they're keeping their funds as we see greater adoption of those sorts of products. They're keeping their funds on the platform for longer, and we will tend to see larger balances, not only corresponding to those larger customers, but as we see greater adoption of those products. So overall, the inputs to that growing balance in addition to volume are moving upmarket towards those larger customers and adding more utility such that those customers really keep balances in order to utilize the cross-border AP capabilities that we're providing. John Caplan: Yes, I think Bea absolutely nailed it, but I would just add one point, which is that the perception of Payoneer has been it's an AR company. We're an AR company. And I think that's wrong. We are as much an AP company as we are an AR company today. We've made that transition really effectively. The Card spend growing so nicely, the AP usage of -- the product attach of multiple AP products with our largest customers. And that pulls through, we see the net revenue retention of those customers really is exceptional. And we are seeing customers take funds out of their local banks to put them into their Payoneer account, so that they can use our AP products. And that -- as that continues, the correlation between AR volume and total balances become -- spreads even wider. And so we would anticipate overtime that as we continue to drive excellent AP products and great cross-sell of those products, even more balanced activity. Christopher Svensson: Super detail. I really appreciate that. For the follow-up, I did want to ask about trends in the Checkout business and maybe some future outlook there. Obviously, still growing really nicely in the high 40s, I think was in line with what you told us last quarter. Obviously, you couldn't sustain the levels of growth you had been seeing indefinitely, but would love to hear about maybe some of the tailwinds or headwinds in that business over the last 90 days. And then I think moving forward, I think historically, that business had maybe been more focused on sellers in particular geographies like Hong Kong. So I was just hoping you could talk about the growth or strategic initiatives you have lined up to expand that business in the future, whether that's internal investments, right partnership, anything else? John Caplan: Yes. So let's -- first of all, thank you for asking. I think the Checkout team has done an awesome job at Payoneer, and so really proud of their efforts. We think that as Checkout transitions, we announced the Stripe partnership as we transition from our owned and operated solution to the partnership we have with Stripe, it will drive much better cost and yield dynamics in this business. But at the same time, top line growth will moderate in Q4 and into 2026 as we migrate there. What's most important about the Checkout business is that we provide a comprehensive solution for our customers for all of their GMV that they're doing globally, either with selling on a marketplace, selling B2B or selling direct-to-consumer, they're able to aggregate that AR into their Payoneer account and then obviously use the AP products that we were just sharing and so excited about. We have some good traction with APAC sellers. particularly in India and South Korea following the migration to Stripe, which really validates the core thesis we have, which was to switch to a great partner with solid technology that lets us globalize this franchise. And as you note, the growth rates year-over-year may be more modest, but the actual dollars in revenue will be more significant as we look out. Operator: Your next question comes from Darrin Peller with Wolfe Research. Daniel Krebs: This is Daniel Krebs on for Darrin Peller. I wanted to ask about the focus on larger ICPs, and we're seeing ARPU that is rising very nicely. But I'm still struggling a bit to reconcile that goal with the large ICP customer growth numbers in 2025. And maybe a more direct way to ask this is, what percentage of those 47,000 large ICPs are not high quality and a focus for you? John Caplan: Yes. Great question, and thanks for asking. I think that if you look at the 10,000 plus cohort, let's actually go back. We introduced the ICP framework a couple of years ago, largely to dimensionalize the size of the portfolio at the long tail that was unprofitable. And we are pleased that the long tail of Payoneer is solidly profitable now. And it was a definition that was, let's call it a broad pain push way of looking at customers, very small, sort of small and bigger. But it is less relevant a way to look at Payoneer overall and certainly how we're operating the business going forward. We are very focused on retaining, serving, adding high-value customers that are multi-entity that have the profitability and usage dynamics that mirrors our best customers, and that's where we're shifting our focus pretty intently. And we've discussed this a number of times as we've talked about the shape of the portfolio, how valuable it is for us to have product market fit at the top end. Those $250,000 a month customers are 30% of Q3 revenue, 50% of B2B revenue, more volume, more AP usage, and the best net revenue retention we have. Specifically, I would anticipate that 10,000-plus ICP count continues to decline as we scrub the portfolio, manage the -- who we add and who we retain and monetize the intra-network payments. The $4 million a quarter for those intra-network payments is new disclosure, and I think an exciting statement about how we are really fitting our pricing and our monetization to the needs of our customers and the profitability dynamics that we have. So we will continue to drive our focus upmarket, because that's the best way to deliver the profitable growth we're committed to. Operator: Your next question comes from Pete Christiansen with Citi. Peter Christiansen: Great to see rising solutions engagement, take rate expansion, and mix shift drive strong incremental margin gains quarter-over-quarter. Nice results there. I had 2 questions. First, I was wondering if you can give us an update on the Skuad acquisition you did last year and how that -- how you see that scaling over the platform and potentially driving new areas -- new vectors of growth? And then my second question back on the stablecoin topic, we couldn't agree with you more multicurrency wallet providers are certainly key enablers of stablecoins. Just curious from what you're seeing on the infrastructure side, whether it be perhaps things like the G7 stablecoin that's been proposed, SWIFT potentially working on so I think circles, Arc blockchain development. Just wondering if you're seeing any of these infrastructure developments as key events that could help improve or drive demand for Payoneer's users to increasingly adopt stablecoins? John Caplan: Sounds good. I'll take the workforce management. Bea will grab the stablecoin. So in workforce management, it's really nice to see that secular tailwind that are driving the employer of record solution growth, right. The more and more companies around the world are recognizing the 7.5 billion people on the planet, let's employ the best at the best price, and use companies like Payoneer to manage the complexity of the compliance heavy HR landscape to handle both managing those people and getting them paid. So our growth is really solid there. We're pleased with the progress. And obviously, we've seen the news around H-1B visas. And I think that bodes really well as it relates to the -- our EOR solution and what U.S. businesses want to do as they globalize their workforces. And then when you think about our workforce management business, it really expands our ecosystem of AP capabilities and broadens the core B2B value prop. So it's a small franchise for us, but it's growing really nicely. The contribution is solid. The team is great and full of entrepreneurs that are hell bent on grabbing market share there. So we feel really good about the traction as we continue to step into that space in a deliberate focused way that's delivering take rate expansion in our B2B business, solid retention for us and an additional value prop for us to offer our customers. It's the early days, but these are good days for that business. Bea Ordonez: Yes. And look, on the stablecoin, look, it's super exciting, right? We see all of the items you mentioned, lots of innovation in the space. I think the regulatory clarity that the GENIUS Act brought was really helpful, obviously, in that sense, has provided real tailwinds to some of this innovation. And I think we can expect to see a broad range of players in the space, both innovating around the infrastructure and beginning to integrate elements of that infrastructure into legacy financial systems, into other payment schemes, into payment orchestration platforms in ways small and big, right. We've done some of that already today. We've integrated some of Citibank's blockchain-based tokenized deposit technology to really enable some of those treasury management used cases that can benefit a business like ours, right. So we're going to continue to innovate in that space, as John said in his prepared remarks, really evolving our money movement capabilities to provide that used case or to provide those capabilities to our customers. And ultimately, we see the value that a platform like ours brings to this is really in seamlessly connecting those digital currencies, those stores of value with the legacy payment rails, the legacy fiat rails and allowing customers whatever their used case is to be able to seamlessly move between those stores of value and those local rails to enable what they need in order to grow their business to transact and so on. And we're very well positioned given our best-in-class last mile infrastructure to be a part of solving for that challenge. So look, in short, we think it's super exciting. We follow the space carefully. We talk to a lot of players in the space, and we see it as an opportunity for continued innovation in our business and in general. Operator: And your last question comes from Mike Grondahl with Northland Securities. Michael Grondahl: Two questions. One, you guys have done a lot on OpEx and margins. Anything that you're still targeting there for improvement? And then secondly, John, what are your 2 priorities going into year-end in 2026? Bea Ordonez: Sure. So let me take. And hey Mike how are you doing? Thanks for the question. So yes, look, we're really proud of the progress we have made in unlocking core profitability, right, meaning profitability, excluding interest income. At the midpoint, it will be up 3x versus last year, and we've showed continued progress in unlocking that profitability, obviously, from growing the business organically and otherwise, but also from driving improvements. And we see -- and we called some of that out in the prepared remarks. We see continued runway both from improving transaction revenue economics in general. We talked at the last call around the pricing power we have, the strategic relationships we have with payment players in the space like Mastercard, like Stripe to continue to evolve the economics and evolve the profit dynamics of that business. And then on the OpEx line, lots of opportunity in that space to continue to align our service model towards those larger customers that we're serving to drive increased automation, to use AI within our back office, within our operations teams, within our risk management infrastructure to really continue to unlock profitability in that business going forward. So we see a lot of runway in short. John Caplan: Yes. And Mike, I would just say we are intensely determined to deliver the shareholder value that we are committed to creating. And we think we do that by moving our business upmarket, focusing on those multi-entity customers that are underserved by anybody else on the planet that we have the ability to deliver a high amount of value for. We have a brand that's trusted, the licenses that we need, the innovation happening in our money movement organization and a broad set of AP products that we're cross-selling effectively to those customers. So the shape of our customer portfolio gets stronger and stronger, which drives the shape of our P&L to be more and more profitable. And doing those 2 things are really what motivates us every day to fight and continue to build what is an exceptional platform, a kickass team and a big opportunity. So we're really -- we're fired up about doing that through the end of the year. But I don't think that changes at year-end. It just motivates us to continue to execute at a really high level. Operator: That concludes our question-and-answer session. I'd like to turn the conference back over to John Caplan, CEO, for closing remarks. John Caplan: Thanks everybody for your questions and participation today. We delivered record results in the third quarter, and we are executing with the kind of intense focus and discipline that great teams and great management teams come together to do. I want to thank our team all over the world for their energy, their drive, their commitment to collaboration and delivering for our customers. We're excited about the opportunities ahead, and really look forward to speaking to everyone again in February as we talk about the future. Operator: This concludes today's conference call. You may now disconnect.
Operator: Hello, ladies and gentlemen, and thank you for standing by. Welcome to RD Saude's Third Quarter of 2025 Earnings Call. The slide deck can be found at the company's Investor Relations website at ri.rdsaude.com.br. This conference replay will also be made available later at the website. [Operator Instructions] Before we begin, we would like to inform you that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the company's management's beliefs and assumptions as well as on information currently available to the company. Forward-looking statements do not guarantee performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that overall economic conditions, the industry's conditions and other operating factors may affect the company's future results and lead to results that differ materially from those expressed in such forward-looking statements. Today with us are Mr. Renato Raduan, CEO; and Flavio Correa, Head of Investor Relations and Corporate Affairs. I'd like to turn the conference over to Mr. Raduan. You may proceed. Renato Raduan: Good morning, everybody, and welcome to our third quarter 2025 earnings call. It is an honor to join you this morning to give you more details of our numbers and help you interpret them. And Flavio, first of all, good morning to you. Flavio de Correia: Hello. Good morning, Renato. Renato Raduan: Flavio will be here to address your questions and give you more details as well. Well, first of all, I'd like to apologize because our release was published a little bit later than expected. So sorry for that. And now let's talk about the third quarter's results. Before talking about the highlights, I need to tell you that we are very happy about this quarter. I remember that in the fourth quarter last year and the first quarter this year, I was transparent and humble and said to you that the results were lower than our expectations. And I told you that we are going to turn the key in the second quarter. And now I have to tell you that we have solid results and we are very proud of that. There are 3 factors that led us to solid results in the third quarter. First of all, we went back to the sales top line level. We were at a 12% growth and we told you at the time that we needed to go back to 14%. Right, Flavio? And now we are at 15.5% in the core business, the retail business. So that is the first factor that we are very happy about in the third quarter. And the second factor is the management of expenses. I believe that the market was positively surprised when we adjusted the costs in the second quarter, but people were afraid that the costs would go up again in the third quarter, but we managed to keep the same levels as the second quarter. We have a very healthy level of expenses in the third quarter and we need to be proud of that as well. And the third factor, the most impressive one is a 7.5% EBITDA margin in the consolidated results. If you look at the track record for a third quarter, it should be about 6.9% to 7%. Last year, it had been 7.5% exceptionally due to nonrecurring one-off events. And if you were to exclude them, it would have been 6.9% to 7%. So the top line grew, costs were under control and the structural EBITDA margin came to 7.5%, which is very solid, very consistent. And now I'd like to delve deeper into the results. First, operational results. We finished the quarter with 3,453 units, 88 openings and 6 closures. Over the past 12 months, the expansion is at about 330 openings. But more important than that is quality. Our IRR is very healthy in the new stores. So this is one of the drivers that is keeping us moving ahead. And now we are almost at the level of 3,500 units in operation. We reached 51 million active customers, 25% of the Brazilian population in the last 12 months. And we had 111 million tickets in the quarter. And again, we're not proud of the number of tickets itself, but rather the quality of the service according to the customers themselves. You can see that the NPS is 91 and that's the customer saying that we are providing a great service quality. And we had gross revenue of BRL 12 billion this quarter, a consolidated growth rate of 12.7%. And I'm going to give you more details about that on another slide. We shouldn't just look at the weighted average of retail and non-retail businesses. The 2 stories are different. And I think that the main story behind this is the 15.5% growth in retail, very solid result with almost a 5 percentage point real gain in mature same-store sales. We had a record-breaking market share with 16.8%, almost 17%. Over the last 12 months, it was one of the biggest number that we had with almost 80 bps in only 12 months. And as for digital, we got a BRL 3 billion revenue. If you annualize that, it would be BRL 12 billion in digital revenue with a 62% increase in the digital business with a penetration of 27%. I'm going to give you more details about that later. Our EBITDA was BRL 909 million, almost BRL 1 billion, in line with the growth in sales of 12.5%. The EBITDA was stable. The EBITDA margin was stable at 7.5%. But we should remember that last year, we had one-off events. And in retail alone, it was 7.9%. Our adjusted net income came to BRL 402 million with a 3.3% margin, 2 percentage points -- 0.2 percentage points higher than last quarter and a free cash flow of BRL 648 million. Now let me give you more details about our revenue. The consolidated number shouldn't be interpreted on its own. We need to break it down into the 2 stories here. First, retail with a growth of 15.5% and a drop in revenue of 17% in 4Bio. And what explains this drop is the fact that we had a pendulum effect. We wanted to grow at any cost in the beginning, but then we told you that we wanted to balance things out. And now I think that we got a little too conservative in terms of growing sales to protect profitability. But half of that drop is not even related to that. It is related to the laboratory that we used in the state of Sao Paulo for distribution through the distribution center in Sao Paulo. And the lab decided to supply products to the state of Sao Paulo through the state of Espirito Santo. And we don't have a distribution center there and that accounts for half this drop. And that happened in the middle of the second quarter. We had that effect in the second quarter, but now it hit us fully in the third quarter. And now we are signing a contract with a distribution center in the state of Espirito Santo to keep the supply coming to Sao Paulo, but also to use it for the other lines of 4Bio. We already have an action plan in course to address that, signing a contract this week with a new distribution center and also because we need to balance things out. And another factor here is the growth of 15.5%. I believe that we had some important wins here. If we look at last year, we had an increase year-on-year, but also quarter-on-quarter from the first quarter to the second and to the second to the third. We were stable for 3 consecutive quarters with BRL 10 billion. And of course, in the first quarter, we have a negative calendar effect. And revenue had become stagnant for 3 quarters. But now we can see that there was an increase since the first quarter of this year. And when we look at where this growth came for, of course, GLP-1 drugs factored in here, but not only that, we grew in HPC at 10.9%, which is a normal level. We did not need to invest more than we were already investing in the second quarter. For HPC, we continued the same level of investment and the results are now better, almost at 11%. And last year, it had been 6% and 8%. We wanted to go back to double digit numbers. And now here it is. And generics. Generics are not related to GLP-1. It grew by almost 20%, thanks to competitiveness and prices, but also it is related to the loss of a few patents. And when a patent expires, it benefits the generics, but it has a negative impact on the brand name medications. And our own brand products grew by 21%, which is very solid. And GLP-1, to be very transparent, is beneficial to us. It helps us. But again, we earned it. Throughout our history, we positioned ourselves as the best store to serve the high-income segment because we always invested in a good experience inside our stores. Some years ago, I remember that people asked us about the fact that we were so high income that we wouldn't be able to cater to the lower income segments as if it were a bad thing. But I believe that we found our way of catering to the lower income communities as well without losing that differentiating factor that puts us in a good position in the high-income segment. And now we are reaping the benefits of that. We are going to see a very high market share in GLP-1 drugs. And we earned it, thanks to everything that we did in the past. So this is a very solid sales level, much higher than the past. And that took us to an increase of 7.8% in mature stores. There's a calendar effect here. This is a record-breaking growth in mature stores. You can see here that we grew by 7.8%, almost 5% above inflation, much more solid than the growth posted in the previous quarters. It's a very solid growth. And that takes us to an impressive level of BRL 1.2 million per mature store. And we have just about 1,700 mature stores that are selling more than BRL 1 million. So this is a very solid growth trend. And the last month in the quarter was better than the first, which points to growth as well. When we go into the digital channel, we see 42% growth in our digital channels, getting to a penetration of 26.7%. There is also a point here with the penetration and sales of GLP-1, which is offering more attractive prices in digital channel. But even without this effect, all categories have grown at least 30% in digital channels and have got improved penetration. GLP-1 analogs has improved our penetration numbers, but all categories have grown at least 30% in digital channels, extremely robust. Of the BRL 3 billion, 80% of it was from the app, which is a major strength of us and 97% of our deliveries are provided within 60 minutes. So convenience to our customers, which is really a landmark. Customers are happier with our experience with an [ NPS ] in the app and also delivery, but we have 6 million digital customers. Of the 50 million customers, 30 million bought in the quarter, 6 million bought through digital channels and they represent 41% of our sales. Online sales, 26.7%, but digital customers who buy online, they amount to 41% of our sales. This is a very important strength. When you have nearly 40% of your sales of customers who are used to our app, who are operating in the digital channels, they really benefit from that 60-minute delivery period, while having customers migrating to other competitors would be hard because they would have to have an excellent offer, really value proposition to make them migrate. So these are digital customers who are very well served by us. Another important achievement in the quarter was the share, 16.8% with 18 bps of growth and we have gained share in all regions. Highlighted Sao Paulo here, it stands out. We've got 120 bps, highest rate of growth. Southeast 70, Center West Midwest, 140 in the South, 20 in the Northeast and in the North, 60. Consolidated North, Northeast about 30 bps. In Sao Paulo, there has been an increased growth because we expanded the opening of pharmacies in Sao Paulo. In the Northeast, let me find it here, it used to be 22 and then it went down. So this is part of our expansion strategy, but we have gained share in all regions. Another point that I would like to make out of the chart is the 30% sell-in, sell-out share. We have 30% of share in Sao Paulo with Droga Raia and Drogasil. The second most relevant network in Sao Paulo would have 16%, 18% share. So there are 2 networks in Sao Paulo getting to 50% of market share. In addition to that, there are some small players in different areas, but this is a highly consolidated market. It's quite hard for new incumbents, even for those that are already in the market with a relevant share with this kind of level of consolidation and strong brands, I would say that I don't believe competitors can benefit from any expansion of growth. State of Sao Paulo amounts to 30% of the medication market. And the market is quite hostile to small players or new incumbents. And this is the kind of consolidation that we see in this region, but not in others yet. Said that, I would like to hand it over to Flavio, who is going to talk about profitability and then I'll be back. Flavio de Correia: Thank you, Raduan. Now going into details about the financial results, let's go into gross profit. It was BRL 3.3 billion, 27.4% margin. Year-over-year, we are talking about margin dilution of 20 bps. But last year, 27.6% included the benefits of CMS of tax of 20 bps. If we exclude that tax benefit, we are talking about stable margins year-over-year. And this is absolutely important. In 2025, we've had some tailwinds and headwinds concerning dilution because of GLP-1 analogs, which were more prevalent in the market and because of competition in HPC, which was really offset by other efforts and other initiatives so much so that we got to the gross profit in the half year, similar to that of the third quarter, which is something offline because of the effect before the CMED price adjustment. So we really should celebrate getting to such high gross profit. Now talking about expenses. Selling expenses was 17.3% in the quarter. Year-over-year, we are talking about worsening of 20 bps year-over-year. But last year, we had also emphasized in our meeting that our headcount was higher and we hadn't really captured the expenses with the new headcount because they had joined the team later in the year. We are talking about expenses normalized by the team that we had at that time in terms of personnel would be 17.5%. Comparing 17.5% with this year, we are talking about a normalized dilution of 20 bps, which is really important. The expansion of headcount, we are talking about 16.5 people per store as of 15.9. It was 0.6 headcount per store, which really provides better quality of service and also work and engagement of our teams in the stores. This is really important. Now analyzing G&A and this is the main achievement we have to celebrate, something that we have started capturing the second quarter and coming stronger in the third quarter. There was no rebound effect here. The SG&A in the quarter was BRL 310 million, which is less than the number that we had last year, which was BRL 323 million. There was a significant dilution here of 40 bps year-over-year, going from 3% to 2.6%. There is a stability of this level quarter-over-quarter because of some specific pressures related with tax provisions and other things which are expected in the operation. Our expectation is to keep on improving our performance in this indicator. Now going into EBITDA, which is a sum up of all the other elements. In a [ plan ] comparison year-over-year, we are talking about stability of EBITDA margin of 7.5% in this quarter, getting to BRL 909 million. But if we exclude offset elements, 20 bps of ICMS tax and the 40 bps of personnel expenses, it would take us to a 7.5% performance as opposed to normalized values of 6.9% last year. Major achievement. This specific quarter is the best third quarter we've reached in terms of percentage EBITDA in our track record since the COVID time. Major achievement. Operationally speaking, in our cash cycle, there was a decrease in our inventory levels and an improvement in cash cycle of 3 days. Now below the P&L, we have financial expenses, which was 1.6% in the quarter over last year, which was 1.3%. This increase is due to the increase in interest rate comparing those 2 periods. So this is the best explanation for this number. It gets us to effective tax rate of 0.4% and this is a result of what we observed here at 4Bio. This rate, if we normalize it by the default number, we would get to 18%, which is exactly what we would expect as recurrent tax rate for the future, at least for the short and mid-term. And it takes us to BRL 402 million in adjusted net income or 20 bps increase year-over-year. Once again, we are not considering normalization of the basis comparing last year in terms of headcount and tax, but still very good result. And finally, this is free cash flow of BRL 558 million, very much aligned with what we expected, similar to what we used to have last year. Our net debt went down from 3.9 in the second quarter to 3.4 in the third quarter with an improvement in leverage levels getting to 1.1x EBITDA over our debt. And back to you, Raduan. Renato Raduan: Well, we've decided to have more time for your questions during this call. But here, let me just emphasize our confidence in the quarter. In the first quarter of my management trying to explain what had happened, I had never thought that we would get to such a strong quarter. I knew that we had strategy to improve. I believe that the results would be better because I know of the strength and the quality of our management team. But in the first quarter this year, I wouldn't anticipate such fast recovery and I'm so glad to celebrate that. It reinforces a number of our strengths. Yes, there had been a few financial and nonoperational deviations for 2 consecutive quarters, but we have really resumed our operational and financial strategy as a whole and performance. We have now the mature pharmacies performing quite well, we are going to have an over share in GLP-1 agonist. It's here to stay. That's going to be part of our structure. But it also evolves HPC, something that we were all concerned about, also acceleration of generic medication. So I believe we've really resumed our operations to very good levels. At the same time, despite that, we've been strengthening other elements of our operations. We've seen the amazing numbers of our omnichannel, which we've grown 62%. And in addition, we offer a very good digital journey, 97% of deliveries made within 1 year. It's difficult to come up with a value proposition better than that if you don't have a good distribution and solid operations such as we do. We have also shown that we can have an efficient management. We've managed cost without impacting deliveries, without impacting services or the corporate deliveries to pharmacies and the distribution center. We've proved that we can have very good operational management. Losses are starting to decrease and we can see a downward trend, which is something that has impacted our gross profit. And while we were fast tracking and adjusting our operations, we have reached over 25% IRR, over 25% in all regions of the country. And we're still working on this wide distribution and logistics of our operations. It's important to have presence and also to be located at the right spots or the right cities. It's not only improving operations and believe that's going to optimize sales forever. You have to be placed at the right spots to sell more. Otherwise, you are just going to be limited to the potential of that specific venue. If you combine efficient operation and the best points of sale, then we can improve our operation. Our company has very robust financial health. We have very robust results. We are improving our inventory levels, cash cycle, controlled leverage, which gives us the possibility of keep on investing where we believe we are going to make a difference. And on top of that, we try to be as transparent as possible with all of you. We are not here to sugar coat things and sell a scenario that is more favorable than it actually is. And when things are not so good, it is also our role to help people see what we see and that is added to all of the differentiating factors that we built over the course of decades with the right team and our execution capacity. And that is part of a perennial company, a company that is here to stay and all of that is built over decades and decades of hard work. It is also impressive to see our ability to adapt fast. Maybe this year was the first year where we had to adjust things so quickly. And we managed to do it and the results of the third quarter bear witness to that. And the market is going to continue to grow because the population is aging and also GLP-1 drugs and other medications that will come make the landscape for us very optimistic. We believe that there is a good trend that is leading us to the end of the year. And with that, we would like to start the Q&A session. We'll try to address as many questions as possible. Thank you very much. Just before we move to the Q&A session, there is one thing I always tell investors about. We were talking about how the entry point in 2025 was so tough with a lot of pressure on HPC and some other lines that were pulling our results down. And our ability to react, as you said, was so important for us to go back to a stable level. And that is going to be our proxy for 2026, '27 and from then onwards. This is a very important position in the retail pharmaceutical market in Brazil. It is a very solid thesis as well when we think about how the population is aging. Now let's start the Q&A session. Operator: The first question comes from Luiz Guanais with BTG Pactual. Luiz Guanais: I have 2 questions on my side, both about GLP-1 drugs. Raduan, if you could give us more color about the weight of GLP-1 drugs in your sales in comparison with the previous quarters? We can see that the number is increasing. It is getting to a high single digit or a low double digit. So that's the first question. And the second question about GLP-1. I'd like to know the effect of them on your working capital. Are you planning an aggressive policy to installment payments -- related to installment payment on those drugs? Renato Raduan: Please, Guanais, go ahead. Luiz Guanais: The second question is about working capital. If you can give us more color about the effect of the growth of GLP-1 drugs on your working capital? And if you plan to offer installment payment in this category since starting next year, we are going to see generics coming in this segment as well? Renato Raduan: Well, the first question about penetration of GLP-1 drugs, your numbers seem correct to me. In the third quarter, we stood at a high single digit, not a low double digit. And in the past, it was 5%. Now we are higher than that. And if you think about the potential of this molecule when we have a limited inventory, which didn't happen yet, I believe that we are going to move to double digit results. But in the third quarter, we were not there yet. But there's a huge potential. And obviously, when we see the generic GLP-1 drugs coming, the average price will go down, but access will increase. I think this will eventually become a category on its own. Just like OTC, HPC, we are also going to have the GLP-1 category. That's how big the potential is. And about your second question, we offer different payment methods for these drugs. In some cases, we offer a 6-installment payment method for customers. And by doing that, we can improve access. Part of the population cannot pay all of that upfront in 1 single installment. But of course, we need to be responsible. We shouldn't just generate that demand and have problems in the future because of that. But good news is part of the industry is helping us fund that payment installments because they want to increase access as well. And also, that puts pressure on receivables. But on the other hand, we are managing the inventory very well. We decreased our inventory significantly. We have been doing that throughout the year. And we see more room to do that, to continue doing that. It was a technical movement, a scientific movement even integrating departments and the impact on the cash cycle as a whole should not be that great because we have been decreasing the inventory coverage at the same time. Flavio de Correia: Just to add another point to this answer about the potential, the growth potential of this category, we're talking about 1 million consumers of GLP-1 drugs in Brazil per month. Out of the 215 million in our population, 1 million people are the target audience for that product. And as the access increases, I'm sure that we'll be able to capture more of that. And we should remember that we have a very high market share in this category of about 1/3, which is very positive. Operator: Now the second question comes from Joseph Giordano with JPMorgan. Joseph Giordano: I'd like to talk more about working capital. Over the past 2 or 3 quarters, we have seen an increase, an improvement and Raduan talked about the coverage of inventory. But I'd like to know more about the logistics. What have you been doing in terms of allocating inventory in the different stores in the different neighborhoods? I'd like to know if there is more room to improve that side of the business. And also about 4Bio, we saw a 17% decrease in your revenue in that segment. And you said that part of that is related to one specific contract. My question is, when you open the distribution center in the state of Espirito Santo, should we expect 4Bio to go back to its previous sales levels? So after the contract is signed, the financial loss would be lower. Is that correct? Renato Raduan: About the first question about cash cycle, well, last year, considering the operating challenges that we had, they included logistics issues in some specific distribution centers, which led us to take a closer look at what was happening and also to improve our policies and inventory allocation. And we realized that part of the problem with the DCs was an excess inventory, a buildup at some point in time for specific reasons. And again, we had to be very humble to understand exactly what we needed to do to improve inventory management as a whole in procurement and also regular supply to distribution centers or the pharmacies themselves. And we started that very strong movement led by Marcello, our COO, and he started to take care of the supply procurement and operation departments, bringing everybody together on the same commitment of reducing that inventory. Now we have an inventory coverage that is 6 to 7 days lower than in the past with the same disruption level that we had. It's actually lower than the past 4 to 5 years. So we are actually improving the service to our customers with available inventory, but a lower inventory as a whole, which makes our operations easier. We are not going to have so many problems with expiration of medications and losses entailed by that. So I think that our management did a great job and I'd like to take this opportunity to thank them for that. And there's still more to be done. I believe that there are other levers that are very clear for us to improve the cash cycle, which is very important when the interest rate is at 15%. So we are going to see the benefits of that on our financial expenses, too. Now 4Bio, indeed, the DC in Espirito Santo is going to help us. We are signing the contract and we are going to resume supply to the lab in the state of Sao Paulo and that is going to decrease the drop in sales and that should take place relatively fast. 4Bio is a solid business. It continues to make money and the projection for revenue is more than BRL 3 billion per year. Now that we are adjusting things, now that we are not so conservative in terms of protecting our profitability at all costs and after the operation resumes from the state of Espirito Santo, I feel certain that we are going to exceed BRL 3 billion in annual revenues. Even without that DC, the third quarter had a better performance than the second quarter because of that balance movement. And 4Bio continues to be a good business with an annual revenue in excess of BRL 3 billion. We restructured our operations, we divested in some other businesses and it was not the case with 4Bio. We decided to continue with it. And we just need to adjust things to go back to the levels that we expect to have. Flavio de Correia: And, Raduan, if we look at the gross margin in the company that is fed by 4Bio, of course, but other categories as well, I think the market gets a bit anxious about our gross margin throughout the year. If we look at the potential dilution of our gross margin due to GLP-1 drugs and due to 4Bio as well, if you do the math, you are going to see that the sales are growing at about 12.5% and the gross profit is increasing by the same rate, 12.5%. So despite the headwinds, we are still growing. Despite the potential dilutions, we are still growing. And if we have any additional performance that we can capture, we are going to distribute even more value. So I think the results are very positive across the board when it comes to profitability. Operator: And now the next question comes from Mauricio Cepeda with Morgan Stanley. Mauricio Cepeda: I have 2 questions too. First, about GLP-1 and the expiration of patents. Raduan said a few things that are in line with our thoughts about the competitive landscape after the expiration of the patents. You said that there is low availability right now, but we also know that the national laboratories are going to start producing those drugs under licenses. So in your perspective, do you think that with the low availability, the semaglutide price will continue to be high, at least in the beginning or maybe that won't be the case? Maybe the competition will be very aggressive. And the players for similars and the pure generics, do you think that they are going to offer you more discounts than other players than what we see in the small molecule market? And the second question is, you mentioned in your release that the market is going generic because it took advantage of the recent patent expirations and that helped you grow, especially in the prescription lines. But now looking forward, we can see that there's less opportunity in the generic space with the exception of semaglutide, but we can see less opportunities of losses of patents. But do you continue to be confident in the contribution of generics and how much can it exceed the contribution of brand name medications? Because we can see that there are molecules that are very competitive. Some manufacturers have a huge capacity. So do you think that the unit contribution from generics will still be significant in comparison with the brand name medications? Renato Raduan: I'm going to go with the first one. But I don't know the answer for sure. I know what everybody knows about theory. The more competitors you have in the market, the more the prices get readjusted and then price setters have to get readjusted. Mounjaro in the market, for example, has taken to readjustment of the other molecules in the market so that they wouldn't lose their share. The more players in the market, as generics or as brand names, the tendency is to have readjustment of the reference brands. But that repositioning of prices, which brings down the average ticket of the molecule because of generics or licensed products, in our opinion, it will be compensated by the increased access. Another important thing is that there seems to be semaglutide as is and liraglutide and then there would be generics coming in, that will be it. No, the industry is still investing in innovation. So Mounjaro and all the product brands, the pharma industry is developing new products, reducing side effects, et cetera. So much more than having one single product with a reference product, generic and similar product, there are going to be other molecules coming into the market with different price points and those who can afford will end up buying the most advanced drugs and the others will keep on buying the already existing ones. We've already had 2 experience. There was the MS generic. We bought it. It's sold. MS could not replace the levels and now there is a licensed product by Europharma, which is available in the pharmacies. But it all depends on medical prescriptions. Those products are not interchangeable. It's not simple, simply to replace the prescription. We have to work -- the doctors have to prescribe it. In the short term, I don't think the average prices will go down. But eventually, as there are more products, more generic and licensed products, the prices will come down. But as a market, I believe there is still room for growth because of access. Flavio de Correia: And I think the most challenging one is the word that you are using for having the market go all generic, right? The Brazilian population consumes about -- 1 million Brazilians buy GLP analogs every month. But we talk about 30% of the population having obesity. It would mean 30 million people who would fancy using the product in addition to the cosmetic aspects of the use of the drug. I would say the market still has a huge possibility of growth. If the prices come down, we would have an increased demand. And generic medications, whenever a product expires its patent, there is an increase in gross margin when we start selling the generic. We have to find the balance point. But in terms of cash, we are going to be able to generate more gross profit when the patent is expired and when we start offering new launches. For other molecules and generics, we still have very healthy gross margin, similarly to our expected levels by having the highest market share. We are the main client of the generic manufacturers. We have a very transparent open process. It's an auction of molecules as we call it. We have it every year, once a year or more frequently to know who are the ones interested in having a higher presence in our stores. And the pharma industries offer the best conditions for these molecules so that they can be more represented on our shelves. Very well transparent process. The pharma industry is aware of that. And we have maintained very healthy, safe margins because of our network of over 3,500 stores. So very healthy margins. Mauricio Cepeda: That's great. I just have a quick complementation. What about the unit prices? The prices are lower. So is it still significant? Unknown Executive: I think it's very solid and significant. This is not something that we see as a concern for our profitability for the future. In our round of discussions, we have had quite many to identify challenges and emphasize our strategies. This has never been considered a topic of relevance. Operator: Let me now invite Irma Sgarz with Goldman Sachs. Irma Sgarz: I would like to go back to gross margin. Could you please tell us more about what you've seen in terms of gross margin, excluding GLP-1 effects and 4Bio? I would like to understand really the need to keep on investing in prices and the progress that you have had in the loss of products. I would also like to know more about how we can understand the behavior of gross margin, discounting mix effects and what we can anticipate for 2026 for the fourth quarter and also Black Friday? It's a kind of promotional campaign that you haven't joined previously. And what about this year? Have you had anything in mind? Do you have anything in mind I mean? Renato Raduan: First question, the most difficult one, right, this equation and this fine-tuning. If we exclude 4Bio, I think we have good news, as we pointed out. From the second to the third quarter, we've maintained our stable gross margin at corporate sales despite GLP-1 pressures. The second quarter has higher gross margin because of the pre-price increase. The third quarter, despite that, we navigated quite well and we had almost 40 bps of negative pressure because of GLP-1. But there were some other effects that contributed to our improvement. They had had a difference over last year, our distribution center in [ Goias ], where we are consolidating the loads to improve the service in our regional operations. It also impacts our gross margin and tax effects, price management. We are still very competitive in HPC with the same level of competitiveness. But in other categories, online and offline, we've been very carefully adjusting prices product by product to have pricing efficiency gains. We haven't invested more in the third quarter than the second quarter because of competitiveness. And still, we had better performance. I haven't told you, but the performance of HPC was nearly 11% over the basis of last year that had increased 10%. We still haven't come across the low basis of HPC, which starts in the fourth quarter. The third quarter last year, HPC growth was 10%. This year is 10.9%. As of the next quarter, we probably are going to find lower levels. Yes, there are pressures on our margins. HPC, we are operating at a stable margin, but offering more promotions than we used to and we probably will maintain it. But I believe our team is finding offsets to really maintain healthy margins. Concerning Black Friday, we have told you very candidly that we were not as aggressive as we should have. And that was part of why HPC didn't grow last year. Of course, we are much better prepared for this year's Black Friday campaign. Our team has been working with it since August with the industry, with suppliers. So we are highly optimistic and confident that the Black Friday this year is going to be much better than last year. We are very optimistic for the fourth quarter, not because of the upward trend of the third quarter, but because we know the Black Friday is going to be much better than last year. Operator: Let's go now into our next question. We have now Vinicius Strano with UBS. Vinicius Strano: One about selling expenses. How can we understand the future of selling expenses? What about personnel in your stores? And something else about hiring, do you still think there are investments to be made to work on selling expenses? And in terms of inventory levels, what results from the higher turnover of sales of GLP-1? And how much of the inventory optimization has resulted from other strategies so that we can get to a normalized cash cycle? Renato Raduan: Going to your first question. Selling expenses, as Flavio pointed out, we had a lot of suppression in the third quarter last year. We were understaffed as we stated and we have come up with an appropriate headcount, 16.5, to reduce the work overload of our own staff and to improve the quality of services. And it was an investment that made sense. Part of the recovery of sales, self-service and recovery of losses resulted from the fact that we have larger teams in our pharmacies. What hasn't been reflected yet, but it's going into the fourth quarter, is the fact that we are going to have that package of benefits for distribution center personnel and pharmacist personnel so that we can improve our employee value proposition so that we can have them more engaged, happier, reducing staff turnover. We are launching a benefit, a package of benefit. We have heard our own people, managers, pharmacists, service operators, distribution center operators to know what would be the most relevant things for them so that they would be more satisfied and engaged. We wouldn't invest in something that would make no sense to them. So we listened to their request and the packet of benefit is going into effect as of October 1. I cannot tell you exactly how much was invested, but we believe it's something that's going to be diluted within our financial results. I still believe in the fourth quarter, we will have lower selling expenses than the quarter last year, of course, this is not guidance, despite all the improvements and also the improvement on our package of benefits. Once again, this is all going to be part of financial performances, which are equally good. In terms of inventories, your question is quite good. Part of the reduction of cycle, say nearly 40% of the cycle reduction resulted from GLP-1, which has very high turnover. The sales turnover is quite high, but there is 60% of the inventory reduction which has nothing to do with GLP-1. It's related to our structural work that had been done by the team, which is really improving our structure as a whole. And we believe there is more to come. These are the 2 points. GLP-1, 40% of inventory improvement. The other non-GLP-1, 60% reduction. Operator: The next question comes from Danniela Eiger with XP. Danniela Eiger: I have a few follow-up questions. The first one is about HPC. You were talking about competitiveness and I think that we can see that in our track record, you are more and more competitive and you're getting closer to the marketplaces, but the price comes at a premium still. I'd like to know what your end game is when it comes to competitiveness. Do you believe you will have to stabilize the prices for some products? We can see that you are very aggressive in some categories. So I'd like to know more about your perspective about the HPC pricing dynamic and also if you believe that you are at a sustainable or maybe comfortable level. And still about HPC, I have a question about Black Friday. You said that the performance will be better, but how much better? At the same time, we can see a very intense competition among the marketplaces. So I think that marketing will be more expensive. So is your strategy focusing on the same customers with your own data pushes? If you could give us more color on your strategy, that would be great. And a question about GLP-1. You said that you have not reached double digit numbers in that category. And you also said that the limited supply is a constraint, but we can already see a higher availability in the fourth quarter with higher doses, which also have higher tickets. So maybe in the fourth quarter, we are going to get there in the double digit numbers. I believe that there will be an improvement. And in the previous call, you talked about the higher doses that you would receive. So I'd like to know more about that as well. And very briefly, I'd just like to know more about the DC for 4Bio. When do you expect it to open in the state of Espirito Santo? Renato Raduan: Well, first, about the relative price. We know that we don't have the same prices as the horizontal marketplaces and we don't think we have to. Many customers, many surveys have told us that we have strengths that the marketplaces don't have. They have the price, but we have guarantee when it comes to the origin of the products. And customers know that in some products, that's very important. The customers, when they don't know the origin of certain products in marketplaces, they buy from us and they are willing to pay more for that. And also, we have 60-minute shipping times, which no marketplace can offer. So we have other advantages, which allow us to have a premium price. But of course, it shouldn't be that much higher. As you said, we are getting closer to their prices. And from the second to the third quarter, we saw performance going back to double digits. And we believe that that is sufficient to sustain a healthy performance. If we put together the lower price, a price that is closer to the marketplaces prices and our benefits, the benefits that we offer that they can't, we believe that that is sufficient to sustain the performance. And of course, if we feel that we need to invest more on that at some point, we are. You asked a very good question about the bloody war that will probably happen between the marketplaces during Black Friday. In the past, we had some similar wars, for example, free shipping. But what we can tell you is that we have an ambition to grow in sales. We are going to do more things than we did last year. We have a target with some industries that we want to reach and those targets are much higher than last year with a negotiated margin. So we are going to do our bit better than we did last year, but competition will tell what the end of the story will be. But we are confident that Black Friday will be better for us despite the red ocean in Black Friday. And the next question was about GLP-1, about the doses, right? Yes. In the third quarter, as I said, we did not reach double digit numbers in that category. I think that will happen, but I can't tell you if it's going to happen in the fourth quarter. I think it's going to happen even before the generics come or the licensed medications come. Once we have a full month with availability for all doses and all products, I believe that we are going to exceed double digits. But I don't know when it's going to happen because it depends on the industry, but I am optimistic about the increase in penetration in this category. And the 4Bio DCs, well, they are smaller. They have 1,000 square meters in area and they require little automation. This week, we are going to sign the contract. It has been negotiated already. We already know the location. And I was talking to the 4Bio CEO this morning because I knew you were going to ask that question. And he told me that we are going to sign the contract this week. And after it is signed, it is very easy to get it running because there's little automation. We just need to have the inventory there. And another point that I would like to add about HPC. I believe last year, the competition against the marketplaces, it was stabilized because now we can show that we have benefits to offer. I believe that we, in 6 months, were able to digest a headwind of 5 points in the speed of growth of this category. And we also are supported by the industry so that we can have a stronger footprint in this category. Our growth thesis for HPC is very much based on that partnership. A partnership brings benefits and exclusive assortment that customers can't find anywhere else. And we are omnichannel, which is critical for us. We have the beauty consultants inside the pharmacies. So all of those attributes are extremely important in this competition against the digital marketplaces. We don't think we are lagging behind at all. Operator: Next question comes from Leandro Bastos with Citi. Leandro Bastos: I have 2 questions. The first one is about expenses. You said that you are going to offer more benefits to the employees. And I'd like to know more about your 5.2 journey. Are you going to implement it? We can see some competitors in the state of Sao Paulo running on this new mode of operation. So if you can talk more about that, that would be great. And the second question is about the tax benefits. I believe that you had it in 3 states. So I'd like to know more about that. And what is the potential that you see in this arena? Renato Raduan: Can you just please repeat the second question because the audio was a bit choppy? Leandro Bastos: Sure. Is it better now? It's about the investment tax benefit. You recognized the benefits in 3 states and I'd like to know a little bit more about that. Renato Raduan: I'm going to answer the first question and Flavio is going to answer the second question. Yes, we are going to convert the pharmacies to the 5.2 mode of operation. And there is one thing related to this is the working hours. The working hours add up to 44 hours per week. When people started working from home during the pandemic, the working hours remained the same. And the 5.2 is the same with 44 hours per week, but the employee has 2 options. They can either come 6 days a week and rest for 1 day only with little time for personal -- their personal lives or they will come for 5 days, working a little bit longer each day. And the benefit on that daily effort is resting for 2 days instead of 1. And again, we decided to listen to our people to understand if that's what they wanted. In some states, we have 30% to 40% of our pharmacists working according to that model. And last year, we converted all of our pharmacists to that model. And still this year, we converted the supervisors as well. And we are in a transition phase right now. We had to listen to our employees to understand what was relevant to them. And on average, they decided to have the 5 days per week and to rest. And we actually had a vote to understand the collective preference and 75% of the employees preferred that model of working 5 days a week. So we are already converting the working hours to that model and we had to adapt and understand what time they should get there and what time they should leave so as to not impact customer service. And things are going well. I think our employees are happier because of that. And that's why we are doing it. We're doing it for them. For us, it doesn't make that much of a difference because the 44 hours won't change, but we are doing what our employees want to be happier to have more free time to spend with their families. And of course, it doesn't apply to everybody. Managers work in a different way. There are many particulars involved, but we are moving forward on this. About the tax benefits, nothing changed when it comes to taxes. This quarter, we are using the same interpretation that we had in the previous quarters when it comes to tax subsidies and the differential tax in BRL 70 million affecting our results positively is a specific case from 2022. We had some court decisions favorable to us being passed in the previous weeks. We were able to revert those numbers. Eugenio used to say that we are one of the very few companies that actually report on a lower revenue than it is in reality. We usually don't report those numbers that come from subsidies. We are considering that these numbers came from the past and we are not including them in our numbers for this quarter. But yes, we had BRL 70 million coming from the subsidies. Operator: Now next question, Robert Ford with Bank of America. Robert Ford: Congratulations on your excellent results. What's the impact of Ultra Farma issues in your market share? And how can we understand Ultra Farma from now on? In addition to working with 4Bio suppliers, are there any other benefits that we have to consider about the distribution center in Espirito Santo? Renato Raduan: Well, thank you. Thank you for your comments and for celebrating our results. We haven't really measured the Ultra Farma effect and all the events that they've been involved in. But our market share in the state of Sao Paulo had been in place even before Ultra Farma issues. We've been growing very positively in the state of Sao Paulo much before the problems they have had. The expansion of our new stores with very high IRR, mature stores. So we don't account for any growth resulting from Ultra Farma's issues because we've been growing like that very steadily for a while. Espirito Santo's distribution center, we are going with a team there tomorrow to officially open our own distribution center of RD, fully automated and we would like to show you in future interactions, highly automated, very modern with robots, with less manual intervention in one single box, there might be a much higher productivity and lower operational cost. If it opens, of course, it's going to enable also a revisitation of current -- current DC and future ones. 4Bio distribution center is different. It's going to serve the pharmacies in Espirito Santo, part of the state of Rio de Janeiro, especially closer to the frontier of the state. So the distribution center is really important there. We open about 330 to 350 pharmacies every year. We inevitably have to build one new distribution center every year so that we can keep up with our expansion. This is in Espirito Santos and there are others that are going to be opened in upcoming periods in different states so that we can keep up with our logistic challenges. Operator: Now Rodrigo Gastim with Itau BBA. Rodrigo Gastim: I have 2 questions. First, going back to GLP. You've mentioned the expectations of market expansion once patents expire. But what about the economics aspect after GLP expiration? I know it's hard to draw any conclusions yet. But what would you have in terms of gains? We know, yes, the generics bring different margins. But in terms of economics, what would be your best guess about future margins? A second topic, in the opening remarks, you said in the first quarter, you didn't expect to be so well positioned now in the second half of the year. And my question is, what has happened that surprised you? Could you please share with us the 2, 3 points that have positively surprised you in the past 6 months for taking us to that better position today? These are my 2 questions. Renato Raduan: I'm going to give you my suggestion, but I don't think it's going to be any better than yours or anyone else's. We've been trying to analyze all data. We have a Board member who is a physician and we ask about perspective. Today, we are reading a McKenzie study to get more references. But there is a consensus that once there is an increased access through generic, the demand will at least have a three or fourfold increase over the current demand of not 2024, but there should be a threefold increase over the references this year with an average price that would be cut by half. It doesn't mean that our profitability is going to cut by half because they're going to sell more generic and so on. But all in all, we believe that the gross margin in cash generated by it in the total balance will be positive and better because of the multiplication of access. We don't have the precise number, but we understand that total cash generated from GLP-1 will be higher despite lower prices, despite lower margins because of the expansion of access. Once again, this is my best guess, but the time will tell. This is what we've been learning and we talk a lot with the pharma industry to hear from them their perspective, but this is my best guess. Now your second point, we have to be extra careful because very few people trust the company so much as I do. I've been in the company for 13 years. I know it quite well because of all the positions that I have taken. I know the strengths, culture, the stores, logistics, expansion, qualification of the team, which has been really improved in the past 5 years, digital transformation. So all the things I've seen in the past 13 years have really assured me of the potential the company has for the future. So when I say that in the first quarter and second quarter, I did not expect that much of results, not because I didn't trust the company or the team. No, I strongly believe in all of us. But it was a great increase, BRL 10 billion to BRL 12.2 billion to structured EBITDA of 7.5% when the structured EBITDA for the quarter was 7%. You used to say we are priced to perfection. When we had a price to perfection, our EBITDA in the third quarter was 7%. Now it's 7.5% EBITDA with 50 bps over the previous situation of priced to perfection. So I think the intensity and the speed of growth have been marked. And I think that despite our strengths, the pride of our history, our company has very candidly understand that sometimes for 2 or 3 quarters, we can get off track. Maybe we haven't operated as much as we could. But we've recognized our mistake, humbly decided to make quick adjustments in cost structure, corporate structure, making the right investment allocations. And we've had made wrong investments, we wouldn't have had returns. It was a joint work of leadership, the support of the Board, our head office team and operations team really also by our site. And this is why we've reached so good results in the third quarter. I think it's a result of our management capabilities and our assets. 2 or 3 deviated quarters are not going to really derail us. They do not ensure permanently good results and the numbers of the fourth quarter and first quarter of the year did show that. But we had assets. We focused our energy, our best efforts, reinvested in value proposition, reinvested in propositions to our own staff. And as a consequence, we've reached good results. Operator: Tales Granello with Safra. Tales Granello: I have a question concerning SG&A and your growth on the online channel, especially because of GLP-1 sales. In the quarter, it was 2.6 and that level of expenses will keep on be at this level. But don't you expect to reinvest in digital as you did last year? Concerning the losses over income, the 10 bps that you had year-over-year and quarter-over-quarter, is it resulting from a reduction of staff? Or do you have better inventory management and right assortment? What has impacted that? Renato Raduan: Excellent questions. The first one is really important. I would like to make a clarification. Reduction and restructuring of the company to operate lightly and more efficiently has not reduced our capacity to deliver. In the past 6 months, we have had the highest level of deliveries and releases in the digital channel despite the restructure. And why? For a number of reasons. First, the team has become more mature, more seasoned, therefore, can work better. We've been working with generative AI to generate code and that has meant improved productivity and efficiency. As a team, we've brought together digital operations and direct business areas, developing things that can really make a difference to our customers. This is an important question because we can make it clear that our corporate improvement had nothing to do or was not at the cost of impacting deliverables and also customer deliveries. Our NPS in the app is better than we used to have. Our NPS of delivery is better than we used to have. And we have a recurrence level, 66% of our customers. So 2/3 of the customers are recurring clients. They like the journey, so they come back. We keep on investing in building our future, our ambidexterity. We have to be efficient in both channels and it requires investing in the future and we are being extra careful. We are going to keep on investing in digital channel, supporting the operation, but it doesn't mean that we have to go to a G&A of 2.8 or 2.9 or go back to the 3 point level. Concerning losses, I think we have to combine a number of things. Some reductions of tests in stores, some specific actions to avoid shoplifting, also the products that got expired and we then have to get rid of and we've reduced that number of expirations. There is no silver bullet, I have to say. This is the combination of a number of small actions. And when built together, they produce better results. And we are very confident that we can keep on reducing that. It was not just one action. It's a combination of a number of small actions. Operator: We now are going to hear from Ruben Couto with Santander for the last question of our Q&A. Ruben Couto: I've just -- you have online, you have Black Friday. I would like to hear your expectation, not for the fourth quarter, but for 2026. Do you think that's going to be additional investment source? Please tell us more about that. Renato Raduan: Well, I'll start and Flavio can complement. I believe it's going well. It's growing more than we expected. It's growing more than the core revenues as expected. And the growth will be double digit for a long, long time and [ Fabi ] and her team have been doing a great job and they have been making progress according to expectations. We do have a good problem, though. If you look at our first slide, our EBITDA in the quarter was BRL 909 million, almost BRL 1 billion. In order for you to do something that is going to move the needle in a mass of BRL 1 billion in revenue, it has to be something extremely significant. But it is a good problem to have. But we should remember that the business has always almost BRL 3.5 billion or BRL 4 billion per year. Any additional revenue stream will help us. We continue to be very optimistic about this business. And any additional penny will help both on the revenue side and on the cost reduction side. And Black Friday is going to be a good opportunity for us to leverage the push. It is a very good moment for us to get to a new level there. We have a different experience with some ads and we now have different interpretations on the impact of those ads and they are going to help us capture that share. Just to wrap up, I believe that we are using AI more and more in our activities and that is helping us gain scale and depth in our deliveries. Fabi is leading that initiative together with a number of other departments in our company. The ads are dealt with the entire business side of the company, bringing more value proposition than just ads alone. And with that, we are capturing an ROI much above the average in other companies or other service providers. So I believe we are going to have some tailwinds that will help us grow in this activity even further. Operator: That concludes the Q&A session for today. And now I'd like to turn the conference over to the executives for his -- for their closing remarks. Renato Raduan: Well, let me check if I have a slide about that here. I'd like to invite you to the RD Saude Day. It is going to take place on December 1. It is going to take place here in the headquarters from 2:30 to 6:00 p.m. You will have the chance to meet all the executives, not just me and Flavio. So you're all invited. It will be a pleasure to have you here and talk to you some more about our strategies and everything we have been doing to build an even brighter future. So save the date and we hope to see you all here. Some closing remarks. First, I'll repeat the obvious. Thank you. Thank you to everybody in our company. This result was extremely solid, as we said. And I am not the one responsible for that. Everybody, the 70,000 people working in this company are responsible for that. 70,000 people working according to our culture, providing the best service to our customers in the pharmacies, in the head office, in our distribution centers, they are the ones that worked hard to deliver such great results in the third quarter, exceeding our expectations. I think it exceeded your expectations as well. If you expected such a strong result in the third quarter, maybe that's because you regained the trust that you had in us. And we continue to be extremely confident and optimistic about the results in the fourth quarter and 2026 and from then on. And again, I'll keep my commitment of being as transparent as possible in hardship and also in happy moments. I will always be here talking candidly to you without sugar coating the results, but rather speaking my mind. And I continue to believe that the best is still to come. This company has been around for over 100 years. We have a lot to be proud of, but I am certain that what future holds for us is even better. We had strengths, we have strengths that are difficult to replicate, a brand that was built over the course of 120 years with credibility, trust and a culture that is easily recognized by customers that cannot be built overnight. And we are in the best locations in every neighborhood and that it cannot be replicated overnight. Not everybody can do that. The digital capability that we invested so much in, many players don't have the financial capacity to do the same. The 70,000 people that work with us already have our culture and they are growing in their careers. The managers used to work as pharmacists, the regional directors, the operation directors, they all started their careers here and that is very difficult to replicate too. International companies try to do that here in Brazil. They were not successful. Other pharmacy chains tried to do the same. They were not successful. So the marketplaces won't easily succeed either. There are players that indeed have very strong assets. And if we keep working on our strengths and if we continue to have a sharp focus on doing what's relevant for customers and our employees, protecting the execution in the present and also looking at the future with the right speed, if we put all of that together, our assets and the capacity that our team has makes me truly believe that the best is yet to come and that we are going to celebrate many happy moments in our earnings calls and we will be able to make our society even healthier. So thank you very much for your trust in us, for your interest in our results and see you in the RD Saude Day or the next earnings calls. Thank you. Operator: Thank you very much for joining us this morning. This concludes RD Saude's earnings call for today. Have a good one. [Statements in English on this transcript were spoken by an interpreter present on the live call]
Kurt Levens: Good morning, and welcome to the REC Silicon Third Quarter 2025 Results Presentation. My name is Kurt Levens. I'm the CEO; and with me is Jack Yun, our CFO. Today, we're going to give our usual highlights and updates as well as a financial review and then spend a few slides on our strategic direction as well as summarizing where we're at right now. Our restructuring efforts continue, and we will have an approximate 10% reduction in force in Q4 of this year. Our Moses Lake optionality costs are starting to stabilize near a lower run rate level. There are some incremental reductions that will continue, and we expect it to continue to lower quarter-over-quarter for the foreseeable future. There are still more opportunities in Butte for reduction in terms of our cost structure, and we are continuing to identify and actualize on those projects. Our markets are mixed right now, aggressive China supply in some segments and delays across new end user capacity continue. We finalized additional loans from Hanwha International and continue discussions on further short- and long-term financing options. Trade actions are still creating uncertainty as well as shifts in some of our silane gas markets. And in the quarter, the mandatory offer for shares was completed with Anchor AS assuming 60.2% ownership in REC Silicon. We're still operating in the range that we had indicated last time, and we expect Q4 to be similar from a volume perspective to potentially marginally better. There is some pickup in our non-silane silicon gases, primarily driven by our DCS, MCS offerings and the markets that they serve. PV outside of China continues to remain weak. PV cell production outside of China continues to remain weak. And utilization is low and new projects are being pushed out. Our EBITDA was negative $7.2 million. This is primarily driven by weak sales. In our Butte segment, our costs were mainly improved over the prior quarter as a result of the activities in the prior quarter being dominated by shutdown -- planned shutdown activities. Increase in silicon gas price is attributable to product mix, more higher value products relative to previous quarter and as a percent of our mix. And as I said before, in additional to the planned maintenance items, our input costs were also stable to declining for our Butte facility. Our cash balance at the end of the quarter was $10 million. Our cash flow increase was entirely driven by our borrowing proceeds. I think the important thing to note here is the amount of debt maturing in '26. We have begun discussions with entities regarding this, and we'll have more information as we go forward. Additionally, subsequent to the end of the quarter or since towards the end of the quarter, we secured a $7 million short-term loan with Anchor AS. So I think over the past year, we've had a large amount of challenges as a company. And I think that I've tried to keep us focused on the here and the now. We've talked a lot about opportunities, but I think our reality needs to still remain in how do we get from where we are now to the future state in small interval increments. Meaning what do we do this month? What do we do next month? What do we do the next quarter, for us to be able to get to that other side. Our reality is that we're in a very challenging situation. We have market softness, delays in key projects that we've been waiting on. We have aggressive competition, and we have policy turbulence. None of these things are things that we can control. But what we can control is how we respond and the amount of time we take to respond to these changing situations. We will continue to look for the correct way to respond to the changing situations while focusing on preserving our positions, increasing market share where we can and being there when these projects come into place and begin to operate. We've been working constantly towards a sustainable financial platform. Here's the -- we've said it in a number of different disclosures and a number of different times. And I want to say it again. We do not have sufficient cash to meet our debt service and other operating cash flow requirements for the coming year, even with the aggressive moves we've made in cost control and also increasing our focus on sales. We are going to continue to require additional financing beyond our existing facilities from Hanwha or from other sources of capital. We continue to discuss additional financing with Hanwha as well as evaluating a more comprehensive restructuring of our $420 million of term loans that mature next year. So this is a very serious situation for us, and it's one that we are -- along with the previous slide where I show the actions that we're taking that we're very focused on. As I mentioned in the overview, the completion of the mandatory offer was done and settled on 29 August 2025, with Anchor AS receiving a total shareholding of 60.2% in REC Silicon. During the quarter, the request for investigation process was dismissed by Norwegian District Court. And in the U.S., REC Silicon is complying with the court process for the subpoena. I want to reiterate again that in the U.S., what we are doing is responding to a subpoena for information. So in summary, we have markets that are affected by aggressive competition. We have trade policy uncertainties. We have demand that's being pushed out and delays in some of our key growth drivers. We've been very focused on cost discipline as well as trying to restructure our organization to make decision-making and actions more streamlined. In Q4, we think that we will once again be in somewhere in the same range as we have been here for the past few quarters, potentially slightly better. Our priority continues to look at how do we secure short- to midterm funding for our operations, how do we monetize noncore assets? And how do we continue to look at additional financing as well as more comprehensive restructuring. Thank you. And that concludes the presentation part of our results, and I'll take some questions. Unknown Executive: Okay. Moving on to questions that are being submitted. What noncore assets have been sold? And what future noncore assets are you looking to sell? And is there an approximate value associated with this? Kurt Levens: The noncore assets that we have sold are mainly minor property items that are no longer going to be needed for, or excessive inventory that are no longer going to be needed for operations, equipment, various other things. However, the majority of it is coming in our contemplated land disposal. We're not -- currently, we're involved in private discussions, and we're not currently disclosing what the value may be of any contemplated transaction. Unknown Executive: Are there any players that are currently delivering a commercial quantities of silane for silicon anode battery? Kurt Levens: At this time, outside of China, there is nobody who's delivering commercial quantities. All of the capacity outside of China is still being delivered to either started up -- being in the process of being started up or being delivered in -- to the pilot plants. Unknown Executive: Are you working with creating value from unused power access that you have in Moses Lake and Butte, as an example, by entering into an agreement with stakeholders with the silicon anode industry or data center industry? Kurt Levens: I'll just make it -- without going into specifics, I'll make a general comment that we are looking to leverage, again, both our land as well as access to any rights we might have or capacities we may have for any of our -- whether that's power or natural gas rights, whatever it may be. If we have it, we are naturally open to discussions, particularly with companies that would potentially want to be an offtaker of any of our materials. Unknown Executive: If data centers open near the Butte facility, how do you anticipate that will affect the electricity pricing in Butte? Kurt Levens: If it's the Moses Lake facility, is that -- did I hear that correctly? Unknown Executive: No, this question is stating there's -- data centers are considering building in the Butte area. Kurt Levens: Yes. I would imagine that we can expect that there could be some pressure on electricity prices, but we don't know that. What we have seen in general is that electricity prices in that particular region have been much more stable over the past year, particularly once we took off a large load. I think that, that our impression would be the market signal is such that it eased some of the pressure in the supply-demand picture there. But it's a market. So I don't know. I can only say that if there's going to be more consumers and there's no more production assets, then something is going to give at some point. But fortunately, I want to point out that on silane, electricity is a very small part of our cost stack. Unknown Executive: Is there any plan to sell either Butte facility or the Moses Lake facility or enter into any kind of mergers or joint venture agreements? Kurt Levens: At this time, we are not contemplating sale of any of our core operating assets or assets that we have set up in order to maintain optionality. As far as joint ventures or potential other agreements, there is nothing -- obviously, if we had something that we were in the middle of, we wouldn't necessarily disclose that until it is done. All I will say is that we are obviously open to any ideas which have the potential to create value for all of our shareholders. But an idea and a discussion is one thing, actualizing is an entirely different thing. Unknown Executive: Can you give an update on ongoing negotiations -- supply negotiations with battery anode manufacturers? Kurt Levens: All I can say is that we continue to have discussions with battery manufacturers. Say that to date, I would characterize it as the fact that they have some delays on their ends regarding their own challenges in the market space or their technologies or whatever it may be. So those are taking obviously longer. But outside of that, I'm not going to comment on specific negotiations with specific anode producers. Unknown Executive: There's been a large parcel of land in Moses Lake that's been on the market for a number of months. Is this area likely to be sold before the end of the year? Kurt Levens: A large parcel of land on the market for -- is this specific to REC Silicon or... Unknown Executive: Well, it says you have a large parcel of land... Kurt Levens: So as we stated, on the noncore assets that we're looking to dispose of is some land that we had procured for future expansion. And we are involved in discussions. I think that when we have more information as to that coming to fruition, we will disclose that. Unknown Executive: Have you heard or do you plan to sell the FBR reactors in Moses Lake? Kurt Levens: At this time, we have no plan to sell the FBR reactors in Moses Lake. I will say that if and when there's ever opportunities to somehow monetize on that, something with that, then we would probably discuss it and then that would be another opportunity. But nothing as of now. Unknown Executive: Do you have any plans to hold future presentations in Oslo? Kurt Levens: At this time, the next presentation that's contemplated is in February of 2026. And they have not made any decisions as to whether that will be in person or whether we will do it via the web. Unknown Executive: And others -- there's one more question here. You answered concerning the FBR reactors themselves. How about the patents related to the FBR reactors? Kurt Levens: Yes. I think we have stated that if there's opportunities to monetize, then, of course, we are open to discussing. Unknown Executive: That covers all the questions that have been submitted. Kurt Levens: Okay. All right. Well, thank you for your participation and questions, and we will see you next February.
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: _ Greetings, and welcome to the Zevia PBC Q3 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anne Mcguinness, Investor Relations. Thank you. You may begin. Anne Mcguinness: Thank you, and welcome to Zevia's third quarter 2025 earnings conference call. On today's call are Amy Taylor, President and Chief Executive Officer; and Girish Satya, Chief Financial Officer and Principal Accounting Officer. By now, everyone should have access to the company's third quarter 2025 earnings press release and investor presentation made available this afternoon. This information is available on the Investor Relations section of Zevia's website at investors.zevia.com. Before we begin, please note that all financial information presented on today's call is unaudited. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other filings with the SEC for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. During the call, we will use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release, presentation slides that accompany today's comments and reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are also available on our website at investors.zevia.com. And now I'd like to turn the call over to Amy Taylor. Amy Taylor: Good afternoon, everyone, and thank you for joining our third quarter 2025 earnings conference call. Our third quarter results reflect strong progress and provide clear signs that our strategy is taking effect. Our initiatives are positioning us for durable growth and profitability over time. Our third quarter results exceeded our expectations with net sales growth of 12% to $40.8 million and adjusted EBITDA loss of $1.7 million. Based on our better-than-expected performance and the continued progress across our strategic growth pillars, we are raising our full year net sales and adjusted EBITDA guidance, which Girish will speak to shortly. I'll share the progress we've made across our 3 strategic growth pillars of high-impact brand marketing, accelerated product innovation and expanded distribution. Beginning with marketing, our brand-building initiatives are resonating with consumers and gaining traction against our key priority of expanding our user base. Strong third quarter results reflect in part the success of our summer campaign, the launch of Strawberry Lemon Burst and the playful summer break sweepstakes, which were activated on social and received favorable editorial media coverage, extending reach and driving engagement. Media has a great story to tell as the consumer moves away from the artificial and seeks better-for-you products from brands that they trust. We are Soda Made Better and our new brand messaging, design and tone of voice are resonating across media channels and in-store. Based on proprietary survey data, while early, brand consideration and purchase intent have made double-digit gains this year, and social media engagement rates continue to build to levels well above channel benchmarks. As the broad cultural conversation continues to focus on health and ingredients, major food and beverage companies scramble to remove artificial ingredients and colors. Zevia has and will continue to be ahead of this movement with a clean label clear soda with natural flavors and sweeteners and is telling its story through cross-channel brand campaigns and high-reach influencer activations. Our humorous engaging campaign supporting Amazon-exclusive Peaches & Cream is a great example, giving the flavor a hot start and the brand a strong halo via virality on Instagram and TikTok. In addition, Zevia competitions featuring UGC or user-generated content have been fruitful in driving awareness and trial, especially when activated with a focus on specific customers ranging from Albertsons, Kroger and Walmart to Costco. On the ground, we continue in-market activations at events like gaming 100 Thieves Block Party in July; Diplo's Run Club across August, September and October; and periodic joint efforts with well-aligned partners such as Life Time Fitness at running, cycling and mountain biking events. These events are equal parts brand building and sampling opportunities focused on winning new users, which remains our top priority. Turning to innovation. The performance of our recent product launches offer strong proof points that our portfolio evolution is driving brand momentum. New flavor profiles and a more sugar-like taste experience, along with delicious looking new packaging and dynamic marketing, continue to support velocity and drive trial. Our portfolio evolution this year is working. Exciting new flavors launched nationwide received strong consumer acceptance and retailer exclusive or limited-time-offer flavors brought brand heat. The debut of Strawberry Lemon Burst nationwide, Orange Creamsicle in the natural channel and fruity variety pack initially at Walmart demonstrate that we are on point in flavor trends. Each are showing promising results and have been drivers of increased Zevia space at retail and of accelerating velocities. Peaches & Cream and Salted Caramel provided new news this quarter as exclusives or limited-time offers, respectively, and Strawberries & Cream is doing the same in selected retailers here in Q4. Each is off to a good start and will inform the portfolio evolution for 2026 and beyond. Peaches & Cream has been the fastest-selling new Zevia item ever on Amazon, while Strawberries & Cream was immediately a top 3 velocity driver at Kroger. Our fruity variety pack has quickly become the #1 Zevia SKU at Walmart. We remain the only better-for-you brand offering multipacks and variety packs at accessible price points. And finally, we're very pleased with the positive response to our refreshed packaging. Featuring Soda Made Better, our strong brand block will highlight zero sugar, no artificial colors and no artificial sweeteners. Our proprietary research indicates a meaningful increase in purchase intent versus the prior design and versus competition. We are on track to roll new packaging out to legacy flavors as well in early 2026 in parallel with the introduction of a new more sugar-like taste experience across legacy and new flavors alike. Moving on to distribution, a key component of our strategic growth plan. We both regained and opened new points of distribution over the past 9 months. We attribute this expansion to strong product innovation as well as brand momentum delivered by marketing. Our national Walmart distribution continues to drive new-to-brand consumers. We're also pleased to share that following a successful pilot at the start of this year, we'll be expanding into more than half of Walmart's Canadian stores going forward. Distribution gains at grocery were also a key driver of our growth year-to-date with innovation in flavor and in packs supporting increased space gains. In the club channel, increasing sales velocity drove additional regional rotations, reflecting in part the impact of our new packaging. The positive reception has exceeded our expectations. And then in convenience, we're seeing some encouraging early indicators even as the rollout in the channel for brand and for category remains in the early stages of development. Performance is tracking in line with broader natural soda category trends, providing a good selling story as we continue to thoughtfully expand our regional footprint in 2026. In closing, with our strategy firmly in place and with strong execution, we are reshaping the business and paving the way to capitalize on the changing consumer landscape and category tailwinds. We see evidence that we are growing market relevance and are on track to thoughtfully scale the business quarter-by-quarter and year-over-year. And so with that, I'll turn the call over to Girish. Girish Satya: Thank you, Amy. Good afternoon, everyone, and thanks for joining our call today. Our third quarter results reflect strong execution of our strategic plan with both revenue and adjusted EBITDA exceeding expectations. Over the past 18 months, the savings from our productivity initiatives have enabled us to invest meaningfully while strengthening Zevia's market position within the better-for-you soda category. Importantly, the work we have done has created a solid foundation for sustained growth and profitability. In light of our strong third quarter performance, we are raising our full year 2025 net sales and adjusted EBITDA guidance, which I'll address shortly. Turning to our results. Net sales in the third quarter increased 12% to $40.8 million. The increase versus the prior year was primarily due to expanded distribution at Walmart and incremental regional rotations at the club channel. Gross margin reached 45.6%, a 350 basis point decline from 49.1% in the third quarter of last year, reflecting the $0.8 million in inventory obsolescence associated with the packaging refresh and the full realization of aluminum tariffs, which we discussed previously. As we mentioned earlier, we invested in a package redesign that brought to life our new flavor profile and better communicated the benefits of the Zevia value proposition. Selling and marketing expenses were $12.7 million or 31% of net sales in the third quarter of 2025 compared to $12 million or 33% of net sales in the third quarter of 2024. Breaking it down, selling expense was $7.7 million or 18.9% of net sales in the third quarter of 2025 compared to $8.5 million or 23.3% of net sales in the third quarter of 2024. The improvement was largely a result of lower warehousing and freight transfer costs as we continue to benefit from our productivity initiative. Marketing expense was $4.9 million or 12.1% compared to $3.5 million or 9.7% of net sales in the third quarter of 2024. The increase was primarily due to increased investments in brand marketing. General and administrative expenses were $7.7 million or 18.8% of net sales in the third quarter of 2025 compared to $7.4 million or 20.3% of net sales in the third quarter of 2024. The increase was primarily driven by higher accrued variable compensation expense. As a result of the aforementioned factors, net loss was $2.8 million, unchanged from the prior year. Adjusted EBITDA loss was $1.7 million compared to an adjusted EBITDA loss of $1.5 million in the prior year period. The decrease was due to costs associated with inventory losses related to packaging refresh and higher brand marketing spend, partially offset by strong sales growth and operating efficiencies. Turning to our balance sheet. We ended the quarter with approximately $26 million in cash and cash equivalents and have an undrawn revolving credit line of $20 million. Now turning to our outlook. Based on our strong third quarter results, we are raising our full year net sales guidance to the range of $162 million to $164 million versus prior guidance of $158 million to $163 million. We now expect our adjusted EBITDA loss for the full year to range from $5 million to $5.5 million versus prior guidance of $7 million to $9 million. Our 2025 adjusted EBITDA outlook represents a $9 million improvement versus prior year despite tariffs, ongoing marketing investments and a packaging refresh. Turning to the fourth quarter, we expect net sales of between $39 million to $41 million and adjusted EBITDA loss to be between $0.25 million and $0.75 million. As a reminder, the 350 basis points impact from inventory losses associated with the packaging redesign was largely captured in the third quarter. In closing, our third quarter results reflect the traction we are gaining towards building a solid foundation from which to deliver sustainable growth and profitability. These efforts not only reinforce our operational momentum, but also lay a strong foundation for sustained profitability as we move forward. I will now turn it over to the operator to begin Q&A. Operator? Operator: The first question is from Jim Salera from Stephens Inc. James Salera: I wanted to start off with, obviously, the positive news around expanding distribution with Walmart in Canada. Can you just maybe help size that up for us? Is that the primary contributor of the raised sales outlook? Or should we expect that to be more kind of a '26 event? And if you could just kind of size up how many stores that would be and any other color you could provide on how we should think about that uplift. Amy Taylor: Sure, Jim. Yes, that's -- we are excited about expanding with Walmart in Canada just because of the indicator of future opportunity for continued distribution expansion in Canada overall. It's also just a good, I think, reflection of the velocity coming out of the customer in the initial pilot. So it was fairly small out of the gate. We were less than 100 stores. And we're now in just over half of Canada's Walmart stores, which is just over 400 stores in total. So to answer your question directly, that is not the major driver of lift in growth. There are many other things driving growth through the quarter, but it is a good indicator of the health of the brand in Canada and opportunity to follow. James Salera: Great. And then I was looking through the deck you guys put out, I really like the new packaging. Can you just give us some color around how distributed is that? And maybe what type of timing we should think about between switching over from the old packaging to the new packaging until we kind of see that across all of your distribution points in the U.S.? Amy Taylor: Sure. So we're excited about the new packaging, too. We did some -- as I said in the prepared remarks, we did some initial proprietary research that indicated a significant increase in purchase intent with the new packaging relative to our previous packaging and relative to competition. And we believe that, that is because of the insights-based changes that we made to the messaging, which very clearly state Zevia's value proposition, talking zero sugar, zero fake color, zero fake sweetener then looking delicious, carrying the line Soda Made Better. So we're really bullish on the packaging. We do have some early indicators of how it supports the business, both from the standpoint of driving trial to new-to-brand users and driving velocity. And that's because one of our Q4 limited-time-offer flavors in Strawberries & Cream is already in the market in the new package. The rest of the portfolio will reflect the new packaging in early 2026, so mid-Q1 or late Q1 2026, and then we'll do a rolling rollout from there, not a hard cutover, but a rolling launch of the new packaging from there into the second quarter. Operator: The next question is from Sarang Vora from Telsey Advisory Group. Sarang Vora: Congratulations on a great quarter and good to see the healthy momentum in the business. My question is about when you look at the underlying metrics that drive growth, which is increase in household penetration, dollars per household, increase in frequency, can you remind us who are some of the new customers that are coming to the brand that weren't there before? And just from a broader standpoint, like how is the penetration for better-for-you products in general and versus your like a little north of 5%. So how big is the runway for you to catch up from a household penetration standpoint, just so that we can size the total addressable market as you keep moving on this path of expansion? Amy Taylor: Yes. Thanks, Sarang. That's a very good way to frame the opportunity and sort of the runway ahead. So we're really pleased to see movement in household penetration over the last 12 months. This last read being improved over the prior, and we are now back over that 5 million household -- 5% points of household penetration, excuse me. And so the major drivers of that are new consumers coming to the brand, yes, in part through marketing. So we're winning new consumers. It continues to be oftentimes a slightly higher-income millennial often with kids in the household, bringing Zevia soda home as a trusted brand stock in the fridge for all usage occasions and all family members, right? So it continues to be relevant across generations, but our sweet spot is the millennial and oftentimes the millennial household with children. Part of what's driving our gains in household penetration, though, is increased distribution. So we get support there from the Walmart expansion where especially with the introduction of new flavors, we're seeing very high percentage of new-to-brand users buying Zevia for the first time at Walmart. And there are other examples of that, expanded same-store sales and other major grocery outlets, expansion into the drug channel, et cetera. All of those are supporting household penetration growth. But to help you to size this, we see the category right now operating around 20 percentage points of household penetration. So there's a lot of ground to be gained for Zevia. And as we talk about very frequently, we see all of these category tailwinds as a net positive to Zevia. So there's tremendous opportunity ahead as the world continues to move away from sugar and towards clean label products, and we are the great-tasting, truly zero sugar and also affordable better-for-you products. So we see a lot of household penetration opportunities ahead. Sarang Vora: That's awesome. I have a second question. Soda business is clearly gaining momentum as we see in all these numbers. But one thing we don't talk much about is the energy business, energy drinks business. And my understanding that -- how should we think actually about energy drinks as you look at '26 and '27? Is there a thought to revive that category as well? Amy Taylor: We agree there's really tremendous opportunity ahead in energy. Right now, we have a really small energy drink business relative to the rest of the category. It is healthy and growing in the natural channel and in e-commerce where people know and trust the Zevia brand and continue to stock energy drink options in addition to soda. But right now, our focus is really on soda. We just talked household penetration, right? And it just outlines how much work there is still to do to realize our full opportunity in soda. So once I believe we are famous for being Soda Made Better and under that kind of halo of brand trust, we think there's a significant opportunity to turn our attention to the energy drinks category, which is still growing and will be for a long time. And we believe there's a consumer that wants a clean label energy drink and that our brand has permission to bring that to the market. So we'll continue to focus on the healthy growth that we see out of energy drinks in natural and in e-commerce. And at the right time, we'll think about channel and thus marketing and consumer expansion on a strong foundation of a healthy soda business. Operator: The next question is from Andrew Strelzik from BMO Capital Markets. Andrew Strelzik: With all the marketing that you've been doing and some of the momentum that you cited from that, the brand buck, et cetera, do you have any kind of awareness stats, brand-level awareness statistics or anything like that, that you can share to support beyond what you've talked about from a purchase intent perspective? Amy Taylor: Andrew, we haven't reported on awareness levels, but what I can share that kind of doubled down on the prepared remarks is that with our proprietary research, we saw double-digit increases not only in purchase intent, but also consideration. So we still have a way to go to grow brand awareness, and distribution, strong packaging design and marketing are all parts of that equation. But what I was really pleased to see this year is, again, double-digit growth in consideration. So now on that foundation, we know our messaging is working, right? Marketing and packaging is inviting trial. And then the product is satisfying the consumer, so we're getting strong repeat. That's a great formula upon or foundation upon which to now invest in expanding awareness. So we still got a ways to go, and I think that's reflected in our small household penetration. And our #1 objective is to expand that base, which is going to be a combination of awareness, trial and then building on that strong consideration metric. Andrew Strelzik: Okay. That's helpful. And my other question, if I remember correctly, just seasonally, you would normally see a bigger step down from 3Q to 4Q than the guidance suggests pretty marginal step down from what you did in 3Q from a revenue perspective to the midpoint of the guidance. And so I guess I'm curious, do you think you're seeing less seasonality in your business? Or should we read that maybe as a higher baseline from 4Q into next year? How -- what's driving that? Or how should we interpret that kind of as we think about next year? Girish Satya: Yes. Thanks, Andrew. So as a reminder, we were comping the Walmart load from last year this Q4. So that was a substantial amount of revenue, which was going to always be a challenging comp for the quarter. I think largely what you're seeing is a reflection of the distribution gains that we've made throughout the year as well as some incremental regional rotations in the club channel, which is really what's driving a lot of the positivity in Q4. So I think it's a little bit of both improved baseline as well as some incremental opportunistic club rotations. Operator: The next question is from Eric Serotta from Morgan Stanley. Eric Serotta: Great. Can you start by reflecting a bit in terms of shelf space expectations for next year? I guess with Walmart, we're just about a year -- or almost exactly a year into the rollout of their modern service set. What are you guys seeing in terms of what they're doing as the largest retailer, largest brick-and-mortar retailer as we look to next year? And then sort of outside of Walmart, what are your expectations in terms of shelf space? Amy Taylor: Sure. Let me start with Walmart, and then I can go to the outlook as it relates to distribution. So Walmart is developing nicely, bolstered by the introduction of a number of new items. Some of those are swap-outs and some are purely incremental new items that is helping us in the back half of this year and going into next year. We are one of the primary brands in that very sort of influential modern service set in Walmart, and that continues to be the case. Strategically, Walmart works hard for us because, as I mentioned before, it drives a lot of new-to-brand users. And so I think it's a great story to say, "Hey, when we have ample brand blocks, strong visibility, right price, right flavor mix, it's working hard for the brand.: And that's a story that we can take elsewhere. We've had other expansions, as I've mentioned on prior calls, such as a step change in shelf presence at big retailers in grocery like Albertsons in 2025. And again, that has contributed to some of our growth in the back half of the year. So when we look ahead, we -- this year, we surpassed our historical peak distribution levels at retail. And so we're not relying on new distribution for growth looking ahead. We're really focused on driving velocity, and that's why you hear us talk about the brand marketing and innovation priorities that we have. But we do see opportunity for new distribution. In terms of new stores, that would be in club, it would be in mass and it would be in the value and dollar channel and then long term in convenience and foodservice. And then in existing stores, there is still more opportunity to expand same-store distribution and to improve shelf. So there are major operators in the grocery channel, for example, where we still have, let's say, a lesser presence on the bottom shelf and an opportunity to build up to high level to gain space through innovation and to leverage all the strong data of 2025 to make those changes. So we're bullish both on accelerating velocity as well as continuing to increase distribution next year, be it in same-store or through new channels. Walmart should continue to perform for us next year. Costco offers opportunities for incremental rotations, and there are other green shoots in the club channel outside of Costco. As I mentioned, grocery offers opportunity in same-store distribution as well as new items and set improvements and then the long-term sort of slow but steady and strategic need to drive singles through convenience. So hopefully, that paints the picture a little bit about where we see our growth coming from, our bullishness on same-store distribution increases and then our greatest channel opportunities for next year. Eric Serotta: Great. And then one question in terms of profitability. Any -- I know you're not going to give us 2026 guidance yet, but any color as to how you're thinking about achievability of EBITDA profitability next year, puts and takes? It seems like, well, certainly, your top line is scaling. You're seeing some nice operating leverage there. Some of the costs with the new packaging shouldn't -- and inventory obsolescence shouldn't repeat, but then things like aluminum and Midwest premium keep moving higher. So any color on how you're thinking about profitability for next year would be helpful. Girish Satya: Yes, of course. So I think we continue to point towards being positive adjusted EBITDA in 2026. As noted, we're going to bias towards investing in the business. So don't expect a ton of flow-through because we do believe that right now, the time to sort of invest in customer acquisition. From a puts and takes standpoint, obviously, there's a huge headwind, which is aluminum tariffs, as you've articulated earlier, and we began to see that in Q3. As you also mentioned, we will largely see $15 million of the $20 million of our previously announced productivity initiative savings in this year, i.e., 2025. There's an incremental $5 million that we will begin to realize starting in sort of mid-Q1 of 2026. And so as we look towards flipping from negative adjusted EBITDA to positive, I think ultimately, the incremental savings along with scale and some pricing opportunities will allow us to flip that script into positive adjusted EBITDA while continuing to create opportunities for us to invest to grow the top line. Operator: There are no further questions at this time. I would like to turn the floor back over to Amy Taylor for closing comments. Amy Taylor: All right. Thanks so much for joining us. I am pleased with the progress this quarter, and I'm really proud of the team for the broader progress that we made across our 3 strategic growth pillars: so high-impact remarketing, accelerated product innovation and expanded distribution. Our soda portfolio is uniquely anchored by great taste, truly zero sugar and accessible price points. So the brand is starting to resonate with consumers, and all of this positions us well to capture the continued tailwinds in this better-for-you category. It's an exciting time to be at Zevia. So thanks again for your engagement, and we will see you next quarter.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to CS Disco's Third Quarter of Fiscal Year 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to your first speaker today, Head of Investor Relations, Aleksey Lakchakov. Alexey, please go ahead. Aleksey Lakchakov: Good afternoon, and thank you for joining us on today's conference call to discuss the financial results for DISCO's third quarter of fiscal year 2025. With me on today's call are Eric Friedrichsen, DISCO's Chief Executive Officer; Michael Lafair, DISCO's Chief Financial Officer; and Richard Crum, DISCO's Chief Product, Technology and Strategy Officer. Today's call will include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding our financial outlook and future performance, our future capital expenditures, market opportunity, market position, product and go-to-market strategy and growth opportunities and the benefits of our product offerings and developments in the legal technology industry. In addition to our prepared remarks, our earnings press release, SEC filings and a replay of today's call can be found on our Investor Relations website at ir.csdisco.com. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's financial results is included in its filings with the SEC from time to time, including the section titled Risk Factors in the company's annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 20, 2025, and the company's upcoming quarterly report on Form 10-Q for the quarter ended September 30, 2025. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus our closest GAAP equivalent is available in our earnings release. And with that, I'd like to turn the call over to Eric. Eric Friedrichsen: Good afternoon, everyone. I am delighted to be here with you all today to report on another quarter of accelerated revenue growth and operational execution for DISCO. Software revenue in Q3 was $35.2 million, up 17% year-over-year, while total revenue in Q3 was $40.9 million, up 13% year-over-year. Adjusted EBITDA for Q3 was negative $297,000, representing an adjusted EBITDA margin of negative 1%, which is a $4.2 million improvement over Q3 of 2024. Our results include $1.3 million of revenue related to a matter that was contingent on a successful outcome of the case. Michael will speak more to this later. But even without this bump, I am pleased to share that we exceeded the high end of our guidance range for software revenue, total revenue and adjusted EBITDA. We finished the quarter with $113.5 million of cash and short-term investments and no debt. We ended Q3 with 326 customers who each contributed more than $100,000 in total revenue over the last 12 months. The proportion of revenue attributable to these customers is 76%. We're extremely excited about our performance this quarter. The growth acceleration coupled with our improved operational execution is a testament to our larger strategy. Last quarter, I discussed our focus of the growth of large multi-terabyte matters, and we've seen continued positive trends this quarter in that area. The usage patterns in our business have continued to give me optimism. This quarter, we saw continued growth in revenue from both large and small matters with acceleration in revenue from multi-terabyte matters. We are also very pleased with the continued adoption that we are seeing related to our suite of generative AI capabilities, including Cecilia AI and our AI-driven Auto Review. The number of customers utilizing Cecilia AI over the quarter more than tripled year-over-year, and we have experienced consistent sequential growth in Auto Review adoption throughout 2025. Our overall positive performance continues to be driven by our relentless focus on delivering value to our customers through our value proposition of with you in every case. A great example of this is with a large multinational company involved in an industry-transforming lawsuit. They selected DISCO as their legal technology provider and services partner. The case involves more than 10 terabytes of data, and this customer chose DISCO because we demonstrated our end-to-end capabilities in handling very complex cases. This customer selected DISCO because they value the speed, scale and ease of use of the DISCO platform. They were able to reduce time to evidence while searching across hundreds of thousands of conversations, spanning multiple communication forms and time periods. And in terms of support, they valued our onboarding and our in-house services capabilities. They appreciated their forensics team was on call to handle dozens of data sources, that we had a fully staffed project management team and that we had leading review experts who could partner with them to deliver end results at an exceptional speed. This customer was sourced through our lead generation team, leveraging the new territory-based account orchestration model that I mentioned last quarter. This is just one example of that change already yielding results. The entire sales process for this customer was completed in roughly 4 months, a clear demonstration of the strength of our strategy and execution. Our results this year reflect a sharper focus on the right customers. Over the past year, we refined our approach to target those that we believe are the best fit for DISCO based on their scale, industry and complexity as well as the specific matter types to best take advantage of the capabilities of the DISCO platform. This is further validated by IDC, who named DISCO a leader in the 2025 IDC MarketScape for worldwide end-to-end eDiscovery software. The IDC MarketScape noted that with the ability to scale seamlessly from modest projects to multimillion document matters, DISCO's tools handle large data volumes effectively, facilitate thorough analytics and support core workflows such as time line creation, deposition summarization and intelligent batching, all while maintaining accuracy and transparency for defensibility. This is a powerful statement by IDC that really encompasses what we strive to do here at DISCO. As you know, we have previously discussed how our platform is particularly beneficial for certain types of matters. One of these matter types is intellectual property litigation. This past quarter, we began a new initiative that highlights our strength in IP litigation over our competitors, focusing a portion of our marketing and sales efforts specifically on IP litigation. Customers tell us that DISCO is an ideal fit for IP litigation for 3 key reasons. First, IP litigation cases are typically very large and highly technical, involving decades of research, product development files, technical specifications, e-mails, source code, CAD files and other complex document types. DISCO's ability to handle complex file types and deliver at scale makes us a key enabler of client success, and we shine brightest when building deep trusted partnerships in these types of environments. The second reason is that these matters tend to be high stakes bet the company litigation. A company's entire business plan may hinge on the outcome. DISCO's AI embedded within our platform helps lawyers quickly identify and understand the most relevant materials seamlessly across diverse file types, providing a strategic case-defining information advantage to the legal teams. Third, these cases typically involve aggressive time lines set by the courts and sheer volume of work that makes speed and precision critical. Our AI-assisted workflows with Cecilia AI and Auto Review significantly reduce time to evidence, enabling our customers to hit deadlines and develop an optimal case strategy without sacrificing accuracy or quality. Our unique capabilities make DISCO the natural solution for IP litigation that can deliver significant value for our customers while driving long-term growth for DISCO. As a matter of fact, this customer success story that I mentioned earlier is an IP-related matter that perfectly fits our strategy. In the future, you will see us roll out similar initiatives for other matter profiles where DISCO delivers immense value compared to our competitors. Finally, we are operating in a highly complex environment. The legal world is changing rapidly, and DISCO is in a prime position to be the disruptor in this technology revolution. We have a core platform that makes complex workflows look simple and effortless, which is then paired with AI capabilities that are transformational to how our customers approach their craft. I often get questions from you about Cecilia and our generative AI innovation and how DISCO is different. With that in mind, I want to take some time for you to hear directly from Richard Crum, our Chief Product, Technology and Strategy Officer, on this specific topic, and I'm excited for you to hear from him. So with that, I'll turn it over to Richard. Richard Crum: Thanks, Eric. I appreciate the opportunity to share more about how and why our technology is a strategic advantage in this really exciting time. I joined DISCO 16 months ago, knowing of our reputation for having a strong product and for leveraging modern cloud technology and AI to offer a solution that is intuitive, innovative and operating at scale with impressive performance metrics. I also joined looking forward to teaming up again with Eric, whom I worked with as Chief Product Officer at Emburse. Here at DISCO, I have the privilege of leading our product and engineering teams, and I've seen close up how effective we are at offering solutions that meet the high bar our customers have for the technology they use to achieve the best outcomes on the legal matters they manage. Let me give you some examples of why that is true. It shouldn't surprise you that I want to start to tell you about the AI capabilities that make our products so effective with customers. Before I talk about the GenAI features that understandably get more airtime, I think it is important to note that DISCO has been building AI throughout our products for over a decade in ways that directly impact how our customers manage legal matters. Our dynamic topic clustering technology is often the first place a user of DISCO will go after ingesting all of the likely relevant documents. The analytical capability of the models that powers this set of features gives attorneys a quick glance into the people, entities, information and topics resident in the document population. The technology automatically updates the information as new data and documents are added to the platform. Attorneys use this tool set to help understand and analyze thousands or millions of documents in real time. And they can do this without requiring the help of a services team or needing to leverage a separate solution. It's one of the many great examples of the power of the DISCO platform and something we know drives real value for our customers. A second example is our predictive analytics that observes the work attorneys do in DISCO and directs them to the other documents and data that are likely to be highly relevant based on how they have interacted with other documents. When you have a database with terabytes of information, the time savings this capability offers can be massive. And helping legal teams quickly narrow down the population of documents down to the right set enables them to focus on the evidence that matters most. In the last few years, we have built on the foundation of these examples of AI-powered tools to offer additional GenAI features that we call Cecilia. They further enable legal teams to identify relevant evidence quickly and with confidence. Cecilia Q&A operates at the level of an individual document or across an entire database that could contain millions of documents. In a simple context-aware chatbot, lawyers can ask natural language questions and interact with the data as if they were speaking to an associate who has read and fully understood every single document and get answers with reference only to the evidence contained in the documents because that's what we built Cecilia to be. And it's not just impressive at finding the key documents quickly and explaining to you why they're relevant to your inquiry. Cecilia is built to be a trusted tool for attorneys. In a world that worries about generative AI hallucinations and what data a model was trained using, we developed Cecilia to be technology that customers can have confidence in. When it returns results, it also provides citations back to the exact part of the document that is used to answer your question. And its answers are only based on the documents in your database. This is not a simple LLM wrapper. We develop Cecilia with a set of technical sequences that deliver a product experience that is powerful and impactful to your legal work. Cecilia Q&A is just one of the impressive GenAI skills that is built right into the DISCO platform at moments in the workflow that matter. We also offer document summaries, definitions of any term based on the information of the document set, automatic time lines and topic summarization of deposition transcripts. Altogether, Cecilia is a sophisticated set of tools, leveraging generative AI technology that we have been offering to the market for almost 2 years and constantly investing to make it better. Tools built upon the existing system of record the legal team is already using to manage the matter. And when legal professionals experience the impact, it can be hard to imagine working on a matter without Cecilia. A great example comes from an Am Law 50 customer that tried out Cecilia AI for the first time in July of 2024. They saw the value that is provided by utilizing these capabilities I just described. And since that initial use of Cecilia, their adoption has continued to expand. Following their initial trial, this customer has adopted Cecilia AI in a variety of types and sizes of matters from matters as small as 5 gigabytes to large complex matters with millions of documents. In fact, the number of matters utilizing Cecilia AI at this firm has grown 7x from Q3 2024 to Q3 2025, which corresponds to a more than 12x growth in revenue. We are proud to continue partnering with this innovative customer, delivering advanced generative AI solutions that turn time-consuming legal challenges into streamlined, high-value opportunities. Another DISCO GenAI capability that has been delivering significant value to customers for more than a year now is Auto Review. You have heard Eric and Michael talk about Auto Review since it was launched last August and how impressed customers have been with its performance, accuracy and the cost savings it offers, particularly on very large matters. From an engineering standpoint, it represents something much more sophisticated and technically challenging than sending off documents to a large language model. The technology behind Auto Review is built upon a decade of deep understanding of the review process and technology that was developed to handle the scale and complexity of documents and data that our customers bring to DISCO. This technology earns our customers' trust by providing clear explanation for tagging performed by Auto Review and offering tools to report quality statistics that align with how courts measure the efficacy of other technology-assisted document review approaches. I've spoken a few times about trust when describing our AI-based capabilities. We take that very seriously, and it extends even back to the core technology platform where we bring all these features and capabilities together in a simple yet powerful user experience. At DISCO, we obsess about ensuring the entire product experience for our customers is secure, reliable and incredibly performant at the scale of the matters that our customers bring. The volume and sources of data that could be necessary to review for evidence and litigations, investigations and regulatory matters has continued to explode and no one believes there's an end in sight. This has resulted in customers bringing larger and larger matters to DISCO, and we have continued to perform with the speed and accuracy they've come to expect. That's because DISCO was built for scale. Leveraging the best technology and engineering talent, DISCO is ready for whatever our customers need. Let me finish up with a word on another phrase I've used more than a few times in my commentary, and that's scale. Because of our personal experience with consumer technology that can feel like it's improving at an astronomical rate, we can begin to believe that business software in general is also advancing at the same rate, but that's not always true. In fact, much of the legacy software used for document review is far behind DISCO and how well it performs under high database sizes. Ask any legal professional about their experience in legacy Ediscovery solutions with simple tasks like switching between 2 documents or running a keyword search, and you're very likely to hear the word slow in their response. That's because operating at scale doesn't just mean being able to hold a large quantity of data. It also means providing a user experience that runs just as well in both small and massive sets of data and documents. This is an area where DISCO shines. And we do it both with those simple tasks I just referenced and the experience of using Cecilia Q&A, something that definitely leaves our users amazed when they see it live. Operating a platform that performs like DISCO is the result of years of solid engineering work and our obsession with providing an incredible user experience to everyone who logs into DISCO every day. And it is a great example of how we are with you in every case. It is not easy to operate AI at the scale the way we do at DISCO. It is also a competitive advantage that will enable DISCO to continue to expand our product offering and win more and more loyal customers who say it has to be DISCO. And with that, let me turn things over to Michael. Michael Lafair: Thank you, Richard. In Q3 2025, total revenues were $40.9 million, up 13% year-over-year, and software revenues were $35.2 million, up 17% year-over-year. Included in these balances is the revenue contributed from a case that has been on our platform for several years and was contingent on the successful outcome of the case. In Q3, we were able to recognize $1.3 million of total revenues from this case, of which $1.2 million related to software. I would like to note that the Q3 total revenue and software revenue year-over-year growth would have been 9% and 13%, respectively, without this contingent revenue, which still exceeds the high end of our guidance range for both metrics. Excluding the large one-time case we recognized in Q3, 2 primary drivers of the software year-over-year revenue performance were growth in the revenue across large and small matters, especially with multi-terabyte matters as well as growth of Cecilia AI adoption. Services revenues, which include DISCO managed review and professional services, were $5.7 million. In discussing the remainder of the income statement, please note that unless otherwise specified, all references to our gross margin, operating expenses and net loss are on a non-GAAP basis. Adjusted EBITDA is also a non-GAAP financial measure. Our gross margin in Q3 was 77% compared to 74% in the prior year. As we mentioned before, our gross margins fluctuate from period to period based on the nature of our customers' usage, for example, the amount and types of data ingested and managed on our platform. Sales and marketing expense for Q3 was $13.6 million or 33% of revenue compared to 38% of revenue in Q3 of the prior year. On a dollar basis, sales and marketing expense decreased $0.2 million, predominantly driven by lower marketing and consulting expenses. Research and development expense for Q3 was $11.5 million or 28% of revenue compared to 31% of revenue in Q3 of the prior year. On a dollar basis, research and development expense increased $0.4 million, driven primarily by headcount-related costs. General and administrative expense in Q3 was $7.7 million or 19% of revenue compared to 21% of revenue in Q3 of the prior year. Adjusted EBITDA was negative $0.3 million in Q3, representing an adjusted EBITDA margin of negative 1% compared to an adjusted EBITDA margin of negative 12% in Q3 of the prior year. This represents a beat of the high end of the guidance range we provided last quarter and $4.2 million year-over-year improvement. Net loss in Q3 was $0.6 million or negative 1% of revenue compared to a net loss of $3.9 million or negative 11% of revenue in Q3 of the prior year. Net loss per share for Q3 was $0.01 compared to $0.06 per share for Q3 of the prior year. Turning to the balance sheet and cash flow statement. We ended Q3 with $113.5 million in cash and short-term investments and no debt. Operating cash flow for the first 3 quarters of 2025 was negative $15.7 million compared to negative $10.8 million in the same period of the prior year. Turning to the outlook. For Q4 2025, we are providing total revenue guidance in the range of $38.75 million to $40.75 million and software revenue guidance in the range of $33.75 million to $34.75 million. We expect adjusted EBITDA to be in the range of negative $3.5 million to negative $1.5 million. For fiscal year 2025, we anticipate total revenue guidance in the range of $154.4 million to $156.4 million and software revenue guidance in the range of $132.6 million to $133.6 million. I would like to note that the contingent revenue case I spoke about earlier was previously included in our full year guide. We expect adjusted EBITDA to be in the range of negative $11.5 million to negative $9.5 million. Now I'd like to turn the call over to the operator to open up the line for Q&A. Operator? Operator: [Operator Instructions] And it appears there are no questions. So I will now turn the call back over to CEO, Eric Friedrichsen, for closing remarks. Eric? Actually, Eric, we did just receive one question, if you would like to take it. Eric Friedrichsen: Sure. Operator: Okay. Our first question comes from the line of DJ Hynes with Canaccord. David Hynes: I guess I just wanted to ask about the contingent liability or the contingent case rather. How many cases are like that? Is that industry standard or it's still a little odd? Richard Crum: DJ, let me touch on that real quick. We have a small number of other contingent cases in the system, but nothing close to this size. Let me explain by what we mean by a contingent case. It's basically on a limited basis, we'll enter into a contract where basically the payment is contingent on the conclusion of the legal matter. And in these instances, we don't recognize the revenue until the legal matter is resolved. In Q3, one of our customers under one of these arrangements experienced a favorable conclusion, allowing us to recognize $1.3 million in revenue, of which $1.2 million was software and the balance was services. Eric Friedrichsen: Yes. And so that's why we called it out specifically, DJ. We had 17% software growth and 13% overall growth. But even without that case, we had 13% software growth and 9% overall growth in the business, which exceeds the high end of our range even without that contingent case, but we did want to make sure to call out that contingent case specifically. David Hynes: Okay, great. And then just a quick one for Michael. So we have your previous guidance or I guess your target for in-quarter EBITDA breakeven for Q4 of 2026. But I'm looking at -- we're seeing some linear improvement over the past couple of quarters where you were just under breakeven this quarter. Are you still maintaining that target for next year or do you think there's some upside we could see there? Eric Friedrichsen: I'll take that one. This is Eric. Yes, we're still targeting adjusted EBITDA breakeven for Q4 of 2026. We could certainly push to get to profitability sooner. But right now, we're making really smart investments in the business that are obviously paying off in the results in terms of the go-to-market investments that we make, in terms of the innovation investments that we make and those transformational investments. So look, this is a big market. It's a growing market, and the money that we're spending right now is really helping accelerate the revenue of the business. So the target is still Q4 of 2026 for adjusted EBITDA breakeven. Operator: [Operator Instructions] All right. Do not see any callers. So again, I will hand the call back to CEO, Eric Friedrichsen, for closing remarks. Eric, take it away. Eric Friedrichsen: Great. Thank you very much. Thanks, everyone, for joining the call today. Look, I am really pleased that our progress in Q3 and really, frankly, our progress throughout the entire year. We've been very fortunate. We set a strategy for this year to focus on our biggest and best customers with the most opportunity for growth and also the matter types where we could add the most value to our customers and also generate the most revenue for DISCO. So we set that strategy, but more importantly, I'm really proud of the team for how they've executed upon that strategy. And it's given us the opportunity in each of the quarters this year to be able to beat our guidance -- this last quarter to be able to beat the high end of our guidance range and for us to be able to increase our guide for the full year every single quarter. But it's not even so much the results that I'm happy about. It's the team and how they've executed upon our strategy. And that gives me a lot of confidence. It gives me a lot of confidence about our future. So I just want to thank our teams. I want to thank our customers for everything they're doing to stay focused on accelerating the growth for DISCO. And I'm looking forward to updating you next quarter. Have a great evening. Operator: Thanks, Eric. And this concludes today's conference call. You may now disconnect. Have a great day, everyone.
Operator: Hello, and welcome to the SES AI Third Quarter 2025 Earnings Release and Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to the Chief Legal Officer, Kyle Pilkington, to begin. Please go ahead when you're ready. Kyle Pilkington: Hello, everyone, and welcome to our conference call covering our third quarter 2025 results. Joining me today are Qichao Hu, Founder and Chief Executive Officer; and Jing Nealis, Chief Financial Officer. We issued our shareholder letter just after 4:00 p.m. today, which provides a business update as well as our financial results. You'll find a press release with a link to our shareholder letter and today's conference call webcast in the Investor Relations section of our website at ses.ai. Before we get started, this is a reminder that the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. These statements are based on our predictions and expectations as of today. Such statements involve certain risks, assumptions and uncertainties, which may cause our actual or future results and performance to be materially different from those expressed or implied in these statements. The risks and uncertainties that could cause our results to differ materially from our current expectations include, but are not limited to, those detailed in our latest earnings release and in our SEC filings. This afternoon, we will review our business as well as results for the quarter. With that, I'll pass it over to Qichao. Qichao Hu: Thanks, Kyle. Thanks, everyone, for joining today. We had a record third quarter with more than $7 million in revenue. That's more than 100% growth over the second quarter. Our all-in on AI strategy is working remarkably. Today, I want to highlight some of the successes we've seen with this strategy and what it means for the future. We reached a major milestone this quarter that we expect to have far-reaching consequences across the revenue machine we described in detail during our last call. That milestone was the release of our latest version of Molecular Universe, MU-1.0. MU-1.0 is a powerful and complete end-to-end AI for science workflow that includes 5 features, ask an Agentic LLM with access to what we believe is the world's largest database of battery relevant literature, search and formulate what we believe are the world's largest databases of battery relevant molecule and formulation level properties enabled by GPU-accelerated quantum mechanics computation and machine learning accelerated property prediction, end design and predict chemistry-specific and chemistry-agnostic machine learning models, respectively, that can accurately predict battery state of health and end of life. Due to the popularity of the enterprise tier, we also launched 3 sub-tiers within enterprise to provide greater value to more enterprise users. In addition to cloud-based molecular universe, we expect to launch on-premise molecular universe, providing greater data security to more enterprise users. This new on-premise capability, which we will be describing in more detail in the coming months, addresses specific security and privacy needs of the world's largest battery makers that should unlock a greater share of our addressable market. We are incorporating MU1.0's Ask design and predict into our ESS products deployed by UZ around the world to collect data for on-site model training. This unprecedented ability for safety and health prediction, combined with reduced maintenance costs, truly helps differentiate our products and attract new customers. Since we completed the acquisition of UZ Energy in mid-September, our ESS revenue has been growing and is already responsible for approximately 45% of our third quarter revenue. We're very excited about the revenue potential of deploying Molecular Universe to enhance our ESS products. MU1.0' Ask, Search and Formulate are also helping our users identify several new electrolyte materials that we are commercializing. These include: one, improved low-temperature rate performance of lithium ion phosphate lithium-ion cells for ESS applications; two, improved cycle life for 12% silicon lithium-ion cells for EV application; and three, improved cycle life for lithium metal and 100% silicon lithium-ion for drones and UAM applications and many more. To supply these materials discovered by Molecular Universe to our customers, we entered into a joint venture agreement with Hisun New Energy Materials, a leading electrolyte manufacturer with 150,000 tons of annual capacity to contract manufacture these materials, so we stay CapEx-light, laying the groundwork for exciting revenue growth in the coming quarters. Another revenue opportunity we expect to grow in 2026 and beyond is in drones. A dependable supply chain of high energy density pouch cells is extremely rare and critical to the development of the American drones industry. To better address this burgeoning market, we are leveraging our Chungju, South Korea cell factory, incorporating the latest materials discovered from Molecular Universe to meet customer demands. In terms of potential revenues from EV, we completed B-sample line site acceptance test this summer with one auto OEM. As a result, in 2026, we expect to start commercial supply of electrolyte materials and partner with them for cell production. Overall, it's hard for us to comprehend a more consequential period than what we have experienced over the past 2 quarters, particularly as it relates to delivering on the goals we outlined coming into this year. For instance, we noted we wanted to break into the ESS market in a big way. Now we've done so with the acquisition of UZ Energy, and the acquisition has already delivered significant revenue in 2025. We launched 3 versions of Molecular Universe this year. The discoveries made by us and our customers so far have accelerated our push into materials to supply them through the Hisun JV. We'll have more to share on our fourth quarter call about how we expect 2026 to shape up for us, but we expect success for us will look like a hardware, software integrated platform with multipronged and multi-revenue streams. As Molecular Universe, a complete AI for science workflow SaaS platform accelerates innovation across all battery chemistries, we are working with our JV partners to provide a dependable hardware supply chain for the cells developed from Molecular Universe. Just as AI for science is completely changing other industries, Molecular Universe is now transforming all battery chemistries across all applications. We are excited about the revenue growth potential brought by Molecular Universe and we'll continue to assemble the best talent, data and compute resource needed to build AI for science for energy transition. Lastly, I want to express my gratitude for our teams who are working super hard to make all of this happen. And thanks to all of you for being on this journey with us. And now here's Jing for financial updates. Jing Nealis: Thank you. I will discuss our financial performance for the third quarter of 2025 and provide some context on how we are deploying our capital to support SES AI's long-term growth and then the all-in on AI strategy Qichao mentioned earlier. Revenue for the third quarter was $7.1 million, representing a $3.6 million or 102% increase from the previous quarter. Our Q3 revenue was approximately a 55-45 split between our service revenue from our automotive OEM customers to develop AI-enhanced lithium metal and lithium-ion battery materials for EV applications and product revenue, primarily from UZ Energy's energy storage system sales. For the full year 2025, we are updating our revenue guidance to $20 million to $25 million due to UZ's contribution going forward. Gross margin was 51% for the third quarter, which is a combination of 78% gross margin from the service revenue and 15% gross margin from the product revenue. As a reminder, with UZ Energy now part of SES, we expect gross margin variation from quarter-to-quarter as our service and product revenue mix will fluctuate. Our GAAP net loss for the third quarter was $20.9 million or negative $0.06 per share. In Q2 2025, our GAAP net loss was $22.7 million or negative $0.07 per share. As of September 30, we had 365 million Class A and Class B shares outstanding, which were down $1.3 million from the previous quarter, mainly due to the share repurchase we executed during the third quarter. In the third quarter, we repurchased and canceled 1.3 million Class A shares for a total investment of $1.6 million or roughly $1.20 per share. We utilized $14.3 million in cash for operations in the third quarter. We exited the third quarter with a strong liquidity position of $214 million. As mentioned, we closed the UZ acquisition in September and recognized some UZ revenue during the third quarter. We see a tremendous opportunity to grow the UZ Energy business from approximately $10 million to $15 million in projected full year 2025 revenue to a much larger growth in the coming years as we execute our go-to-market strategy that Qichao outlined to make market share gains in the $300 billion global ESS market. When we report Q4 earnings, we expect to provide a more definitive outlook on how we see the full year 2026 revenue growth shaping up from UZ's growth in ESS, SaaS subscription use, contributions from Hisun JV and potential for the start of commercial production of electrolyte and/or battery cells from automotive OEMs, drones and robotics. The potential growth of these revenue streams, which all have different margin profiles will be much larger than what we have experienced in 2025, but the growth isn't linear from quarter-to-quarter and the margin may vary quarter-to-quarter as well. Looking ahead, we remain focused on executing our strategy while continuing to grow our top line while remaining financially disciplined. With substantial liquidity, we are well positioned for sustainable growth and long-term success. We appreciate your continued support and confidence in SES AI. Thank you. Now I will turn the call back to the operator. Operator: [Operator Instructions] And our first question comes from the line of Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: On the Hisun JV, can you talk about how that opportunity came about? Was the company paying for Molecular Universe access? Or was this sort of an internal project at SES? And then what type of battery will this electrolyte enable? Qichao Hu: Derek, so very good question. And actually, the Hisun JV came as a request by some of the Molecular Universe enterprise users. So Molecular Universe since we launched this -- earlier this year has been growing really fast. And we had almost every major battery company and battery materials company in the world trialing this. And so in addition to the SaaS platform, both on the cloud and also on-premise, several of the battery companies that are using the Molecular Universe enterprise tier also ask us, okay, we found these materials, these formulations, these molecules through Molecular Universe. Why don't you just make these and then sell these to us because they currently buy electrolytes from companies. So it's a quite mature business model. So we said, okay, yes. we're happy to sell these materials to you. These are new formulations that they cannot buy anywhere else. And so we formed this joint venture. It's a CapEx JV we control. We control 90% of the JV, and we contract manufacture with a company called Hisun to produce this formulation, and then we sell that formulation to the cell makers. And then some of the applications, so in the call, I listed 3 and then actually all 3 are being produced. So the most popular one is a new formulation to improve low temperature performance of LFP for ESS batteries. A lot of these LFP batteries for ESS, when they're deployed in like Northern Europe, these cold places, they don't work so well when it's a low temperature. Another one is for cell phone applications. So it's a high-voltage electrolyte for LCL cells. And then another is a 12% silicon lithium-ion cells for EV applications also to improve the cycle life. So these 3, we are requested by the user, the cell maker to actually supply these materials at commercial scale to them. And this was discovered through the Molecular Universe platform. Derek Soderberg: And I guess just to that point, I guess I wasn't imagining a JV coming out of this first in Molecular Universe. Can you just talk about how you expect the monetization of that business to sort of play out over the next year, beyond sort of JVs, do you expect Molecular Universe to grow sort of as a traditional Software-as-a-Service business where every quarter you sort of add additional seats? Or do you expect there to be sort of like a stair step up on revenue as you sign kind of larger agreements? How do you sort of see the monetization of MU playing out sort of over the next year? How should we think about it? Qichao Hu: Yes. So MU is a mix of SaaS platform and materials. And then for the SaaS platform, and then we laid out the different tier pricing on the website, molecular-universe.com. And so we have the individual tiers and then the number of individual tiers is growing. And then also, we have the enterprise tiers. These are the major battery companies and then the material companies and the chemical companies. And then -- and a lot of these companies prefer on-premise. So we also sell them this Molecular Universe in a box on-premise solution. So we charge them monthly subscription. And also we sell this computer that we actually deploy on site and also service on top of that. I think the SaaS platform, we do expect to see a growing number of seats per month and also per quarter and then the material supply because a lot of these companies eventually want us to supply the materials. But the revenue coming from the Molecular Universe discovery materials is actually going to be much higher than the SaaS revenue. Derek Soderberg: And then just one final one for me, just a broad update on Molecular Universe. I think in the past, you said you've got like 2 dozen or so companies in trial testing. Can you just give us an update on maybe where that is? And I think in the past, you have mentioned there are other potential large or medium-sized battery OEMs as part of that group. Where are you at with some of those players in negotiations? And when do you expect maybe a medium or large-sized OEM to sign on to MU through a joint development? Qichao Hu: Yes. So the number now is getting close to 40 enterprise and then -- and they have gone through MU-0.5 trial, MU-1.0 trial, which is the latest version and it's gone through the initial cloud-based trial. And now we are planning for on-premise deployment because a lot of these medium-sized, especially the larger-sized enterprises, they can do the cloud trial, but then eventually, they will need this on-premise to actually deploy this. This is why we're moving towards this Molecular Universe in the box on-premise solution. Operator: [Operator Instructions] The next question comes from Winnie Dong with Deutsche Bank. Yan Dong: I just wanted to follow up on that last question that was asked. You talked about launching 3 sub-tiers within the enterprise subscription. I was wondering if you can maybe just elaborate on that? What are they sort of looking for, what are your customers looking for? And then if you can just maybe just remind us of the other subscription options that's also bringing this recurring revenue opportunity. Qichao Hu: Yes, so the enterprise 1, 2, 3, basically, they differ in terms of size of market database, the depth of the models used and also the knowledge and the know-how the models are trained on. For example, enterprise 1, we see that as like a PhD student level and the enterprise 2 is like the postdoc level and the enterprise 3 is a senior scientist level. And then, for example, enterprise 1, when they answer a question, they'll answer question typically less than 3 minutes and the enterprise 2 postdoc level answer question in about 5 minutes. Enterprise 3 will answer question in more than 30 minutes. But the depth and the quality and the new discoveries are much deeper. So a lot of the enterprise 1 are medium-sized companies and also some start-ups and then the larger companies. And so for enterprise 1 and 2, we offer only cloud and for enterprise 3 and even higher tier joint development, we offer a combination of cloud and also on-premise, which most of the larger companies want. And then in addition to these tiers, we can also do the joint development tier with the larger customers. That's where -- so now the cloud version Molecular Universe is trained only on SES internal data. But then for the joint development, we will actually put our Molecular Universe in the box encrypted and then also organize the users' data, the cell makers data and then after that I train all Molecular Universe in a box. And then we're helping them do something that they've always wanted to do, but they've never had the resource and then never had the capability to do that. Yan Dong: And then so this quarter, you saw some very meaningful revenue contribution from UZ Energy. So I was just curious if you can just maybe take a step back and help us sort of get reengage with the background of this company, where the markets are, what you think the growth could be from this business? And then maybe more broadly speaking, as you look out to the different revenue streams, so UZ Energy, Molecular Universe, you have the relationships with OEM partners for electrolyte production. Just maybe give us a sense of which channels you're most optimistic about as you head out to growth in the next 2 to 3 years? Qichao Hu: Yes. So UZ Energy is an energy storage company and they serve mainly the behind-the-meter commercial and industrial applications. And before we acquired UZ, we actually used to supply this database machine learning model to UZ to help improve the accuracy of their BMS, battery management system in terms of predicting battery health and then end of life. And then since we acquired them, now we are adding more of these machine learning-based models, which is the predict feature in Molecular Universe, MU-1.0. We are adding that into their BMS. So when we sell these -- when UZ deploys these packs to customers around the world, a lot of the customers, for example, in Norway or Northern Europe, they complain that the packs, especially in winter are just not so accurate and the BMS just stop working. So by adding this predict, we can actually -- so each UZ pack is a box, is a Molecular Universe in the box. And then we can gather data and train the predict feature of Molecular Universe locally in the box and then make predictions about these issues before the customers can actually find out about the issues. And then -- so since we've added this predict, the amount of customer calls, their complaints actually dropped. And then we plan to continue to do that. So this application is actually really exciting. So think of each ESS pack as a Molecular Universe in a box. And then we collect the data, we do local training and we make prediction on the safety. And then I think that's a really exciting connection. So we get data and we get revenue. In terms of the overall growth of revenue of the different businesses opportunities that we mentioned, UZ this year, revenue, we expect to pull about $15 million to $20 million. And I think next year, ESS, we can at least double that. So this is one area. Another is drones. This year, we are getting our initial contracts and also a lot of the drones customers in the U.S. really want sales made outside of China. So we are making these cells in our Chungju, South Korea facility. Actually, the amount of capacity for pouch cells for drones outside of China is like super rare. It's hard to find pouch cells capacity outside of China. We have them. So we expect drones to also grow in a big way for us next year. And then EV and so for example, the joint development we had with Hyundai Motors and also Honda, we are using Molecular Universe to discover these new electrolytes. And then once we identify these electrolytes, then our plan is to use the Hisun JV to contract manufacture this and then supply. So I think next year, revenue-wise, total, we should be able to at least double, if not triple, what we did this year because of all these opportunities that are enabled by the Molecular Universe platform. Operator: [Operator Instructions] And as we have no further audio questions, I will hand back over to Kyle for the other questions. Kyle Pilkington: As in past quarters, we have received some written questions from investors and time permitting, we'll go through a selection of those questions, which have not yet been addressed on the call. So the first question that we have relates to liquidity and whether management has a view on where liquidity is expected to be at the end of 2025 and will kind of scaling up of Molecular universe or the UZ Energy integration impact the cash burn or CapEx plans? Jing Nealis: I can cover that. So -- yes, I'll take that. So our liquidity balance is very strong. And given that we closed the UZ acquisition, also, we did some stock repurchase based on our program, we still expect to exit the year with somewhere between $195 million to $200 million of liquidity. And then the other thing I wanted to probably emphasize is we are laser-focused on funding growth. So our liquidity balance is sufficient to kind of grow our revenue from different streams that Qichao just mentioned, whether it's ESS drones or materials or SaaS from MU. So the cash balance is no longer to fund runway. We have a CapEx-light business model. So the UZ acquisition is helping us to grow revenue with positive gross margin. All of our revenue sources come in on day 1 with positive gross margin. So it's not a CapEx-heavy business. So our liquidity balance will be sufficient to fund the growth going forward. Kyle Pilkington: Great. The next question relates to Molecular Universe and it goes, MU-1.0 is impressive. Can you share the road map for MU for 2026? And what other features have been requested? Qichao Hu: Yes. So for now, MU-1.0 has been mainly focused on electrolyte materials. And then we've been requested to expand that to cover electrode process optimization and also cell design and manufacturing optimization. And then another big request from some of the major battery companies, they want their own Molecular Universe, which is quite exciting because a lot of these battery companies, they want to expand. They want to build factories overseas in different continents, and they need a battery bible, so to speak, basically put all their know-how, train this model into a portable Molecular Universe. So that is going to be a really exciting project that we'll be working on with these battery companies. Kyle Pilkington: Excellent. And I think we have time for one more. So the last question is, if you could provide an update on the status on 2170 and LMA pouch cells for robotics, drones and UAM. Are you seeing good prospects for sales? Or do you see a need for scale up before promoting these more heavily? Qichao Hu: Yes. So the pouch cells, especially for drones, we're seeing a very interesting convergence and standardization of the format in the drones industry around the 10 amp-hour pouch cells. And so that's quite exciting. And then we are converting our Chungju line, which we built both the EV line as well as the UAM line. We're converting that capacity to make this pouch cell. And so, so far, the capacity that we have meets the needs, but we're also seeing fast-growing demand, especially since it's produced in Korea. So we do see a quite exciting growth in this market. Kyle Pilkington: Great. With that, I'll pass it back to the operator for closing remarks. Operator: Thank you, everyone. This concludes today's call. Thank you for joining. You may now disconnect. Have a great rest of your day.