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Operator: Thank you for standing by. At this time, I would like to welcome everyone to Weyco Group, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Judy Anderson, Chief Financial Officer. You may begin. Judy Anderson: Thank you. Good morning, and welcome to Weyco Group's conference call to discuss third quarter 2025 results. On the call with me today are Tom Florsheim, Jr., Chairman and Chief Executive Officer; and John Florsheim, President and Chief Operating Officer. Before we begin to discuss the results for the quarter, I will read a brief cautionary statement. During this call, we may make projections or other forward-looking statements regarding our current expectations concerning future events and the future financial performance of the company. We wish to caution you these statements are just predictions and that actual events or results may differ materially. We refer you to the section entitled Risk Factors in our most recent annual report on Form 10-K which provides a discussion of important factors and risks that could cause our actual results to differ materially from our projections. These risk factors are incorporated herein by reference. They include, in part, the uncertain impact of U.S. trade and tariff policies, which remain highly dynamic and unpredictable, the impact of inflation on our costs and consumer demand for our products, increased interest rates and other macroeconomic factors that may cause slowdown or contraction in the U.S. or Australian economy. Overall net sales for the third quarter of 2025 were $73.1 million, down 2% compared to $74.3 million in the third quarter of 2024. Consolidated gross earnings were 40.7% of net sales compared to 44.3% of net sales in last year's third quarter. Earnings from operations were $8.1 million for the quarter, down 21% from $10.2 million in the third quarter of 2024. Net earnings totaled $6.6 million for the quarter, down 18% from $8.1 million last year. Diluted earnings per share were $0.69 per share in the third quarter of 2025 and $0.84 per share in last year's third quarter. Net sales in our North American Wholesale segment totaled $60.2 million for the quarter down 2% from $61.1 million last year. Sales volumes were down 7% for the quarter, but selling price increase instituted on July 1, 2025, helped to mitigate the impact of the volume decline. The decrease in volume was primarily due to reduced business with a large wholesale customer who failed to timely adopt our new pricing structure, resulting in order cancellations during the period. This issue has since been resolved and is not expected to significantly impact the fourth quarter. Wholesale gross earnings as a percentage of net sales were 35.7% and 40.1% in the third quarter of 2025 and 2024, respectively. Gross margins were negatively impacted by the effects of incremental tariffs. Although selling price increases helped mitigate the effect of these tariffs, they did not fully offset the costs leading to the margin erosion for the period. Wholesale selling and administrative expenses totaled $14 million for the quarter and $15.1 million last year. The decrease was primarily due to lower employee costs. As a percentage of net sales, wholesale selling and administrative expenses were 23% and 25% in the third quarter of 2025 and 2024, respectively. Wholesale operating earnings totaled $7.5 million for the quarter, down 20% from $9.4 million in 2024 due to lower sales volumes and margin erosion. Earlier this year, the U.S. government enacted reciprocal and retaliatory tariffs collectively referred to as incremental tariffs on goods imported into the United States. The incremental tariff on goods sourced from China, where most of our products originate remained 30% out the third quarter of 2025. This tariff rate is set to be reevaluated on or before November 10, 2025. The incremental tariffs on goods sourced from other countries, excluding China, range from 10% to 50% throughout the third quarter of 2025. U.S. trade and tariff policies currently remain fluid and unpredictable and the specific tariff rates applicable to goods imported by our company continue to evolve. As such, there is significant ongoing uncertainty regarding the potential near-term impact of incremental tariffs on our gross margins. We have implemented various mitigation strategies and remain committed to adopting further strategies, including shifting our sourcing in alignment with evolving tariff policies, optimizing our pricing structure, and enhancing operational efficiencies as needed in response to future policy developments. Net sales in our North American Retail segment were $7 million for the quarter, down 4% from $7.2 million in 2024. The decrease was primarily due to softer demand on the Florsheim and Stacy Adams websites amid the tepid retail environment. Retail gross earnings as a percentage of net sales were 66.4% and 66.9% in the third quarters of 2025 and 2024, respectively. Retail operating earnings totaled $600,000 for the quarter versus $800,000 in last year's third quarter. The decrease was primarily due to lower [Technical Difficulty]. Our other operations consist of our retail and wholesale businesses, primarily based in Australia, with a limited presence in South Africa collectively referred to as Florsheim Australia. Net sales of Florsheim Australia remained flat at $6 million in both the third quarters of 2025 and 2024. In local currency, Florsheim Australia's net sales were up 2% for the quarter, driven by growth in its retail businesses. Florsheim Australia's gross earnings as a percentage of net sales were 61% and 59.2% in the third quarter of 2025 and 2024, respectively. Florsheim Australia generated operating losses totaling $100,000 for the quarter and breakeven results for the third quarter last year. At September 30, 2025, our cash and marketable securities totaled $78.5 million, and we had no debt outstanding on our $40 million revolving line of credit. During the first 9 months of 2025, we generated $13.2 million in cash from operations and used funds to pay $7.7 million in dividends. We also repurchased $4.1 million of company stock and had $900,000 of capital expenditures. We estimate that 2025 annual capital expenditures will be between $1 million and $3 million. On November 4, 2025, our Board of Directors declared a quarterly cash dividend of $0.27 per share to shareholders of record on November 17, 2025, payable January 9, 2026. Additionally, on November 4, 2025, our Board of Directors declared a special cash dividend of $2 per share to all shareholders of record on November 17, 2025, paid January 9, 2026. I would now like to turn the call over to Tom Florsheim, Jr., Chairman and CEO. Thomas Florsheim: Thanks, Judy, and good morning, everyone. Overall company wholesale sales were down 2% in dollars and 7% in unit volume during the third quarter. We raised prices by 10% on July 1 to offset tariff increases. While shipments were down slightly, we were encouraged by the relative strength of our brands at retail following those price increases. In what remains a difficult market, our brands, especially our legacy business performed well. Even so, the unsettled tariff environment, along with weak consumer sentiment and the cautious approach retailers are taking toward inventory investment continues to create midterm challenges. We continue to diversify our factory base to reduce our manufacturing concentration in China while maintaining strong relationships with our long-standing partners there who have been instrumental to Weyco's reputation for quality and value. Expanding our factory base isn't a quick process, and we're very deliberate about partnering only with factories that share a commitment to quality and on-time delivery. As we navigate the uncertainties in this economic environment, we remain confident in the strength of our brands and the resilience of our business model. Sales of our combined legacy business were up 3% despite a 3% decline in unit volume. Florsheim was a standout brand, with sales up 8% for the quarter. Florsheim continues to be a bright spot in men's nonathletic footwear for 2 reasons. First, it's become the go-to brand for traditional dress and dress casual footwear priced under $150. While this segment has shrunk with the trend toward more casual lifestyles, it remains an important part of the market that retailers rely on to meet consumer demand for work in occasion-based styles. Florsheim is gaining shelf space as a bridge brand that offers premium quality at a reasonable price. Second, the brand has expanded its presence in hybrid footwear and dress sneakers with good success. The Florsheim DNA fits well in the refined casual category, which remains a key focus for growth. Our Nunn Bush business was up 1% and continued to show good momentum in retail. With pricing pressures across the industry, Nunn Bush is positioned as a branded value alternative and the comfort casual on traditional dress casual segments as competitors exit the under $80 price point. We continue to invest in Comfort technology platforms that differentiate Nunn Bush from private label options and allow it to compete effectively against higher-priced brands. Stacy Adams was down 5% for the quarter. It remains the leader in accessible elevated dress footwear with exceptional brand loyalty among style-driven consumers. We're focused on expanding its casual offerings to capture the same refined aesthetic. While we're seeing some success, we'll need to grow this segment further and make Stacy Adams back on a growth track. The BOGS business remains challenging with a 17% decline for the quarter. The category became oversaturated after the pandemic and mild winters in recent years have made many retailers more cautious, waiting to fund weather boot purchases closer to the season. As a result, BOGS is now more dependent on fourth quarter cold and precipitation to drive sales. Our focus is on innovation and diversifying away from the winter weather dependence. We believe our seamless construction with its durability and lightweight feel gives us a real competitive edge in the market place. While we're making progress with less insulated and noninsulated footwear, that diversification will take time to materially impact sales. During the quarter, we made the strategic decision to wind down operations of the Forsake brand due to a sustained lack of growth and profitability. This decision is part of our ongoing effort to optimize our brand portfolio and focus on those brands with the greatest potential for long-term success. The closure of Forsake is not expected to have a material impact on our consolidated financials. Net sales in our Retail segment were down 4% for the quarter, driven by a decline in e-commerce sales. We've seen increased price sensitivity from consumers in comparison to last year as more consumers are choosing items at lower prices. We also believe we're losing some sales to our wholesale partners, e-commerce sites since our own sites are often priced at full MSRP while some partners promote our brands more aggressively. The pricing gap widened when we raised retail price points by 10% on July 1, while our wholesale customers phased in to increase more gradually. This situation should level out over time, but we recognize that consumers with limited discretionary spending will continue to shop around through the best prices across our brands. Florsheim Australia's net sales were flat for the quarter, but up 2% in local currency. Our Florsheim Australia business, which includes the South African and Pacific Rim markets, remains a work-in-progress from a profitability standpoint. We're encouraged by the increase in same-store sales during the quarter, but we still need to grow our wholesale business to reach our profitability targets. Our overall inventory as of September 30, 2025, was $67.2 million compared to $74 million at December 31, 2024. We are at a good inventory level as we move into the fourth quarter. Our overall gross margins were 40.7% for the quarter and 44.3% last year. Our wholesale margins were negatively impacted by the incremental tariffs. We took a conservative approach to price increases because we want to maintain our market share, and we do not know where the tariffs are going to land from China or India. While we are encouraged by recent trade talks between the U.S. and China, we still consider the situation to be volatile and uncertain. As we gain more clarity, we will continue to mitigate the impact of incremental tariffs by shifting our supply chain and assessing the need for additional price increases or the implementation of other strategies. As Judy mentioned, yesterday, our Board of Directors declared a special cash dividend. Over the past few years, we've built up cash in excess of what we need to fund operations and capital expenditures. Looking to the future, we anticipate that our strong balance sheet and liquidity will allow us to fund organic growth and pursue future strategic opportunities as they arise. Therefore, we are returning capital to our shareholders in the form of a special cash dividend alongside our other annual quarterly dividend. This concludes our formal remarks. Thank you for your interest in Weyco Group, and I would now like to open the call to your questions. Operator: [Operator Instructions] Your first question comes from the line of David Wright with Henry Investment Trust. David Wright: Can you hear me? John Florsheim: Yes, we can. Judy Anderson: No, we hear you. David Wright: Okay. Thanks for the special dividend. That's excellent. And I applaud the continued efforts at capital management. Tom, do you have any sense on in the last quarter, how much of the margin deterioration is attributable to tariffs? Do you try to look at it that way? Thomas Florsheim: Yes. I would say -- and I'm going to have Judy voice in on this as well. It's 100% basically of our margin erosion. I mean we raised prices 10%. But the incremental duties out of China have been at 30%. And so it doesn't cover -- we didn't raise prices enough, I guess, to cover the cost of the incremental tariffs. We did that intentionally because as we mentioned, we really want to maintain market share, and we don't want to go too fast with price increases until we see where all these tariffs are going to land. India started out -- now the tariffs changed off, but I can't remember where they started out 10% or 20%. And then the administration added an extra 50%. And we have been moving product to India from China. And so it's been -- David, it's been a pretty crazy 6 months. And we're pleased with our results with how this is going on, and we think that we're doing the right things for the long-term health of the business as far as maintaining market share. And reasonable profitability. We know that with the margin erosion, we're not going to be as profitable as we've been in the last couple of years, but we think that we're better off kind of taking time and seeing where everything lands. David Wright: Okay. There's been an increasing commentary in the general business press lately about the upper end of the consumer caring the economy and the lower end cutting back. And I don't know, if you dice your customer base to that extent. But if you do, do you have any sense of -- do you see one region or one wholesale customer, one demographic remaining stronger relative to another? John Florsheim: This is John. It's hard to parse it. I mean, we see certain retailers that have more customers from the lower middle income strata. And I think those customers are challenged right now just in terms of seeing their performance. When you look at our brands, I think the Florsheim attracts a slightly higher income customer. So we're -- and our business with Florsheim is very strong right now. Stacy Adams and Nunn Bush are more of a value customer. And that's -- and I think we're seeing a bit of that drag on those 2 brands. David Wright: Okay. So you're kind of seeing the same thing that other companies are commenting on, and I appreciate the answer there. Okay. Great. Well, those are my questions. I commend you for the continued great quarterly call, the comprehensive review that Judy gives. It's all good. Operator: [Operator Instructions] Seeing no further questions at this time, ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, everyone, and welcome to Bristow Group's Third Quarter of 2025 Earnings Call. Today's call is being recorded. [Operator Instructions] At this time, I'd like to turn the call over to Red Tilahun, Senior Manager of Investor Relations and Financial Reporting. Redeate Tilahun: Thank you, Luke. Good morning, everyone, and welcome to Bristow Group's Third Quarter 2025 Earnings Call. I am joined on the call today with our President and Chief Executive Officer, Chris Bradshaw; and Senior Vice President and Chief Financial Officer, Jennifer Whalen. Before we begin, I'd like to take this opportunity to remind everyone that during the course of this call, management may make forward-looking statements that are subject to risks and uncertainties that are described in more detail on Slide 3 of our investor presentation. You may access the investor presentation on our website. We will also reference certain non-GAAP financial measures such as EBITDA and free cash flow. A reconciliation of such measures to GAAP is included in the earnings release and the investor presentation. I'll now turn the call over to our President and CEO. Chris? Christopher Bradshaw: Thank you, Red. To begin, I want to commend the Bristow team for their steadfast dedication to deliver safe, efficient and reliable services despite the persistent supply chain challenges that have plagued the aviation industry in general and the civilian helicopter industry, in particular, for the last 4 years. I appreciate our team's unwavering commitment to operational excellence and delivering the best possible outcomes for our customers and stakeholders. We are also pleased to report another quarter of strong financial performance with adjusted EBITDA of $67.1 million in Q3 2025. Looking forward, Bristow continues to have a positive outlook for offshore energy services activity. Deepwater projects are favorably positioned, offering attractive relative returns within the asset portfolios of oil and gas companies. And we believe offshore projects will receive an increasing share of upstream capital investment. This positive long-term demand outlook is paired with a tight supply dynamic. The fleet status for offshore configured heavy and super medium helicopters remains near full effective utilization levels. The ability to bring in new capacity remains constrained with production lines that must be shared with military aircraft orders and current manufacturing lead times of approximately 24 months. We believe the tight supply of offshore helicopters supports a more constructive outlook for our sector relative to some other offshore equipment sectors. In addition, 2026 represents an important inflection point for Bristow's Government Services business as we reach the full operational run rate under the Irish Coast Guard contract and continue the transition to the new UKSAR2G contract in the United Kingdom. While the costs incurred to effectuate these contract transitions have caused a negative drag on profitability in 2025, that impact inverts in 2026 with adjusted operating income from our Government Services business nearly doubling year-over-year. For the company as a whole, I would highlight that the midpoint of Bristow's 2026 adjusted EBITDA guidance represents a 27% increase over the midpoint in 2025, reflecting the robust growth expectations for our business. I will now hand it over to our CFO for a more detailed discussion of Q3 results and our financial outlook. Jennifer? Jennifer Whalen: Thank you, Chris, and good morning, everyone. As Chris noted, we are pleased to report another quarter of strong financial results with total revenues reflecting an increase of $9.9 million and adjusted EBITDA reflecting an increase of $6.4 million on a consolidated sequential basis, both of which were primarily driven by our Government Services and Other Services segments. We have also updated and tightened our 2025 and 2026 outlook ranges, which I will discuss further on during this call. Turning now to our sequential quarter segment financial results, beginning with our Offshore Energy Services or OES segment. Revenues and adjusted operating income were both $2.4 million lower this quarter. Revenues in Europe and Africa were $6.6 million and $1.5 million lower, respectively, primarily due to lower utilization, while revenues in the Americas were $5.7 million higher, primarily due to higher utilization. The lower revenues were partially offset by lower general and administrative expenses due to a decrease in professional services fees. Overall, operating expenses were consistent with the preceding quarter, primarily due to higher personnel costs of $7.3 million due to the absence of a seasonal personnel cost benefit in Norway in the preceding quarter and higher benefits and overtime costs in the current quarter. These increases were offset by lower repairs and maintenance costs of $5.3 million, driven by higher vendor credit and a decrease in other operating expenses of $2.3 million. Moving on to Government Services. Revenues were $8.4 million higher, primarily due to the ongoing transition of the Irish Coast Guard contract as an additional base commenced operations in the third quarter. Operating expenses were $2.8 million higher and largely comprised of higher subcontractor costs, increased amortization of deferred costs and higher personnel costs, all of which were related to the new government services contract. Repairs and maintenance costs, however, were $4 million lower due to higher vendor credits and the timing of repairs. General and administrative expenses were $0.8 million higher, primarily due to higher professional services fees and personnel costs related to contract transitions. Adjusted operating income for this segment was $4.8 million higher this quarter. Before we move on to our Other Services segment, I'd like to provide color on the references to vendor credits in our OES and Government Services segment. In our industry, OEM or vendor credits are common practice and generally provided for reasons such as credits tied to asset purchases, particularly when a customer has placed orders for several aircraft, OEM performance and delays and incentives when entering or extending long-term maintenance contracts or as refunds when exiting such contracts. While we have historically received vendor credits and applied them towards aircraft and inventory parts purchases or ongoing maintenance, we benefited more materially from such credits this quarter and continue to value our strong relationships with our OEMs. As a reminder, Bristow is the world's largest operator of S92, AW189 and AW139 helicopter models, which remain the most in-demand models for both offshore crude transportation and SAR missions. Finally, revenues from other services were $3.8 million higher, primarily due to higher activity in Australia of $4.8 million, partially offset by the conclusion of a dry lease contract. The higher revenues were partially offset by higher operating expenses of $1.9 million related to the increased activity in Australia. As a result, adjusted operating income was $1.9 million higher this quarter. Moving on to Bristow's financial outlook. You may recall from our previous earnings calls that the primary factors that could bias results to either end of our guidance range include supply chain dynamics that impact aircraft availability, customer activity levels influenced by global energy demand, new contract transitions and the exchange rate of foreign currencies relative to the U.S. dollar, namely the British pound sterling and to a lesser extent, the euro. As such, we are tightening our 2025 adjusted EBITDA range to $240 million to $250 million on total projected revenues of $1.46 billion to $1.53 billion. For 2026, we are tightening our adjusted EBITDA range to $295 million to $325 million on total projected revenues of $1.6 billion to $1.7 billion. This represents an approximately 27% increase in adjusted EBITDA from the 2025 to 2026 midpoint. Given better visibility into operating costs and expected customer activity levels, we are updating the adjusted operating income guidance ranges for our OES segment to approximately $200 million for 2025. Despite current market conditions in the energy sector, we expect strong performance from this segment to continue in 2026 as evidenced by the updated adjusted operating income range of $225 million to $235 million, representing a 15% year-over-year increase from the midpoint. While margins in our Government Services segment improved this quarter and the capital investment for our 2 new government contracts have largely concluded, we expect this segment will continue to feel the effects of new contract transitions until they are fully operational. The strong margins and earning potential of this business will continue to improve as the operations and revenues for the contracts continue to ramp. The 2026 midpoint for our adjusted operating income range reflects a 76% increase compared to 2025. And in other services, we expect the improved economics of our regional airline in Australia to persist and for this segment to remain consistent and cash flow accretive. Turning now to cash flows. Operating cash flows generated approximately $122 million year-to-date 2025 compared to $126 million in the prior year. Working capital continues to be impacted by increases in inventory to support new contracts and mitigate risk related to supply chain constraints and an increase in other assets primarily related to start-up costs for new government services contracts. However, we expect working capital to improve over time as supply chain constraints subside and our new contracts conclude their transition periods and reach their full operational run rate. Additionally, as of the third quarter, our unrestricted cash balance was approximately $246 million with a total available liquidity of $313 million. Moving on to our previously announced capital allocation targets. We made an additional $25 million of accelerated principal payments on the U.K. SAR debt facility in the current quarter, bringing the total accelerated payment to $40 million this year. In summary, we remain focused on meeting our financial and operational targets and executing our capital allocation strategy while continuing to benefit from and working to maintain a strong balance sheet and liquidity position. At this time, I'll turn the call back to Chris for further remarks. Chris? Christopher Bradshaw: Thank you. In conclusion, we are pleased to highlight the company's robust growth outlook for 2026 as evidenced by expected adjusted EBITDA growth of approximately 27% year-over-year. This outlook is supported by the growth and stability of our Government Services business, the heavy weighting of our offshore energy services business to more stable production support activities and the breadth and diversity of the geographic markets we serve. With that, let's open the line for questions. Luke? Operator: [Operator Instructions] Our first question will come from Jason Bandel with Evercore ISI. Jason Bandel: I want to first ask about your guidance in OES. I give you guys a lot of credit for providing 2-year forward guidance on most -- you have only 1 quarter forward. But given the lower utilization in OES during the quarter, and I guess the tightening of the forward guidance that you talked about, Jennifer, could be slightly lower, what kind of implications should we make about the market given that? And is this a sign that customer demand for helicopters is beginning to weaken in the short term? Or how should we think about it? Christopher Bradshaw: Yes. Thanks for the question. As you noted, we did tighten the range this quarter. That's consistent with how we generally approach as we near the end of a period/beginning of a new one, we'll look to narrow that range. In this case, that updated guidance did impact the midpoint by about 2%. But in terms of the guidance around the OES business specifically, I would point to 2 main factors. First, we have experienced some persistent supply chain challenges that are impacting aircraft availability. In some cases, that might result in lost revenue opportunities. In other cases, particularly on some legacy contracts, it may result in some contractual penalties under the contract related to aircraft availability. And then the second category I would point to is fewer aircraft, a small number on contract in the North Sea and the U.S. But overall, again, still expecting positive offshore energy services activity and growth for our business. And overall, for the company, really highlighting that we're expecting 27% growth in our adjusted EBITDA year-over-year, which I think within our sector, within a peer group is a real positive differentiator. I'm not sure that anyone else is pointing to that kind of growth in the next year. Jason Bandel: Yes. I agree, Chris. And as a follow-up to that, I guess this is more of a kind of a macro level. Can we discuss your current outlook for your main OES markets and regions given some of the seasonality you have in your business? And if you can kind of just go around and what you're seeing out there would be helpful. Christopher Bradshaw: Yes, happy to do that. I would probably start with Brazil, which is a market that we believe continues to have some of the best, if not the best growth prospects for any of the offshore regions. Really right near there in the same category would be Africa, where we're seeing continued demand and a need for additional aircraft in our business there. And I'd also add the Caribbean to that list, which is still growing. So each one of those markets are ones that, again, are still growing. We're seeing net aircraft inflows, meaning that we're mobilizing additional capacity into those markets to meet the demand. The U.S., I would say, is mostly stable, though with less ad hoc work. So the U.S. Gulf is an area where we typically would see a lot of ad hoc aircraft over and above the contracted fleet count. That has admittedly decreased some, which I think is an indication of stable activity that's able to be addressed by the contracted fleet levels. And then finally, on the less positive side would be the North Sea, which is softer in terms of activity. Jason Bandel: That was helpful. And just one last quick one since you brought up in the prepared remarks on the vendor credits since some might not be as familiar with those. Why were those materially higher this quarter? And do you guys typically include that in your guidance? Jennifer Whalen: Sure. I mean it's an indication of the increased activity that we've had. I noted a few different ways that we -- that credits come about, right, buying aircraft, the incentives when you enter into long-term maintenance contracts or you exit aircraft out of those contracts and then OEM performance and delays. So all of that is -- it's a mixture of all those credits. We -- this is not anything new. It's just an increased activity we've always experienced these credits. So as activity levels continue to be increased, there's likely to be a heightened level of credits over the next period of time. Operator: Our next question comes from the line of Josh Sullivan with JonesTrading. Joshua Sullivan: So how many aircraft are you aiming to take delivery of for each of your segments? And then I guess if you could just touch on maybe the timing and location where these aircraft are expected to be deployed? Christopher Bradshaw: Yes. I would say there are really 2 categories of pending deliveries. The first are aircraft that we've actually already taken delivery of from the OEM, but are not yet placed into our operating fleet count as we're completing final configuration and modifications on those aircraft. In our Government Services business, that would be the right category for the pending deliveries. So we've taken delivery of 5 aircraft that are, again, undergoing final modifications now before being placed into operations. 2 of those are AW189s that are going to the Irish Coast Guard contract in Ireland. And 3 of them are AW139 aircraft that are going to the new SAR2G contract in the United Kingdom. The second category of pending deliveries are aircraft that are still under construction by the OEM. We have not yet taken physical delivery of these aircraft. That category would characterize the remainder, which is 7 offshore, so OES configured AW189s that we have on order. We know where those are going. Those locations are going to be split between Brazil, Africa and the North Sea. Joshua Sullivan: Got it. And then where -- between those 2 groups or just generally, where are the primary supply chain bottlenecks at this point? Christopher Bradshaw: Yes. We're still seeing significant supply chain issues, I'd say, across the board, unfortunately. So this is impacting the aftermarket. So delays for parts, components that we need to maintain the aircraft, keep them operational and in service. Over the last few years, we had more of a concentration of that type of challenge in a particular model, namely the S-92 heavy helicopter. However, we're seeing -- well, that situation has actually improved some, so it's ameliorated. So not quite where we would want it to be. We're seeing now similar issues with other helicopter models, for example, the AW189. So aftermarket support would be one category. This is now also impacting the timing of new deliveries. So not so much for the government side because I mentioned, we've already taken delivery of those aircraft now and are putting them through final modifications. But on the offshore configured AW189s, we expect there will be delays in aircraft coming off the production line. A lot of that relates to something you'll be familiar with, Josh, which is just the complexity of a modern aviation supply chain where the OEM itself over the last several decades has outsourced to an increasing number of subcontractors and vendors. And as they're now looking to produce these aircraft, they're having their own struggles in sourcing some of the components on time to meet the expected delivery schedules. So it's really both aftermarket and new deliveries that are being impacted by these supply chain issues in the industry. Joshua Sullivan: And I guess maybe a related question, just what does CapEx maybe look like in '26 as a result? Christopher Bradshaw: We see total CapEx in '26 of about $100 million. So that's in round numbers, roughly $20 million of maintenance and another $80 million of growth on a net basis, which is really related to those offshore configured AW189s that I mentioned. The one thing I would highlight there is if you take that full $100 million of CapEx growth and maintenance, run it through the waterfall of the guidance we've provided, you're still looking at approximately $140 million of free cash flow in 2026 at the midpoint of guidance, which on a company that has an equity market cap of roughly $1 billion, $140 million is a pretty healthy free cash flow yield in our view. Joshua Sullivan: Yes. And then I guess just one last one. Just any updates on the advanced mobility trials, BETA, Elroy, others? Just how is that dynamic progressing? Christopher Bradshaw: Yes. Thanks for the question. I'd say that's going very well. As you may be aware, we launched in August a Norway Sandbox project, which really represents a first-of-its-kind real-world flight testing of precertified aircraft that's being sponsored by the Norwegian government in partnership with the OEM, which in this case is Beta Technologies. And congratulations to our friends and partners at Beta Technologies for their IPO on the New York Stock Exchange yesterday. It was a nice milestone for them. And here in the test arena in Norway, we're using the Beta CX300 all-electric aircraft that's being operated by Bristow. So what this is allowing us to do is collect real-world data to validate assumptions and learn. So what's the aircraft, what are the batteries actually doing in different temperatures at different altitudes, et cetera, and take that, incorporate that again into the learnings, which, again, first of its kind test arena, we see this as being an important step in commercializing advanced air mobility. And we see this type of model being probably likely replicated in other countries and with other AAM model aircraft as well. Operator: Our next question is from Steve Silver with Argus Research. Steven Silver: They are mostly housekeeping. Just in terms of the asset sales that you guys reported this quarter and then also the proceeds from the sale of 2 helicopters, I was hoping you could provide any color just on the nature of these sales and whether we should expect any further activity like this over the coming years? Jennifer Whalen: Sure. Steve. So we opportunistically sell assets when they're no longer needed in our fleet. And typically, there are older assets that have outlasted their feasibility in the markets we serve and sold them -- and typically sold to other markets like utility or firefighting. In addition, we will look at opportunities to do sale-leaseback transactions when those make sense for helicopters in our fleet. In the case of this quarter, we performed a sale-leaseback transaction on one of our new SAR aircraft, which accounted for much of that sales proceeds for this quarter, and we did then sell an older asset as well. Steven Silver: Great. And one more, if I may. On the income tax benefit in Q3, I was hoping you could just discuss the future outlook on the tax line, especially on the effective tax rate and what your thoughts are as the net income position of the company continues to grow? Jennifer Whalen: Sure. So related to this quarter, each quarter, we do review our -- the attributes for our different tax positions by our different jurisdictions that we're in. This quarter, we determined that the valuation allowance we had on our Australian operation could be removed due to the positive results we have with that part of our business. So this release of the valuation allowance was the primary driver for the onetime tax benefit. So I wouldn't expect that -- that was a onetime deal. So as our profitability does improve, our tax rate will be closer to a normalized tax rate. We have -- we're in many different jurisdictions. So it will be some average tax rate a little bit somewhat north of what the U.S. tax rate is. Operator: Our final question will come from the line of Colby Sasso with Daniel Energy Partners. Colby Sasso: A number of larger integrated E&Ps have talked on their conference calls about a need for more exploratory drilling over the next few years. Do you see this as a focus for your customers moving forward? Christopher Bradshaw: Yes. Thanks for the question. Yes, we do see that as a focus moving forward. Our business is really much more weighted to production support activity with 85% of our revenues from offshore energy services driven by production activities. For the remainder, though, we are exposed to exploration. And I'd say our view is probably mostly in line with consensus and that we continue to believe that deepwater projects are favorably positioned with attractive relative return prospects within our oil and gas customer portfolios. And so we see an increasing share of capital investment from the upstream going into deepwater and offshore projects. And we see that as being a solid long-term driver and outlook for the business. And in our case, really coupling that with a very tight supply picture with a limited number of available heavy and super medium offshore configured helicopters today. Colby Sasso: Makes sense. And as a quick follow-up, you noted a new aircraft headed to the North Sea, but several drillers have moved their rigs out of Norway in recent years, setting no near-term upside in rates or utilization in that market. Additionally, E&Ps are not bullish on the U.K. energy industry either. Can you expand on why you see the need for new builds going into that market? Christopher Bradshaw: Yes. Fair question, and I appreciate the opportunity to expand upon that. So I would say that we do not see upside or growth in the North Sea necessarily. It is a mature market that over the long run is more likely to decline than otherwise. However, what's going on in this situation is that these are helicopter fleet replacements. So namely new AW189 that will be replacing legacy S-92s that are aging out of the fleet. And so we have customers, upstream oil and gas companies that we're looking for a more reliable aircraft, a more modern aircraft and so it's an opportunity for us to provide that on a secure long-term contract with enhanced profitability, better returns than what they're replacing. So while not growth, this is certainly value accretive for the company. Operator: This concludes our question-and-answer session. I'll now turn the call back over to Chris Bradshaw for closing remarks. Christopher Bradshaw: Thank you, Luke. And I appreciated the opportunity earlier to talk about what's going on in advanced air mobility and the important developments in that new industry sector for all-electric and hybrid aircraft platforms. As I mentioned, there are some important milestones and developments happening right now. We expect the first aircraft models in that sector to be certified next year, 2026, really just around the corner. In theory, Bristow might take delivery of the first of those aircraft in 2026. However, we think that's less likely. We're not contemplating any contributions in our guidance for next year. It's probably more likely that Bristow would take its potential first deliveries in the 2027, 2028 time frame. But we do believe that advanced air mobility and both all-electric and hybrid aircraft are going to be a part of the future of aviation. And as the global leader in vertical flight for the last 75-plus years, we believe there's a role for Bristow to play there and are excited about the partnerships we're developing with some of these OEMs and pursuing market opportunities together. We also remain excited about the growth that we're projecting for the business next year with that 27% increase in adjusted EBITDA, which we see as really a positive differentiator for the company. With that, we appreciate everyone's time today. I hope you stay safe and well. We'll talk again next quarter. Thank you. Operator: This concludes today's call. You may now disconnect at any time.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Fineco Third Quarter 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO and General Manager of Fineco. Please go ahead, sir. Alessandro Foti: Good morning, everyone, and thank you for joining our third quarter 2025 results conference call. In the first 9 months of 2025, net profit at EUR 480.5 million and revenues at EUR 969.6 million, supported by our nonfinancial income, investing up by 10% year-on-year, thanks to the volume effect and the higher control of the value chain by Fineco Asset Management, and brokerage is up by 16.5% year-on-year, thanks to the enlargement of our active investors. Importantly, if we zoom on our quarterly dynamics, net profit and revenues were back to the sequential quarter-on-quarter growth. Our net financial income has already bottomed out and fully absorbed the decreasing interest rates and was up around 2% versus the second quarter on the back of positive deposit net sales and positive reinvestment yield. Operating costs well under control at EUR 259.9 million, increasing by around 6% year-on-year by excluding costs related to the growth of the business. Cost income ratio was equal to 26.8%, confirming operating leverage as a key strength of the bank. Moving to our commercial results. The underlying step-up in our growth dynamics gets crystal clear month by month. This is underpinned by the positive tailwinds from structural trends, and we are leveraging on this solid momentum through a more efficient marketing. The result of this acceleration has been clearly visible in the first 9 months of 2025. First of all, we added around 145,000 new clients, up by 33% year-on-year. In October, new clients are around 19,000, the second best month on record, up more than 25% year-on-year. Second, our net sales were EUR 9.4 billion in the 9 months up by strong 36% year-on-year. In October, estimated total net sales saw a further continuation of this trend at around EUR 1.3 billion, up by more than 30% year-on-year. The mix was very positive with assets under management at around EUR 0.5 billion net sales, up by more than 20% year-on-year. Deposits at around minus EUR 0.1 billion, and assets under custody at around EUR 0.9 billion, leading to the best month ever for brokerage revenues at around EUR 31.5 million. Our capital position continued to be strong and safe with a net common equity Tier 1 ratio at 23.9%, and a leverage ratio of 5.11%. On the right-hand side of the slide, you can find the summary of our guidance. Our outlook for 2025 has improved, thanks to the acceleration of the structural growth and under it, our business model. More in detail, our net financial income bottomed earlier than expected in the second quarter, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with the lower interest rates. Brokerage revenues for 2025, we expect a record year, thanks to the continuously growing floor driven by the higher asset under custody and enlargement of our active investors. October revenues are just the latest evidence of the higher floor of the business. Banking fees are expecting a slight decrease in 2025 versus 2024 due to new regulation on instant payment. On operating costs, we expect a growth around 6% year-on-year, not including a few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million, mainly for marketing and Fineco Asset Management and AI. Finally, in 2025, we expect a payout ratio in the range between 70% and 80%. On 2026, we expect all the business areas to contribute positively in terms of growth to our revenue growth. Net interest income is expected to grow year-on-year on the back of positive deposits, net sales and reinvestment yields. On investing, we expect a solid growth on our asset under management net sales. Banking fees expected to grow on the back of a higher number of clients. Brokerage revenue expected to grow, thanks to the increase of the asset under custody and active investors. On 2026 guidance, more details will be provided during the next year, Capital Market Day on March 4. Let's now move to Slide 5. Before moving into the details of the presentation, let me stress that month after month, Fineco is recording a continuous acceleration of its growth dynamics supported by a very healthy underlying quality. As you know, our business model relies on diversified and quality revenue stream, allowing the bank to deal with any market environment. On the banking revenues, our net financial income is a capital-light one with lending being only in an ancillary business, and it's driven by how our clients valuable and sticky transactional liquidity. Let me stress that deposits are joining our platform for the quality of our banking services and not due to aggressive commercial campaign on short-term rates. That's why our deposits are so valuable and our cost of funding is practically close to 0. Our investing revenues are recording and healthy and future-proof expansion as they are already aligned with clients' rising demand for transparency, efficiency and convenience. This approach is mirrored in the quality of our revenue mix, which is almost entirely recurring with a very low percentage of upfront fees and no performance fees at all. Finally, our brokerage is clearly experiencing a further step up on the floor of the business, thanks to the capability of our platform to have a structurally higher number of active investors, leading to a structurally higher stock of assets under custody. This is driven by the structural increase in client interest to be more active on the financial market, and this is building a bridge between the brokerage and investing world, which we are the only one able to scoop given our market position. Let's now move to Slide 7 and start commenting on the most recent plan. Net financial income fully absorbed the decreasing market rates, thanks to the organic growth and our valuable deposit base. This net financial income was up by 1.9% quarter-on-quarter, led by the positive deposit, net fees in the higher reinvestment yield of our bonds running off. This despite the still declining average 3-month Euribor. Let me quickly remind you the quality of our net interest income, which is capital light and driven by our clients' valuable and sticky transactional liquidity. That's why our deposits are so valuable and will be the driver going forward for the growth of our net financial income. Let's now move on to Slide 8. Investing revenues reached EUR 295.6 million in the first 9 months of 2025, increasing by a solid 10% year-on-year on the back both of growing volumes, thanks to our best-in-class market positioning and of the higher efficiency of the value chain through Fineco Asset Management. Let me remind you the great quality of our investing revenues mirroring our transparent and fair approach towards clients. Our revenues are mostly driven by recurring management fees with very low upfront and no performance fees at all. Let's move on to Slide 9. In this slide, we are representing the 2 main sources of growth for our investing business going forward. On one hand, the Fineco Asset Management is progressively increasing the control of the investing value chain, its contribution to the group net sales has been consistent over the cycle, thanks to its incredible time to market in delivering new investment solutions aligned with clients' needs. The contribution of Fineco Asset Management, assets under management after the total stock of assets under management has been steadily growing, and it's now equal to 39%. On the other hand, being a platform, Fineco is the best place to catch the latest trends in terms of client investment behaviors. There is a clear change underway in the structure of the market with clients increasingly looking for transparent, efficient and convenient solutions. All of this is channeling a strong demand towards advanced advisory services and with an explicit fee where Fineco is by far the best positioned in Italy, as you can see down in the slide. Let's now move to Slide 10 for a focus on brokerage. Brokerage registered a very strong first 9 months with EUR 187 million revenues driven by our larger active investment base and growing stock of assets under custody. October further built on this, delivering a record month with EUR 31.5 million estimated revenues. Let me stress that the revenues to our assets under custody are expected to grow as we roll out our new initiatives on stock lending, auto forex, ETFs and systematic internalizer. Average revenues in the 9 months are around 7.3% higher versus 2020 with much healthier underlying dynamics. This is driven by the structural increase in client interest to be more active on the financial markets and building a clear bridge between the brokers and investing world. The brokerage business represents the best sign of how fast the structural financial market is evolving as technology is driving a swift change in clients' behaviors, thanks to higher transparency. For this reason, we consider the brokers Italian market very underpenetrated, and we see a strong opportunity to grow despite already being the market leader. And again, October numbers are a clear sign of this opportunity. Let's now move on the Slide 12 for a focus on our capital ratio. Fineco confirmed once again capital position well above requirement on the wave of a safe balance sheet. Common equity Tier 1 ratio at 23.93%, and the leverage ratio at a very sound 5.11%, while risk-weighted assets were equal to EUR 5.81 billion, total capital ratio at 32.53%. As for the liquidity ratios, liquidity coverage ratios is over 900% and net stable funding ratio is over 400%, while the ratio, high-quality liquid assets on deposits is at 80%, well above the average of the industry. Going forward, we confirm that we will continue to generate capital structure and organically, thanks to our capital light business model. Given the strong acceleration of our growth, we are taking more time to have a clear view on deposit net sales going forward and the underlying dynamics are strongly improving. If despite the strong acceleration in our growth, there will remain excess capital, we will decide on the best way to return it back to the market. Now let's move to Slide 18. Let's now focus on our guidance. Our outlook for 2025 has improved thanks to the acceleration of the structural trends behind our business. More in details, our net financial income bottomed earlier than expected, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with lower interest rates. Brokerage revenues are expected to remain strong with a continuously growing floor, thanks to the higher asset under custody and the enlargement of our active investor base. For 2025, we expect record revenues with October number being just the latest evidence of the higher floor. Banking fees are expected with a slight decrease compared to 2024 due to the new regulation on instant payments. For 2026, we expect all the business hires to contribute positively to our revenue growth. The net interest income is expected to grow year-on-year on the back of deposits, net sales and reinvestment yields. On investing, we expected solid growth of our assets under management net sales. Banking fees are expected to grow on the back of higher clients. Brokerage revenues are expected to grow, thanks to the higher asset under custody and the enlargement of active investors. On 2026 guidance, more details will be provided during the next year Capital Market Day on March 4. On operating cost for 2025, we expect to grow at around 6% year-on-year, not including few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million mainly for marketing, Fineco asset management and AI initiatives. Cost/income, we expect it comfortably below 30% in 2025, thanks to the scalability of our platform and the strong operating gearing we have. On the payout ratio, we expect that for 2025 in a range between 70% and 80%. On leverage ratio, our goal is to remain above 4.5%. Cost of risk was equal to 7 basis points, thanks to the quality of our lending portfolio. And for 2025, we expect it in the range between 5 and 10 basis points. Finally, we expect a robust and high-quality net sales and the continued strong growth expected for our client acquisition as we are in the sweet spot to keep on adding new market shares. Let now move on to Slide 19 for a deep dive on our growth opportunities. Fineco enjoy a unique market positioning to catch the long-term growth opportunity, resulting by the huge Italian households whilst in the fast-changing clients' behaviors. In the graph, you can see the strong potential of our growth given the stock of financial wealth on the Italian families. Our market share is still small, and the room to grow is huge. We are very positive on our future outlook as we have no competition on our market positioning. As a matter of fact, Fineco is the only big player with a service model truly based on transparency, efficiency and convenience. Moving now to Slide 20. The step-up of our growth trajectory is clearly materializing, as you can easily see in our recent client acquisition. On top of the slide, you can see the impressive acceleration of new clients, which is further building up in the first 9 months of 2025. This acceleration is very healthy because it's based on the quality of our offer and not on an aggressive marketing campaign with short-term rate remuneration. As a result, all our new clients are improving the metrics of the bank by bringing more deposits or more business for brokerage and investing. This value is recognized by our clients, as shown by our customer satisfaction of 94% and our Net Promoter Score way above the industry average. Let's now move to Slide 21. The cumulative growth on high-quality new clients is translating into better net sales dynamics shown by the 36% increase of our total net sales year-on-year. Let me share that the mix of our net sales mirrors our positioning as the reference partner for all clients' financial needs, with asset under management is driven by client interest for transparent, efficient and convenient investment solution. Our banking platform is attracting valuable transaction liquidity. Finally, asset under custody are clearly sign of the increasing clients' engagement on our brokerage platform, thus contributing to our revenue generation. On top of this, we see a sizable mix shift opportunity coming from the huge stock of Govies of our clients, both over the last couple of years. Let me now hand it to Paolo, our Deputy General Manager and Head of Global Business, to comment on Slide 22. Paolo Grazia: Thank you, Alessandro. Good morning, everybody. As you know, the financial industry is quickly heading into an inflection point and it's going to be heavily reshaped by technology. Thanks to our deep internal know-how and data control, Fineco is the only real player able to take massive advantage from it and to further accelerate our growth journey. This will be reached with our usual cost effective approach. We are planning to launch an efficient and pervasive AI implementation in 2 directions. First, focusing on productivity of our network of personal financial adviser; and second, playing attention to the cost efficiency and the bank -- of the bank by reshaping the internal processes. While on the latter, we will update the market in the next month. We have already started to reengineer our financial adviser platform with the integration of an AI assistant. This is a key enabler to boost our network productivity and deliver a better quality service to clients, and ultimately improving our revenues growth via stronger net sales and assets under management. Our very first initiatives are already live and widely used by our network. Our financial planners have in their hands a powerful AI assistant, which is going to be a game changer for wealth management. In the slide, you can see the main features of the AI assistant, among which is worth underlying, one, the portfolio builder, a powerful tool to immediately create quality portfolio fed with Fineco financial logic and optimize on client goals. And the portfolio builder is also a content creator, a communication tool able to create professional and customizable reports, proposals, portfolio reviews and brochures automatically generating narratives, content to support the financial planners. It's also a powerful marketing tool, allowing for comparison of existing portfolio of prospect clients. The AI system is also a search tool, a faster info-search process for internal memo and communication. The next wave of AI implementation will focus on CRM for our financial advisers, fully integrated with client data. It will empower our financial adviser to manage their agenda more efficiently, enabling a structured approach to client engagement and cross-selling by streamlining customer management and unlocking new commercial opportunities. This will represent a further step in enhancing productivity across our network and driving for an even stronger growth. Finally, we are working to bring an AI powered search tool also to our brokerage client, our finance clients, allowing for an even easier experience to our state-of-the-art platform. I will hand it back to Alessandro to move on Slide 23. Alessandro Foti: Thank you, Paolo. Let me now focus on our assets under custody, a component to our business that is sometimes undervalued by the market, but that is the real cornerstone of our fee-driven growth. This is true for investing as assets under custody remains the main source fueling our asset under management sales. As you know, around 90% of our growth is organically driven. As a consequence, new clients tend to show an asset allocation more skewed towards assets under custody, and the job of our financial advisers is to improve their mix into asset under management. For brokerage, the expansion of assets under custody and the growing base of active investors are key factors leading to a structurally higher floor in our revenues, which we expect to grow as we roll out our new initiatives on the stock lending, after-tax, ETFs and systematic internalizers. Finally, in the fast-growing ETF space, we are exploring new revenue opportunities, which we expand moving into Slide 24. Fineco is uniquely positioned to capture the strong client-driven shift towards more efficient investment solutions such as ETFs. The stock is quickly on the rise and now exceed EUR 15 billion. And ETFs now accounting for half of the asset under custody net sales. Thanks to our focus on transparency, efficiency and convenience, we are the only player capable of fully recognizing and monetize the structural trend with no harm on our profitability. First of all, the growing interest on ETFs is generating a positive volume effect for our investing business, thanks to our advanced advisory wrappers made of ETFs, we can move in the investing world of clients that are not interested in traditional mutual funds, thus we have no cannibalization risk on the existing fund business. At the same time, our leadership in ETFs retail flows makes us the main gateway for issues into the Italian retail market, while we currently manage all cost to handle clients without recurring fees from ETFs, talks are underway with our partners to find a fair balance. Finally, Fineco Asset Management is going to be playing a big role in the ETFs world, our Irish firm already launched its first active ETFs, and more are going to be introduced. Thank you for your time. We can now open the call to questions. Operator: [Operator Instructions] The first question is from Marco Nicolai of Jefferies. Marco Nicolai: First question is on the brokerage number for October. So almost EUR 32 million in a month. It's a record number. Just wanted to know if there is some -- so what's the impact from the BTP Valore issuance? And if you can comment on the underlying trend x the BTP Valore revenues? Then another question on the crypto front. I think you didn't mention it in the various projects in the presentation, you mentioned AI and other projects but not crypto. Just wanted to know if you had any updates there on the talks with Bank of Italy? One of your peers got recently the MiCA license from Cyprus in the past days. I don't know, my perception is that there could be other geographies that are quicker than Italy in granting these licenses and if that could slow down your projects here and the growth you could have in brokerage coming from the crypto side? And then another question on the payout. You mentioned 70% to 80% for 2025. I guess your leverage ratio will be well above your minimum targets for '25. And if that's the case, shall we consider 80% for 2025? Or you think there are other moving parts in the leverage ratio that could negatively affect it? So these are my questions. Alessandro Foti: Let me start by commenting on the October brokerage numbers. The impact of the -- from the BTP Valore has been more or less in the region of EUR 5 million. So this means that in any case is remaining so excluding the contribution of the BTP Valore, the numbers are EUR 26 million revenues in the month of October, that is quite significantly above the average of the revenues generated in the previous month. And this clearly is clear, perfectly current with the underlying trends that we are commenting by some time. So there is a continuous quite significant growth of the base of clients whereas continuously adding new active investor to the platform. Second, the continuous building up of assets under custody is clearly contributing in that direction because clients are not trading -- are trading stocks and trading bonds and they are trading ETFs as well. And so we remain extremely positive on the future evolution of brokerage exactly for the reasons we commented during the presentation. So structural changes underway and a continuously growing quite significantly the important growth in terms of number of clients and the Fineco emerging as the clear winning platform here in Italy. On crypto, I leave the floor to Paolo for giving the latest update on what's going on there. Paolo Grazia: So the crypto is still a project. We're still in talks with the regulator. We have no news for now from the last call that we had. We are very aware that we have plenty of competitors that are getting the MiCA license. Unfortunately, in Italy, there is nobody yet, I guess, that has MiCA license, but we keep on talking and explaining our view to the regulators, and we hope we will come with a solution in the next few months. Alessandro Foti: On the payout, we clearly, what we want to make very clear that Fineco is a growth story, it's a unique growth story because the uniqueness is represented by the fact that we are combining together an incredibly pool of growth together with a quite generous payments of dividends. But we are not a dividend stock. So clearly, our goal is not to give the market the highest possible dividend. So our main goal is to keep on accelerating as much as we can in directional growth. At the same time, remaining in a very compelling story from a dividend point of view. So clearly, we will see. So now, we are at year-end, we are going to take the final decision, which is going to be the final dividend payout. But so there's that. Again, my opinion there, the most important takeaway that again, Fineco is a quite unique case in the financial industry, strong growth and at the same time, very generous deal. Operator: The next question is from Luigi De Bellis of Equita. Luigi De Bellis: I have 3 questions. The first one, so in the recent months, Fineco has seen an acceleration in new client growth. What has changed to drive this momentum? And if do you expect this trend to continue at the same speed in terms of client acquisition? And can you comment also on the quality profile of this newly acquired client and also the acceleration that we are seeing in the net bank transfer that you mentioned in the Slide #7, that is above plus 20%. The second question on the asset under custody so a huge amount reaching EUR 52 billion. You mentioned the revenues on assets under custody expected to grow. Can you elaborate on this and the speed of this acceleration expected? And the last question on the Germany project. So could you provide an update on the initiatives? What are the current development and expected time lines for the rollout? Alessandro Foti: Yes. Regarding the acceleration of new clients, what is driving this growth is clearly structural tailwinds because as we explaining continuously that Fineco is the only one large established significant bank in Italy that is really offering efficiency, transparency and convenience. And this kind of demand is rapidly growing, driven by the completely different technological landscape, which I think is much easier to make comparison. It's -- everything is the information is spreading out incredibly rapidly. And then there is quite significantly accelerating process of generational passage. So Fineco is the -- so now that there is the x generation that is mostly entering into the game. And this generation is characterized by significantly different habits and behaviors by the previous generations, where again, sorry if I'm repeating myself, the request for efficiency, transparency and convenience is emerging as a clear need. And Fineco is the only one player that is fully satisfied this -- for this reason, we think that really, the strong growth is going to continue, probably is going to keep on accelerating even more going forward because all these tailwinds are going to keep on gaining strength and momentum. And the acceleration of the net bank transfer has an immediate consequence of this because -- and this also is giving to me the opportunity to answer to the other questions on the quality of new clients. The quality is remaining extremely high and robust. We are not observing any kind of dilution in the quality of clients we are taking on board. And this clearly is mainly driven by the approach by the business model of the bank. Very importantly, Fineco is not attracting clients because it's taking shortcuts. We are not putting in place aggressive short-term initiatives for taking on board new clients. So we are not, for example, overpaying clients with high rates on the projects. By the way, in this moment, we have -- there are plenty of banks that they are making continuously very, very high offer on rates. But we're not -- and so the results that the clients that are opening an account in Fineco, they are opening an account just exclusively because they are interested in using our platforms, our services. And this really is very positive for the -- in terms of quality of clients, and is incredibly positive for the evolution of the revenue generation that is going to every single additional client we are adding to the platform is to some extent, contributing in increasing the revenues of the bank. And on the speed of growth in brokerage revenues, as we are saying. So the more clients we are taking on board, the more assets under custody we are keeping on building up and the more you can expect that the floor of the business is continuously going up. We are driving on the concept of floor because we are interested in seeing -- on seeing how brokerage is performing without considering the theoretically short-term impact caused by volatility. By the way, until so far, the volatility this year has not been particularly relevant, has been a level of volatility that has been, let me say, average. So this is clear. And so yes, brokerage to remain on the fast lane growth. On the time line and what's going on, on the Germany rollout, again, I'm leaving the floor to Paolo to give a little bit more flavor. Paolo Grazia: Yes, we have the plan. We finalized all the information we needed. And we still miss some internal approval, but we have the idea of rolling out by the end of 2026 in the friends and family mode. So this is pretty much the time horizon we have. Operator: The next question is from Enrico Bolzoni of JPMorgan. Enrico Bolzoni: So I have a few million brokerage given the very strong print. So you mentioned about the possibility of monetizing that you see in different ways. One of your European competitors recently announced the decision to offer securities lending on AUC, and they were quite specific so they disclosed that they think they'd be able to generate about 20 basis point margin on the AUC that are eligible for securities lending. So I wanted to ask you, first of all, where do you stand in that process? I think it's something in the past you mentioned you wanted to pursue yourself? Second question, what proportion of your AUC is eligible? And thirdly, if you can confirm that 20 basis point might be reasonable number to expect in terms of revenue that you could generate out of that? So that's my first question. And then my second question, I was looking at your AUM flows. So in the quarter, you had over EUR 900 million. You also disclosed that a good chunk of that, so roughly EUR 600 million came from Advanced Advisory Solutions, which is positive. But could you please disclose what was the margin on average on this EUR 600 million of AUM that actually related to what you see after. That would be helpful for us to understand whether indeed there is no margin dilution from these type of contracts. Alessandro Foti: Okay. Thank you. So regarding on the -- let me start by brokerage. Possibility to monetize assets under custody, yes, as we explained during the presentation. The way we have quite a very interesting additional evolution there in terms of increasing the margins generated by assets under custody. Let me remind, one is, for sure, represented by the stock lending. The bank is in the process of deploying a much an extremely structured platform for taking advantage by the stock lending and some. On the margins, clearly, 20 basis points we think that overall is a conservative number. So it probably can be even more. And on the proportion of assets under custody eligible, this is a moving picture because exactly one of the rationale behind the platform is going to expand as much as we can the eligible amount of assets under custody we have, and so particularly. Another clear direction is the -- as we were mentioning, is represented by the AutoFX and some of them, I will leave to Paolo and some -- if you want to make some technical comments on the AutoFX. Paolo Grazia: Yes. We have a growing number of orders that are going to the American, the United States market, NASDAQ and NYSE. So there is a lot of flows going there. And of course, there is big revenues attached because our clients, they have euros on their accounts and they trade on the USD. So the AutoFX is a new service that allows the client to be much more -- it's a faster mode of executing an order. So the exchange is made automatically by the platform. So this is something that is giving us a simpler order for the clients. So it's easier for the client to place the order. And for us, there is a slightly higher margin compared to the fact that before the client had to change every time the FX, the AutoFX is better for the client, but also better for us. Alessandro Foti: Then we have exactly, what we are continuously now -- is the other announcement in terms of revenues represented by ETFs. So what's going on there? We think -- we confirm that by year-end, we are going to finalize the first arrangement that you get by the ETFs were the recurring fees. Overall, at the European level, the industry is moving exactly in that direction. So the largest issues are progressively moving in the direction to close arrangements with the largest European players in terms of control of retail flows on ETFs, and Fineco is going to be one of them. And so this clearly, again, is confirming the importance to play big, to be really the reference platform there. On the asset under management flows. So on the margin, so we are not making any specific distinction. So for us, the margins, on the -- so for us, it's indifferent if the clients are putting in the advisory platforms, actively managed funds, ETFs, assets under custody because what the clients paying is an advisory fee that is totally different. It's totally not correlated with -- is independent by the -- what is put in the portfolio. So theoretically, the clients can ask of having a portfolio that is made exclusive by asset under custody. And for us, the margins are going to be exactly the same if the client is putting -- is having a portfolio represented 100% by actively managed parts. So this exactly is something that is the great advantage that Fineco has. Fineco is extremely advanced in making clients paying an advisory fee. And so being completely detached by the inducement based model. And so again, this is going to be another big trend that is emerging. Enrico Bolzoni: If I maybe, just a very quick follow-up. It's very helpful when you commented the 20 bps is perhaps low. I think that the idea behind that 20 bps is that a portion of the revenues will be shared with clients. So the underlying return could be actually higher than 20 bps. Is this what you are also thinking of? So 20 bps, could it be a number that you internalize so net what you pay to clients from securities lending? Or you think it could be generally an even bigger number? Alessandro Foti: So it's clear that when we are showing the margins, we are considering that we have to pay the clients because this is clearly by law. And so clearly, there is a gain so we can confirm that we think that also including what we have to pay to clients, probably this 20 basis point margin is on the conservative side. Operator: The next question is from Hugo Cruz of KBW. Hugo Moniz Marques Da Cruz: I just had a question around your comment on brokerage revenues and how that converts into P&L, particularly trading profit because when I look at consensus, it is trading flat, flattish going forward. So that doesn't seem to make sense to me in light of your comments that brokerage revenue should continue to go up. So if you could give a bit more color on how the brokerage revenues and trading profit, how we convert into trading profit? Alessandro Foti: First of all, let me remind you that for us, trading profit is not something that is driven by the bank taking some kind of risk, it's a kind of free of risk market making. So we are -- when we were mentioning among the components that they are -- we expect are going to keep on contributing in making the brokerage revenues growing, also the systematic internalization of orders of clients. And so we expect that the more we are going to keep on building up the volumes and business, and as well, we expect also the opportunity offered by the systematic internalizing -- internalization of orders is going to keep on growing as well. We are not surprised by the fact that the market tends to be a little bit always in a step behind what's going on in brokerage because as we said during the presentation, probably everything that is in the region of assets under custody and brokerage, brokerage has been probably a little bit the most misunderstood component of our business because clearly, as we are seeing assets, typically until the recent past, big growth in asset under custody has been not very well welcomed by the market. But the asset under custody clearly is the fuel for brokerage going forward and for the asset under management as well. So we think that brokerage is by definition on the fast lane of growth in the future exactly for a combination of structural reason, big growth of clients and a significant shift in the client's views and the increasing level of participation of clients, and the growing interest by clients for solutions like represented by ETFs, what is important to remind that when we're talking about brokerage, clients are trading on everything on the platforms. They're trading on stocks, they're trading on ETFs, but their trading on bonds as well. And so this is the reason why the brokerage is going to keep on doing very well. Operator: The next question is from Christiane Holstein of Bank of America. Christiane Holstein: My first one is on the CMD next year. So I know you flagged that you'll be announcing 2026 guidance. But just because there has been a CMD before, I was just wondering what else we can expect? Are you looking to also give a multiyear target, for example? Secondly, you previously highlighted the introduction of private markets in September. I didn't hear any update on this. So I was wondering if you could better say how that's been going and then how the interest has been from clients so far? And then thirdly, on investing management fee margin. So this has seemed to be relatively stable more recently. I know you also flagged the benefits from ETP on investing and obviously, FAM is higher margin. So as the uptake here improves, we should hopefully expect the margin to strengthen. But I was just wondering what your expectations are here. Alessandro Foti: So on the -- what you can expect by the Capital Market Day on the next March 2026. From Capital Markets Day, we are going to give a much further and much more important and relevant details regarding what you can expect in terms of our strategy, evolution, also the rationale behind the entering more in depth, also in the initiatives, what we are going, what we can expect we are going to deliver to the market. And yes, finally we are going to give to the market that something that is going to help you in better modeling on the longer term, the projections of the bank. Yes. We think that this is the right moment because as we are saying, the bank is technically entering in a significantly different -- it's moving throughout in a relevant inflection point because this is exactly what's going on in the market. And so we think that we -- is the right moment to share with the market more details regarding the extremely exciting future that we see ahead for this bank. Private market, this is going to be -- the placement is going to start within the next few days. So probably let me say, by the next week, the product is going to be launched and is going to be up and running, and we will see. We confirm that we remain quite positive because there is an evident demand by clients. And so yes, in the next few days, this is going to be deployed. And commenting on investment management fee markets. As you know, we don't like to drive the market on the fee margins because clearly, for us, what is important is the direct -- is the evolution of revenues because revenues is a combination of volumes and margins. And these are much more important because this tends to clearly to -- tends to better represent the evolution of the market. It's a matter of fact that Fineco is by definition in a much better position than the industry in order also of having more stable margins because we are definitely less under pressure. But for 2 main reasons. The first one that Fineco is historically positioned on the lower side in terms of commissions we are charging to clients. And so by definition, this is making us less exposed to the building up pressure on margins. Second, that the journey in terms of increasing penetration of the asset under -- Fineco Asset Management solution is still underway. And this is different by other participants of the industry that now has been where the percentage represented by the whole internal products has been -- everything has been almost done. And this, in any case, with Fineco remaining and the only one large and truly open platform because this continuously growing percentage of Fineco Asset Management products is not driven by the fact that we are expected to close down the platform. The platform is going to remain an open platform. It's driven by the fact that Fineco is incredibly great in delivering continuously extremely innovative solutions and incredibly fast on bringing this to the market and so being able to remain always a step ahead of the market. Operator: The next question is from Gian Luca Ferrari of Mediobanca. Gian Ferrari: Three for me, please. First, on the AI project that Paolo described, can you share with us some KPIs of the business case here? So how much you invested in this project? And if you calculate any IRR you expect from the project itself. Second question is on the EUR 22 billion bonds. How much is expiring in 2026? And if you can remind us what is the conversion rate you expect to have on those bonds? The final one is on your lending and particularly on the fact that the stock has remained flat at EUR 5.1 billion in the context of declining interest rates. So I was wondering if your clients have any appetite for a bit of re-leverage considering your very strong capital ratios and lower interest rates. Alessandro Foti: So on the AI project. So first of all, let me make few comments there. So Fineco, is in a great position in order to leverage on AI because thanks to the kind of bank we are, that Fineco is a tech company. So with AI, what is the most important element is not exactly how much you spend. But how much you are able to transform what you are investing in something that makes sense. So in the AI project, what is really -- so because everybody theoretically, there is no -- it's a commodity, the AI agents are commodities. And so the real difference is made by your capability of leveraging on high-quality, easily accessible base of data because if you don't have that, artificial intelligence is not going to work. And second, you had to be in the position to train your system, your products and so on. And again, you were back again to the point. So Fineco is -- being a tech company because Fineco is not just using technology, but is in control of the most part of the technology we are using. So this means that, for example, our data warehousing system has been by many years, a key strength of the bank. So for us, it's extremely easy to extract high-quality, easily accessible data. This make what you need in terms of investments much less than is presently requested by someone that sit on a much more complex infrastructure. So for example, if you are mostly leveraging on outsourced platforms or you sit on different layers of software, and so clearly, this is going to be to extract easily accessible and high-quality data is going to be really very difficult and incredibly expensive. The same way for the training the programs. So the more you are in control of your processes, the more you are in control of your platforms, and the easier it's going to be to go throughout the training process. You don't need to have, for example, external system integrator, taking care of you for training the process. And so this means that again, I think this is going to be much better in terms of results and much, much less expensive. And so honestly speaking, so our AI projects are what we expect to invest considering what to expect to get for this project. Honestly speaking, this is a completely meaningless point because we expect quite an important increase in the productivity of network. We expect a significant improvement in the process of the bank. But on top of that, what we expect to spend is going to be really fraction of the positive impact caused by the... Gian Ferrari: And on the increased productivity, any quantitative indication? Alessandro Foti: I think that -- so let me say. So also assuming, let me say, staying on the conservative side, and assuming, I don't know, a 10% increase in the productivity, this is going to be a huge number. So -- but Paolo can give you a little bit more color on this point. Paolo Grazia: Yes. On the KPI, we are really on unchartered waters because it's -- there is no -- there are some studies in the U.S. that they are saying that the productivity of the financial tech can improve up to 20%. And I think it's something that can be reasonable in my opinion. But again, still we are in unchartered waters. So we -- for now, we're just focused on deploying the service, on improving the service, on hiring the people inside the bank that are part of the AI team that is growing. And as usual, we focus and we put effort on having our own resources, our own people that develop the technology. And I think we're doing a great job, and we are very happy with the fact that we are very fast in developing new tools and delivering to the -- for now to the financial planner, to our financial planner platform. Alessandro Foti: On the expiring bonds, next year, EUR 4.2 billion in terms of reinvestment. So what we can expect in terms of transformation, for example, in asset under management solution. This clearly depends on the market conditions. So as much as we stay in an environment with short-term rates, low and the yield curve keeping or remaining positively shaped, if not even steeper. And this clearly is going to be -- is going to bode well for a continuously increasing transformation rate. But again, it's difficult to give you a precise number right now because -- but what we can say that the conversion rate is mostly driven by the combination of short-term rates staying low and the yield curve remaining. And the steeper it is, the yield curve and the better it is for the transformation process. On lending, yes, the stock is flat, but we are observing some interesting transformation because, again, we confirm that we don't have any particular appetite for the residential mortgage business that we consider by far the lowest profitable product that a bank can have on the shelf. For these reasons, we don't have any appetite for residential. We are providing residential mortgages just to our interesting clients. And so we expect that the overall stock on there is going to keep on declining. At the same time, there is a quite significant growing interest by clients for the Lombard loans. And Lombard loans are expected to keep on building up. We have in the pipeline a very interesting future developments there that we think are going to keep on making quite even more interested in using our Lombard loan solutions. Operator: The next question is from Ian White of Autonomous Research. Ian White: Just a few from my side as well, please. Firstly, just going back to the net management fee margin. It is about flat year-over-year by my calculations at 69 bps. Can you just help us understand the moving parts there? I'm looking at the details. The insurance products have declined, equity markets are higher, FAM penetration is higher. So are you able just to complete that bridge for me, why aren't we seeing more margin accretion there year-over-year, please? That's question one. Secondly, on Slide 23, you mentioned that the adviser network is focused on improving client mix from AUC into AUM. Can you just talk us through a little bit of what those efforts actually look like in practice. I'm wondering if it mostly requires convincing your clients to switch from being an execution-only customer to an advised customer? And also if you can share any figures there to help us better understand the flow of client assets from AUC into AUM, please? And that's question two. And just lastly, you mentioned in your prepared remarks the systematic internalizer as a forward-looking driver of growth in brokerage. Can I just clarify, is something likely to change there in the coming months that would increase revenue capture? Are there certain products where you might begin internalizing that you're not currently, for example? And that's my third question. Alessandro Foti: Let me start by the net fee margins. So the net fee margins remained relatively stable. And so exactly for the reasons we were describing. So the bank is definitely in a more comfortable position with respect to the industry because it's been always characterized by not overcharging clients with very high commissions. And so by definition, we are definitely less vulnerable than the industry on the building up pressure on margins. And second, the driver are mostly -- so yes, insurance is lower. So because -- and the equity markets are not growing particularly big. So still, we are not seeing any significant growth in terms of appetite by clients for the equity market. And for sure, Fineco Asset Management is continuously growing and is contributing on the margins because we had a better control of the value chain. And this despite the mix of the products, both by the client is remaining on the cautious side, mostly represented by fixed income solutions, in any cases, the better control on the exchange contributing. But again, we are not particularly -- for us, the main focus is on the evolution of the revenues because it's clear that overall, we are living in an environment so the huge difference between the, for example, the brokerage world and the investing world that, generally speaking, the investing world as an industry is, by definition, is expected to keep on facing pressure on margins. This is not the key, for example, for the brokerage business. So that's where the pressure on margin is going to be much, much lower. On the other hand, the more you are becoming sophisticated in managing the flows, the infrastructures and the more you are going to have room for increasing your margins, and this is exactly the key when we're talking about the systematic internalizer. Yes, Europe is progressively moving more and more in the direction of being more similar to the U.S. market where a growing component, large component of the profitability is represented by the management of flows. And this is exactly what's going on in Europe as well. So Europe has been lagging behind in a big way, but now, the situation is changing. The example is Germany. Germany is a market in which the percentage represented by the management of flows is quite high there. And yes, clearly, this business is a volume business. The more you are keeping on growing in terms of sites, the more you're keeping on hedging assets on the platform, the more you are going to have high-quality clients using the platform. And the more -- let me say, instead of using systematic internalizing, the management of flows is going to become an important driver in increasing the margins on the brokerage business. And as we are saying, we have plenty of initiatives on the pipeline that's exactly moving in that direction and that are going to deploy in the coming months. And internalizing something that's now you don't -- no, internalizing more that we are doing now that -- because really, we are practically internalizing everything. So ranging from stocks, ETFs. ETFs is emerging as a growing and important component of the -- internally in terms of internalization of flows and so on. So the direction is not internalizing, it's something that now we don't know, but internalizing more and more because clearly, this is -- because we are going to become more sophisticated, the growth on the volumes are going to help, yes, this is a big trend. Operator: The next question is from Alberto Villa of Intermonte SIM. Alberto Villa: Two very quick questions from my side. One is back on the new client acquisition, impressive trend there. I was wondering, how much they are contributing to the net sales in the first 9 months of 2025, let's say, the new clients you get -- you got in the last 12 months? And I was wondering what the average assets you get from a new client after 12 months, if that is already comparable to the average customer you have in-house or there is any, let's say, timing from the acquisition of the client to getting this -- moving the asset to Fineco? And the second question is on the advisory -- advanced advisory stock that has grown now to above EUR 37 billion. I understood that you have the same margin, whatever is the underlying assets the client has. I was wondering what has been the contribution in terms of revenues in the first 9 months of the year from the advanced advisory assets. Alessandro Foti: So in terms of what is the contribution of the new client acquisition, more or less, we can say that in terms of new total financial assets, 65% is brought by the new clients. So the 65% is driven by the new client acquisition, and the remaining part is the continuously growing share of wallet on the existing clients. Yes, this is more or less is the split. And after 12 months, so clearly, we have to make a distinction because there is a kind of polarization in the clients we're acquiring because one is that we have the relatively young clients, they're going big. And the other company that is growing big is represented by the rich clients or other banking clients. These are the 2 segments in which we are growing the most because this, by definition, are the 2 segments that are the most sensible to the concept of getting delivered efficiency, transparency and convenience. And typically, so we -- so yes, after 12 months, we can say that a large part of the -- on the assets of the clients have transferred into the bank. But still, we have a significant room for growing on our existing base of clients because we are making estimates on -- in order to understand which is the potential represented by clients that are theoretically perceived as more clients on the platform and then putting together the significant amount of information we have because having all clients using the transaction banking platforms, we know everything of the clients. So where they're living, how much they're making in terms of salary, the amount of taxes they are paying, where they are spending, how much they're spending. And so at the moment, our so-called still small clients that has an upside of the bank and average potential of another EUR 50 billion, more or less. I'm not saying that we're going to get all of that. But clearly, the more the trends, the new trends are building up in terms of strength and the more also we're going to be able to get even more share of wallet by our clients. The advanced advisory stock, no, we are not giving the split of these revenues. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: I've got only one last question. It is to ask you if you have already made some calculations about the potential impact of the Italian Budget Law for next year? Alessandro Foti: Not yet because everything is still so unclear that it's probably, yes, we are making some time, some simulation, taking -- considering the rumors that are on the market. But honestly speaking, it's a little bit -- I think that the risk is to -- is a waste of time because everything is still underway. But honestly speaking, we are completely not concerned by this because this is not -- for us, what is important is the structural trajectory of the bank. So this can be, okay, fine. It's part of the game, but it's not going to change anything. So we are not, honestly speaking, particularly neither concerned nor particularly interested in what's going on there. Operator: [Operator Instructions] Mr. Foti, there are no more questions registered at this time. Alessandro Foti: Thank you to everybody for the extremely interesting questions we got. As usual, we are absolutely at your disposal for entering in additional follow-up. And so thank you again for taking the time to participate to our financial results conference call. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Jose Costa: Good day, everyone, welcome to Prio's Third Quarter Video Conference call. I am Jose Gustavo, IR Manager, and I will be host of this event. [Operator Instructions] The translated presentation is available on our IR website. The comments on the results will be presented by our CEO, Roberto Monteiro; our CFO, Milton; Chairman and COO, Francisco Francilmar. After the presentation, they will be available for the Q&A session. [Operator Instructions] This event is being recorded and will be available on our IR website. This presentation contains information based on future estimates and forecasts based on assumptions adopted by the company, which can change. It should not be considered fact or be used as a basis for financial projections beyond the plans expressed by the company. Now I'll give the floor to Roberto Monteiro, our CEO. Roberto Monteiro: Good afternoon, everyone. Welcome to Prio's Third Quarter 2025 Earnings Call. Well, I wanted to give you an overview of summary of our third quarter results. I believe we had some good things and some bad things. I'll start with the most difficult, the most challenging point, which was the Peregrino shutdown. That would be the bad thing. We had 2 Peregrino shutdowns during the quarter. One of them was a scheduled shutdown in July. So that was okay. That's -- that was normal operation for the field. But then still in this quarter, we had a second shutdown at Peregrino lasting 63 days. This was due to a regulatory issue and so on and that was a major negative point for us during the quarter. On the other hand, we had a lot of very, very positive points in Q3. This quarter, I think this was the company's best quarter in the other assets. So considering Frade, Albacora and TBMT field. Trading also did very well from a funding perspective, the company also did very well. So we had all of these very positive aspects with one negative point, which was the Peregrino shutdown. I'll go into that later, but -- and obviously, among these positives, we also had Wahoo, which also made great strides. I will address these points one by one. And then I'll pass it on to Francilmar and Milton to go into more detail in their specific areas. So speaking briefly, Peregrino, we already talked about it. We had a 63-day shutdown. We recovered, and we recently resumed production. The field is producing well. It is producing more than 100,000 barrels per day. It is producing around 106,000 barrels daily. So it came back well. It continues to do well. We had already reached that number before the shutdown. So it came back well in line with what we had projected. And then we'll talk a little about the next steps for Peregrino field. Moving on to our operations. The first one I would like to draw your attention to was Wahoo Field. We finally obtained an installation license at Wahoo Field. We have already contracted and pulled in the [indiscernible] of the vessel called amazon or pipeline. Everything is going according to plan, 2 wells have already been drilled. The results are in keeping with what we expected. So everything is going well on the Wahoo work front. Another front that I thought was positive this quarter was Albacora's operating efficiency. We had a record 91% for the quarter. We had a month with 97%, if I'm not mistaken, and another month of 94% within the quarter. So it's very positive. However, in the last month of the quarter, in September, we had one compressor failing, which we already knew with our Leste field at Albacora. Compression is the only system for which we still do not have adequate redundancy. So we had downtime and will recover soon. Unfortunately, these are items that we call long lead time items. Items with long delivery times, which we buy abroad. But anyway, it's addressed. They're going to solve it, we've already bought it, it's going to arrive, we're going to solve it. But I thought was positive is that we had one problem. It was totally focused on one point. So all the work we've done at Albacora over the last 12 months is starting to bear fruit. So that's why Frade was worth bringing this up as a major positive highlight. We performed a workover in TBMT 6, another well that had had problems with the pump. So the Polvo TBMT cluster returned to producing 14,000, 14,500 barrels daily and as it had been producing last year before all the problems we had there with workovers, IBAMA and so on. Moving a little more to the corporate side. We issued -- well, actually, there were 2 issuances. We issued a local debenture but close to this quarter, we issued it in the second quarter. It closed in the third quarter. And we issued $700 million in bonds, which we issued in the third quarter and the money will come in during the fourth quarter, along with the repurchase of a large portion of the bonds that would mature in 2026. So with that, the company improved, became even stronger from the point of view of cash position, long-term capital structure and so on and so forth. As for the company's results, when we look at them, our EBITDA totaled $320 million in the third quarter which was more or less in line with what we generated in the previous quarter. What happened here is that Peregrino -- the shutdown at Peregrino, of course, that obviously hurt us, but as we reduced inventory and sold oil that was in stock, we managed to maintain in Q3, a figure that was more or less similar to the previous quarter at $320 million and we had a net income of $92 million. What did worsen significantly from one quarter to the next, obviously, and moving on to the next slide was the lifting cost. The lifting cost for this quarter was 17%, actually, not 17%, $17.4 per barrel. And it did get worse because we decided to include all costs related to Peregrino as and expensed in this quarter. So we are not going to carry anything forward. The impact of the Peregrino shutdown is here in the third quarter. Actually, not all of it because Peregrino came back on, it was more or less in mid-October. So there will be those 15 days in October that will go into the next quarter, but then it is done. We could have accounted for it differently, but we didn't. We didn't do any of that. Our approach was to report everything as an expense and then our lifting cost in the third quarter rose to $17 per barrel. The fourth quarter will be impacted by those 15 days of October. But after that, we will be 100% clear. Another interesting draft to look at on the slide, Slide #4, is the one on the right which is production. We see that total production for the quarter was 88. However, the company's production, which would be those ores excluding the gray part of the bar, which would be the assets operated by Prio. We see that production posted higher numbers than in the last 3, 4, 5 quarters. So I think that here, we can see our work, the fruit of our labor in terms of our operations. As I said, our cash position is very strong. We closed the quarter with $1.7 billion. And today, our cash position is even higher than that. We have a little over $2 billion in cash. So we are fully prepared now for the closing of Peregrino and for the whole of next year. Milton will talk about this, but we will have almost no maturities next year. Another index that also worsened slightly was our debt largely due to the Peregrino problem. And we managed to sell 8 million barrels or so -- 8 million or so just in line with last quarter. So we could have done better if Peregrino had maintained production. So this is a summary of the quarter. I think we had some very positive development, especially with regard to our operations. But we had this Peregrino issue that ended up tarnishing the quarter. Peregrino has already been resolved. We will talk about it later, and we will address the next steps for Peregrino. The company as a whole, I think, is well prepared for the coming quarters, for the coming years and beyond. I'll stop here and hand over to Francilmar, who will go through the assets one by one. Milton will talk about the financials, and I'll come back to wrap things up. Thank you very much, Francilmar? Francilmar Fernandes: Hello, everyone. Thank you, Roberto. I will start on Slide 5 with the overall performance of our assets. It was a pretty busy quarter we had here. We had some positives and some negatives. Overall, we ended up producing less. We had a major impact with the shutdown at Peregrino field and Peregrino is currently the company's largest producer. Had significant developments at Albacora and TBMT. And really relatively stable quarter in terms of efficiency at Frade. But overall, we ended up having a strong negative impact on the lifting cost. It was $17. I can't even remember when we last had a number like that. But it was really impacted by the shutdown of Peregrino where we had a slight increase in costs to solve the problems and with no production. So that really had an impact, but it was a one-off. We hope that in the next quarter, we will be able to capture the improvements. We will work hard so that in the coming quarters, we can return to the number that we think is minimally comfortable for us to be at. Moving on to Slide #6. So we'll go over a few more details about Frade Field. This quarter, we had good field efficiency exceeding 97%, which we consider a good number for Frade but production was impacted by the natural decline of the field. We suffered a little bit coming out of that compression problem we had. But it has been fully resolved. We have no problems at the field. Today, we are operating at 100%. We're working very hard to adapt the unit there, making the final adjustments so that we can receive the oil from Wahoo. So few adjustments, commissioning of some materials that were already installed in the past. So nothing too out of the ordinary. Moving on to Slide 7, updating you on Polvo and TBMT. It was a quarter of deliveries of evolution at the field. We completed the workover of those 2 wells that had been idle since last year when we received the approvals. After that, we had the failure of a third well, TBMT 6. And as we had obtained approval for a good number of workovers for many wells, we quickly mobilized the rig. Within the same quarter, we sorted and repaired this well and is producing normally. And as a result, we already have operating efficiency over 90%, in fact, much better than that today and with full production. We're producing a little over 14,000 barrels, and we should still have relatively stable production, but a natural decline of this field. Just much more controlled for the coming quarters. On Slide 8, at Albacora Leste field, it was a quarter of relatively good performance. In fact, the best performance we have ever had at the field. And this is thanks to the repairs we made, all the effort that was made to repair or improve the power generation system and the water injection system. Our weakness remains the compression system. We have already repaired some things, but there were setbacks and others. We're still waiting for the compressor we purchased a brand new one. These are products and equipment with very long lead times. We are also facing a problem with the power system, the transformer which is connected to the compressor, but we are working hard to resolve this in the next quarter. So with that, we're able to deliver this level of efficiency, but still with some fragility in terms of redundancy. By delivering this in the coming quarters, we will be in a more stable state of production and operating efficiency for the field. Moving on to Slide 9. Let's talk a little bit about Peregrino in general. Peregrino had a quarter marked by downtime. By the field that was closed. So we stopped production for 63 days this quarter, which had a profound impact on production. And we made a huge effort to repair to try to have it back on as soon as possible. But there was a lot of physical work there repairing lines, replacing sections, repairing various systems that we had to handle to meet the requirements of the law. That was overcome. We joined forces with the operator, both people who are working on the transition and people who work some of our units that we redirected there and the suppliers as well. So all the focus was on that. That's what are under the bridge, and we overcame this challenge. Now we are working to finalize the transition. We hope to have news very soon. We have a team on board and the team at the office so all the final details are being finalized so that we can move forward and start operating the asset, maintaining efficiency, safety and smooth operations. Moving on to Slide #10. Updates on Wahoo Field. This period also saw significant progress. We received a license to install the subsea system, the connection or, as we call it, the subsea tieback and we mobilized the vessels both the ship for laying the rigid pipeline and the ship for laying the flexible pipelines as well as installation of the subsea equipment that was ready here. We have already begun installing some equipment and both the rigid and flexible pipeline vessels are being released for operation and undergoing loading preparation and the entire mobilization phase that is part of the schedule. The next phase now for the subsea part is to do the installation at the field itself, laying the rigid and flexible pipelines, all the various equipment that we install on the seabed, make the connections to the wells and then schedule commissioning further down the line. So everything is going according to schedule. We have already advised the market, and we will keep you updated on the next development. The next step, in fact, is the first oil. In addition to that, there is something I haven't mentioned in detail, which was the rig. We finished drilling the second well. We are completing the second well and later on, we will drill the third and fourth wells trying to apply the lessons we have already learned from these 2 wells. Overall, in terms of the reservoir between pros and cons, the result is in line with what we were expecting. We need more data. So we will still continue to study and cover the area to check for additional opportunities and have a better understanding of the reservoir. This happens in every well. So these are ongoing issues that will be present as we continue to develop the field. And with that, I turn the floor over to Milton. Milton Rangel: Thank you. Now on Slide #11, we talk about Prio's financial performance in the quarter. Our total revenue stood at USD 607 million. Brands reference in the quarter was 68.3%, with the equivalent FOB brand for sale at 64.15% and the quantity sold in the quarter was 8.8 million barrels. This helps us understand the total revenue of $607 million with FOB revenue of $566 million. What is important to highlight here for this quarter. Well, as we have already explained, Peregrino suffered a significant impact this quarter. We had 9 days of scheduled downtime in July. And since August 15, until mid-October, we had the intervention or the inspection in Peregrino and the field's production was interrupted. We had a shutdown. Therefore, the 15 days in August plus the entire month of September, in addition to the 9 days in July, brought an important impact to our financial statements. For the purposes of COGS, we recognize the COGS of the Peregrino or COGS for Peregrino for July and August and the cost for September, which would be the OpEx for September of around $20 million is included in the line of other operating expenses. This is purely accounting since we did not have associated production and revenue. Therefore, we do not recognize COGS. So this is recorded as a loss in these other operating expenses. When we show the lifting cost of $17.4, this already includes both with which is the COGS of the field reflecting this loss, just to give a complete view of the company's lifting cost performance which driven by lease losses or this lack of production coming from Peregrino for the consolidated numbers to $17.4. With that, our EBITDA was around USD 309 million with a margin of 55% adjusted EBITDA, excluding these nonrecurring items of [ $320 million ] with a margin of 57%. We also recorded an increase in financial results, which I think is worth going over quickly. We recognized USD 14.5 million in the quarter related to hedge transactions that were carried out mostly in June, July and August. Basically, the premium paid as the oil remained high, these options were not exercised. So it is the value of the premium of these options. And also, we had an impact of around USD 23.5 million related to the marking of unsettled hedges. And these are positions from September, October and November, which due to the fluctuation in the value of these hedges, we posted as a negative this quarter, although this has not been something cash or something fully realized. In addition, the company experienced an increase in gross debt which amounted to approximately USD 4.6 billion, leading to a slightly higher financial expense, something around $68 million in the quarter, which helps to explain much of this increase in financial expenses. Now moving on to the next slide, #12, we talk about funding. I'm already looking at the central charge on the amortization schedule. What is important for us to note here. Well, we have a large amount in 2026 of USD 600 million referring to our bond maturing in the middle of next year -- in the midst of 2026. Therefore, it's important to highlight that in October, we issued a new bond. We made a tender offer on top of the existing bonds, which had an acceptance rate of around 70%, meaning that we bought back this amount of $430 million, $431 million, leaving around USD 170 million still on our balance sheet for this original bond, which will mature in June. And with that, we issued USD 700 million in a new transaction this time, senior unsecured. While the previous bond was senior secured, and now we are migrating to the senior unsecured modality with a 5-year term, a rate of [ 6.75% ] I mean $1.65 per year. And that being in the next quarter is a subsequent event because it occurred in October. But we will already see a change in this amortization profile in the next presentations. Moreover, we also issued USD 539 million in debentures swapped for BRL. There is total exposure of this amount to dollar over the term of the 2 series of the debentures. And we had already done a lot of work to bring the maturities of working capital lines to the years of 2027 and '28 as we can see. Therefore, with this bond issue, our 2026 has virtually no debt. The value is very small. And we have a lot of peace of mind at a very important moment of capital allocation. When we have Peregrino coming along, the closing of 40% followed by the other 20%, we also have the under Wahoo's CapEx. Before, this is a moment of tranquility for the year of 2026 in terms of maturity. Well, duration of [ 2.78 ] in the third quarter and an average cost of debt of [ 6.35 ]. With the bond, we will be able to increase this duration a little bit more, considering this 5-year term with a duration of around 4.4 or 4.5 years. Moving on to the next slide here on net debt variation or proxy for our cash generation. We are coming out of net debt in the second quarter of USD 2.77 billion, our adjusted EBITDA ex IFRS of USD 320 million. As we said earlier, working capital expenses of $75 million, largely explained by payments to suppliers and also because we made several sales but have not yet received the cash, therefore, you still have a large amount of receivables coming along. CapEx largely relates to development of Wahoo, which is now in full swing. Well, we had the workover in TBMT, integrity expenses in Albacora Leste, and there were also issues related to the Peregrino shutdown. USD 20 million of this OpEx from Peregrino that is outside this adjusted EBITDA. So to make up the cash, it enters here in a separate column. Share buyback of USD 7 million and financial result of $80 million, largely here by $14 million of the premium paid in hedge with approximately $66 million approximately in interest or financial expenses from our debt portfolio. And with that, we arrived at a net debt of USD 2.8 billion at the end of the third quarter. We're now Slide #14 is on leverage. We basically measure here the net debt indicator to the company's adjusted EBITDA. In the third quarter, we reached 2x, which was slightly higher than the second quarter of '25, which was 1.8. Well, this slight increase I would say that is largely associated with the Peregrino shutdown generating less EBITDA, less cash generation. So it pulls this indicator up a bit. But still well below the 2.5x limit we have in our covenants. It's important to mention that we have an important event related to the closing of Peregrino that should take place probably in February or maybe even sooner, and we are in a very comfortable cash position, which currently is about USD 2 billion and with the Peregrino closing, bringing in an additional 40% of Peregrino's position. With Wahoo coming in over the next year, we expect strong cash generation and considerable financial robustness for the company in the coming quarters. With that, I'll hand over to Roberto to talk about ESG and the next steps. Thank you. Roberto Monteiro: Thank you, Milton. Well, I'm going to talk a little bit about environment and society, and then we will talk about the company's next steps. We continue to work on the sustainability front through the -- through our Prio Institute, working on programs such as the open sea initiative, which connects local fishermen to the oil and gas sector and so on. On the safety side, we conducted an emergency drill with the Navy, IBAMA and Albacora last year, which went very well. We held a second meeting on safety knowledge bills and also trained competent personnel who work at heights. We conducted SGSO, SGIP and SGSS audits. So safety is always a nonnegotiable thing for us and very important item in our culture. Within the health and well-being pillars, we achieved through our traditional programs some important things. We promoted a race, we had our first Prio owned race, which took place at a Jockey Club. It was super interesting cardiological and preventive evaluations, yoga and so on. In the third quarter, I mean, we had sponsorship events in the third quarter like racing and other events. And we also sponsored other events like Prima Facie and Rio Gastronomia. Well, now moving on to the next steps, Slide 16. Here, we have almost the same steps as shown in the last quarter. The focus on safety and health will always be present as will M&A opportunities. And in the middle, that is important within Albacora Leste's operating efficiency, we have promised in advance in this operating efficiency. I think it has happened. Today, we have a very specific issue related to gas compression. But the Albacora Leste field has been operating in a very stable, very safe, very consistent manner. So I think this is already a gain. We still have to resolve the gas compression issue. But I think we already reached a new level at Albacora Leste. At Wahoo, we have made very good progress in the 2 wells we have already drilled. The results were very much in line with what we expected. As for the pipeline, the boat is already in Brazil, and it will now undergo inspection by IBAMA, so it can go to the field to start the pipe laying. It will load the pipes up to launch line. So everything is on track and moving forward so that the first oil is expected to come in between March and April as we promised in the material fact. Costs are also very much aligned with no major setbacks. And the last point here that was pending is the closing of Peregrino. This closing of Peregrino is contractually scheduled for February of next year. However, now after this introduction and the return into -- the return back into operation, we have worked together with Equinor and ANP right after we resumed production, authorized the closing, meaning that today, there are no impediments from their regulators or any competent agency. And so today, we are ready for the closing as ANP has already approved it. And then there is a transfer of [ Elo ], but this will happen right afterwards with IBAMA. Therefore, today, we are ready for the closing of Peregrino, which is supposed to happen in February of next year. Today, we are working with Equinor to check the possibility of anticipating the closing. Nothing is settled yet but we are prepared since it makes a lot of sense to us. I mean, taking charge of the operation and start working to capture synergies in the field. In the coming months, our focus will be very operational as you can tell. Of course, M&As are always important, but it will take a back seat during the next few months. And as I said, our focus remains on the operational issues. And very soon, we will go from 115,000 barrels a day to slightly over 150,000 barrels a day with the enter of Peregrino and later with Wahoo, we will reach 190,000 barrels a day. And then with the remaining 20% from Peregrino, we will surpass 200,000 barrels a day. Therefore, the next 6 to 8 months will be crucial for us to reach these 200,000 barrels a day with great focus on the operational side. Now I'll stop here by thanking our employees and society and shareholders are always with us. And now, I will open the floor for questions. Thank you. Operator: Hello, everyone. Welcome to the Q&A session of our earnings conference call. So we are opening the floor for questions. First question from Gabriel Barra with Citi. Gabriel Coelho Barra: We'll try to focus on one question, but kind of a long one regarding the company's capital structure. I think that this was mentioned that the company's cash position, as the closing of Peregrino to happen in the short term. And in treasury, you have a high percentage of the company in the buyback that you've done recently. So the first point I would like to understand is why not cancel the shares now? Just trying to get a sense of why not canceling the shares and get to the 10%, given that you're very close to the number. Anything related to the closing because it seems to me that the cash position of the company is very comfortable. So I would like to understand the company's strategy regarding that. The second point, and perhaps it's a philosophical discussion we've had with the company for quite a while now. The company is also a very strong company in M&A deals, creating a lot of value to the shareholders, given a very successful execution of capital allocation. But when we look at the company today, as Roberto has just said, we are getting close to 200,000 barrels daily and with a very strong cash generation starting next year. And with our CapEx plan that accommodates the operating cash generation. So how should we think about dividend payout and share buyback looking forward, Roberto? Because I think that the company has slightly more leveraged now. But looking at cash generation, it seems that you are kind of comfortable as of 2026? So if you could speak about shares in treasury, how we should think about that and how we should think about dividends looking forward. These are the main 2 points of my question. Roberto Monteiro: Thank you, Gabriel. One way I'd like to look at the company is through the forecast for the next 12 to 18 months, at least the end of next year. And the forecast of cash generation and consequently, our cash position until the end of next year. So even with oil slightly stressed at $60 per barrel. Some people say it can go temporarily to $50. But just to do an exercise, considering $60 per barrel, we consider that our minimum cash for the company if we don't do anything and I mean, if we don't have any M&A deal or any other investments other than what is already in the radar investments in Wahoo, Peregrino, Albacora, Frade, everything is in the plan. So we would have a cash position, a minimum cash position which is always greater than $900 million. So clearly, we have a stronger cash position for us to think about the next 12 months. So there are 2 things that we can do. One of 2 things. We can have M&A deals, like I said, I don't think that this is going to be our focus in the coming months or quarters. This is not something we are working actively on. And we can reinvest in our own company because today, we find much superior returns to returns we've had in the past in M&A deals by buying back the shares of the company. So this issuance was very important to us because we kind of equalized all maturities. Now we have a very comfortable cash position for the next 12, 18 months. And looking forward, our cash position is very comfortable. And a lot of leeway there. And with that, as soon as we start seeing this leverage curve declining. I wouldn't like to go back to buying back the shares when the curve is upward and we don't know where it is going to stabilize. But the moment it stabilizes and the moment we understand that it's starting to drop and we'll look at that on a monthly basis, then I think it is the right moment for the company to go back to the market and start the buyback. And if we do repurchase the shares, we have to cancel them. So canceling the shares to me, is kind of a secondary move. The decision is whether the company should go back to share buyback. It should happen eventually. But due to financial discipline, it is important for us to expect that move when we see the leverage starting to invert the leverage curve.
Operator: Ladies and gentlemen, welcome to the Evotec SE Quarterly Statement 9M 2025 Conference Call. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand over to Volker Braun, Head of IR and ESG. Volker Braun: Thank you, Lorenzo, and good morning, good afternoon to all of you in this call. We have a lot to cover today, and I'll keep my part very short. So let's move on to cover the housekeeping items on Page 2. We share the cautionary language here as usual, and some statements will be future-looking based on information available today and they might be subject to change in future. But now let me hand over to our CEO, Dr. Christian Wojczewski. Christian, please. Christian Wojczewski: Thank you, Volker. Good morning and good afternoon to everyone. It's a pleasure to welcome you all to this call. I'm looking forward to taking you through the progress we've made over the past 6 months of transition since the announcement of our new strategy. Very pleased with the momentum and high speed of our transformation towards better monetizing our technology leadership. The steps we've taken in the past couple of quarters are a strong fundament for our value creation path and for the execution of our mid-term outlook. I'm confident that this will become more visible to you while we lead you through this presentation. Let us now take a closer look at the year-to-date performance. In the first 9 months, Group revenues landed at EUR 535.1 million, which is a 7% decline versus the previous year. This is driven by our D&PD business, where we faced continued softness in the early drug discovery market, leading to 12% revenue decline. In contrast, our Biologics business, JEB, remains on a strong growth path with plus 11% growth in the first 9 months. As mentioned in the last call, we expect the trend in D&PD to continue in the second half of 2025, while for Just-Evotec Biologics, we anticipate revenue growth to further accelerate. Taking a closer look into the D&PD business, we see several main elements driving past and future performance. Talking about the early drug discovery market environment, the VC funding for biotech is certainly not yet favorable, affecting the business development activities of the transactional service business. However, over the last 2 quarters, the number and value of proposals going out from Evotec to customers is clearly trending upward, indicating that the business is stabilizing. Also, the level of negative change order volumes in Q3 has substantially improved versus first 2 quarters. In the meanwhile, we have taken appropriate actions to adjust our cost base. We've introduced a new organization structure, and we're strengthening our commercial and operational capabilities. 12 months ago, we were targeting EUR 30 million of cost out in 2025. We raised the bar over the course of the year. And during the last call, we committed to EUR 60 million of cost out, and we will stay ahead of plan. As announced last call, we are working on delivering additional EUR 50 million of cost out and productivity measures in the future. You should expect a full update on the initiatives we're working on during our next call. The business momentum with strategic partnerships remains healthy, ensuring continued mid-term revenue streams. Those strategic partnerships are expected to also result in meaningful progression of our asset portfolio over the next 6 to 9 months. Several catalysts lie ahead of us, leading to the transition of molecules from the early drug discovery stage into preclinical and from preclinical into clinic. And I'm pleased to announce today that we're expecting up to 4 molecules from our partnered asset pipeline to be in Phase II clinical studies in 2026. This is exciting news for Evotec as it demonstrates the scientific strength and the outstanding capability of our technology. And it underpins our plan to generate meaningful upside to milestone and royalty payments in the future. More about this a bit later. At Just-Evotec Biologics, we're making great progress in our efforts to diversify and broaden our customer portfolio. Business development within non-Sandoz and non-DoD business is moving fast. The momentum for this part of the business has further accelerated versus half year results to now over 100% growth after 9 months. Moreover, we signed a transformational deal between Just-Evotec Biologics and Sandoz just hours ago. This landmark transaction is a strong testament to our cutting-edge technology and capabilities in the fast-growing biologics business. It will unlock payments of more than $650 million over the next years. In addition, we expect to generate sizable revenues from royalty streams related to 10 biosimilars. We're extremely excited and proud to have been selected as partner by Sandoz on their path to shaping the biosimilars market. In a nutshell, we are well on track with our strategy, driving both scientific and operational excellence. Since the VC funding for biotech customers is relevant for approximately 30% to 40% of our revenue base in D&PD, let me share some further background information about the market trend. Updated data on total venture capital funding environment shows no material change compared to the analysis we shared in August. The absolute funding level has not grown over the past 2 quarters. The share related to discovery and preclinical stage companies remains well below pre-pandemic levels, suggesting a continuing short-term investment focus on companies with clinical stage assets. We spoke about the temporary deprioritization of early discovery and development activities and funding. It needs to be overcome before we see forceful recovery of the early drug discovery market. That said, we do see some encouraging developments. Negative change orders are normalizing and customer activities are increasing. In the first half of 2025, the balance between positive and negative change orders was impacted by higher than expected cancellation volume, contributing to a weaker sales performance in D&PD. This effect was related to a small number of contracts, which were canceled by customers either for strategic or scientific reasons. In Q3, we're back to normal levels. The development of our change order balance is shown in the upper graph. In contrast to the comparably low funding activities for early-stage biotech, the business activity level at Evotec has picked up. The number of proposals issued to our customers has grown 20% over the past 2 quarters, and this is also in line with the growth in total value of proposals. Even though those early indicators are promising, we are not yet indicating a change of trend. We remain vigilant in monitoring market developments and continue to adopt to our customers' evolving needs in a more agile way. In parallel, we are building a more targeted go-to-market approach. And as mentioned last time, we are strengthening our commercial organization. I'd like to now hand over to Paul, who will guide you through our financial results. Paul Hitchin: Thank you, Christian, and a warm welcome from my side. Let me guide you through our year-to-date results in a little more detail. Our first 9 months Group revenues reached EUR 535 million, a 7% decline versus the same period in 2024 and is aligned with our expectations. Firstly, our D&PD revenues declined by 12% to EUR 391.9 million in a persisting soft market in early drug discovery, as Christian commented on in his introduction. Also, as mentioned last time, included in this result is the expected temporary decline in the BMS revenues. Our Just-Evotec Biologics business continues to grow strongly in the first 9 months of the year and is on track for a very strong 2025. For the first 9 months of 2025, revenues reached EUR 143.2 million, which is up 11% versus the first half of 2024. As we mentioned last time, we continue to see a broadening of our customer base with non-Sandoz and non-DoD customers growing 105% in the first 9 months versus last year. During the first 9 months of 2025, our Sandoz business grew low-single-digits. Although as we look forward, we expect meaningful full year growth following the completion of the recently announced transaction, which will include multiyear consideration for technology access, development revenues and product royalties. Our R&D spending remains on the trajectory shared last time and is reduced by 33% versus prior year period from EUR 41.1 million in the first 9 months of 2024 to EUR 27.7 million in the first 9 months of 2025 as we direct our investments to those most relevant for our partners. Adjusted Group EBITDA reached negative EUR 16.9 million, driven by the weaker than expected D&PD revenues and our fixed cost base. We are well on track with our cost-out initiatives to deliver the EUR 60 million of in-year structural cost reduction in 2025 that we communicated in our last call. We also remain focused on delivering the additional mid-term cost and productivity actions that we discussed in our April update. Our Just-Evotec Biologics business remains ahead of expectations, helped by positive operating leverage despite the planned J.POD build-out. Bridging to our full year outlook, we expect our fourth quarter profile to reflect the higher revenue contribution weighting that we have seen in prior years. In addition, our recent guidance update in July reflected lower full year D&PD revenues with an overall improved business mix, including the effects of the events announced last night. Now continuing with cash flow. Our year-to-date free cash flow has improved by 14% versus the same period last year. This is despite our third quarter operating cash flow having a tough comparable to last year when we received $125 million of BMS payments, whilst the recently announced BMS neuro payments has only been received in the fourth quarter of this year. However, in line with our expectations, our investing cash flow continued to see sequential improvements as we drive more rigor in our CapEx investment processes whilst also completing the J.POD build-out. Our net debt levels grew versus the second quarter of 2025, which also reflected the higher lease obligations following the adoption of a long-term lease agreement in our Hamburg facility. Following the completion of our transaction with Sandoz planned in the fourth quarter of this year, we expect our liquidity to be in a significantly stronger position with the residual long-term debt portfolio. With that, I hand over to Cord. Cord Dohrmann: Thank you, Paul, and good morning and good afternoon to everybody on the call also from my side. As you know, at Evotec, we strive for technology and science leadership on our mission to pioneer drug discovery and development. Our ambition is to accelerate the journey from concept to cure in partnership with our customers. Today, we are pleased to talk about considerable achievements we have made along this strategy in both segments. Let me start with a look at the D&PD segment first. We are seeing great scientific progress with our strategic partnerships. Based on these achievements, we continue to feed and expand our strategic partnerships and are confident that our common asset pipeline will show substantial progress not only in 2025, but also during the next 6 to 9 months. So what is our approach? Christian already mentioned that we offer end-to-end discovery services, including development and also highly innovative drug discovery technology platforms. We strive to combine both offerings to create superior customer value. Our core service offering spans the entire value chain from target identification to IND. When we combine those individual services, we can seamlessly run integrated research projects using highly automated workflows. This train of services, shown in blue on this chart, is the backbone of our operations. Within our strategic partnerships, we are then adding proprietary AI-enabled technology platforms on top of this. These are shown here in pink. These platforms elevate our drug discovery platforms to the next level. Our AI-driven platforms are targeting, in particular, 4 goals. We create a much deeper understanding of disease biology, and therefore, patient stratification through our proprietary molecular patient database. We improve our target ID and validation efforts as well as hit identification through superior in vitro disease models driven by our iPSC platform. We enhance and accelerate hit to lead and lead up processes through in silico profiling and an eye supported molecular design. We reduce the risk of failures due to industry-leading tox and safety predictive tools. So this means that AI for us is not a stand-alone feature. We have embedded AI deeply into our toolbox, enhancing the performance of each and every platform in the value chain. Based on this, we not only shorten time lines, but we also improve outcomes. Let me briefly take you through the individual elements. Our proprietary molecular patient database consists not only of highest quality and comprehensive clinical data, but also of deep multi-omics data based on corresponding patient samples. This database is invaluable when it comes to target ID and validation and is supported by AI machine learning algorithms. Our E.INVENT platform is a highly comprehensive suite of AI machine learning supported molecular design tools, predicting everything from solubility, ADME-tox parameters, affinities to targets, but most importantly, it supports our -- it accelerates our molecular design cycles. Our AE safety platform is a suite of NAMs consisting of gold standard in vitro models, which are combining with high content omics and/or high content imaging data to predict the safety and tox profiles of drug candidates. We are doing this with extremely high accuracies, and I will come to this in more detail later. Furthermore, we have an extremely versatile iPSC drug screening platform, which in combination with omics and high-content imaging data is able to profile disease relevance as well as efficacy and safety of drug candidates throughout the drug discovery process with higher granularity, and therefore, higher accuracy than standard in vitro models. All of these platforms are underpinned by our seamless high-performance omics platforms, which can generate, in particular, transcriptome, proteome and metabolome data at highest quality and with unmatched throughput. I will come to the details here later as well. Finally, we are able to bring all of these data together in our data analysis tool called PanHunter. This tool facilitates the handling and the analysis of high-dimensional data sets and is in many areas, AI machine learning supported. On the next page, I will show you selected examples of significant scientific achievements in 2025 and also talk about how they translate into commercial results with our strategic partners. And thereafter, I will show you how those partnerships are associated with highly attractive long-term financial upside. But let me take you through a few selected highlights. I have mentioned the importance of our Evotec molecular patient database as a foundation for a better understanding of disease processes, and therefore, also target ID and validation. And in 2025, we have significantly expanded the database through the addition of new cohorts, in particular, in kidney diseases, obesity, but also immunological diseases. This database continues to support strategic partnerships, while also generating multimillion dollar success-based payments. As far as our iPSC drug discovery platform is concerned, we continue to upgrade our disease models into more complex organoid-type in vitro models. We have done this particularly successful in the kidney disease space. We continue to also make progress in our AI-supported small molecule design platform, E.INVENT. Here, we continue to build models that support specifically the design of certain compound classes as we believe that there are no one-size-fits-all models that are suitable for every compound class. We mentioned previously that we continue to invest in new approach methodologies, NAMs, to predict safety and toxicology of drug candidates. Also, here, we continue to make very significant progress by continuously improving our existing models, while also adding further models. For example, our drug-induced liver injury tox prediction tool continues to improve as now we have reached a predictive accuracy of more than 90%. Similarly, we have developed a highly predictive cardiotox prediction tool, which also has a predictive accuracy of about 90% A further example is a new model of a -- in a teratogenicity prediction tool, where we are currently approaching 80% of predictive accuracy. To our knowledge, these omics and image-based AI-supported safety tox prediction tools are absolutely industry-leading when it comes to their predictive accuracies. Finally, I would like to briefly talk about scientific progress in our PanOmics platform. Our high-performance PanOmics platform continues to evolve. In 2025, we reached 2 landmark achievements. With our high-throughput transcriptomics platform called ScreenSeq, we conducted a high-throughput compound screen, screening over 250,000 compounds using transcriptomics as the primary read-out. To our knowledge, this is an industry first and has never been done before. Similarly, we keep improving our proteomics platform. We have improved efficiency, automation and throughput of our platform significantly and expect to profile over 100,000 compounds in 2026 using proteomics as the primary read-out. To our knowledge, there is no other company generating as many proteomic compound profiles in the industry or processing as many samples using proteomics. So it is great to see that we continue to make this much progress on our AI-supported proprietary platform. Just as important is, however, that these platforms continue to support the business financially. The combined order value to these -- directly tied to these AI-powered platforms is currently north of $200 million already. Beyond this, it is important to keep in mind that these platforms are not only supporting the business through research payments, they enable us to build strategic partnerships, which fuel our partnered asset pipeline with very substantial financial upside. And this is shown in more detail on the next slide. Today, Evotec has a pipeline of more than 100 projects. Over 60% of these projects are part of strategic partnership, and therefore, fully supported by these. All of the more advanced assets, in particular, those in clinical and preclinical stages are supported by partnerships, and therefore, represent pure financial upside for Evotec. Collectively, this portfolio represents a non-risk-adjusted value of over EUR 16 billion just in milestones. In 2025, the pipeline progressed significantly, which means that the total milestone potential of more than EUR 16 billion as well as significant royalties is becoming increasingly tangible. Accumulated returns up to 2028 could total on the order of EUR 500 million. In April, we gave you a status update on our asset portfolio. At that time, in total, we had 12 projects of our 100 projects were beyond the discovery stages, 6 of these were in preclinical stages and 6 in clinical Phase I. In 2025, 2 assets have progressed from Phase I to Phase II of clinical development. Furthermore, we expect that 1 asset will move from the preclinic into the clinic. And moreover, we anticipate further progress over the course of the next 6 to 9 months with 2 further molecules expected to move to clinical Phase II. This means that there's a high likelihood that our asset pipeline will have in total 4 molecules in clinical Phase II, each of them with a different partner in different indication areas. Overall, we are clearly pleased with a lot of progress on multiple fronts. First of all, we have very significant scientific progress on AI-supported platforms. We have been able to show very significant progress in our clinical and preclinical portfolio of assets with 2 new assets in Phase II and additional assets expected to come to the clinic soon. And finally, our discovery stage pipeline also continues to expand and is expected to continue to fuel our preclinical stage portfolio going forward. So a lot more exciting news to come here within the next 6 to 9 months. This is where I hand over and back to Christian. Christian Wojczewski: Thank you, Cord. Let us now switch gears from monetizing technology leadership in D&PD over to doing the same for Just-Evotec Biologics. As you will have noted, last night, we announced a successful signing of the sale of the Just-Evotec Biologics' Toulouse site to Sandoz. Under this transaction, Sandoz will acquire Just-Evotec Biologics EU plus a technology license to our continuous manufacturing platform. The agreement includes additional license fees and development revenues. This marks a pivotal milestone in the journey of Just-Evotec Biologics and underscores the successful execution of our strategy. We aim to close the transaction together in 2025, subject to meeting customary closing conditions, including foreign direct investment clearance by the French authorities. With the transaction, we are reconfiguring our successful partnership with Sandoz which started back in 2023 with the intent to support the expansion of Sandoz biosimilars pipeline and was extended in July last year. We are now converting a collaboration that was based on a long-term manufacturing arrangement into a new partnership centered around technology transfer and enabling our partners. The rationale for the deal is clear and compelling and it follows the strategy we outlined for the whole company. Number one, we will focus on our core competencies. This is making business by leveraging our technology leadership. Our intent is not to run a fleet of manufacturing sites as a classic CDMO player. Number two, we're entering a new episode of growth. Our commercial approach will pivot towards an asset-lighter, higher-margin business model, one that leverages best our technology, scales to partnerships, avoids the need for large upfront capacity investments and delivers superior returns. Number three, we remain fully equipped to serve all our customers through our center of excellence in Redmond and Seattle. Operationally, we have no limitations to support the growth plans of our partners. Number four, this deal is financially highly attractive for Evotec as it provides us with short, medium and long-term economic benefits. On this page, you see a summary of the financial parameters of the deal. We've agreed on an initial consideration of about $350 million for the site transfer and upfront technology license payments, which will be effective short-term. Over the mid-term, Evotec has the potential to generate revenues from licenses and development services plus milestones of over $300 million. Those payments are related to enabling our partner to manufacture biosimilars. In the time period thereafter and starting with commercial success, Evotec is eligible to royalty payments for up to 10 molecules. These 3 phases, starting with a handover, create sustained cash flows over an extended period. At the same time, we improve our revenue mix, reduce CapEx intensity and unlock high-margin IP and technology streams. As part of the deal, up to 10 molecules developed with the Evotec continuous manufacturing technology are eligible for royalties. As recently published by Sandoz, the Evotec partnered molecules in development are targeting a fairly large share of the originator biologics market. For example, the 6 most advanced molecules address a combined net sales of approximately $92 billion. Another 4 molecules are currently not disclosed. Looking ahead to the future of Just-Evotec Biologics beyond our great collaboration with Sandoz. Our U.S. operations will remain a center of excellence for biologics discovery, process development and manufacturing. The hub of innovation fully aligned with our mission to discover, develop and deliver the next generation of medicines faster, smarter and more sustainably. Given the strong momentum of our U.S. business with over 50 ongoing customer projects, we've expanded P&PD in Redmond and are contemplating further expansion in manufacturing selectively. Going forward, we will provide additional commercial routes for our customers to use our proprietary technology. With the transaction announced last night, we've validated the value of the technology, and we've demonstrated the IP licensing model for our continuous manufacturing platform is a very attractive path for our partners. We're now adding further optionality, including licensing of our cell lines, perfusion media and the launch pad concept to enable alternative manufacturing platforms via our J.POD design. In very simple terms, our job is to drive the innovation forward and to enable our partners to successfully launch and manufacture biologics products. Just-Evotec Biologics has 4 main compelling modules to offer on this page in blue, J.HAL for molecule discovery; J.MD, our machine learning-enabled molecular development technology; JP3 for complex biologics process development; and the J.POD for continuous manufacturing. Until now, we have deployed this technology as part of an overall plan to manufacture biologics. This would have required Evotec to continue to invest in the expansion of our manufacturing footprint. The transformation towards the next-generation CDMO model allows us to now deploy the technology without having to make those investments. All components are already in place, such as J.CHO, J.MEDIA, J.TRAIN and J.POD, here in pink. The performance of our proprietary cells and cell culture media customized for the perfusion-based continuous manufacturing process is industry-leading. Today, we are only using them for in-house development. For tomorrow, we see the potential to leverage these assets along a product commercialization path. On the path to enable our customers, there are multiple options to ramp up manufacturing capacity using our technology without us directly investing, such as integrating a J.TRAIN into a customer's facility or providing turnkey solutions at the customers' premises. Over to guidance and outlook. Our mid-term outlook shared in April is based on the ambition to better leverage technology and science leadership, the foundation of our strategy. It is therefore encouraging to see that the endorsement of an important customer of Just-Evotec Biologics, such as Sandoz, translates into tangible results only a few months later. Furthermore, our asset portfolio in D&PD has substantially progressed. The visibility towards our mid-term goals has improved substantially. You heard the detailed financial analysis from Paul earlier. Hence, I keep it short here on this page. Despite the headwinds in the early drug discovery market, we have full confidence and confirm our guidance for 2025 with a targeted revenue of EUR 760 million to EUR 800 million and an expected adjusted EBITDA in the range of EUR 30 million to EUR 50 million. We also see Evotec on track to reach its mid-term outlook at 8% to 12% top line growth and EBITDA margins greater than 20%. With the actions in place, we gained visibility and increased confidence in delivering our EBITDA margin. Let me conclude by making reference to what we discussed on 17th of April this year with you. Only half a year later, we see 3 out of 4 levers of our mid-term value creation unfolding their impacts. While it is too early to call the challenges in the D&PD market mastered, we see green shoots and continue to prepare our organization to be more competitive in this environment. Our cost-out program is ahead of plan. We fast track the execution of our new strategy at Just-Evotec Biologics and the asset pipeline is progressing well. For now, I would like to say thank you. We're now happy to answer your questions. Back to Lorenzo. Operator: The first question comes from the line of Charles Weston from RBC. Charles Weston: They're kind of sequential in nature. So I'll just ask them one at a time, please. Firstly, just factually, how much were Sandoz revenues in the first 9 months? And what would the division have looked like without the Sandoz revenues and the associated costs in Toulouse? Christian Wojczewski: Are you going to -- okay, so you want me to answer right away, right? Charles Weston: Yes, please. If that's okay. Christian Wojczewski: I will hand this over to Paul. Paul Hitchin: Yes, Charles. So I would answer your question as non-Sandoz revenue year-to-date was north of 50% of the overall year-to-date. Also, your question was around, I think, earnings contribution within that. So the way to think about that is within the just profile that you see on a year-to-date basis, that includes the Toulouse build-out cost of around EUR 20 million. So it gives you a little bit of a view of what our kind of normalized view of share and profitability looks like for the division. Charles Weston: Okay. And then associated with that, therefore, how much of the EUR 30 million to EUR 50 million EBITDA guide for this year is the expected upfront recognition from the Sandoz deal? Paul Hitchin: Yes. When I -- just to give a little bit more color on the full year bridge. So first of all on the D&PD segment, just to reiterate what we said last time, we see similar trajectory on full year revenues for D&PD. We do see some potential mix improvements from milestones as we get into the fourth quarter. On the Just-Evotec Biologics side of the business, again, a couple of things. Continued outperformance and operating leverage as we go into the end of the year. Some impact of lower cost base in Toulouse, depending upon the completion timing once approvals are met. And we believe there's a license recognition element from Sandoz. Charles Weston: Sorry, I missed that last bit that you said around just after operating leverage. Paul Hitchin: So lower cost base in Toulouse, depending upon completion timing. And then yes, there is a license recognition from Sandoz, the split of which is included -- or the value of which is included within the initial consideration that is shown on the presentation, Charles. And at this stage, we're not actually splitting out the license component within that initial $350 million of upfront payment. Charles Weston: Okay. That just leads me on to the last one, please, for now, which is around the trajectory from 2025 to 2028. You've given us those revenue -- that revenue CAGR range. The margin guidance sort of implies EUR 140 million to EUR 180 million EBITDA in 2028 of a number that excluding the Sandoz deal is there or thereabout 0 this year. So can you just help us understand what the trajectory is of that in terms of what we might expect as the sort of year-on-year progression over the next few years? And how lumpy it might be depending on those milestones that you've talked about? Paul Hitchin: Yes. Charles, let me go. So on the mid-term outlook, you said we announced 10% to 12% revenue CAGR growing with EBITDA margin to 20% by 2028. Following the transaction and also the events that occurred so far this year in the D&PD business, I would say the revenue CAGR is on the lower end of that revenue range. However, we do see stronger potential on the EBITDA margin rate versus our initial assumptions. As it pertains to milestones, obviously, as you know, those are quite lumpy in both sides of the business, whether it's on D&PD or the Just-Evotec Biologics business. When you think about the transaction with Sandoz that we disclosed, where there are -- there is consideration between 2026 and 2028, what you should think about is around 2/3 of that is product development type activity and about 1/3 is licenses and milestones, which are subject to certain criteria. So it gives you a little bit of flavor of what that may look like over that period of time over the next 3 years. Operator: The next question comes from the line of Brendan Smith from TD. Brendan Smith: Actually, I really appreciate all the color on the AI capabilities internally. So I actually wanted to ask just a bit more about this. And really, I guess, to what extent the NAMs capabilities actually come up in your conversations with partners and customers thus far this year? If you've seen any material shift in that kind of tone? I mean, we get a lot of questions about whether pharma is kind of increasing investments in AI internally on their side is impacting their engagement with external partners offering those kinds of capabilities. So just wondering if you're seeing any demonstrable shift in where they're engaging on that side of things or if NAMs offerings are actually increasing that? I mean, how you might expect that to kind of help grow revenues over the next, let's say, 12 to 18 months? Christian Wojczewski: Thanks, Brendan. I'll hand this over to Cord, and I'm really pleased to see also these questions. We recognize that we've maybe talked a little bit less in the past about those topics. But rest assured, there's quite some activity at the Evotec side. Cord, please. Cord Dohrmann: So the NAMs are definitely getting more attention and also from the pharma side, particularly. Nevertheless, it's still sort of a muted growth in the area at this point in time. But we do see real signs of acceleration because people -- a lot of projects are integrating these NAMs at an earlier stage. You can imagine if you sort of have a predictive tool for drug-induced liver injury, if you introduce this late in the process, you essentially have to profile a handful of compounds maybe. But if you introduce it early in the process, you are continuously profiling potentially hundreds of compounds. And here, this is why we keep talking about industrialization of these platforms and making them high throughput feasible because this sort of opens up the funnel to really bring this into the -- on the critical path of the drug discovery value chain and incorporating these kind of assays at an earlier stage. So basically, right after hit finding, essentially, you can start incorporating this. So I think with this sort of seeing that people are getting more and more interested in incorporating these NAMs early, I would expect to see the revenues vastly accelerate on this front. If it's within the next 6 months, I would say that would be very ambitious. But within the next 12 to 24 months, certainly. Operator: [Operator Instructions] The next question comes from the line of Fynn Scherzler from Deutsche Bank. Fynn Scherzler: So the first one, I would like to ask them one by one, it's on your drug discovery and preclinical development segment and whether you are able to give any sort of glimpse on what you expect into 2026. Some of your U.S. peers sort of gave an early indication. I think consensus sits at around 5% growth for next year. Do you consider this a sensible starting point for the year or as of now would you point us to take a more cautious stance? I understood you spoke of green shoots and so on, but not really of an inflection yet. This would be very helpful. Christian Wojczewski: Thanks, Fynn, for the question. Obviously, our visibility at this point in time is not all the way through 2026. And keep in mind, collectively, the industry since quite a bit was actually looking at when exactly the tipping point is happening. So I'm a bit cautious with making statements about when exactly the market is coming back. And as I said earlier, when you look at the individual bits and pieces here, you've seen on one slide, the change order pattern that wasn't favorable in the first and second quarter, the negative change orders, but it was also related to a few individual wins. Q3 looks much better than you've seen the number of prospects going out, right, plus 20%. You can draw conclusions out of that, but I'm not doing it at this point in time because these prospects need to convert into sales orders. So at this point in time, given that we have probably visibility into the next couple of months, I would not make a statement around plus 5% for the market next year. Fynn Scherzler: Okay. That's helpful. If I can maybe follow-up with 2 shorter ones. So on the profitability in the Discovery & Preclinical Development segment, I think it was surprisingly weak this quarter, but the revenues were sequentially actually about stable. So could you maybe help explain that? Christian Wojczewski: Say that again, please? I'm not sure I... Fynn Scherzler: No, sorry, I was just saying that I think the revenue in the Discovery segment was pretty much flat sequentially, but the profitability was much worse than probably expected. What was the explanation for that? Paul Hitchin: Yes. Fynn, this is Paul again. When you look at the year-to-date profile of the D&PD business and then compare it to third quarter, you're correct that it appears to take a step down. We did actually in the first half have better mix and then also a license benefit in the first half that impacted positively. It didn't repeat in the third quarter. As I said in my comments, however, we do see further opportunities around milestones for the fourth quarter for D&PD. And that volatility, if you like, on milestone recognition will continue in this segment. But that explains the delta there. Fynn Scherzler: Okay, helpful. And then one last one on the Sandoz deal. I'm not sure if you sort of compare the revenues that investors and the sell-side had expected from sort of your CDMO income stream that is now falling away. How does this compare to what you will get now in terms of licensing revenue and so on and so forth? So sort of the EUR 300 million package you described. What I'm trying to understand is consensus sits at around EUR 420 million for JEB business in 2028. Does that then look completely off from your point of view or is this still sort of the right ballpark or are people totally misunderstanding this at the moment? Christian Wojczewski: I think a couple of points here. First of all, I tried to explain that there is the Sandoz deal, and that's a fantastic opportunity to partner with Sandoz, and it will continue to generate revenues and profit for the company. Then there is another 50 customer projects that we are serving out of the U.S. Don't forget to keep that in consideration. And then what we said is we're basically pivoting to a different model, right? So the way that we look at it is a much more capital-effective way of doing business. So moving from a manufacturing view to a license model allows us to generate revenues in our view, at a higher margin rate and much more capital efficient. And that's the driver why we've concluded that this is a great deal for the company. And as we said also last time from an NPV perspective, for us, this is a positive contribution. Paul Hitchin: Yes, Fynn. So there is some level of reduction on revenues. But as Christian rightly says, significant improvement in the gross margin driven by that higher quality revenue mix, whether that's tech licenses, royalties, consumable sales that we've talked about as well and that lower capital intensity. So we're trading to higher quality mix of business. Operator: The next question comes from the line of Michael Ryskin from Bank of America. Unknown Analyst: This is Aaron on for Mike. You called out the soft early drug development market environment and VC biotech funding. Given the current market environment, can you talk a little bit about what you're hearing from customers? And related to that, a little bit more about the implications for the overall pricing environment? Christian Wojczewski: So I think there's still uncertainty in the market, especially in biotech, and I've also mentioned that our D&PD business, 30% to 40% of the revenue is related to biotech. So there's quite some exposure here. That's number one. Number two, as we also mentioned throughout the course of the year, while conversations continue, there's more slicing happening than what we've seen in the past. So more cautious spending, less larger projects, more smaller projects and decision-making is slower. So that's a little bit the environment that I have -- the picture I've painted already in Q1 and in Q2. And we see this continuing with maybe the difference that, as I said, the number of prospects have come up quite a bit over the course of the last month and quarters, which shows that there is more activity and hopefully also more prospects for 2026. Pricing, obviously, is a function of also capacity in the market. It's clear that there has been overcapacity across the market in drug discovery, but it's also clear that most players are right now adjusting like we're doing it. So I see this actually also starting to normalize when demand and capacity is coming more into balance again. Unknown Analyst: Great. And then just a quick follow-up. I wanted to actually ask about the prospects. I'm wondering if you're seeing the prospects of green shoots within similar geographic regions, if there's any geography that's performing better than expected or worse than expected, if you could provide a little bit of color there? Christian Wojczewski: That is actually the case, but it depends a little bit on the subsegment. And as you know, we're less penetrating the Asian market. So we've seen a little bit less dynamic in the U.S. market earlier this year and that has flipped more to the European market. So not very consistent and conclusive at this point in time, but there is variation. Operator: The next question comes from the line of Charles Weston from RBC. Ladies and gentlemen, we lost the line with the questioner. So there are no more questions at this time. I would now like to turn the conference back over to Volker Braun for any closing remarks. Volker Braun: Thank you, Lorenzo, and thanks to all on the call for the engaged discussion. In case you feel not all of your questions were addressed, please feel free to reach out to me any time. We're looking forward to meeting many of you at the upcoming investor conferences in November and December. And with that, we wish you a good rest of the day. Thank you, and goodbye.
Henrik Andersen: Good morning, and welcome to Vestas' Q3 reporting and also closing and looking forward to close a very solid year 2025. I'll also take here the opportunity to extend a big thank you to our customers, colleagues and not least our external stakeholders, great support and commitment through the current environment through the first current 9 months of the year to the execution we are talking and going to talk much more about, today. So with that, could I go here to the key highlights. So, key highlights, revenue of EUR 5.3 billion. That's an increase of 3% year-on-year driven by higher deliveries, despite negative foreign exchange development. When we look at the EBIT margin of 7.8%, earnings achieved through improved Onshore project execution, lower warranty costs, partly offset by our manufacturing ramp-up, which is continuing, but also progressing well. When we look at the order intake of 4.6 gigawatts, up 4% year-on-year, driven by U.S. and Germany and Onshore is up more than 60% quarter-on-quarter comparison to last year. When we look at the manufacturing ramp-up, the driver cost and also investments the Onshore and Offshore ramp-up is progressing as we focused on delivering a very busy fourth quarter but also as importantly, getting a strong start of 2026. By this, we also decided to return value to our shareholders, I think, most importantly, in line with our capital structure strategy and also solid liquidity position, a share buyback of EUR 150 million will be initiated and will be starting as of tomorrow morning. And then on the outlook, we narrowed the outlook in terms of turnover EBIT, reflecting the lower Service EBIT, but also the stronger Onshore execution. With that, I will talk about the market environment we are in. And again here, wind energy is key to affordability, security and sustainability. That is our narrative and we can see it actually working in across many of our markets, as you've also seen in our order intake and not least also in our delivery table. When we look at our global environment, no doubt, inflation, raw materials and transport costs are stable, but tariffs will increase cost over time for the end user. When we look at the ongoing geopolitical and trade volatility leading to a regularization. We have spoken about that in now many of the previous quarters, and I will almost say the previous years. And we are seeing it's continuing, and we are dealing and planning and executing well in it. When we look at the market environment, there is a heightening focus on energy security and affordability across many of our main markets. The grid investment is prioritized in our key markets and we can see it's progressing in a number of markets, but also probably have status quo in the numbers of others. On the permitting side, it is improving in some markets, but overall permitting auctions and market design is still challenging. Maybe here is the perfect place also to just express a bit of a concern with Europe's continuing introduction of rules like CSRD, CBAM and others, while the rest of the world are after competitiveness. However, when we then look at the project level, I will say, Vestas, we see a strong project execution in the quarter and also year-to-date. We see some regional disruptions from time to time, but we are coping very well with it. And of course, that's then leading to the result we are also seeing in Power Solutions today, which I'm sure Jakob will talk us much more in details about. When we look at the Power Solutions in Q3 2025, strong quarter across all key markets. So, when we look at the Q3 order intake of 4.6 gigawatt, that's up 4% compared to the last year. The increase was mainly driven by strong order intake in the Americas, especially in the U.S. as well as continued positive momentum in EMEA, especially in Germany. There are no Offshore orders in Q3, so it is a clean Onshore order intake quarter. The ASP declined to EUR 1.01 million per megawatt in Q3 compared to EUR 1.11 million per megawatt in the prior quarter. The decline was driven by a change in the order mix with higher share of supply-only orders in the U.S. Generally, we are very pleased with the positive continuing price and price discipline we are showing and our customers' support and understands it. When we look at the order backlog in Power Solutions, it increased to EUR 31.6 billion. That's up EUR 3.3 billion compared to 1 year ago as our energy solutions continue to have good traction with customers across our core markets. And you can see more of the details in the chart to the right. With that, on to Service. So, Service outlook revised and also the recovery plan is progressing as we go through and we are now three quarters in. So, the Service order backlog increased to EUR 36.6 billion from EUR 35.1 billion a year ago, despite EUR 1.5 billion headwind from foreign exchange rate movements year-to-date. When we see a Service, it reached 159 gigawatt under Service. It's flat compared to Q2, as additions were offset by a higher level of expiries and also deselecting in the quarter as the commercial reset continues. This is some of the consequences we have spoken about in the previous quarters as part of our Service turnaround. And I think we can now start seeing that some of it also shows at least in the Service under -- the gigawatt under Service as such. When we look at the Service recovery plan, which runs until the end of 2026, it's progressing, and we are seeing early signs of operational improvements and also a reduction especially in our overdue work orders and the backlog of the same. That's very healthy, and it's very positive to see. And of course, we will continue working with that, and we look forward to talk more in details over the coming days. However, earnings in Service are also affected by foreign exchange rate headwinds as well as some costs related to some specific Offshore sites, which has led to a revision of the 2025 outlook of Service. You will see here to the right, the breakdown of the Service order backlog, EUR 36.6 billion overall, of which EUR 31 billion is Onshore, 159 gigawatts under active Service contracts and then an average duration of 11 years. You will see the breakdown on the regions below. And as you will also not surprisingly see in Asia Pacific, if you don't have new order intake, it also is limited to how much you grow gigawatt under Service. With that, take you through development. Development, not a lot, so I'll have that pretty quickly. Discipline, the same. We also focus very much about finding projects and advancing projects. But as you can also see, the environment right now is a lot of focus on in the key markets to progress projects, and we haven't really progressed anything in Q3. So, I'm pretty sure from a performance point of view, they also feel that for Q4. In Q3 2025, we had a pipeline of development projects that were stable around 27 gigawatts with Australia, U.S., Spain and Brazil, holding the largest opportunities. Strategic focus is on maturing and growing a quality project pipeline as well as conversion of mature projects in project sales and related turbine order intake. You can see the regional breakdown below. And I'll go to sustainability. In Q3, Vestas is the most sustainable energy company in the world, and we keep having that focus also with our customers and stakeholders. When we look at the turbines produced and shipped in the last 12 months, they are expected to avoid 461 million tonnes of greenhouse gas emissions over the course of their lifetime. You will see that here to the right. And of course, as we are ramping up, we expect that to continue increasing. The carbon emission from our own operations over the last 12 months increased by less than 1%, which is actually a very positive achievement, because our activities are increasing. So therefore, keeping Scope 1 and 2 at the current level is a testament to the focus and execution of our operations across. It is also saying when we ramp up Offshore, it is a significant change in business mix. So, there will be an upward pressure on the carbon emission, because we are using and spending more time at sea, at vessels and other transport measures. When we look at the number of recordable injuries per million working hours, that was up from 2.8 to 3.3 year-on-year. Safety remains a top priority for us as we tirelessly work to improve our safety performance across our value chain. I think also here from a personal point of view, I would say this is not good enough. When we see overall the year, we have less serious injuries and we have no fatalities that's positive. But the higher frequencies in especially Northern Europe and North America with onboarding many of our new colleagues, that also means that when we ramp-up Offshore, we see some of those frequent injuries we shouldn't see. So therefore, we have highlighted that. We talked directly to our colleagues, how do we see our colleagues and our family members remain safe on sites in this. So therefore, we are taking it extremely serious that it has not gone down, but actually gone up in the last 12 months after Q3. With that, I will hand over to the financials. Jakob, take it away. Jakob Wegge-Larsen: Thank you, Henrik, and let me take us through details. I'll just flip the slides. Let us take through the details of the income statement and the highest ever third quarter gross profit. Revenue increased 3% year-on-year, driven by growth in Power Solutions offset by slightly lower revenue in Service, primarily as a result of negative foreign exchange rate developments. Gross profit, that I just spoke to, increased to record-breaking EUR 772 million in the quarter, the highest ever in the third quarter. The record was achieved by improved profitability in Onshore, lower warranty costs, partly offset by manufacturing ramp-up costs. And EBIT margin before special items was 7.8% in the third quarter. As mentioned throughout the year, '25 is a backend-loaded year. The third quarter that we are just going out of was a strong start to a busy second half, and we expect a better balance between earnings in the third and fourth quarters compared to previous years. Diving into the segments starting with the strong performance in Power Solutions, as Henrik also alluded to. Revenue increased by 4% year-on-year, driven by higher megawatt delivered at stable average selling prices. EBIT margin before special items improved to 3.9 percentage points year-on-year to 8.1%. The improvement was driven by lower warranty provisions, continued strong onshore project profitability and importantly, execution, partly offset by costs related to the manufacturing ramp-up in our Offshore in Europe and Onshore U.S. Moving into the Service segment. Service revenue declined 3% year-on-year due to lower transactional sales compared to last year, while contract revenue was stable. Revenue growth in the quarter was affected by 3% currency headwind. Service generated EBIT of EUR 153 million, corresponding to an EBIT margin of 17%. The profit levels is in line with recent quarters, but we expect additional costs in Q4 related to some specific Offshore sites. The Service recovery plan continues and it will take time before benefits are visible in the financials. Net working capital decreased in Q3, mainly due to a reduction in inventory as a result of high project deliveries in the quarter and continued focus on working capital management. Important to notice, compared to Q3 last year, we have seen EUR 1.4 billion improvement in the net working capital. That leads us into the cash flow statement, where importantly, and what you have seen also where we say we initiated a share buyback on the back of strong cash flows and our net cash position. Our operating cash flow was EUR 840 million in the quarter, a significant improvement compared to last year. The improvement was driven by better profitability and a favorable development in net working capital, as you just saw. Adjusted free cash flow in the quarter amounted to EUR 508 million, also a substantial improvement, driven by the same reasons as mentioned in above. And then finally, we ended the quarter with a net cash position of EUR 0.5 billion. Total investments in the quarter amounted to EUR 274 million in quarter 3. The spending is primarily related to tangible investments such as transport equipment and tools as well as property plans and equipment across our turbine portfolio, such as the Offshore 15-megawatt EnVentus and our 4-megawatt platform in the U.S. Importantly, we are also very pleased to welcome more than 400 new Vestas colleagues at the Onshore blade factory in Poland, which we took over in September from LM Wind Power. The factory will deliver blades for our EnVentus platform and expand our industrial competitiveness in Europe. Looking at provisions and our lost production factor, we see signs of stabilization. The repairs of the sites mentioned in previous quarters are now largely completed. Disregarding these sites, the underlying LPF has trended down during '25. Warranty costs amounted to EUR 160 million in the quarter, corresponding to 3% of the revenue, and that is a significant improvement from the 6% we saw in Q3 last year. Warranty consumption was EUR 206 million for the quarter. The higher consumption level in the quarter is related to the above-mentioned repairs. And finally, ending on a high, we can report our best EPS and RoCE in 5 years. Net debt-to-EBITDA ended the quarter at minus 0.2x compared to 0.9x a year ago. Investment-grade rating from Moody's, we still have with a stable outlook. Earnings per share, measured on a 12-month rolling basis, improved to EUR 0.9, driven by the better profitability. Our return on capital employed, which broke the 10% barrier last quarter improved again and now to 13.6% as the earnings recovery continues. And finally, our strong financial position and improved key metrics allows us to return cash to shareholders. Thus, we are initiating a share buyback of EUR 150 million starting tomorrow. And now back to Henrik to take us through the outlook. Henrik Andersen: Thank you so much. So thank you, Jakob, and thanks very nice slide to finish with. And if we were a bit out of sync, I have to catch up with that change of your slides in the future. But we will rehearse that. When we look at the outlook, the outlook for the year, revenue narrowed EUR 18.5 billion, EUR 19.5 billion from previous EUR 18 billion to EUR 20 billion. Of course, there are some negative foreign exchange that you picked up. On the EBIT margin before special items, 5% to 6% narrowed from 4% to 7%, and Service is expected to generate an EBIT before special items of around EUR 625 million. And then total investments remained stable at EUR 1.2 billion, as we also had in our previous outlook. With that, I will just say thank you for listening in. I will pass to the operator, and we will go to the Q&A. And also in that slide, you will be able to see the financial calendar for 2026. Over to you, operator. Operator: [Operator Instructions] The first question comes from the line of Sean McLoughlin from HSBC. Sean McLoughlin: Let me just come to Offshore. The ramp looks to be progressing as expected, but you've postponed the investment in the blade plant in Poland. I wanted to understand just what is your latest view here on the market? And what is the risk that we might see in early peak of deliveries in '26 and '27 and potential underutilization thereafter? And ultimately, what would it take in your mind to kind of put that blade expansion back on track? Henrik Andersen: Thank you, Sean, and with a little bit of risk of using an expression here and throwing a good colleague under the bus. I will sort of say here, that blade factory that is so-called stopped in Poland was never built in Poland either. It's actually an old decision that was paused 18 months ago. It got interpreted a bit and probably got its own life and that I will use a bit also to say to everyone here on the call and others listening in. It seems like Offshore is getting an unreasonable bashing everywhere in the day-to-day press or among analysts. Yes, there have been headwinds and others. But from us, we don't see that. It is a piece of land we have. So if we, at some point in time, wanted to do a further capacity expansion, then it's an opportunity and option for us. And right now, we are working well. We are progressing well with our own capacity plant upgrade and that we will just wait and see. This is a dependency on what happens in the backlog when we look 4 years plus ahead that's where we will adjust capacity. Currently, we don't see any reason for raising the question or question too, if we need to adjust capacity downwards. That's for sure, Sean. So, we are ramping up. And therefore, in a call like this, start talking about capacity downwards. That's not -- we have a backlog of more than EUR 10 billion of projects and we will be throughout this year, next year and into '27 reach what we will call a more stable full capacity utilization. Sean McLoughlin: And if I could just follow up on Offshore is looking at the moving parts for you effectively not lifting the midpoint of the guidance after the strong Q3 surprise? I mean, is Offshore a component of that? Or is that really driven by Service? Henrik Andersen: I don't -- as I said here, if we look at the midpoint here, you can sort of see if you have three quarters now, you can see we struggled to absorb the Offshore ramp and the ramp-up cost in generally, if we are laying around EUR 2.5 billion in turnover. Now we are above EUR 5 billion. We have a very good quarter. But again, there, it's a lot easier to absorb it when we have a higher turnover. So, we are pleased with where we are, probably is around the maximum of the ramp we are seeing here in the second half of the year. So therefore, coming into '26, we should start seeing also, it's reducing and disappearing over time. So, that is sort of the -- in our heads, the timing of it. And then as I said, in the mid-range, also here, Sean, of course, we still have also the business absorbing for instance, tariff and other exchanges that happens in the world. So, we're not -- we're actually very pleased with what is in here, and we're also very pleased with what Onshore execution is supporting our continued investment into Offshore. Operator: The next question comes from the line of John Kim from Deutsche Bank. John-B Kim: Two questions, if I may. If we think about the updated guidance here and include the headwinds in Service, I believe it still implies a sequential -- a weaker margin in Q4 for Power Solutions. I'm just wondering if you could give us a bit of color here whether it's more about the cadence of the Onshore deliveries or potentially a bigger drag in Q4 from Offshore? How should we think about that? Henrik Andersen: I think here, it's the busiest quarter again in Q4. We walk into Q4. You will have seen it. We always said when we started the year back end loaded, but it's second half of the year. I will sort of say here, when you look at that, John, I would much rather see it in that we have managed to equalize Q3 and Q4 much better. Last year, we didn't. So therefore, compared to last year, we are looking into a Q4 that looks fairly much as execution of Q3. And then there can be a variation to the theme of what do we have in the backlog in there. You shouldn't read more into that. Then it is a busy quarter. We got 56 days to go, and we will always be subject to the normal variables in Q4. So that -- yes, we won't try to make it worse, that's for sure, in the Onshore execution, which we so far have had a really good run at this year. John-B Kim: Okay. Helpful. And on the Service guidance, EUR 625 million as the updated guide. I want to say there's a little bit under EUR 20 million in FX headwind. Is the remainder of the difference from EUR 700 million to EUR 625 million due to the Offshore that you had mentioned in the commentary? Henrik Andersen: I won't comment on your FX calculation. I think, we probably will see it slightly a bit more than that. But as I said, let's not do that. What we are just saying here, if we have a couple of things where we put a lot of vessels and a lot of people see in a Q4, it will drag something. So when we see that in a Q4 of a Service, which, let's just say, between us, we maybe end up around EUR 1 billion in turnover, then you can easily invest EUR 20 million in some of these Offshore sites in a quarter, and that's why we are guiding towards the EUR 625 million. Operator: The next question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: I have two questions. First one is about the production ramp-up in Offshore and Onshore as well. So, you've been fairly clear stating that it has a material earnings dilution impact this year. Considering the progress you've done so far, how confident are you that this will have a materially lower dilution next year? Henrik Andersen: How material are we, we had listed. We know that it's ordinary ramp. So, that means, the longer you get in, the better we get added, Kristian. But it's also here for both the Onshore U.S. and Offshore. We see a tendency too that we are further into the Onshore U.S. So, that should be definitely disappearing over the coming 2026. And then, as I said, in the Offshore ramp, listen, we opened these the nacelle factory less than 6 months ago. So therefore, we are at a maximum of both onboarding and running the education and training there. So, I can't give you a date where it maxed out and then it starts coming down, but we do everything we can to actually having coming out gradually over '26. Will it be totally done in '26? I don't know, because there always be things. So that we will talk more about when we get to 2026 outlook in February. But we are comfortable with it, and that's probably the main reason here. We have more than 0.5 gigawatt I see now in the Baltic Sea and the North Sea. So, we see that progressing. But of course, we are into the winter season where it's a slightly different environment to construct and install Offshore. Kristian Tornøe Johansen: Understood. Fair enough. And then, my second question is on your order intake in the APAC region, which again this quarter was fairly low. So, just any commentary on the outlook and your optimism for actually seeing APAC orders pick up? Henrik Andersen: I would just say nothing more than he should be doing better. There's a whole region out there in Asia Pacific, so that we encourage them to do. I think, it's lumpy when you are in markets of the nature of what they have in Asia Pacific. They are a bit more depending on when does it come over the finish line. I'm pretty sure that it's a whole region and not wanting to show us and you that they are good. They're doing zero in fourth quarter, because that's not the intention. So, we'll see where they end in 31st of December, but game on for the region to build a proper FOI in fourth quarter. Operator: The next question comes from the line of Dan Togo Jensen from DNB Carnegie. Dan Jensen: Sorry, can you hear me now? Henrik Andersen: Yes. Dan Jensen: Okay. Good. A couple of my questions from my side as well. On warranty provisions, low this quarter here, but how should we think of this level both absolutely and also relative, of course, as you put on more on the Offshore side? Can you maintain this level here? Or is there a risk that we will start to see level or an increase in that ratio? And then a question on the share buyback, the EUR 150 million. Can you elaborate a bit about the math behind reaching the EUR 150 million? I mean, cash flow -- free cash flow generation was more than EUR 0.5 billion, and you have almost EUR 0.5 billion in cash by end Q3, and how should we think of it by end Q4? Will you again be possibly in a position where share buybacks could roll into the current program be released by a new program? Jakob Wegge-Larsen: Dan, this is Jakob here, let me take the first part, and then Henrik will comment on the latter. Warranty, what we should remember, and I'm sure that those are also the numbers you're looking at. '23, we had more than 5%. '24, we were down to 4.3%. And then this year, we are hovering around the 3%. So, it's something we're really proud of, and it's an outcome of our focus on quality. We also see the underlying LPF reducing as we say, except for these couple of sites. And our ambition is to continue that journey down. And again, looking at next year, we'll talk about after Q4, but it's certainly our ambition. We are not satisfied with the current level of 3%. We see further potential and we have higher ambitions. Dan Jensen: Okay. Sounds good. And then, on share buyback? Henrik Andersen: On the share buyback, I think always when we do these things, we look at it in a bigger scheme of things. We have had a highest EPS, as Jakob mentioned, highest EPS and highest return on capital employed for 5 years. As you know, our Chairman very well. It's probably also the highest EPS for most of the 10 years. So therefore, when we look into this, we think it's fairly reasonable that we also say to shareholders, you will get cash back. Could we have done more? Yes. Could we have done less? Yes. But we ended EUR 150 million, because it's also the time of the year where we can get this done until the 17th of December. And then, of course, we get together again in beginning of February. And as you're rightly saying, we're not about piling up cash here in an environment where we feel very comfortable of the investments we have been doing and still are doing in Offshore, but that is also to say if people have struggling to see the value in Vestas shares, then share buyback is the best way we can also say, we -- at least, we trust in the Vestas share. Operator: The next question comes from the line of Akash Gupta from JPMorgan. Akash Gupta: My first one is on Service. So, I think when we look at your Q4 -- implied Q4, it's slightly over EUR 140 million adjusted EBIT, which is smaller since 2020. Can you tell us maybe how much of this is structural and how much of this is like temporary figures? And can you also talk about growth rates for Service in Q4, given last year, we had 30% year-on-year growth in Service top line. So, that's the first one. Henrik Andersen: Thanks, Akash. I will say sort of top line first. When you see the Service top line, there can be, and there was also last year some repowerings. Therefore, if Q-on-Q, there are differences in the top line that can relate to special things like that. And you will also appreciate we do have transactional sales as part of it, which can vary. We don't comment much about that and don't want to comment much about it. But as we also discussed over the last quarters when we have embarked into this Service reset. It is important for us that also we get better in saying, in this quarter, we already know this is what we are going to do in the quarter in especially some of these Offshore sites. So therefore, we have to give you a bit more guidance on some of these. That is not a recurring thing. So therefore, when you're into next year, you should see probably year-to-date and what we have done in the previous quarters is the underlying run rate of the business. So, I'm not so nervous of that, but we got to pick it up with you when we have already now a month into Q4. So that's the reason why we are seeing it. And as I said, it relates to something specifically in Offshore that is in the quarter, dragging it down. Akash Gupta: Are these Offshore sites are same as where you were fixing some quality issues where you took provisions or they are different? Henrik Andersen: They are partly, partly different. So therefore, it's not related to any of that, and it's not related to the 236 either. So, this is something where we just know that when you're in this season, and you got to have it, then it's a focus from us, and it's a focus from the customers, and it is very few customers involved as well. Akash Gupta: And my second one is on produced and shipped turbine in the quarter. You had slightly over 3 gigawatt, which is down 17% year-on-year, and we had growth here in first half, and now we are flat on a year-to-date basis. Can you tell us what is driving it? Are there any supply chain issues like probably sourcing of magnets or any retooling of facilities? So, can you elaborate what's driving this Q3 produced and shipped turbines and expectations for Q4? Henrik Andersen: No, I will say here, and I think Jakob spoke to that, if I can point to a positive here. We get better and better together with our partners in having a straight through on the production and also the supply chain. So, we've been better able to control inventory. And therefore, if we do that, then are we also, to some extent, in some quarters, you can't adjust it completely from what is going to be delivered and constructed next quarter. So, we have been better at that, and there are no -- we haven't yet seen any influence of any supply chain shortages, then we wouldn't have used the expression of very good execution in Onshore. So, we actually, again, coming into Q4, we won't be many weeks away from when we have all what we need on site. So therefore, Akash, we are -- we see good traction on execution towards the end of '25 as well. Operator: The next question comes from the line of Colin Moody from RBC. Colin Moody: Just focusing on the very strong margin performance in Power Solutions this quarter, well understood on the drivers regarding warranties and volumes. But maybe just on that project execution point. Am I right in thinking this is essentially a contingencies release? And could you help us understand how much of a contributor this was and generally, should there be some more in Q4 to come? And generally, on contingencies, do you recognize the benefits of that release every quarter as projects approach the end or more kind of towards the back end of the year? Henrik Andersen: I don't know if I'm commenting on something a new special way of doing. We do exactly what we've always done. If we have a project, we do a pre and post cal cap, when we get the final payment from the customer, we put it into our P&L. So therefore, I can't comment on what others are doing in contingencies or whatever. We run whatever we do when we have a project, as you would expect us to do, there's always something in a project where you have what if something goes wrong. And of course, that gets released when you also have the project completed. So, it's a quarter where Onshore execution has been and delivered this. And of course, even in this quarter in Power Solutions, we have also spent quite a lot of amount in ramping still and investing in the Offshore and Onshore ramp. So for us, this is a normal quarter. But I think you should read back to what I started saying by it is difficult to absorb our investments in ramp when you have a much lower turnover and top line as you saw in Q1 and Q2. That's what you should read into it. There is nothing else. Then it's just a clean execution and profitability, and that's also what we are looking in for the full year. Colin Moody: Well understood. And then maybe just a second question, if I could. On U.S. market trends, clearly, very strong U.S. orders intake year-to-date. Just thinking about the July safe harbor coming up in 2026. How do you think about order developments going forward? And am I right in thinking that you shouldn't necessarily expect a big peak or ramp ahead of that deadline. But actually, you could continue to see very strong order momentum even beyond 2026 into 2027 and beyond? Henrik Andersen: Yes. Thank you. As I said, it's always difficult to predict in individual quarters. You know my statistics in that, that has been relatively poor, as Claus Almer will remind me of. So I think here, we are also saying we take the orders we can get to. I think it's also fair saying we are pleased with what we are seeing. We are having a well-covered order backlog in the U.S. and people are building out and planning for building out. What is that based on? That's based on that the Wind also in the U.S. has a very attractive levelized cost of energy. It goes well in combining up against gas and others. So therefore, it's a build-out ROCE that we will continue to see in the U.S. also beyond whenever PTC is expiring or not. I think we will probably have had more orders if we haven't had some uncertainties around the tariff side. But outside that, no, we love getting close to our customers in the U.S. and keep developing that plan for the coming years. So, we're in a good state. I won't comment on when orders are coming because that's simply too difficult to predict. But don't forget, when we talk about tariffs, we have a very, very large local supply chain that has been there for more than 2 decades. And of course, that we are supported well for and customers can come and see both the sourcing of the components and supply chain into the U.S. factories, which gives a very comfort situation and confidence situation between us and customers in the U.S. Operator: The next question comes from the line of Claus Almer from Nordea. Claus Almer: First of all, congratulations with the solid Q3. I will not ask about orders, but about the tariffs. So, first of all, did tariffs in Q3 had an impact on the profitability in power? That would be the first one. Henrik Andersen: Yes, it will always have now because if you're paying and your sourcing and you're constructing, Claus, you can see the deliveries in the table we have in the interim report. So therefore, of course, part of that is already under influence of tariff. And of those, that is -- that will be fully booked under and also split in the ratio between customer and us. Claus Almer: So, it's the quote that you're expecting to be able to mitigate some of these effects. So, could you maybe quantify what was the headwind in Q3 that maybe will vanish over the coming quarters or years? Henrik Andersen: That goes a little tight in what we are sitting with. So, we have a P&L to optimize in and for our customers and that we do very well. We can't mitigate 100% of tariffs, because there is not an opportunity to be 100% local sourcing in the U.S. So therefore, there will be a tariff and they will come on either projects or components and therefore, be booked up against the projects when we execute on them. We don't have an interest in sharing that. Why is that? It's not a market for many. So therefore, we keep that execution with us and our customers. They understand what we are doing and they support what we are doing, and I think we are in the best possible way, trying to mitigate what we can mitigate, but mitigate all of it, not possible. Claus Almer: Fair enough. Then my second question, which is also tariffs. So, there's been some quotes out today from you, Jakob, that U.S. customers are holding back due to the tariff uncertainty, which also was mentioned on this call. I guess this is mainly the ongoing U.S.-China situation which may last for quite a while. So, is there any way that you can reduce this uncertainty and thereby unlocking some of these projects in the pipeline? Henrik Andersen: I will just say maybe Jakob better comment on his -- himself. We fully agree on that. Of course, as I also said to the previous one, we will probably have taken more if it wasn't for the tariff, and that's absolutely right. And there is also probably a continuing backlog sitting and waiting for clearance on a few of these things. So therefore, let's see what happens there. But as I said, I'm not trying to predict sort of macroeconomics and geopolitics these days, because it's simply not predictable. So therefore, we do what we do. Whenever there is clarity and whatever the offtake is there, there are also cases now where the offtake is so much in demand that you actually will execute on it, whether there is small, low or even high tariffs on it, because that's what you need to get to your electricity and your energy supply. So year-to-date, we have more than 2 gigawatt of orders and our U.S. team are doing a cracking job in doing that. So, we do what we can to support them, Claus. So I think here, really, really good progress. Claus Almer: There's no doubt on 1.8 gigawatts from the U.S. -- player from the U.S. was quite amazing in the quarter. That was all for me. Operator: The next question comes from the line of Ajay Patel from Goldman Sachs. Ajay Patel: A couple of questions, please. Firstly, on Offshore, we're largely through this year, I'm just thinking about the Offshore business where that has been hampered by a number of issues this year, fixed cost absorption, ramp-up cost, maybe lower margins on the contracts. And I'm thinking beyond because that's a sizeable proportion of the reflection on the profitability of Vestas. Is there any sort of guide you can give on the ramp-up costs this year so that we can have better modeling of how that profitability may turn? And then the second question I had was you're performing really well on the Onshore side. You can see the green shoots of Offshore turning around sizably. You talked to Service margins improving by the end of the Service plan. It looks like the significant profit improvement to happen over the next 2 to 3 years. I'm just thinking today's buyback. Can we infer that sizable amount of cash flow that buybacks will be very much part of that debate. And that really, we're really looking at a picture that's got returns of value as a sizable proportion of the investment case? Henrik Andersen: You're asking me quite a number of questions in the question. S,o, I will try to, sort of, we believe very much in our three business areas. Onshore, very mature, very well developed. And you can say the Onshore has been -- if I was an inside Vestas colleague has been paying a lot for some of the investments we have continued doing in the Offshore. We are absolutely convinced and we adamant that Offshore will be a really great business area, not only for Vestas, but for a few around and also for our customers. So, we are not being caught by the same, I call it, a bit the frustration or depression over Offshore. But the great days of Offshore in the P&L for Vestas will rightly so come when you look beyond the further ramp-up in terms of projects in '26. So therefore, second half '26 into '27, you're right, Offshore would start looking much more like what we're also seeing in the Offshore profitability. That comes together with that we are doing the right things in Service. So yes, you can definitely come into a higher EBIT margin when you do the future years. It's not why we are looking at a share buyback in an individual quarter. But I think it's a testament from the Board and also from management here to see, we feel confident of what we are doing and where we are and that confidence you need to see. Because if there's something we probably discussed in the last 4 quarters, which is, when did the business turn around, when was it, we were comfortable of the turnaround we have done? And is it working? And I think today, we can definitely say to people, this is the first sign of it's working and then, of course, everyone can do their predictions. The more cash we get available, the more we will probably redistribute back. Because the biggest part of the investment we needed to get done in Offshore is actually behind us. Operator: The next question comes from the line of Alex Jones from Bank of America. Alexander Jones: Great. Two, if I can. First, just to follow up on tariff costs. To what extent were those already hitting the P&L this quarter? Or are there still the sort of incremental increase in tariff costs ahead as you work through inventory imported before the various tariff measures were put in place? And then second question, if I can, on Offshore. And sorry if I missed it, but could you explain exactly what is happening at the Offshore sites either because of technology or because of your customers' demand that is driving additional costs in Service in Q4? Henrik Andersen: If I take the Offshore first, then I can leave the tariff a bit more on to Jakob. I think we've spoken about the tariff already. But on the Offshore, it is specific sites. It is where we are manning up. It is not related to our 236, and it's not related to the, sort of, back in Q3 and Q4 last year, where we had a component failure in one of the platforms. So, this is about that we have, what I would probably more call a hyper care in a couple of Offshore sites where we agreed that with the customer. And therefore, of course, we are also investing in that. So, that is in winter and a high season for Offshore is a way of also us saying we are investing with in also prioritizing cost here. So that's what we have done and that's what we are sort of pre-guiding you on for Q4. Jakob Wegge-Larsen: And on the question around tariffs, it is hitting our books right now. As Henrik also answered in the previous question, continue hitting in Q4. But what is important is, and that's what we're also saying with our narrowed guidance, we can keep that within the narrowed guidance and you will see doing the math that we have the same midpoint as we had basically since the beginning of the year. So in that sense, yes, it's in there, and it will continue to be in there. Operator: The next question comes from the line of Max Yates from Morgan Stanley. Max Yates: Just one question from me. Just on the Services business. Could you give us an update on how the turnaround program is going? Are customers kind of accepting the renegotiated terms? And I guess maybe if you could just help us with the kind of how long we will actually -- how long it will take to actually see this in numbers? I guess you're kind of operating in a 16% to 18% margin. I appreciate you won't want to give guidance to '26, but do we still see sort of '26 as a year where the groundwork is being laid for future margin improvement? Or do you really see it as we'll start to see some of the improvement is actually coming through in kind of growth and margins in the Service business as we go into 2026? Just trying to get a sense of -- so we don't anticipate it happening sooner than we actually see it in numbers. Henrik Andersen: Max, I'll really, really appreciate your comment in that way, because I couldn't agree with you more. This is a global business that has 159 gigawatt under Service. And we have more than 15,000 employees. So, when you do a reset and a turnaround of the business, it will take longer time. So, please don't start making things in 22% or 25% Service margin in '26. We have said it takes the 2 years. We are 5 quarters away from finishing this work, because it does take some time. I'm really pleased with where we are in the Service team and Christian Venderby, who heads it, have done a really good job. We know the details of what we are going through, but I think also as we are hinting here. When we looked and talked about this 2 or 3 quarters ago where we said we probably would foresee that we will have some flat gigawatt under Service, then surprisingly it didn't happen in the first 1 or 2 quarters. Now it does happen, because we are getting to some of the gigawatts where, as I think we also spoke about that, for instance, something like multi-brand, it doesn't make an awful lot of value for shareholders, and it doesn't make an awful lot of sense for us, unless we have customers that ask us specifically to do it more on a cost-plus basis. So therefore, you will see now that we're actually having a real firm grip of what is happening from quarter-to-quarter. So, we're in good momentum. We're in good momentum of addressing where we wanted to have a better operational environment. And then we have a good momentum and also talking to customers straight and that includes even escalations to me as well. So, we are actually pretty pleased of where we are with the commercial reset and we are not done with it. That will be wrong. But that's because you cannot fix that much in 1 or 2 quarters. But run rate up until third quarter is the run rate. I will say, and that's, for me, the middle of the road we are going with. Operator: The next question comes from the line of Lucas Ferhani from Jefferies. Lucas Ferhani: Just a follow-up on Offshore. When are you kind of booked out to? I know you said you have EUR 10 billion of projects in the backlog that kind of last you until 2027, even into 2028. And then, when you look at the kind of the recent failed auction in several countries in Europe, and maybe the AR7 in the U.K. that was maybe slightly below expectations. It depends on who you asked to, how do you feel about kind of the ability to kind of get those redone and then rebid and then the orders coming through to the turbine suppliers kind of roughly on time? Henrik Andersen: Yes. No, as I said, it's a good 10 gigawatt. We are sitting and muscling around. We have more PSAs, but there are also more PSAs in discussions. So, I'm not so worried about that. And then, when you look at the near term right now, we have a lot to do in the coming 3 to 4 years. So that is also the cycle of it. So, where you come from -- and I keep in currency stay -- don't compare. Compare, but don't compare between the backlog and the process we're running between Offshore and Onshore. Because Offshore processes are longer and therefore, not so nervous about that. If there's one thing that concerns me and I hinted that a bit here is that we, at least in Europe, where Offshore should be one of the biggest solutions to get our, I would call it, less energy dependence on friends outside Europe. We are 50% dependent on energy import and Offshore should be one of the things we scale faster. But it seems like every country in Europe choose to go through a failed auction before they get it right. And of course, that takes time. And we've seen a number of countries, including the Danish government went through, I think last year, but that also means now you have a CFD backed. And even with the CFDs that will significantly improve the Danish electricity price as well. So therefore, it works and it works across. So, we are not so nervous about that. And when we look at AR7 in the U.K., I can only give a praise. Maybe I will also have one of the ones that would like to have a bit larger budget committed. But on the other hand, the government and the Secretary of State, that knows a lot about, Ed Miliband. Yes, he has conditioned himself that he can take individual projects out and also potentially progress that. So, I think we got to work through this. And if somebody wants to characterize it as an Offshore crisis, I'm not in that category. So, I think it's a proven technology. It's a proven market access that works and therefore, now is the time to show leadership, both from developers and OEMs to get it built out. So, we are more positive on that. We see '25, '26 to some extent, I'm happy that we are doing what we are doing right now, because if we had more stress on the factories and the ramp-up, that would only -- that will actually only create more concerns at Vestas. So, we don't have that. So, we are comfortable executing on it. And what I'm probably most encouraged by is also our customers like the discussions and the detailed discussions we are having leading up to 2030 and even beyond. Lucas Ferhani: Perfect. And just a quick follow-up on tariff. I think most of what we are seeing and what has impacted you so far is more the section 232 on maybe steel or specific components. But there's also a probe that has been launched in the U.S. into Wind specifically. Can you talk about how do you understand that? I obviously see that there's not much information out there. But how do you look at that risk of what could come out of this probe? Henrik Andersen: I know and there is sections and there are EU tariffs and there are other tariffs that seems to be changing every quarter. So, we are basically taking the stand that we will deal with it as it's being thrown at us, and therefore, we are also dealing with this. Outcomes, I can't predict, but what we are both guiding for, for the rest of the year is what we know and what we are dealing with and therefore, it's priced in. And I think we are best doing and best served with doing that. Because otherwise, we have to start changing every time there is a change in legislation. It might be -- it goes up in tariff, it might be that it goes -- I think the last week, we've seen initiatives that seems to be maybe talking to tariff returning towards the zero again in some areas. But let's see. I don't comment on that because it's way outside my area where I can affect it. What we can affect is how we execute and how we deal with them. And that's where we have a fantastic team in the U.S. and North America that are absolutely on the details with that. Operator: The next question comes from the line of Henry Tarr from Berenberg. Henry Tarr: Congratulations again on a strong quarter. The first question is just around Onshore and Onshore margins into 2026. Clearly, that business is running very well today. As I look into next year, what are the key drivers, sort of, volumes look relatively stable, pricing seems to level out. How are you seeing, sort of, cost trends and mix? Do you think there's more -- a little more juice left in that onshore margin as you look out? Or are we already sort of performing as well as you can hope? Henrik Andersen: Thanks, Henry. I think, I don't know, juice left, maybe I should comment differently. I think on '26, we'll comment on the 5th of February. I've learned that lesson over the years. We do nothing in the Onshore business to try to make it run worse right now, and we're actually doing reasonably well. So, what we have seen here expect more of the same. If we can do more and we can get more, it's probably where we have more concurrent projects where we can avoid having change cost and other stuff in the Onshore. But I'm really just pleased with seeing what is happening in the Onshore. And of course, we don't do that. I think that's also only fair, because there are limited players. So there's no need for them to sit and read the P&L of individual business segments between Onshore and Offshore. Onshore really well, and we will see if we can do more of the same next year. And we will try very hard. Henry Tarr: Fair enough. And then, just on staying on the Onshore from an orders outlook. You sort of covered the U.S. How about the rest of the world as you look to Europe and so on? I know you sort of referenced in the materials that you see potential for high single-digit growth in Onshore wind, sort of, globally out to 2030. Are you still, sort of, happy with that view and you still see a lot of movement and activity in Onshore Wind in Europe as you look out over the next few years? Henrik Andersen: I think there are two reasons in Europe. I think some of the countries are leading the way. If you take Germany, if you take a couple of countries like Romania and others, I think they are leading the way and saying, this is how we can get more done and built. And I think, those countries are absolutely examples to follow. I think on the -- on top of that, I think it's getting more and more discussed in details how we can do a repowering in Europe which again speaks back to Wind was very much founded and invented out of Europe. And therefore, we also have an aging fleet and that, of course, opens up a European repowering that could be a real business opportunity for people like us. It could also be a huge business opportunity for the owners and the developers. And secondly, it's a fantastic way of increasing the energy production in Europe. So that -- there are two levers there. I will avoid -- I would avoid commenting on countries where they potentially haven't got it right. But let us say, we are very pleased with our Spanish colleagues and our factory in Spain. But I think on the permitting side and the flow of projects in Spain, there's probably still some outstanding to wish for. So therefore, in Europe, we see really positive underlying. And of course, Germany is one, if you -- if we spoke about it 3 years ago, Henry, we wouldn't have gotten to the number we see today. And that's thanks to both current and previous government in Germany. When it comes to Asia and Asia Pacific, a lot is being done. A lot of also is being considered. Some of the countries are a bit new on the block getting into that. But as I said, there's still some firm order intake to be shown from our colleagues in Asia Pacific. And then, in Latin America, similar, we have had Brazil that's probably gone very low in PPAs. And therefore, we'll see when Brazil returns to that. But we do have some good feelings around that also Latin America will start showing some strength again, because some of the data centers and others are moving into LatAm across. So, I think bit disappointed probably where we are year-to-date in Asia Pacific and LatAm, very encouraged by where we are in North America and in Europe. And that, I think, is a trend that we see continuing. Operator: The next question comes from the line of Casper Blom from Danske Bank. Casper Blom: A bit of another kind of question from my side. I think it's been close to 7 years since you launched the EnVentus turbine platform. And we now see that more and more of the orders you get in are for these larger 6, 7-megawatt Onshore turbines. At the same time, we've also seen you talk about stable pricing environment now for the last 3 years or so after that was this material price hike a few years ago. Is it fair to say that there is an opportunity from you guys, sort of, sticking to the current technology, keeping pricing flat, and then basically just having, how could you say operational efficiency from the fact that you have now gained very, very material experience in developing this turbine? And as a supplement, do you have any kind of plans of adding new platforms in the foreseeable future? Henrik Andersen: First of all, platform introductions never happened on an analyst call. So Casper, that's the first. The other thing is EnVentus, we are super pleased. And you can say that you're touching spot on. The more we ramp up and the more we get in the backlog, the better we become at it and that also goes for our supply chain. So, when I started extending a big thank you here, it also goes to our partners in the supply chain, because they help us getting some of those costs out. And I think today, from when we have been in an environment where inflation was very close to zero or even at par and then interest rate. Everyone have seen a cost inflationary which, of course, also for some projects have either potentially dangered the project for being built. Now it's also about getting and returning and getting it built, and therefore, cost out is absolutely name of the game for all of us. So that goes through the supply chain and it goes into our factories. And the more volume you have, the better you get at it. So, that's an overarching one. And I think you saw some of that. If you take the V163, 4.5 megawatts that are now selling across most of the world, but particularly in North America and in the U.S. That was developed as a probably an 80% component from a 4-megawatt platform. And that also means that we are running high cost-out programs on. So of course, that's a school and textbook example of how we want also to build the EnVentus. So, you're right, Casper. And I think some of it will be using to continue to improve our profitability. Some of it, we will definitely also let go back to the customer. So, we make sure that the projects are being built and not being stopped for not having attractive enough investments case with local governments. Casper Blom: If I may supplement. I think, if one goes back in time, there was sort of a general rule of thumb that pricing would come down by maybe 3% or 5% a year due to technological advantages and sharing this with customers. Isn't it then fair to assume that, when -- as long as you can stick to current pricing and you continue to get better, then it's in favor of your margin? Or is that too simple? Henrik Andersen: I think, it's maybe a bit from an industrial company of nearly EUR 20 billion and maybe it is a little simplified. But I will say here, now you bring 5% in as a price reduction and other stuff. I think, we are now back at a profitable area for Vestas. So, it's not this morning, we got up and said, now we need to lower prices. As I said, we like the commercial discipline. We need to make money. If we don't make money, we don't invest in the technology for the future either. So therefore, it's a combination. But as I said here, we will share it in a reasonable ratio with our partners and customers. Come on, there's nothing better than having a signature and winning a business with a customer. So therefore, that's the prime target, and that pays for the rest. So therefore, Casper, what you've seen today is we can now definitely say and prove that we are out of the dark days of '22. And I think that's really what we want to say to both you and the rest of the market with what we are doing today. Operator: The next question comes from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: I had two questions. So Henrik, I wanted to pick up on something that you mentioned, which probably is not something a lot of investors focus on, which is your CapEx. So this year, you're spending over 6% of revenues on CapEx. You've also said that your big investment program in Offshore is nearly done. So, on an ongoing basis, particularly given cash is king and can be buybacks in the future, what is a more reasonable level of CapEx for your business going forward, either absolute or percentage of revenues, of course, assuming no big investments and further platforms, right? So that was my first question. And secondly, I think on demand, particularly in the U.S. there's a lot of hype about demand from AI. People want to be building a gigawatt a week and so on. So, what are you sensing in terms of the opportunity for Vestas to kind of capture and what are you hearing from your customers on the impact from this new AI demand? Henrik Andersen: First of all, a gigawatt a week, then I will not get much sleep, that's for sure. Deepa Venkateswaran: Maybe that was global. Henrik Andersen: Okay. But as I said here, the reality is real. And that's maybe the way to prevent it. In AI terms, the reality is real. It's happening, and the electricity demand is going up. Then we can always discuss sometimes is the demand and supply out of sync. Then of course, it only gives one thing, which is an underlying increase of electricity prices, which unfortunately, you are seeing in part of the U.S. And I think, for that matter, will come to Europe as well. So I think there's something in this AI where we as said, we are part of the underlying base load. So therefore, we are the ones that has to build part of the baseload together with many others. So therefore, energy in demand is definitely it. And I think if we look at a country that normally does very long-term planning, namely China, you can see how they have built out energy sources in the last 3, 4 years. And namely, last year, they build as much renewable. They build as much coal. They build as much some of the nuclear as the rest of the world did together. So, somebody is taking bigger upfront decisions than probably the rest of the world are doing. And so for me, as a pretty fact-based person, I like to see that we take some of these decisions may be a bit quicker, and that also goes for the U.S. So U.S. are in a demand for energy and electricity. And therefore, we will continue to see that build out and Wind is part of it. Maybe we should call it something else than wind, but it actually is with a low LCOE, and it does local manufacturing, and therefore, it's supporting U.S. in its energy supply. So that's really. On the CapEx side, don't underestimate, there will still be tools and there will still be factories and other stuff that from time to time will affect the CapEx. But I think Jakob is nodding that when we look at EUR 1.2 billion, that's probably a bit where we spent quite a lot this year. But if a factory or other footprint comes in, that will then variate and deviate to the theme. But as we said all along, it should be start going slightly lower, but we won't give a guidance for it until we are in February for the coming year. And then, as you can see, we are not nervous for actually using the cash to buybacks. Because if we're not forced to invest more, then actually buying our own shares is with a pretty good return on the multiples we are seeing. Could we have the last question, Operator? Operator: So the next question comes from the line of Martin Wilkie from Citi. Martin Wilkie: Just a follow-up to that question on data center. When we look at some of the hyperscalers and where they're signing renewable PPAs. A lot of it seems to be in Latin America and Europe and actually not very much in the U.S. And when you look at the outlook and potential for data center orders, is that how you see it as well that they're actually more realistic in those regions? Or is there actually sort of pent-up demand opportunity in North America, where obviously, the volume of data center is probably a lot higher. Just to understand regionally how we could think about that. Henrik Andersen: Martin, I will say, I don't think so. I think, when you see other continents like Europe and Latin America wanted to announce data centers, I think it's actually because they want to have a bite of the party. I think the two main places to have these data centers will be China and the U.S. That's where the AI balancing act is happening. We are behind in Europe. So, if we get a data center somewhere in Europe and we are building it, yes, sure. We will applaud it. But I think the underlying is that U.S., but they are probably not just announcing it to the same extent as you are seeing. Because as much as you see the demand and supply, the demand side is right now higher than the supply side of possible build-outs. And that's probably why you're seeing less of those announcements in the U.S. But working for an American bank, I'm pretty sure you will know a lot of what goes on in the U.S. as well. So thanks, Martin. Martin Wilkie: Can I just have one unrelated follow-up just on Service. And obviously, you talked about these costs in the fourth quarter. But just to clarify, these will be effectively a onetime hit in the fourth quarter. And obviously in the past when you have percentage of completion, then you can amortize these costs over the life of service contracts, but we shouldn't read anything into the revised outlook for the fourth quarter in terms of what it could mean for '26. And I know you're not guiding '26 yet, but just so we can understand that these costs should be contained in the fourth quarter? Henrik Andersen: You're absolutely right. It should be contained in fourth quarter, and we don't intend that, and that also sits outside any POC for the service contracts in Offshore. So you're absolutely right -- assumption is right, Martin. Okay. With that, thank you so much. Thank you for listening in. Thank you for all your interest and the question. Really look forward to meet many of you over the coming days. And therefore, thanks again year-to-date, and see you soon.
Unknown Executive: Thank you very much for attending the briefing session by Eisai Company Limited. We will now begin financial results and business update session by Eisai Company Limited for Q2 fiscal 2025. Today, this is held in hybrid format combining in-person attendance and virtual attendance. For those attending in person, we have distributed flash report financial results and deck of slide presentation. Those of you who are participating virtually, please download these materials from the website. The presenter today is Mr. Haruo Naito, Representative Corporate Officer and Chief Executive Officer. Mr. Naito, CEO, please. Haruo Naito: Let me begin our presentation for the first half of FY 2025. So let me look at the results for the first half. As you see at the very first bullet point, inorganic business of us. Pharmaceutical business has shown steady growth in profits as well. Most of the profits are from the frontline business, which is Pharmaceutical business and we could achieve increase in both revenue and profits. I believe that that is the most important point that I wanted to share with you today. And regarding our forecast for the full year results, I believe that there are various opinions. So when we see the stock price trend after announcement, I was disappointed. However, I believe that there are some requirements for the second half that is written in the second bullet point. Anti-Tau antibody and narcolepsy treatment, these are the 2 next generation neurology area promising projects of Eisai into which we are making investment of resources into this because clinical trials and studies are now reaching the peak. And on top of that, there are structural reforms in Europe and in line with such structural reforms, there will be various expenses to be incurred. Therefore, we do not intend to revise the full year forecast. So we did not make any revisions to the full year forecast. In the red box, revenue was JPY 400 billion. Compared to the previous year given the stronger yen trend, we could achieve about 4% increase in revenue year-on-year. And as I said earlier, in the next line Pharmaceutical business revenue JPY 393.3 billion is shown here. And most of the JPY 400 billion in revenue was generated from our organic business. Cost of sales, given the impacts of domestic drug price revision and changes in the product mix, were offset and the cost of sales was managed within the planned range. Gross profit was increased by about 3.0 percentage points from a year earlier. R&D expenses accounted for 18.9% of the revenue. Therefore, R&D expenses were managed under 20% of the revenue. We were able to manage these expenses as such. One of the reasons for this was the clinical study expenses for LEQEMBI have peaked out, which have started to show decline and in the previous year, there were some restructuring including the headcount reduction. Therefore, R&D expenses ratio to the revenue was controlled within 20%. Now for SG&A expenses increased by 3.6%. As you see below this line, Lenvima grew very steadily. Therefore, expenses regarding shared profit of Lenvima paid to Merck increased and SG&A related to R&D. We are still in the phase of increasing the resource investment into the LEQEMBI. Therefore, operating profit was JPY 34.4 billion, which has shown the significant increase of 23.6% from the previous year. And operating profit estimated for the full year is reported to be JPY 54.5 billion and most of which is going to be generated from Pharmaceutical business. So in other words, the profit structure of Eisai has shifted to be more dependent on the organic business in order to increase and record profits and we have started such a transformation of our profit structure during this first half in this fiscal year. The Pharmaceutical business is grown by 3 global brand products. LEQEMBI, which has grown 153% year-on-year. We believe that this was a significant growth. It's about 2.5x the size recorded last year and details of this will be explained later. And for Lenvima, in main markets for us in the United States, there was a negative impact of Inflation Reduction Act. There were some suppression caused by this act, but this negative impact was offset and for all the cancer types we were able to grow Lenvima business. Therefore, Lenvima has been able to maintain its growth so far. And Dayvigo as well, the impact of drug price reduction in Japan was offset and 15% growth was shown. Now looking at the breakdown of changes in operating profit, JPY 27.8 billion last year. Gross profit increased JPY 9.1 billion. R&D expenses, because of the reasons I mentioned earlier, was controlled better by JPY 6.2 billion. SG&A expenses increased JPY 7.1 billion thus reducing the operating profit. And other income and expenses include some changes from the previous year, therefore, recorded minus JPY 1.7 billion. And we recorded JPY 34.4 billion operating profit, which was 8.6% operating profit margin. Today, I would like to focus on LEQEMBI, but I prepared just 1 sheet of the slide for Lenvima. Since its launch, 10 years have passed and it has been approved in 81 countries and marketed in those countries and already we have been able to contribute to 580,000 patients in the world and it has been indicated for 7 indications in 5 cancer types. And due to the favorable court decision and settlement agreements to resolve litigation of the high-purity patients in the U.S., generic versions of Lenvima will not be launched until July 1, 2030. As you see, JPY 166.5 billion was the total revenue. But you can see in this pie chart, sales by cancer type is shown here and the largest revenue is generated from the indication of RCC, which has been the driver of growth. For RCC, there are 2 studies which have been conducted together with Merck, LITESPARK-011 study and LITESPARK-012. With these 2 studies, the top one is for second line of RCC, Lenvima with belzutifan, Merck's anticancer treatment combined with Lenvima and the primary endpoint was the extension of a progression-free survival. This primary endpoint was already met. And together with regulatory authorities, including FDA, discussions for preparation of the potential submission have begun. And the bottom one is the first-line trial for RCC and this is based upon the assessment variation of the treatment pembrolizumab, KEYTRUDA was added to the above mentioned combination and with the same regimen conducted in the first-line study for RCC. And compared to that, favorable results were obtained and ESMO was the place where the results were published. And these studies are ongoing steadily in this expansion of the label based upon this base RCC indication. So we believe that this is going to be very positive factors for further driving the revenue. LEQEMBI has been recently approved in Canada. Therefore, LEQEMBI has been approved in 51 countries and territories. So the requirements to be the truly global product have been met through building such a foundation. For us, we understand that Alzheimer's Disease is a progressive disease and may be potentially fatal disease. Therefore, removal of Abeta plaque is confirmed through amyloid beta PET, but it is not the end of a treatment and the neurodegeneration process will continue and the cognitive decline will continue. That has been shown by data. Therefore, for this kind of disease, the early initiation of treatment and maintenance of treatment should be continued and that is the key to treat such disease. That is the key point that we have been continuing to have in our mind and I believe that this has expanded the basis for this treatment. As you see, the administration methods are shown at the bottom. During the first 18 months after initiation treatment was started, the IV once every 2 weeks are provided and after that, maintenance treatment period will be started. In the past, there was only 1 option to dose through IV once a month. But this time, LEQEMBI IQLIK self-administration method is approved and launched with a great option of once a week dosing. Therefore, it has made maintenance treatment much easier through the launch of LEQEMBI IQLIK. Now value proposition by LEQEMBI is being enhanced. Regarding administration period and dosing, as I said earlier, in the genre of maintenance treatment that has been cultivated by LEQEMBI. And when it comes to safety, particularly incidence of ARIA, based upon the real-world data in the United States and also Japan's all case surveillance, including over 10,000 patients. Based upon such a large scale data, the incidence of ARIA and the severity or seriousness of ARIA are all within expectation described in label. So we did not belittle the importance of ARIA. However, based upon this safety data, we believe that ARIA can be manageable. That has been confirmed. And now if you turn to efficacy aspect. Above all, Clarity AD has been conducted during the open-label extension study for 4 years and CDRSB difference against placebo over 48 months and this is the difference from the reference of ADNI and CDR difference has been expanded to 3x or 4x. So toxic substance is shown to being removed through disease-modifying effect of this drug in your brain. That has been shown by this data and AIC was the place the U.S. real data, 2-year real-world data was shown and 8.8 out of 10 was shown in terms of satisfaction score and 87% of the patients were continuing LEQEMBI treatment and 84% of patients had not progressed to the next stage of the disease. Such very quite robust data results were obtained from this real-world evidence. And in the daily lives, how cognitive function has been maintained or improved. Humanized message was utilized in order to show that in an easy-to-understand manner in explanation to patients. Now you can see here the first half results in revenue of LEQEMBI. Please look at the very bottom line. JPY 41.1 billion was recorded as the global revenue, which was 153% of the result recorded in the previous year. As we have been reporting to you, in China due to the geopolitical risk, the stockpiling for the period until the end of this calendar year. By the end of December, distributors have purchased to secure the inventory up until the end of calendar year. Therefore, JPY 7.7 billion was recorded in Q1. And in parenthesis, you can see the actual demand excluding such stockpiling by distributors in China are recorded and JPY 2.7 billion was recorded in the Q2 and the JPY 5.1 billion in the total first half. So considering all this, JPY 38.3 billion was recorded based upon the China's actual demand basis. Even with this 135%, very high growth ratio was recorded from a year earlier. In all regions, high growth were recorded exceeding plans for all regions. And JPY 76.5 billion has been shown here as the forecast for full year and our progress to date against this forecast exceeded 50%. Therefore, we are deepening our confidence in achieving this full year forecast. Now turning to LEQEMBI IQLIK. I have brought this with me here. This was the first ever commercial unit produced. This is the real thing, real product, very valuable products. I would like to decorate this in frame or box in my office. So this is the memorable and commemorative first-ever products and this was launched on October 6 this year. And what are the benefits for patients? First, the patients or care partners are able to administer at their home within approximately 15 seconds or so on the average and they don't have to drive or visit the infusion centers in person. We believe that this will be a great benefit for them. For medical institutions, on the other hand, they don't have to do a lot of monitoring or preparation for IV infusion, securing [ chairs ] or monitoring by nurses or health care providers involved in the administration. These medical resources can be reduced. This will be a significant saving and they will be able to expand the capacity to accept new patients. At the time of launch, we started the LEQEMBI Companion program. LEQEMBI IQLIK is to be covered under Medicare Part D. The reimbursement shall be conducted by private insurer. Although they are still under the supervision of CMS, but private insurers will be in charge of reimbursement and private insurers have set the cycle of formulary introduction at 15 months. Therefore, in January 2027, the formal formulary will be putting this LEQEMBI IQLIK on their list and there is a program called the Medical Exception Process in the meantime until the IQLIK will be put on the formulary. So under this Medical Exception Process, the reimbursement can be allowed and this has been used widely in the United States and this process will be applied to LEQEMBI IQLIK as well. Information and support related to this process are provided by our area reimbursement managers and nurse educators are providing in-person or online support to patients for dosing and providing demo kits for dosing training. This is the demo kits. And 4 weeks have passed since launch and IQLIK initial delivery has been conducted at 34 facilities in the U.S. and demo kits for administration training were provided to 341 facilities and they have started preparations for use. And Medical Exception Process, under which I believe that most of the patients have applied for this and we anticipate a smooth reimbursement process to be conducted under this process. So as regards to the reimbursement for LEQEMBI IQLIK, we do not have any concerns and we believe that the reimbursement process will be smoothly conducted. Regarding initiation treatment for IQLIK: during the first 18 months and submission for this initiation treatment has been started in the United States and a rolling submission process has been utilized. And the last such submission will be conducted in December this year. And we were expecting to receive priority review status if that is approved and then in 6 months approval may be provided in first quarter of FY 2026 for both for initiation treatment and maintenance treatment. For both periods of treatment, LEQEMBI IQLIK may be utilized before dosing. So that is approaching. And in Japan, we are prioritizing the submission for the initiation treatment for SC-AI. This will be conducted by the end of this December. On the right hand side, you can see that this IQLIK has been selected by TIME Magazine as one of the best inventions of 2025. Now another topic I would like to talk about is the confirmatory tests using BBM in the United States. There has been a significant advancement during the past 6 months. In July, AIC was held in Toronto, Canada. Alzheimer's Association of the U.S. put forth BBM Clinical Practice Guideline. And BBM tests with 90% or higher sensitivity and specificity can be recommended for confirmatory amyloid beta diagnosis. That has been proposed and published through this guideline. And Fujirebio's BBM was approved before this. Based upon the composite score, this BBM was granted the IVD clearance and this achieved the above criteria of 90% or higher sensitivity and specificity. Under this practice guideline, Fujirebio's BBM is now allowed to be used as confirmatory diagnosis. LabCorp and Quest Diagnostics or other leading clinical laboratory companies in the U.S. have introduced this as a test item. Therefore, confirmatory testing has been started utilizing this BBM. C2N as well, based upon different methodology, submitted FDA regulatory filing for BBM. And CMS for Medicare, a new national payment rate of $128 per test for BBM has been decided and it will be applied as effective from January 2026. That has been already announced. We believe that this will drive the use of BBM further as a tailwind. Currently, already for amyloid beta confirmatory tests, about 10% of such tests are estimated to be conducted utilizing BBM. Outside of the box, triage test. Roche BBM using pTau-181 was granted IVD clearance. This is particularly for PCP, primary care physicians, who may use this for triage. Now I am showing rather complicated diagram I'm afraid, but I would like to use this for explanation. What I would like to say is by introduction of BBM test, amyloid beta test particularly confirmatory test, and how the number of such tests and the number of positive cases will change up until FY 2027. Rather based upon the robust data, we would like to present our estimates. First of all, please look at the bottom blue line, solid line. This shows the number of amyloid beta confirmatory tests based on BBM. This shows the trend of increase in the number of such tests. If you look at FY 2025, as I said earlier, about 10% of the confirmatory tests is being conducted using BBM. And then over '26 and particularly after 2026 with higher likelihood, the BBM-based confirmatory tests are expected to increase. And next, please look at the orange solid line. This shows the number of amyloid beta confirmatory tests using PET and CSF only. So during FY 2024, PET and CSF were the only approaches for the amyloid beta confirmatory test. So this shows the trend of number of such tests based upon the conventional methods. And once the BBM confirmatory tests are launched and then orange line, the curve will be less steep. And the purple solid line shows the number of amyloid beta confirmatory tests of all 3 methods: PET, CSF and BBM. The total number of confirmatory tests are shown. And above that, if you look at the red solid line, preclinical triage utilizing the ones like Roche's BBM. And the total number of BBM tests is shown here for both triage and confirmatory tests and this has shown an exponential increase. Based upon this, if you look at the pink bar first, the pale pink bar shows the amyloid beta the confirmatory test. The total number shows for 2024 only PET and CSF were used and in 2025, the BBM is added and going forward, the number will increase. And the pink arrow shows the number of amyloid beta positive cases, which is expected to be increasing. And the number of confirmatory test as well as the positivity rate are also considered to be increasing. And the positivity rate was 50% in 2024. But in 2027, it's expected to be reaching 80% as positivity rate. Why? In triage or prescreening, BBM will be used and the PET CSF positivity rate will be between 50% to 70%. And then that is the 1 step to increase the positivity rate. And BBM confirmatory test becomes available and then for example PCPs will be able to utilize this for diagnosing and ordering the test and the results of the test will return it to them and their proficiency will be enhanced. Before ordering the confirmatory test for BBM, the confirmatory test precision for the cognitive function test will be increased. So their proficiency level will be enhanced based upon this and the positivity rate is expected to reach 80% or so. So amyloid beta cases will increase significantly and actually, there has been quite a high correlationship between this numbers and growth rate of LEQEMBI. I believe that this is another evidence to show that LEQEMBI is expected to grow further towards FY '27. The other day we've presented that there are 3 options for modified AD continuum that only Eisai can deliver. I would just like to share with you once again the gist of this. First, with the current LEQEMBI, suppression of cognitive decline after AD onset. The biggest characteristic here is long-term administration. We have 48-month long-term data. Efficacy was demonstrated and expansion of efficacy was demonstrated. Why is that possible? It is shown in the third bullet point. There is low immunogenicity neutralizing antibody incidence of lecanemab. This allows for long-term administration. Because of this advantage due to property, it is possible to suppress cognitive decline after AD onset. And before MCI, the earliest stage, preclinical AD or stage is tested in the trial. As shown in the middle, the biggest characteristic of our trial is shown in the second bullet point. Pure preclinical AD patients are selected. Global CDR is 0 not 0.5, but 0. Abeta accumulation is measured with Abeta PET, it is greater than 40 centiloid. This is preclinical AD as determined under the guidelines. These patients are selected in this trial. That is showing the precision and accuracy of a preclinical AD trial. This duration of a preclinical AD stage is very long. So low immunogenicity and neutralizing antibody incidence can be utilized for long-term administration. And the final bullet point, data endpoint is PACC5. Preclinical AD clinical conditions or symptoms are most precisely reflected in PACC5. Such endpoint is used. And this is also based on the guidelines determined by FDA and EMA. And therefore, this is very legitimate. For regulatory purposes, we have conducted a Phase III study. That is the characteristic of AHEAD 3-45 Study. And finally, combination with etalanetug. This goes without saying that there are 2 major pathologies of Abeta and Tau. We are able to approach both. This is a treatment that is epoch making in that sense. We are aiming to maintain cognitive function after AD onset. This cannot be done by anyone in the world. No one can come near us. This is the unique option that is available from Eisai. Etalanetug has obtained clinical proof of mechanism with DIAD population. 202 Study with sporadic AD is enrolling patients steadily. Biomarker is used mainly for optimal dose and target population, biomarker evaluation is used mainly. This is a study design, which is quite epoch making in that sense and first data readout is expected in fiscal 2027. As for preclinical, data readout from Phase III is scheduled for fiscal 2028. Preclinical AD, what is preclinical AD? This shows the summary concept. Early AD is shown on the left, prevalence is 240 million people. That is the estimated prevalence. A large number of people are estimated to have early AD. Preclinical AD and in order to calculate people who are eligible for AD-DMT, we use a Phase III study criteria and number of patients eligible for AD-DMT is estimated to be 2.3 million people. What I'm trying to say is that we also have a very large potential market in preclinical AD. It is quite near us. In addition to early AD, there is a huge market potential of preclinical AD, which is right in front of us. Now nationwide in the United States, National Education Program is being held, 1,000 people participated. Shown on this photograph, the left 2 are patient and family, they are smiling; and 3 people on the right side are U.S. leading AD experts. We have a very large volume of data and they were confirmed once again. We also have IQLIK, a breakthrough administration method. These were discussed in this program with many people responding actively. On the right side, this is a medical program. This is on the concept of smoldering Alzheimer's disease. AD continues to smolder. Plaque removal is not the end of the story. Toxic species continue to increase. Continuous treatment, therefore, is necessary and such campaign is continued. Another major initiative is targeting PCPs, primary care physicians. Primary care physicians are very important. Many MCI patients first visit PCPs and there should be correct diagnosis and speedy referral to the specialists in order for treatment to start. So in the second half, PCP specializing representatives are assigned. 3,500 targeted PCPs are the primary targets. The key message is shown as an example on the right side. This is the cover of the brochure. Early referral can mean early intervention with LEQEMBI. Early referral to specialists and that would mean early intervention with LEQEMBI. That is the message. And therefore, PCPs will have to be able to quite accurately diagnose MCIs and refer patients to nearby IDNs, which is a group of clinics with a number of specialists. There should be quick referral to such institutions. We would like to help PCPs by establishing a standard procedure for referral and IQLIK and BBM developments will also be a strong tailwind. For similar purpose to promote treatment, we have a targeted DTC TV campaign. This is not a normal TV campaign, but it's targeted. Who are the targets? Early AD diagnosed patients. These patients are not taking the next steps such as the tests or informed consent. That is understood to be the case. So targeted DTC TV campaigns were conducted. We were able to see good results in the first half. We will double the effort so that there will be next steps taken by the patients to move on to informed consent and actual infusion. This campaign has already started. In other markets, we are also seeing good progress. In Japan initial introduction, there are 800 initial treatment facilities and there are 1,600 follow-up facilities. 800 initial treatment facilities will be treating for the initial 6 months. And as shown in the middle of this, we have done TV campaigns to increase awareness of the disease. About 1 in 3 of Japanese population is aware of MCI now, what MCI is as a disease. Such disease awareness initiative campaigns effects are shown. This is wonderful. And 330,000 have visited specialists and close to 30,000 have received Abeta tests. The speed of referral from PCPs to specialists has also increased by about fourfold. On the right side, LEQEMBI in China. Yin Fa Tong through collaboration with JD Health is a digital platform for promoting visits to clinicians and diagnosis and follow-up. Yin Fa Tong is now used by 620,000 people and cumulative consultation number is 26,000. Digital means it is used to build the pathway and much progress is seen. And next bullet point is extremely important. In China, currently we are focusing on self-pay market. Towards the market with self-pay patients, we are promoting. But for true expansion, it is important to be listed on the NRDL. The Chinese government recently decided to leverage private commercial insurance for innovative drugs. Such a new scheme is being introduced or proposed by Chinese government. We would like to respond to this and in China, we would like to improve our access to very huge market in China. As for Europe: LEQEMBI in Europe. In Germany and in Austria, we were able to launch very smoothly. In Germany, the drug is reimbursed at discretionary price. In Europe, commercial and medical activities. The first bullet point it mentions CAP, controlled access program, is obligated in all European countries by the authority. And what needs to be done here is that prescribing doctors and prescribing facilities have to satisfy certain conditions as prescribed under CAP. So satisfying doctors and facilities need to be registered and LEQEMBI can be prescribed in these registered facilities. That is the scheme. 350 facilities, 420 doctors are registered in case of Germany. Number of facilities registered and number of doctors registered, there is no limit for LEQEMBI. There has to be prior registration for certain products. In that sense, large clinics and specialists are starting to prescribe smoothly. And I have 3 more slides before I end. Eisai's mission in AD is to make AD diagnosis and treatment familiar for patients and encouraging them their standardization and widespread adoption. IQLIK and BBM are the potential 2 innovations to achieve this. This example was seen in rheumatoid arthritis. BBMs appeared, major disease-modifying drugs instead of IVs were made available, SC-AI formulation emerged leading to a major transformation. So this could be repeated. We see great potential in both early AD and preclinical AD. With that, I would like to conclude and thank you very much for your kind attention. Unknown Executive: We will now move on to Q&A session. We will be entertaining questions from analysts and investors before entertaining questions from the members of the media. If you have question, please give us your name and affiliation before your question. If you have a question, please raise your hand. Hidemaru Yamaguchi: My name is Yamaguchi. I'm Citi. I have a question about the performance and the actual results as you explained at the outset, but there are still others. And if you include that number in the revenue generated from other businesses than Pharmaceutical business and I believe that if you add that number, then there will be further upside to the second half. But inclusive of that considering the restructuring in Europe and also R&D so the upside will be used for those expenditures. But inclusive of that potential upside, there are still uncertainties. That's why you have kept your full year forecast unchanged. Haruo Naito: The first one, the onetime is going to be offset by onetime factors. So actual revenue from organic business or profits, JPY 54.5 billion. That is the number that we believe that we are going to approach. Hidemaru Yamaguchi: So JPY 54.5 billion is the number that you are going to keep as it is. Haruo Naito: But under this number, the most will be brought about by the organic business. I see. Then the shortage not depending on the onetime factors. Hidemaru Yamaguchi: Understood. On Page 11, I was interested in this diagram. I have 1 question. The total number of tests increased and hitting rate or positivity rate. So these are the 2 functions and how these 2 are going to play out? Could you please give us the dynamics? Haruo Naito: For your question, Mr. Toyosaki is going to respond. Hideki Toyosaki: I am in charge of medical affairs in the United States. My name is Toyosaki. In FY 2024, we have taken this data from the claims data. And for FY 2025 this year, similarly based upon the claims data, amyloid beta tests and number of BBM tests and the positivity rates that has been already confirmed to be increasing. This trend of increase is one thing and on top of that, as has been explained in presentation with the spread of BBM, there are several positive events. First of all, clinical practice guideline was published and based upon certain criteria, there has been a recommendation to use BBM as the confirmatory test. Fujirebio's BBM has been granted the clearance. Therefore, there are requirements that have been met by the BBM. And LabCorp and Quest and leading laboratory companies have added this in their menu of the testing. And in January next year, the CMS national payment rate will be applied and about $130 per test will be applied throughout the country and BBM reimbursement will be consistently applied. These events are being conducted and happening in the United States one after another. So considering this, first of all, the use of BBM as confirmatory test will significantly increase. And for PCP, the triage BBM tests have been granted from Roche. Therefore, not only for neurologists, but also for PCP, the test of BBM as a triage will be increasing. And in 2027, we believe that there will be such an increase in the number of BBM-based tests. Seiji Wakao: I'm Wakao from JPMorgan. First question is about returning to ROE of 8% for next year. That is the target and could you elaborate on this? Up to second quarter, the actual business is performing very well. So ROE of 8% level to be achieved, I believe you are making positive progress. So how do you see the situation currently? Having said so, in the next fiscal year, would you require sales from other businesses? Pharmaceutical business is performing very strongly. So with major products, do you expect to be able to achieve 8% return on equity? Haruo Naito: That question will be addressed by Mr. Iike. Terushige Iike: Thank you very much for your question. This is Iike speaking. Last fiscal year and the fiscal year before that in the so-called other businesses, operating profit was about JPY 40 billion. And we wanted to wean ourselves from relying on that and so that is what we are seeing in this fiscal year. In this fiscal year, as CEO mentioned, especially in the second half we are planning to make expenditure in structural reform mainly in Europe. There were more reliance on onetime factors in the past 2 fiscal years. But without relying on these onetime factors, we want to achieve the figure as we informed in guidance. LEQEMBI in the past and up to this fiscal year is still incurring loss as a single product, but the margin of loss has been reduced substantially since last fiscal year and there will be a continuation of positive trend. And therefore, in terms of operating margin, we expect a significant increase and we would like to be able to meet the expectations of shareholders for ROE. And beyond that, we would like to return to double-digit figure and we are on the way to achieving. We are in the process of achieving this as we see the situation. Another point, this was not discussed much, but China. In China, we have LEQEMBI and Dayvigo and Urece, this is the gout treatment drug. We have these 3 products in China, NRDL listing or stage before that, coverage by commercial insurance. If this can be achieved, there is a potential for rapid expansion. In the past in China, Lenvima was the driving force pushing up the company-wide performance. So we would also like to continue to make much efforts in China market so that it can be a factor for growth. Seiji Wakao: I have 1 more question. On Page 9, SC coverage is shown quite extensively. Based on the presentation today, LEQEMBI IQLIK; in terms of sales increase, it may be after January 2027 that sales increase will be observed from LEQEMBI IQLIK. Is that correct? And initial dosing indication may be approved in the first quarter next year? And from January 2027, do you expect to book sales for that indication as well? Haruo Naito: Medical Exception Process we believe will be applied to about 80% to 90% of the patients. In January 2027, listing of official formulary is expected. But before waiting until then, high probability we believe that patients will be able to be reimbursed for the insurance. Between Eisai and insurer, we will have to agree on this or negotiate. So Medical Exception Process, it says exception, but it's not exceptional. Regularly this scheme is utilized. I believe your concern is that we may have to wait until then to see large sales, but that is not the case. Please follow up, Mr. Haruna. Katsuya Haruna: Thank you very much for your question. I'm Haruna responsible for U.S. business. I would like to add to what CEO said. Commercial insurers, patients and HCPs are giving us very positive feedback. As for insurance reimbursements, earlier CEO Naito mentioned, in January 2027 it may be listed in formulary. But before waiting until then, through this process we believe that it can be made more widely available. Easy example to understand is IV reimbursement rate and the current SC level is similar. Therefore, we do not see this as a bottleneck at all. The initial treatment in next year, if that is achieved, I believe that will be a major game changer. With the launch of IQLIK, long-term treatment will become easier and that is also a major benefit. For patients, it is a huge benefit. Kazuaki Hashiguchi: My name is Hashiguchi from Daiwa Securities. Regarding your forecast for the results. At the beginning of the fiscal year, onetime expenses were not included, but onetime revenue was included. But regarding the progress for first half, the cost of sales ratio was lower than planned. In my reading and R&D expenses compared to full year forecast, the progress seems to be slower. These trends are expected to continue into the second half. And even without onetime revenue, you will be able to get closer to JPY 54.5 billion in operating profit excluding onetime factors. Haruo Naito: R&D expenses, whether these expenses will be contained with this level, we are not sure yet. But as I said earlier, we are going to put resources into the forecast projects and we are sure that we needed to continue to invest resources into these main themes. The more efficient expenditure of R&D expenses should be secured. As Mr. Hashiguchi mentioned, that is almost the same scenario we have in our mind. Kazuaki Hashiguchi: Another question is about etalanetug Study 202. Data readout is expected in fiscal year 2027 and clinicaltrial.gov shows the primary completion date is December 2026. And so this shows that the progress has been slower than expectation. But do you think this is different from what you say here from the primary completion date and what kind of events do you foresee for fiscal year '26 and '27? Haruo Naito: Mr. [ Horea ] is going to respond to your question. Unknown Executive: I am in charge of translational science. My name is Horea. Let me respond to your question. Regarding Study 202, the completion of the study as described in clinical.gov is scheduled to be at the end of December 2026. But after that, the samples will be analyzed and the results of the biomarkers will be summarized and inclusive of the statistical analysis and readout from the trial is expected in the first half of fiscal year 2027. Thank you for your question. Unknown Executive: Are there any other questions? Yes. Fumiyoshi Sakai: I am Sakai from UBS. About Medical Exception Process. In the past, SC formulation when it was near launch, Medicare Part D to Medical Part B switch was mentioned. By cutting our process, sales can be booked earlier. More clinics will be using SC, more institutions will be using SC. Is that what you are saying? And as for Medical Exception Process, is this introduced in practice? Can you cite some actual example? Haruo Naito: IQLIK was to be applied to Medicare Part D. It will be applied to Medicare Part D. Did I mention switch from Medical Part B to Part D? From Part D to Part B, did I really mention that? I trust Mr. Sakai so I may have mentioned that. But Medicare Part D will be applied. That is the category of the product. So please understand that Part D will be applied. And as for Medical Exception Process, details will be given. Katsuya Haruna: This is Haruna speaking. First, about maintenance treatment of IQLIK, IV LEQEMBI will be Part B and from Part B IV, they will be switched to IQLIK which is applied Part D and that switch is actually occurring. When you are switching to Part D, Medical Exception Process is used for insurance reimbursement. And to add a little more, LEQEMBI IQLIK is already being prescribed and patients are receiving IQLIK treatment already. Is this common practice? MAP is very common for MS or diabetes Medicare Part D drugs, anticancer drug is not included. But in most drugs when new drugs are launched, this process takes place and many use this process. Neurologists, we conducted a market research of neurologists before the launch of IQLIK and more than 80% of neurologists have used MAP process before. We are also providing information, but physicians are already familiar with this process. And by providing ample information, reimbursement is taking place very smoothly. Fumiyoshi Sakai: I also have a question on reimbursement in China listing on NRDL. What is the timing that you expect to be listed and how will you apply? I understand that there is stockpiling of inventory, but what is the timing for NRDL listing? Haruo Naito: Ms. Sasaki will respond. Sayoko Sasaki: Thank you, Mr. Sakai, for that question. I am Sasaki responsible for China business listing on NRDL. And as I introduced on the slide for innovative drug, Chinese government is introducing a way to increase access by leveraging commercial insurance usage. We are considering the market environment, including competitive landscape and expansion of the use of BBM. And when we decide that we are able to use this, we would like to make use. In self-pay market, we will achieve growth and by utilizing such program, we believe we can accelerate the growth. NRDL and related initiatives, these are announced by the authorities in China. We cannot say the timing on our part. So I hope Mr. Sakai will also pay close attention to announcements by Chinese authorities. Fumiyoshi Sakai: Understood. But price will be lowered so how should we understand the offsetting impact? Haruo Naito: This is preaching to the converted, but sales equal price multiplied by number of units sold. So naturally that will have to be taken into consideration. Otherwise, we will be scolded by investors. Unknown Executive: We would like to receive questions from participants online. Operator: Mr. Tony Ren from Macquarie Securities. Tony Ren: Tony from Macquarie. Can you guys hear me clearly? Unknown Executive: Yes, we can hear you. Tony Ren: Perfect. So first one, a simple one. So it appears that your gross profit margin declined a little bit. On Slide #1, that is attributed to product mix and the drug price revision. Just wanted to see if you could provide a little bit more color on the extent of the price revision and the degree of product mix change. Haruo Naito: For your question, Mr. Iike is going to respond. Terushige Iike: Thank you very much for your question. This is Iike speaking. I would like to respond to your question. As you commented, there was a drug price revision in Japan and due to this in terms of ratio, that was the biggest factor in terms of percentage of contribution to the decline in the gross profit. And the biggest product for us, Lenvima, there was a Medicare Part D redesign in the United States. The gross to net has been lower to what it was in the past. And it is also related to the growth of LEQEMBI. But in terms of ratio, these 2 had the larger portions in the contribution to the lowering of the gross profit. So that's why I mentioned the product mix. Tony Ren: Okay. How should we think about gross profit margin going forward in the second half of this year and possibly into next fiscal year? Haruo Naito: Mr. Iike is going to respond to your question. Terushige Iike: For this fiscal year, as we have already reported to you, we believe that the gross profit margin is going to be controlled within the guidance. Towards next fiscal year, it will depend on the product mix, but we do not believe that there will be significant change and we will be able to control as we do. Tony Ren: Okay. And if I may, also just want to go back to ask about the Medicare Part D Medical Exception Process here because if we have to wait until January 2027, that does appear to be quite far away. So out of the -- we understand the current approval rate is pretty high. Just want to quantify that. So out of 100 patients or doctors applying for the Medical Exception Process, what percentage of them will be successful today? Would that be something like 50% or more like 70% or even higher? Haruo Naito: For your question, Mr. Haruna is going to respond. Katsuya Haruna: Thank you very much for your question. First, generally speaking about -- well, it may depend on what data you refer to, but 70% or 80% is the current success rate. But it's only 4 weeks since it was launched. Therefore, there will be some fluctuations in data, but we have observed already over 90% success rate. So we have seen steady progress. And going forward, we expect to see increased number of patients over longer term and then the data may be fluctuating. But as an early signal now, we believe that we are very confident in providing this products or drug to patients. Tony Ren: Okay. 90% is a very good number. Thank you very much. Operator: Ms. Sogi, Sanford Bernstein, please. Miki Sogi: First question, I believe you have heard from the people in the field. The other day we were able to speak with early adopter doctors. And clearly amongst the patients, early stage patients when they are given LEQEMBI or Kisunla, stronger efficacy, higher efficacy is observed. And the doctor said that the doctor is treating more MCI patients. So clearly efficacious or clear responding patient segment is becoming clear. I think this is very important for the adoption of the drug. Real-world evidence indicating such data, is Eisai collecting such data? Regarding early treatments, do you plan to run campaigns? Haruo Naito: Mr. Toyosaki will respond. And regarding Japan, Mr. Yusa will respond. Hideki Toyosaki: Thank you very much for your question. I would like to mention 2 things. The first is, as you rightly mentioned, early treatment. Early start of the treatment and early diagnosis and early treatment and maintaining through maintenance treatment. Such treatment will offer the optimal outcome to our patients. That is our belief. As for clinical studies in CLARITY AD trial, irrespective of Tau level, pathologically very early stage patients, low Tau patients or Tau level negative patients are included in the study. In this population when we look at Tau substudy results over 4 years, more than half of the patients were able to maintain their stage or have shown improvement. I believe that is one of the uniqueness of lecanemab. And therefore, early treatment and patients who received early treatment can expect to maintain the disease condition over long term. So long-term continuation of the treatment is the focus. Currently, in the United States in 9 institutions and we will increase the number of institutions, but we are in the process of collecting real-world evidence. Interim analysis will be presented in summer this year at AAIC and we will continue to collect the data and we plan to present the final analysis data next year. So I hope you will look forward to that data. That is the situation in the United States. Toshihiko Yusa: Thank you for your question regarding Japan. I'm Yusa responsible for Japan business responding. As for data creation in Japan, as you know, all patient study and registry survey are underway. And as you pointed out MMS score, what level of patients are responding in what way. Such data is collected and Phase IV is also planned in Japan. Earlier stage patients in campaign, whether campaign was planned was also a question. We are conducting TV commercials focusing on MCI in DTC. This was explained by CEO Naito earlier in November last year and May this year. And in August this year, we have run these 3 campaigns. So this has led to increased awareness of MCI. Haruo Naito: Ms. Sogi, you've also mentioned that when LEQEMBI is started early and MMSE, the higher the score of MMSE, the greater the efficacy is and ability to maintain MMSE and CDR scores. That is what we are also told from the physicians. And as for LEQEMBI, 29 to 30 score of MMSE, only LEQEMBI is indicated for this segment of patients. So in particular, we are looking at this very early stage MCI patients and we would like to lead to early diagnosis and early treatment of this segment of patients. Miki Sogi: Another question. On the other hand, in the United States, Kisunla and LEQEMBI are included in formulary in some of the clinics. Both are available. Patients are increasing. There is an infusion capacity issue. With the same capacity, double the number of patients can be treated with Kisunla. I hear that oftentimes institutions are using Kisunla for that purpose. The number of accounts, there can be only accounts – Kisunla only accounts and accounts with both LEQEMBI and Kisunla and it may be due to the balance of these numbers. But until spreading dose starts in the accounts with both LEQEMBI and Kisunla, one may be preferred over the other. But as far as the trajectory is concerned, before IQLIK is used more widely, is there a potential for slowdown for LEQEMBI? But of course market overall may be growing so I hope that there will be no slowdown. What is your expectation? Haruo Naito: That question will be addressed by Mr. Haruna. Katsuya Haruna: Thank you for your question. This is Haruna responding. First, about the U.S. market overall. Regarding market share, LEQEMBI has the majority of the market share in particular amongst IDNs where there are neurology specialists, we have received very high marks. LEQEMBI's value and positioning are not affected we believe. And as you rightly pointed out, on the other hand, the competitor, Kisunla is once monthly treatment. Treatment may be discontinued after 12 months to 18 months and some medical institutions may prefer this. We are fully aware of that. What is important is that LEQEMBI has a solid position in the market and it's growing and Kisunla is used by those who prefer once-monthly dosing and that is also growing as a new market. So overall, AD market is growing. AD market on a quarter-by-quarter basis continues to grow at double-digit pace. So we have seen this substantial growth. If I may focus more on LEQEMBI. LEQEMBI growth has not stopped and we do not believe it will stop. It will accelerate. Looking more closely, LEQEMBI prescribing physicians, more than 50% of AD treating doctors are prescribing only LEQEMBI. Majority of prescribers are prescribing LEQEMBI only according to the data. So we believe LEQEMBI has established a very solid position. When I visit health care providers, certainly there are some who say that they prefer once monthly dosing and some patients and health care professionals prefer discontinuation after 12 to 18 months, but treatment effect was observed through the course of LEQEMBI treatment. And there are patients who are given Kisunla who are struggling to decide whether it is truly good to discontinue treatment and we have seen increased number of inquiries into Eisai because of that. IQLIK launch: without IQLIK launch, it's not that the position of LEQEMBI will change. We have a very strong potential and we expect continuous growth. We are confident that growth will continue, and we hope to be able to demonstrate that with actual fact going forward. Haruo Naito: If I may add to that. As Mr. Haruna mentioned, donanemab is it eroding rock solid market of LEQEMBI? We do not think so. Very solidly established, LEQEMBI market is not affected. There are patients who may wish to discontinue treatment after 12 to 18 months and there may be such health care providers as well. And initial treatment can be given with a monthly dosing, that may be preferred by some patients and health care providers. That is a market that is newly created as donanemab market. So donanemab is achieving growth by creating that donanemab market. But we have a very solidly established market. This market includes IDNs who are the core health care providers in the United States. I will not mention the names, but universities with well-established medical schools have their group and they apply the same standard and provide the same treatment. Such integrated IDN network provider treatment and AD treatment is conducted in these core IDNs. We believe that our share is about 80 versus 20. We have a very solid share with LEQEMBI in IDNs. As for AIC, ambulatory infusion centers and group practices, these are also important health care providers in the market in the United States. Here Kisunla advantage may be seen relatively more so in comparison to IDN. But it is not at all the case that we have less than 50% share versus the competitor. That is not occurring looking at the data. What I am trying to say is that with Kisunla, will our core market be eroded? That is not at all the case. And Kisunla is creating its own market. That is occurring naturally. As we have presented today, initial treatment indication for IQLIK may be approved as early as in the first quarter of 2026. So once monthly IV infusion or weekly auto-injection at home will be the options. And when that becomes a reality, which will be chosen by patients and health care providers. And looking at that, we have to make utmost efforts. As for the possibility to end treatment after 12 to 18 months and we are taking the opposite approach. Our antibody has property that allows for long-term administration because immunogenicity is low and neutralizing antibody incidence is low and because of that, long-term administration is possible. As for the 48-month data that I've mentioned before, toxic Abeta oligomer continues to be removed with long-term administration and CDRSB effect size becomes larger as a result. That is demonstrated and the reference is Adoni data. These are predefined patients. Before the start of Phase III, Adoni patients are selected in baseline. So the study is not biased. It is quite transparent and we have selected a reference, which allows for high quality comparison. This disease is a progressive disease. It continues to progress. Under Abeta PET after confirmation of plaque removal, can treatment be ended? Is that the right concept? Our position is that for AD, the right option is continuous treatment, which is the right option. I believe sooner or later patients and health care providers will make a decision. Unknown Executive: We would like to receive questions from the media. If you have any question, please raise your hand. Hinako Banno: My name is Banno. I am from Nikkei Newspaper. Regarding the situation in United States, I have a question about tariffs. I don't think there have been any recent movements for tariffs. But based upon the currently available conditions, what impact do you foresee for your business? And I believe that in China, you are stockpiling or increasing the inventory level. But to what extent or by when do you think you have secured the inventory level? Haruo Naito: For your question, Mr. Iike is going to respond. Terushige Iike: Thank you very much for your question. In terms of systems, we have not seen any secure or certain things. Given this situation, as we have indicated, the inventory -- I'm sorry, Mr. Yasuno, please. Could you please respond to the question? Because you are here traveling all the way from the U.S. Tatsuyuki Yasuno: I am in charge of the United States. My name is Yasuno. As you know, the tariffs for the pharmaceutical products are out of the scope of reciprocal tariffs according to the Section 232 of the U.S. Trade Expansion Act. And there has been an investigation being conducted in order to make decision whether there are any impacts on the national security. Based upon this, the Executive Order from President Trump has not been issued yet. And using the SNS, President Trump mentioned that he intends to impose 100% tariff rate on to the pharmaceutical products. Other than that, there has been no announcement. So there are lots of uncertainties. Therefore, for us, we have not been able to calculate what impact we foresee because of this on our business yet. But on the other hand, as Mr. Ike mentioned, going forward the pharmaceutical products to be imported into the United States to prepare for the potential tariff, we are conducting various measures such as inventory management and supply chain measures. Regarding the pharmaceutical products, which are necessary for the U.S. market, up until far into the next fiscal year, we have secured inventory. Therefore, for the time being, we do not think that we will be impacted by tariffs. Hinako Banno: I have another question. This is a question I'd like to ask CEO. Regarding MFN Pfizer and AstraZeneca, other leading companies have reached agreement with the U.S. government. How this rule is going to be implemented is not known yet. For you, how big this can be a threat for you? How serious threat do you think this can be for your business? Haruo Naito: I think in countries of OECD whose GDP per capita is at 60% or higher than that of the U.S. is going to be the criteria. I mean the minimum price should be in those countries to be applied to the U.S. market. But it will depend on whether this is going to be the listed price. And this will be based upon -- reimbursement will be based upon the cost effectiveness and this will be forced by the government agencies. Therefore, there is no room for discretion by companies. Unless you accept that price reimbursement, you are not allowed to deliver your products to patients in need. The mission for pharmaceutical companies is to deliver stably their pharmaceutical products to patients who need them. That is the fundamental mission for us. We have to deliver that mission. If it's going to be listed price and then the price level set by ourselves will be -- has been deployed throughout the EU and LEQEMBI is priced as that in the U.S. price. In Asia as well, the price of LEQEMBI is at the same level or even higher than that in the United States. So which price level will be referred to, it's going to be very important. For that, very severe decision-making may be necessary. That caused our concern. Mr. Yasuno, do you have anything to add? Tatsuyuki Yasuno: Yes, I am in charge of U.S. business. My name is Yasuno. As our CEO mentioned, that is the stance of the company. What is happening in the U.S. now? I believe you know the situation there. President Trump have sent the direct letters to 17 companies, out of which 3 companies have reached some kind of agreement that has been announced. According to the speculation, by the end of this week, 2 other companies may be announcing their agreements with the government. That is the information we received from our DC team in Washington, D.C. So those 17 companies which received the letters from the President Trump or U.S. government have started discussion with the U.S. government. But on the other hand, U.S. Association of Pharma Companies, PhRMA, before adopting this middleman or PDN or 340B reform. These are considered to be challenges. That is what PhRMA is explaining in its advocacy activities. We of course are closely watching what is happening day by day. Through such monitoring, we would like to prepare ourselves. Unknown Executive: It is now time. We would like to end the earnings call by Eisai. Thank you very much for your time. Thank you for your kind attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Welcome to Liberty Media Corporation's 2025 Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference will be recorded November 5. I would now like to turn the call over to Shane Kleinstein, Senior Vice President, Investor Relations. Please go ahead. Shane Kleinstein: Thank you, and good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10-K and 10-Q filed by Liberty Media with the SEC. These forward-looking statements speak only as of the date of this call, and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Media's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures for Liberty Media, including adjusted OIBDA. The required definition and reconciliation for Liberty Media Schedule 1 can be found at the end of the earnings press release issued today, which is available on Liberty Media's website. Speaking on the call today, we have Liberty's President and CEO, Derek Chang; Chief Accounting and Principal Financial Officer, Brian Wendling, Formula One, President and CEO, Stefano Domenicali; MotoGP, CEO of Carmelo Ezpeleta, and other members of management will be available for Q&A. With that, I'll turn the call over to Derek. Derek Chang: Thank you, Shane. Good morning. We are entering the end of the year on a high note. It has been an incredibly productive period for Liberty. And we have executed on the priorities we laid out at the beginning of the year. First, on our planned split-off of Liberty Live, we currently expect to complete the split-off on December 15, and the stock is expected to begin trading as a stand-alone asset-backed equity the following day. Our shareholder vote will be on December 5. The split-off is expected to better highlight the value of our attractive position in Live Nation and an asset-backed equity that we believe will benefit from enhanced trading dynamics. Looking now at our operating businesses, we continue to invest behind their sustained growth. These aren't just sports properties, they're global entertainment brands. With this broader evolution comes expanded commercial opportunities to monetize a growing fan base with creativity and innovative leadership. Looking first at Formula One, we continue to build upon the commercial momentum we've seen all year. Just this morning, F1 renewed with their global partner, Heineken, in another multiyear deal. Underlying fundamentals are robust and support strong financial results this quarter and year-to-date despite having one fewer race. They have successfully accelerated renewal cycles across revenue streams, extending media rights agreements and renewing multiple promoter partners on attractive terms. Across sponsorship and licensing, F1 has partnered with an increasing number of high-quality consumer names, including, Hello Kitty, Pottery Barn and more as they consistently bring the sport closer to today's multidimensional fan. Additionally, F1 signed a landmark distribution partnership with Apple in the U.S. that seeks to highlight the innovation of both global lifestyle brands and position us well for the next leg of growth in the U.S. market. Stefano will provide more detail on this shortly. Next, on MotoGP, we closed the acquisition on July 3 and have been working diligently with their management team and supporting their strategic plan. We're fortunate to have the involvement of Chase Carey, Stefano Domenicali and Sean Bratches. Sean, as many of you know, previously led the commercial operations at F1. The top priorities at MotoGP as laid out last quarter remain enhancing the Grand Prix experience, expanding MotoGP's global footprint through capturing new fans and deepening engagement with existing fans and scaling our sponsorship roster. We are also in the early days in identifying areas of partnership between Formula 1 and MotoGP, some of which are more back-end in nature around sharing best practices and some of which we believe will drive commercial upside in the future. We are developing our long-term plans for MotoGP's broader monetization opportunities, many of which will build upon growth initiatives already underway prior to Liberty's ownership. Their adjusted OIBDA performance year-to-date reflects elevated costs as these investments are already being made with the associated revenue growth to come. We don't expect a material change in the investment cycle ahead, but we do anticipate continued growth in the cost base as they scale efforts to build commercial functions, enhance sponsorship capabilities and more. We look forward to continuing to update you on our progress, and we'll have more to share on behalf of Liberty and our portfolio of companies at our Investor Day on November 20, just before the Las Vegas Grand Prix. Before turning it to Brian, I want to also recognize and thank John Malone. I'm sure you all saw our press release last week, noting that John will be stepping down from the Liberty Media Board and assuming the role of Chairman Emeritus and Dob Bennett, Liberty's long-time Board member and former CEO, will be named Chairman. On behalf of Dob and myself as well as the entire Liberty Board and management team, it has been a privilege working with and learning from John for over 3 decades of partnership. His indelible influence on the industry, our company and us personally goes without saying. And I'm sure I speak on behalf of all of you in saying that we look forward to having John for our annual Q&A at Liberty's Investor Day in a few weeks. Now I'll turn it over to Brian for more on Liberty's financial results. Brian Wendling: Thank you, Derek, and good morning, everyone. At quarter end, Formula One Group had attributed cash and liquid investments of $1.3 billion, which includes $571 million of cash at Formula One, $176 million of cash at MotoGP and $78 million of cash at Quint. Total Formula One Group attributed principal amount of debt was $5.1 billion at quarter end, which includes $3.4 billion of debt at F1, $1.2 billion of debt at MotoGP, which leaves $523 million at the corporate level. F1's $500 million revolver and MotoGP's EUR 100 million revolver both remain undrawn at quarter end. We refinanced MotoGP's debt in August, shortly after closing. We priced approximately $230 million of new Term Loan A denominated in U.S. dollars, a new EUR 800 million Term Loan B and a new $100 million multicurrency revolver, all at reduced rates. with future reductions in margin expected as the business delevers. This new capital structure reduces interest expense, extends our maturities and presents a currency mix that better reflects the euro and U.S. dollar exposure of the business. In F1, we obtained an incremental $850 million Term Loan B and an incremental $150 million Term Loan A in July to fund a portion of the MotoGP acquisition. At quarter end, F1 OpCo net leverage was 3.0x, down from the initial 3.3x we gave as of 6/30 pro forma for the MotoGP acquisition. F1's covenant leverage was below the threshold of 3.75x to trigger a permanent reduction in the Term Loan B margin to SOFR plus 175 basis points. Interest will begin accruing at the lower rate promptly after earnings. MotoGP net leverage was 5.6x. In the near term, we very much expect to delever at both Formula 1 and MotoGP. Turning to the F1 business. I'll make a few brief remarks on the third quarter, but we'll focus on the year-to-date comparisons. A reminder that every quarter in 2025, luckily we will have incomparable race count and mix, which will impact quarterly comparisons. And our year-to-date 9/30 figures also have an inconsistent year-over-year race numbers and mix. The majority of the variability in Q3 year-over-year results is due to fewer race held in the third quarter compared to the prior year period. Q3 '25 held 6 races compared to 7 races in Q3 '24 with Singapore being included in the prior year, but not in the current period. Year-to-date through the third quarter, F1 also had one fewer race with Singapore included in the prior year period, but not in the current period. Despite one less race, the business is performing incredibly well with revenue up 9% and adjusted OIBDA up 15% and growth across all revenue streams. Sponsorship revenue continues to benefit from new partners and underlying growth in renewals in existing contracts. Media rights revenue increased due to underlying growth in contracts, strong revenue growth at F1 TV and the onetime benefit of the F1 movie revenue in the second quarter. Race promotion revenue was down slightly as underlying growth in contracts nearly covered the impact of one fewer race in the period. Other revenue grew driven by higher hospitality revenue, including from Grand Prix Plaza licensing revenue and increased freight. Note that we operated the same number of Paddock Clubs in both current and prior year periods, given that the Singapore Paddock Club is operated by the local promoter. Adjusted OIBDA increased on a year-to-date basis as revenue growth continues to outpace increased expenses. Team payments were flat year-to-date as the impact of 1 fewer race was offset by expected higher team payments for the full year. Team payments as a percentage of pre-team share adjusted OIBDA were 61.5% for the full year 2024 as a reminder, and we continue to expect leverage against that 2024 percentage for the full year of 2025. A reminder that team payments are best analyzed on a full year basis due to quarterly fluctuations in the team payments as a percent of adjusted OIBDA. Turning now quickly to the MotoGP's results. As a reminder, we closed the MotoGP acquisition on July 3 and began consolidating their results effective 7/1/25. Our financial results are presented on a pro forma basis in the release and in MD&A as though the transaction occurred on January 1, 2024, and a trending schedule will be posted to our website after the 10-Q is filed, including the results in U.S. GAAP for the full year 2024 on a pro forma basis. Also note that our U.S. GAAP reported results for Moto GP's revenue streams are more aligned to our current F1 reporting with previously disclosed MotoGP commercial revenue updated to include only sponsorship with hospitality being moved into other revenue. Majority of MotoGP's revenue and costs are euro-denominated and as such, are subject to translational impacts from foreign currency movements. In the following discussion of results, I'm going to focus on constant currency results. Similar to F1, I'll make brief remarks on the third quarter, but focus on year-to-date comparisons as we believe that is the most appropriate way to analyze the business. Year-over-year comparisons are impacted by the mix of races and generally, MotoGP flyaway races carry higher costs, including freight, travel and team fees. MotoGP held 7 races in the third quarter of both this year and the prior year. Revenue declined in the third quarter as increased race promotion fees due to race mix and contractual uplifts was offset primarily by lower proportionate recognition of season-based income with revenue from 7 out of 20 races recognized last year versus 7 out of 22 recognized this year. Year-to-date, MotoGP held 17 races compared to 15 races through the same period last year. Revenue grew across race promotion and media rights, primarily due to the additional events held and contractual fee increases. Sponsorship was relatively flat as contractual uplifts were offset by the impact of race mix on certain sponsorship revenues. Other revenue also increased from growth in World Superbike fees and an increase in hospitality revenue. Adjusted OIBDA declined year-to-date as the revenue increase was more than offset by higher cost of motorsport revenue due to mix of races, which drove increased freight and travel expenses as well as an increased SG&A due to higher personnel costs with strategic headcount increases to grow certain commercial functions, as Derek mentioned. Year-to-date results were also impacted by 2024 benefiting from a bad debt reversal early in the year. Looking briefly at Corporate and Other results year-to-date, revenue was $266 million, which includes Quint results and approximately $19 million of rental income related to the Las Vegas Grand Prix Plaza. Corporate and other adjusted OIBDA loss was $7 million and includes Grand Prix Plaza rental income, Quint results and corporate expenses. As a reminder, Quint's business is seasonal with the largest and most profitable events taking place in Q2 and Q4. And note that Quint's intergroup revenue from MotoGP beginning in July is now eliminated within our consolidated results. Turning to Liberty Live Group. There's attributed cash of $297 million. And on September 12, the Liberty Live Nation or Live Nation margin loan was amended to extend the maturity date from '26 to '28 and reduce the spread from 2% to 1.875%. $400 million of the margin loan capacity is undrawn at quarter end. And as of November 4, the value of the Live Nation stock held at Liberty Live Group was $10.5 billion, and we have $1.15 billion in principal amount of debt against these holdings. Liberty Formula 1 and MotoGP are all in compliance with their debt covenants at quarter end. And with that, I will turn it over to Stefano to discuss Formula One. Stefano Domenicali: Thanks, Brian. What an incredible season we are wrapping up at Formula One with thrilling on track action and all teams scoring points. 9 drivers from 7 different teams have stood on the podium, highlighting our depth of talent in one of the most competitive season of the recent time. McLaren claimed the Constructor championship in Singapore, and we are watching the continuing battle for the driver championship as we head into the final stretch of the season. Our global fan base continued to grow with exceptional engagement across the board. We have seen 5.8 million attendees throughout Mexico, up 4% relative to last year 2024 record at this time. Since summer break, Monza welcomed around 370,000 fans over its race weekend, while Austin and Mexico each welcomed over 400,000 fans. We are also seeing record percentage of female and under 35 attendees, reflecting the growing and broadening appeal of F1 events. The Paddock Club have serviced nearly 36,000 race day guests through the end of the third quarter, up 8% from same point last year. The Paddock Club remains sold out for the remainder of the season and early partners request for 2026 already signaled robust demands ahead. Given the consistent sell-out trends at many races, we are looking to add structure in partnership with promoters to increase capacity in some markets in 2026 to accommodate pent-up demand. Engagement and reach across this platform remain robust. We had a strong first half of the season with cumulative viewership up 10% year-over-year across broadcast and digital platforms and performance remained excellent into the third quarter. Nearly all races recorded year-over-year live viewership growth in F1's top 15 markets. The Sprint race format continues to draw fans with each Sprint season showing year-over-year viewership growth. Viewership for YouTube by Lights increased over 20% as of the third quarter, and the majority of the audience is under 35. F1 is still the fastest-growing major sport on social fueled by both an exciting on-track season and increased cultural relevance globally, highlighted this quarterly with buzz around the F1 movie. Social media followers are up nearly 20% of the third quarter to 111 million with notable growth on TikTok. Following the F1 movie, we were thrilled to announce that we are deepening our partnership with Apple as F1 news U.S. broadcaster distributor in a 5-year deal beginning in 2026. This is a partnership between 2 iconic global brands with a shared passion for innovation, entertainment and technological excellence as well as a very aligned customer demographic. We are working with Apple on an ambition plan to elevate how the sport is presented to U.S. fans through innovation on the broadcast feed amplified across their vast ecosystem of products and services, whether streaming the race itself or showcasing content on Apple News, Apple Sport, Apple Music, Apple Match, Apple Fitness and more. As shown by the success of the Apple movie, Apple marketing and activation power, coupled with its integrated ecosystem can have a significant multiplier effect on brand awareness. We look forward to sharing more with Apple in the coming months. Turning to other commercial updates. We continue to see competition for our exclusive rights and IP across revenue streams. We had another active quarter of media rights negotiations. We recently announced that Grupo Televisa has become our official broadcast partner in Mexico throughout 2028, and we are close to finalizing the remaining agreements required for territories where rights expire at the end of the season, including Japan, Latin America and Pan Asia. We are constantly innovating across both content and distribution to keep the fan engagement. F1 TV is a strategic cornerstone, not only for the flexible and dynamic ways we can distribute race content, but also the direct access it gives us to fan data and insight. We recently announced a new show, Passenger Princess, which aired on YouTube. The first episode featured George Russell and reached 1.5 million views within 1 week of release. This underscore our original content strategy, embedding F1 deeper into pop culture, reaching new audiences beyond race weekend and strengthening our always-on approach to connect with fans. Turning to race promotion agreement. F1 has an active quarter. We renewed Azerbaijan 2030, Monaco through 2035 and Austin through 2034. We are counting down to another unforgettable Las Vegas Grand Prix and are very pleased with the progress we have made this year. Congrats to the Vegas leadership team on the momentum. With a couple of weeks to go, we are pleased to say we are on track with our ticket sales targets. We have a full week of programming across Las Vegas kicking off on Wednesday and culminating on Saturday night with a very special 2 hours [ pre-greet ] show and post race entertainment. On F1 sponsorship, we are finalizing out an incredible strong year with sustained momentum and visibility into our 2026 pipeline and beyond. We continue to roll out new dimension of our partnership with LVMH, including French Bloom and Volcan Tequila. Closer integration between our F1 Global and Vegas Sponsorship team is also benefiting their commercial momentum with strength in Vegas sponsorship coming from both renewal as well as new logos partnering this year. The growth across our other revenue stream is equally impressive, especially in licensing as we continue scaling up our partnership announced early this year. We have also renewed Momentum Group until 2030 to run the F1 authentic website and supply F1 official licensing show cars. We recently announced partnership with Disney, Pottery Barn Teens, Pottery Barn Kids and Hello Kitty, all of which should be a long tail benefit into next year. The announcement of our Hello Kitty and F1 Academy product collaboration reached an outstanding 3.7 million fans over the 3-day announcement period and increased our F1 Academy social media followers by 5,000 across all platforms on the day of our announcement. [ Tracks ] retail sales have grown over 20% through the third quarter. Looking ahead, we aim to continue growing our retail footprint of the track in key races location. We opened a pop-up F1 hub store during race weekend in both Miami and Austin as well as our store activation, where we celebrated F1 75 through historic and new merchandise lines. Strong sales and traffic reinforces the untapped opportunity in fan merchandising in these key location. Formula One momentum continued to span every part of our business. We have built a powerful platform that has enjoyed tremendous growth, and we are increasingly confident in the continued upside ahead. We believe the groundwork we are laying today will continue to benefit our partners, shareholders and most importantly, our fans. I look forward to providing more details on our sports and growth momentum at Liberty's Investor Day and the F1 Business Summit in a few weeks. So for the moment, avanti tutta, full speed ahead. And now I will turn the call to Carmelo to discuss MotoGP. Carmelo Ezpeleta: Good morning, and thank you, Stefano. We are 4 months into our partnership with Liberty Media and are proud to be working together to drive MotoGP forward for the benefit of our fans and partners. We continue to see many ways that we can benefit from Liberty and Formula One's expertise. and have started collaboration on ways to work together. We look forward to sharing more of our strategy at Liberty's Investor Day later this month. The 2025 MotoGP season continues to deliver exciting moments on track. Congratulations to Marc Marquez who secured his seventh MotoGP World Championship at the Japanese Grand Prix, capping a remarkable multiyear comeback from injury and securing his place in MotoGP history. Despite Marquez dominance this year, we have had 13 different riders on the podium across 10 teams and all 5 manufacturers. And in Moto2 and Moto3, we are seeing some of the tightest racing in all motorsport from tomorrow's MotoGP stars. We continue to welcome record crowds across the calendar. This year, we set attendance record at 8 different [indiscernible]. Attendance is up to 4% through Malaysia, and we expect another sold-out crowd in Malaysia next week. We are building on the momentum from last year, brand refresh and our early investments are already yielding success. Social engagement is up to nearly 120% through the third quarter, excluding video pass across our digital platforms has increased over 30% year-over-year, and our social reach has grown nearly 30% year-over-year, driven by TikTok. We look forward to hosting our second season launch event next year in Kuala Lumpur, which is another opportunity to provide content for fans outside of race weekend. Average audience tuning into our broadcast grew 17% through the third quarter, and we are seeing great viewership numbers from the Saturday sprint races, which are closing the gap to Sunday race coverage and demonstrating the value for MotoGP partner across the full race weekend. Subscribers to Video Pass, our direct-to-consumer video services are up 6% from 2024. We have had positive renewals of a number of promoter relationship this year, including Japan through 2030 and Catalonia, Valencia, France, Germany and San Marino through 2031. Early this summer, we announced our 2026 calendar, which we will see MotoGP Race in Brazil for the first time since 1989 and a return to Buenos Aires in 2027. This will both be fantastic location for MotoGP in important growth markets in South America as we work towards optimizing both our circuits and race calendar. We are making investment to support our commercial activities with the goal of expanding our exposure to a wider global audience while maintaining the sport heritage. We have renewed our broadcast agreement with SuperSport. Additionally, we have seen a resulted to a multiyear partnership as the official lubricant supplier of Moto2 and Moto3 and successfully renewed our LIQUI MOLY partnership. Sponsorship remains a large growth opportunity for us, but we expect that it will take time to build our pipeline. We look forward to continuing to update the investor community on our progress. Now I will turn the call back over to Derek. Derek Chang: Thank you, Brian, Stefano and Carmelo. For those of you on the call, we look forward to seeing you in a few weeks at this year's Liberty Media Investor Day. We will be hosting our Investor Day alongside the F1 Business Summit in Las Vegas on Thursday, November 20, in advance of the Grand Prix. We hope to see you there. We will have limited in-person attendance for the Investor Day, but all presentations will be webcast. Tickets are available for purchase for the F1 Business Summit. Please check out their website and e-mail our IR team once purchased, so we can confirm their attendance. Before we open for Q&A, I want to take a moment to recognize Shane Kleinstein, our Head of Investor Relations, on her last earnings call with us. She has been instrumental in our Investor Relations and broader communications functions at Liberty and has left an indelible mark on our company. On behalf of the entire Liberty Media team, thank you, Shane, and we wish you the best in your future endeavors. We will have a new Head of Investor Relations joining us and look forward to sharing that update in the future. In the meantime, we encourage you to please continue to reach out to the rest of the IR team, our e-mail investor@libertymedia.com with questions. We appreciate your continued interest in Liberty Media. And with that, we'll open the call up for Q&A. Operator? Operator: [Operator Instructions] The first question today comes from the line of David Karnovsky with JPMorgan. David Karnovsky: Maybe for Derek and Stefano, on the U.S. rights agreement, I think the dollar figures are fairly straightforward, but I wanted to see if you could speak a bit to how you're looking at this agreement specifically from an engagement perspective and how investors should perceive any risk regarding a move away from linear or ESPN? And what gives you comfort that you can continue to grow the U.S. media audience? Derek Chang: Stefano, do you want to take that? Stefano Domenicali: Yes, of course. Thanks, David, for the question. I mean I think that, as you know, U.S. market is very, very important for our growth. And the fact that we have done an incredible deal with Apple, it's because we do believe that all the elements that will be important for this kind of growth are there. We know that we can count on an incredible brand that is not a brand, it's a social relevant brand. And because our -- the nature of our fans is young, it's dynamic, it's multitasking. I think that the decision was the right one. And in terms of engagement, we are totally committed to make sure that all the content, all the platforms that are through the Apple ecosystem can be provided. We're going to increase even more the ratio we have today. So therefore, as always, when you take a decision on the business side, you put balance risk versus opportunity. And I think on that, it was pretty clear that the risks were minor and the opportunities are huge. Therefore, we are really looking forward to embrace new chapter with them because we know them, we know they can be very progressive in proposing new things that will be very, very important to make sure that the things that I said before, David, on social relevancy of our sport will increase and will go. And of course, this is a multiyear deal because we know that we need to be resilient on this approach. And that's why we are totally convinced that this is an incredible partnership that will be stronger and stronger in the future. Derek Chang: Yes. Thanks, Stefano. I think I would add that the way we look at it now, and I think a lot of folks are looking at it this way is sort of the definition of reach, which historically has really revolved around sort of the broadcast window on television. And I think that's, in our minds, is an antiquated definition of reach at this point in the way a company like Apple and a partner like Apple can touch many different demographics in many different ways. And so I think that's an important thing to understand in terms of how we're thinking about it. I think Stefano's other point about this being a longer-term deal is important because when you're thinking about a company like Apple and the way that they invest behind the product. It's not like the product in the fifth year is going to look much different, I guarantee you, than what you see in the first year. And that's going to be through years of investment in what they do. And I think we are at a great sort of point in time in the U.S. with the races that we've had here with the support that we've received and the new fans that we brought in with the new sponsors we brought in to really take all of this and sort of move it forward in a whole different way with a partner like Apple. And I think we'll see the fruits of this over the next several years. David Karnovsky: Maybe just as a follow-on, it would seem to us that with Apple TV, you have an agreement now with a partner that has reach across most of your territories, and they have rights to the F1 movie. And logically, they could be a bidder in more regions. So I just wanted to get your view on that and whether that global factor was something you considered in your decision to partner here. Derek Chang: Yes, I think it's important -- Go ahead, Stefano, I'll let you start. Stefano Domenicali: Sorry for that. Well, I think that what I can say is that, as you know, we are a worldwide sport where the fragmentation of different deals is crucial to be in the right market with the right partner. And what I can say straightaway is that the fact that we signed with Apple immediately has been a sort of a wake-up call from the actual partners around the world to say, hey, we want to stay with you, we want to invest. So what's next? I think that vitally, it's great because it will attract the fact that Apple is a global partnership. And for sure, if we have countries where we can see different kind of potential where we can work together, we will discuss with Apple, too. But this doesn't mean that we will cover the entire world with only one Apple deal because we do believe that at this time, we are much stronger the way we have structured all our deal around the world on the broadcast side. But for sure, the effect of having said the deal with Apple has been already big around the world. Derek Chang: Yes. And I would add, just in all of these markets globally, you almost have to still take it market by market. The dynamics within these markets have been shifting. And in some places, you have new entrants in other places, there's consolidation and sort of depending on when your deals turn out, those competitive dynamics can come into play. And I think having someone like Apple, and we're in early discussions or early stages of this relationship. And so where their interest is in other locations globally, I think we will see over time. But I think we all understand on the call that any time you have a more competitive environment, you're better off. So we'll leave it there. Operator: The next question is from the line of Bryan Kraft with Deutsche Bank. Bryan Kraft: I had 2, if I could. I guess, first on Vegas, it sounds like you're on track for your budgeted ticket sales for Vegas. I was wondering about the cost side. Can you talk about how you're tracking your cost budget for the event? And then separately, just on U.S. media rights, -- should we expect to see a meaningful step-up in media rights revenue in the U.S. next year when taking into account both the Apple rights agreement and the loss of the F1 TV subscription revenue given that Apple will be taking that over in the U.S. Stefano Domenicali: If I may start, Derek, Yes. Thanks, Bryan, for the question. I mean, first of all, Vegas, Vegas is one of our priority. As I said, ticket sales are on target. But you correctly take one point that for sure, what we have experienced was a big attention on the cost side of the organization. And after the first years, I would say that we are on track in minimizing in the right way the cost because at the beginning, you try to cover a new investment in the right way. And now with all the new partners and the fact that we have renewed for big deals for the next couple of years, we are definitely on track also in controlling the cost of it. I have to say that we have seen a big shift on the community perceive on what Vegas race represent for them. Therefore, working together with them, I think, is beneficial and has already an impact this year with regard to the fact that the cost will be reduced definitely. And this will have, of course, a positive impact at the end on the P&L of the race. Of course, as you know, we are working very hard to make sure that the event will be great, as always has been. We have, as you know, shipped the starting time of the race at 8:00 p.m. on Saturday night. And this is, for sure, very, very important, the fact that the community is really embracing, as I said before, this event. So cost is definitely one lever that we want to make under the control of it, and we are on track also on that. Then with regard to the second question, you asked me, you're right, if we can expect more money. As you know, we cannot give any guidance on that. But I would say what is important to say it's the F1 subscription on F1 TV is a great asset also for Apple. We have a great community that will connect through the Apple platform with our popular F1 TV. So I don't expect that this will have a negative effect. Actually, it will be the opposite because I think that this community is quite solid and the fact that we'll be embraced on Apple platform will increase the value globally for the future of both of them together. Derek Chang: Yes. And I just want to say to our team in Vegas who've done a fantastic job, and these guys are in the last few weeks of bringing this thing home that we are all feeling good about Vegas this year. But I think more importantly, almost is what Stefano was saying about our relationship with folks in the market. and really that we're looking at this as a long-term sort of investment. And I think after coming out of the first 2 years and sort of coming -- as I've seen these guys and interacted with the folks in Vegas, the sort of vibe around the race and where this thing can be longer term continues to be something where we see a considerable amount of opportunity. And I think that's probably the biggest point, the biggest takeaway over the first 3 years of having this race. Operator: Our next question is from the line of Kutgun Maral with Evercore ISI. Kutgun Maral: Two, if I could, around sponsorship. So first, it seems like every other day, you're inking new and attractive deals. Looking at the year-to-date team payment trends, it seems like the full year budget is tracking exactly in line relative to the first 2 quarters of the year. So should we take this to mean that these new sponsorship and maybe licensing opportunities primarily fall in 2026? Or are there other offsets that we should be mindful of? And second, I was hoping to dig into licensing a little bit more specifically. Licensing is still a relatively small contributor to the business, but it seems like the team has really focused on expanding your efforts there. So maybe you could talk about the strategy and long-term opportunity you see ahead? And are you able to accelerate the momentum next year under the new Concorde? Stefano Domenicali: Well, thanks. I mean I -- sorry, go ahead, Brian. Brian Wendling: Yes, Stefano, I was just going to start on the sponsorship and then please add color. But yes, I mean, I think the team is feeling good about where we sit with sponsorship for '26, and a lot of these are long-term agreements, multiyear agreements that accrue to the future years. So as you sign them later in the year, they're going to have less of an impact, obviously, on the current guide. Stefano Domenicali: Yes. Thanks, -- if I may add, I would say, yes, I think that you know that our strategy is not to talk a lot, but do the things. And the fact that we have shown with facts that every couple of months, we are there to be resilient in continuing the growth, this is our nature. It's our business. It's the beauty of what we have built up now as a great foundation. And the fact that not only new partners, but also partners that are part of us since many, many years are staying with us long term means we do have a credible platform. We have a credible strategy that is not diluting at all the value of them being with us, with other people, with our partners. It is getting stronger because we do believe in a cross-contamination of big partners that can enhance the value of our business and our sports. So we are really looking for the fact that we have now deals that is looking into the future. And what I'm saying is not only the dollars that count, is the awareness that we bring connectivity with new fans. The deal what we have done with LEGO, with Disney, with Hello Kitty is showing the fact that we want to have a community that will engage in long term with our platform. That's really our focus. Our focus is for sure to deliver the result that we promised to our shareholders, to the teams, to our stakeholders for sure, but we have a bigger thing ahead of us. We have a headwind that we want to keep running with it because we feel that the fundamentals are totally strong and totally valid for the next years ahead of us. Operator: Our next question is from the line of Stephen Laszczyk with Goldman Sachs. Stephen Laszczyk: Maybe another one on the global media rights opportunity for F1. I'm just curious, as you look out across the globe, where you see the most opportunity up next in terms of increasing monetization? What contracts, what regions, what types of partners do you feel like you could bring in to increase the value either on a monetary basis or along the lines of the holistic partnership where that could be improved? And then maybe secondly, on hospitality, you called out some of the strength in hospitality in the quarter, Paddock Club at F1. Just curious if you could elaborate a little bit more on the drivers of that growth, whether it's strong pricing, whether you've seen more capacity come into the system this year on the back of some race promotion renewals or if most of that is still ahead of us given the renewal calendar when some of those contracts and an expansion of the Paddock Club kick in perhaps next year? Stefano Domenicali: Thanks. I mean if I may, Derek, I will start. So we have other deals on which we are working on. So I would say stay tuned because there will be some other information going around the media deal in the future. As you know, and I don't want to undervalue what is the value for us to be a global sport. We have a global sport with global deals and the nature of the business is growing everywhere. So I think that we need to have a sort of mix situation around the world. Some of them will be linear in the future, some other will move in a different platform because what we need to do is to make sure that we see the relevancy and the opportunity monetizing as much as we can every market, but also checking what is the trend that every market is offering to us. So I think that this deal, as I said before, has had an effect of accelerating the fact that the long-term deal wants to be even be longer with the part that we have. So it's up to us to make sure that we need to do the right choices for the future, but the dynamic in this stream of revenue will be very important in the future. And even if some of the people will say that the shift between linear or pay TV versus digital will have a sort of drop in dollars optimization, I do believe that the nature of the business that is global will cover that for us in the future because the competition is very high in the different platform. Then with regard to the hospitality, I think that the reason why we feel confident in the future, this is another asset that despite a long-term deal with a lot of partners, some can say where is the gain that you can have with them. Actually, it's the other way around. because we know that the hospitality hand side is a limitating factor in terms of capacity for us. And the only way that we can have with the promoters to make sure that also this asset will be even stronger is to give them the chance to invest long term. Therefore, that's the strategy we're going to do in a lot of markets because we don't have to forget that we want to increase the quantity of availability, but we cannot lose the quality approach of what we are offering to our customers. And this is not negotiable. We have some examples this year, look what Hungary did in terms of renovation of the infrastructure, what they're going to still doing in the future. And this has an effect that, for example, you have seen what will happen in Austin in terms of new facilities that will be beneficial to our hospitality plan. So everything has an effect in a constructive way with everyone that is part of our ecosystem. Derek Chang: Yes. I would also just point you to Stefano's previous comments on that we've done -- we just recently announced a deal with renewal Televisa in Mexico. We previously announced the deal with Globo in Brazil. And as he said, there's a couple more deals on the table that are coming on the media rights side. So I think it is shaping up to sort of be an environment going forward here. We've got the right partners in the markets that are important to us, and that will continue to drive, I think, engagement and awareness of the sport. Operator: Our next question is from the line of Joe Stauff with Susquehanna. Joseph Stauff: First question is on Vegas. I'm wondering I think in general, is it fair, number one, to assume most of the growth this year will be from the higher end? And if you can give us maybe a little bit more color on what you're seeing from the lower end? That's the first question. Second question is on MotoGP and race renewals. I guess since Liberty did for Moto, where our count is that there's been approximately 9 renewals. I think there -- I guess it's more of a clarification, another 6 to 7 to go that expire at the end of '26. Shane Kleinstein: Joe, I think we got your second one, but we missed your first. So why don't we have Carlos take the second? And then if you could just repeat your first question after, please. Carlos Ezpeleta: Yes, we have seen a lot of traction on a number of fronts since the announcement of Liberty Media. One of those has definitely been promoters where we see a lot of interest, of course, with a limited number of races. And we do see a lot of increases in the renewals. The total number was higher than that actually, but a number of those have already been renewed. We still have 8 events to be renewed for the 2027 season and 8 of which have already been renewed or announced in the past 12 months. And we continue to see a lot of interest from both new locations, but also interest in expanding the current events in Europe and outside with increases. Joseph Stauff: Understood. I'll repeat my first question. I apologize for the background noise. In Vegas, is it fair to assume most of the growth you'll see this year is coming largely from the higher end? And just wondering if you could comment on what demand looks like VA or the lower end of demand. Stefano Domenicali: Thanks, Joe. I mean I can say 2 things that are relevant to the fact that this year, we do believe that everything is on track and what we wanted to have another successful season. First of all, there has been a big change on the pricing and how we position our tickets during the year. What has happened is factual in the past has been the last couple of weeks a drop in pricing. But what we have done this year is exactly the opposite. We were announcing a great different packages offer with the fact that we were explaining to everyone that has been that our strategy was different. Therefore, do not expect to see prices going down because this will not happen. It actually is actually not happening. The other thing is it's -- of course, the demand is very strong, much stronger in all the areas. We have also created packages for GA to allow even the community to be closer to the event. And this is something that is hand-on-hand with the fact that we also have a ticket -- daily ticket that has been in the package. And of course, this is -- we said since the first day coming in Vegas. we had to learn the lesson of being in a community that is new -- was new for F1. Therefore, I think that the incredible job that Emily and her team is doing is taking the experience that has been done in the first years in order to progress in all the dimensions of this business. That will be -- I don't want to say something that people will not believe me, a great success because Vegas is understanding the value of our business there, too. And this is very, very important also for them. Operator: The next question is from the line of Peter Supino with Wolfe Research. Peter Supino: Shane thank you, and best of luck, you'll be missed. I wanted to ask about operating leverage generally and the Concorde agreement specifically. I think your last comment on the Concorde agreement in '26 is that it provides for modest operating leverage, assuming the business is on track. And I wonder if you could give a perspective on refresh that and then talk about the possibilities beyond 2026. Brian Wendling: Yes, Stefano, I can start with that and feel free to add any color. But yes, with the new agreement, we would expect some modest leverage. We can't really say much more than that into 2026 and similar to what you've seen over the last few years. And then beyond that time, the percentage we would expect to be fixed and then you'd hope to see leverage in the underlying base business. Stefano Domenicali: Yes. I mean, Brian, you are very clear. And I would say, for me, what we can add is really the fact that we can see a great stability in the sport in the future with regard to the governance to the fact that we are solid looking into the next 5 years in a condition where we really think that everything will be done, understanding that the team are part of the growth. And their financial strength is the strength of the business. And this is very, very important to recognize that. Therefore, on everything, I do believe that now we are finalizing the details. I want to thank not only the team, but also the President of FIA, Mohammed Ben Sulayem because we are sharing a great future together that is great because in this moment, we just need to make sure that all the conditions are stable to keep growing together. Operator: The next question is from the line of Steven Cahall with Wells Fargo. Steven Cahall: First, Stefano, I just wanted to ask you on competitive balance. We've seen some good racing this year between some of the top drivers and the top teams. I think we still have about 6 out of 10 teams that don't race for podiums most weekends. And I was wondering if there's anything that you might be implementing in the next couple of years that could improve that since it can tie to future growth in the value of the sport. And then, Derek, I think you said you expect some continued growth in the cost base this year as you invest into growth strategies. I was wondering if you could just expand on what those elements are and what the return on investment for some of those things look like? Stefano Domenicali: Steven, I mean, with regard to the competitive balance, I would say we've never seen such in the last couple of years, a competition with a lot of teams that before we were not even able to score any points. I can nominate one team on top of the other is has, just to give you an example. And the gap between the cars and the driver is minimal. And therefore, I would say what we are living today is really something unique and which we are very proud of. And all the teams now due to the budget cap, due to the fact that the races are very interesting due to the fact that the business is so solid, are willing to invest and be even more stronger into the future. And this is very, very important. And we don't have to forget this is very relevant to make sure that without this kind of situation living today, Audi Honda Ford Cadillac would have come next year in our sport or even more with more investment. So as we always said, the sport is at the heart of our platform and never -- and no one has to doubt about it. You know that next year, we're going to have change in order to be cope with the fact that the technology applied to F1 has been always very relevant. We will have sustainable fuel at the center of the use of new powertrain. And it is normal to think that when there is such a big change of regulation, there could be a big difference at the beginning. But the regulation is done in a way that if this would happen, we know that there are mechanisms to make sure that the gaps can be reduced in a smaller time than normal. And therefore, this is a very important element to keep the dynamic of our sport at the center. And therefore, I think that no one -- and if you didn't have these dynamics, no one would have been interested to come in, in our sport. That's why, as I said, Steven, this is, for sure, one of the main focus that we need to keep to keep the center of our business, the sport and the racing itself. Derek Chang: Thank you, Stefano. And an exciting off the track news, Charlotte I was engaged yesterday. On the question of incremental costs, I think that was related to MotoGP. And I think we've made this comment in the past, and it's not dissimilar to sort of coming into a new business, trying to ultimately drive growth and drive revenue growth long term, but making upfront investments that will lead us to that point. I think as we've talked about previously, some of the investment in sort of expertise, personnel with the right expertise to drive the commercial side of the business, but also even revenue-generating assets, including things like the track, signage, investments into the video pass product, enhancements, all that sort of stuff is sort of ongoing and had already been ongoing prior to us closing the deal. But I'll let Dan give some more detail on that. Dan Rossomondo: Thanks, Derek, and thanks, Stephen. I think Derek hit on a few of the really key areas of investment that we have started as early as last year, focused on, one, on the marketing side of the business in terms of new hires and also on the storytelling side, how do we reach new fans -- and not only new fans, but new fans based on the geographies that they are, we have to tailor that content to them. So that is taking significant time and investment in order to reach those people. Derek also mentioned what we've done to improve the look and feel of both the racetracks, the circuits and also The Paddock. So we've done some investment there. And the last thing I would say is we continue to innovate and iterate on our digital properties, specifically video pass to try to make sure that the digital offerings we have to consumers matches the innovation that we have on track. Operator: The next question is from the line of David Joyce with Seaport Research. David Joyce: Another MotoGP question. You mentioned that new races are coming in Brazil and Argentina, but you've also had a number of other renewals. So as you go through these renewals, do they allow for some rotating races given that you're already maxed out at 22 per year given your agreement with the teams? And does that somehow impact your media rights renewals cadence? If you could provide some color on that. Derek Chang: Sure. This is Derek. Look, I think right now, we are in a position where we have either some capacity in the sense that some races come up for renewal that we may -- if we choose to go to a different location, we have that capability to go do that. So the concept of rotating races right now is probably not in the near term. And I will then -- I guess, Carlos, if you want to comment on that further, go ahead. Carlos Ezpeleta: Yes. Thank you, Derek. I would completely agree. We don't see sort of the short-term need to have rotating races. We think it's important. One of our main goals that's been sort of confirmed also in these first months of Liberty Media is one of our key priorities and targets is to invest in our events and turn our races into more and more of entertainment events globally. And a part of that is, of course, improving the events itself and where possible, also the event locations. We have Brazil coming in already in 5 months from now after more than 25 years and Buenos Aires, which will be another city where we race that. So all these events are a key focus for us in entering new markets. We do see that we still have capacity to bring in new events probably outside Europe, and there's no need to sort of rotate on current events in the short term. We don't see this impacting our media rights at all. We continue to have 22 events. All 22 events have sprints, and that's been a part of the investment of making these events more of entertainment events, having more action, more notorious action on track around the whole weekend. And that's something that we've also leveraged together with other assets to be able to increase on our media audiences. So we don't see that the race mix will affect our media rights. Derek Chang: The whole concept here is to improve sort of the quality of the product across the board, including where we have races, who our local promoter partners are that help us drive promotion of the sport and all that, which will ultimately lead to deeper and broader engagement, which in theory will drive media coverage and media rights. Operator: Next question is from the line of Ryan Gravett with UBS. Ryan Gravett: Just in terms of the upcoming split-off, does anything change in terms of your capital allocation plans or priorities at Formula One Group? And along those lines, any expected changes to operations or the commercial relationship between Quint and Formula One after the split occurs? Derek Chang: I'll take that. So that would be probably no on both, and we'll leave it there. Ryan Gravett: Okay. Fair. Just maybe just a follow-up on MotoGP then in terms of the hospitality offering for that business. I was wondering if you could talk to the opportunity there and when some of the benefits of the integration could start to materialize? Derek Chang: Yes. I think we do see significant opportunity on the hospitality side of Moto. I don't know if any of you guys have been to a motor race, but it is a pretty thrilling event to attend, I think where we do see opportunity is sort of the experience at the track that goes beyond what you're watching and what you're feeling. And so just like the F1, having that opportunity to upgrade elements of that hospitality product is something our team is -- Dan and his team are very focused on and actually working with Quint on that particular dynamic. So Dan, if you want to give a little bit more color, feel free. Dan Rossomondo: Yes. Thanks, Derek. I think what he said is correct. I think we do have a lot of -- we've made some really good improvements at MotoGP in the hospitality offering from both a service and an experience standpoint. We now have to execute on a plan that is to reach both our existing consumers to get them more involved throughout the weekend and also, though, to find a new set of fan base, a new group of fans to purchase hospitality, particularly at the races where we do well but have room for capacity room. So what I would say is working with Quint, what we're trying to do is not only look at pricing, but look at the ladder, making sure that we get a good product ladder so that we can offer people things at different price points so we can upsell on experiences because what MotoGP does have is we are a hugely accessible sport. So we have the ability to package in really great experiences with our base hospitality program that I think is unique in the sports industry. So we see a good upside here. It's just going to take some execution, and we're looking forward to collaborating with Quint on that. Operator: Our last question will be coming from the line of Matthew Harrigan with Benchmark Company. Matthew Harrigan: Actually, first of all, thanks to Shane for all the classic Investor Day schedules, which I hope are going to be available on an archival basis because they were really, really great. Obviously, other people at Liberty were involved, too. I think Shane was a main architect. I think my questions are partially answered, but are you seeing all the teams be able to adequately cope with the new 26 engine regs? And do you see anything commercial and tangible coming out of the Saudi Aramco Synfuels venture? I know you touched on those questions to some extent, but if you could amplify a little more, that would be great. Stefano Domenicali: I definitely think so. I definitely think so. I think the fact that on The Paddock, everyone believes that it's faster than the other means that there are so many variables that everyone believe to have the secret recipe of being more competitive. I do believe that, of course, the level of technology that is needed in terms of knowledge is not only on the power unit. We forget that it's a new car. We forget that it's a total different dynamic on how you have to drive your car is a dynamic aerodynamics. It's a different way to manage the tires. It's a different way to manage the energy. It's a different way for the drivers to drive with the new regulation. So everyone is really focused on. And the beauty of that, that we have still teams that are fighting for points that are -- will be converted in dollars at the end of this season for the championship. So there are still some developing during these -- the last couple of races because no one wants to give up. So it's all fascinating. I think that really all the elements of adventure are there and which we should be very, very proud. Derek Chang: Great. Thank you, Stefano. I think with that, we're going to wrap it up. Again, thank you, Shane, for all of your great work over the years. We look forward to seeing where you go next. Stefano Domenicali: Thank you Shane, from the F1 side. altogether, one family. Derek Chang: Thanks, Stefano. With that, we'll wrap it up. And again, just finally, Investor Day on the 20th, followed by the F1 Business Summit in Vegas for those of you who can make it. See you there. Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.
Sophie Lang: Good morning, everyone, and welcome to Barry Callebaut's Full Year Results Presentation for 2024-2025. I am Sophie Lang, Head of Investor Relations, and today's session will be hosted by our CEO, Peter Feld; and our CFO, Peter Vanneste. Following the presentation, we'll have a Q&A session for analysts and investors. Please do limit yourself to no more than 2 questions. Before we start, please take note of the disclaimer on Slide 2. And I'd also like to inform you that the webcast and conference call today is being recorded. With that, I'll hand you over to our CEO, Peter Feld. Peter Feld: Thank you very much, Sophie. Good morning, everyone, and welcome to our fiscal year results presentation for '24-'25. Today, we will also be sharing a strategic update covering the actions we have taken and are taking to build a more resilient Barry Callebaut, delivering on our Next Level objectives and how we are unlocking future growth and shareholder value. Let me start with a few key messages. As you will hear in more detail from Peter Vanneste shortly, in H2, we returned to cash generation and made strong progress on our deleverage agenda. This was supported by actions we've been taking on our BC Next Level journey and to step up resilience to market volatility. As we look to the year ahead, we have three clear focus areas: deleverage to less than 3.5x net debt to EBITDA and delivering strong cash generation; preparing for a return to growth with a clear focus on customer experience, competitiveness, and unlocking new innovative solutions for our customers; and third, relentlessly addressing optimization opportunities for the new environment. With that, I will hand over to Peter Vanneste to talk to the results. Peter Vanneste: Thank you, Peter, and good morning, everybody. Let me walk you through the full year performance in a bit more detail now. Starting with a short summary. After significant cocoa bean price increase and volatility in half year 1, the market has stabilized in half year 2, and we have been taking decisive actions to reduce working capital, enabling strong cash generation and deleveraging. At the same time, the cocoa market turbulence created a challenging B2B environment, and we took some prioritization decisions within cocoa, both of which impacted our volume development at minus 6.8%. When it comes to profitability, recurring EBIT growth of 6.4% in constant currency was supported by pricing through the increasing cost of financing and mix. After major pressure on net profit in half year 1, half year 2 net profit benefited from the further cost pass-through actions we have taken. Let me go into more details. Starting with leverage. We delivered major progress in the second half of the year, enabled by our working capital actions, which I will talk more about in the next slide. Back in half year 1, we saw a step-up to 6.5x net debt over EBITDA as higher prices during the peak harvest meant that we needed to finance significantly higher inventory value. For the full year, our intentional actions enabled us to land at 4.5x leverage, significantly progressing towards our ambition of being below 3.5x by the end of fiscal '26. Our leverage adjusted for cocoa beans or RMI is actually today at 2.7x. But in fact, if we also adjust it for cocoa inventories as well as beans, so only cocoa, not even excluding chocolate and other stocks, our adjusted leverage is below 1x. But actually, you can see that on the right-hand side of this slide, and it's important to realize that our net debt of CHF 4.3 billion is actually fully backed by high-quality inventory at CHF 4.7 billion value. When it comes to reducing our net debt going forward, we have very intentionally established a balanced debt maturity profile with around CHF 700 million falling due in the next 5 years on average every year, enabling repayments with our strong liquidity position. So going through those working capital actions in more detail. We have been diversifying our sourcing with increased purchases from origins like Brazil and Ecuador, which do have significantly shorter cash cycles and reduce our forward contracting. This goes hand-in-hand with our actions to step up our bean blending capabilities so that we can optimize recipes for our customers. Next to that, we've also been optimizing our purchase timing and inventory levels and reducing forward contracting, for example, when it comes to safety stocks, where we have been somewhat overcautious in the past. At the same time, we also took action to enhance the flexibility of our financing options with the introduction of a letter of credit facility last August. And this allows us to replace futures margin call cash outflows with a letter of credit, benefiting from both liquidity and agility in volatile times. It delivered 200 million operational cash inflow now, but it's especially an important buffer in case of potential future bean spikes and volatility. The next level focus on improved planning and logistics processes with better end-to-end coordination also had an important impact on our inventories. And finally, of course, the increase of EBITDA is also contributing to our good progress on the leverage through the pricing through of the higher cost of capital, delivery of the next level savings and prioritizing higher return segments within Global Cocoa. So what does that mean for free cash flow? Free cash flow declined by CHF 312 million for the fiscal year with a return to a strong cash inflow of CHF 1.8 billion in half year 2. When we look there at the moving parts, let's maybe start with the brown box, which is the cocoa bean price impact. This had a negative CHF 1.1 billion cash impact for the year with CHF 664 million positive inflow in half year 2. The bean price did close at a similar level at year-end versus the start of the year, which was around GBP 5,300, but with much higher prices, of course, and higher volatility during the year. We saw a negative impact from the bean price for the fiscal year still for two reasons: one, liquidity swaps; and two, some phasing. Now as you might remember, in fiscal '23, '24, we had taken significant liquidity swaps to better allocate our cash flows to our business cycle. And this has postponed margin call payments in the range of several hundreds of million Swiss francs into fiscal '24, '25, so this fiscal year. And this has been the main driver of this. Secondly, also our long cycle of business between the bean contracting and the customer sales and given the much higher prices a few months ago, there's also a bit of a phasing impact when the bean price comes down. So we do expect some further benefit to come if the bean price, of course, stays stable at a lower level. Moving to the green boxes, which is the operational free cash flow. We see here a positive contribution of CHF 1.2 billion for the fiscal year, of which CHF 1.4 billion in the second half of the year. Here, we see the major operational benefits from the next level actions on working capital reduction and financing flexibility that I just described in the previous page. Finally, looking at the yellow box, we invested 388 million for the fiscal year behind investment in CapEx and we see next level. Looking ahead with all of this, given the harvest timing and a typical H1, H2 cash trajectory profile, half year 1 of this fiscal year, the coming fiscal year is expected to see negative free cash flow before we see further strong progress in half year 2. Moving to the market disruption now that we have seen over the past years. I will only talk briefly here as Peter will also go into more detail. But we all know, of course, that the bean prices have increased significantly in the first half of the year. In response to that, the strength of our cost-plus business model allowed us to successfully pass these higher prices through to our customers, driving 56% pricing for the fiscal year and even higher at 85% on our cocoa business. We saw our peak pricing in quarter 2, with pricing remaining high though in half year 2, but a bit lower sequentially. At the same time, it does take our customers some time to price through to the end consumer. So we have been impacted by a challenging B2B market as they manage the transition and adjust to the higher prices. And in particular, our customers have been reducing pack sizes and reformulating in some cases, certainly also adjusting their stock levels and their forward cover, calling off orders sometimes later. And finally, a few of our very large customers who also produce chocolate in-house have been prioritizing capacity as they saw temporarily lower demand. Nevertheless, our customers have also taken significant pricing with Nielsen data showing chocolate prices in the market that are around 30% higher than what they were before the bean price increased. Within the next few months then, we know that it will still be challenging, but we do expect market dynamics to improve because of this and also given the recent decline that we've seen in the bean price. We, therefore, expect our customers to take only limited further pricing, and we have seen customers willing again to contract further out in light of these lowering prices. On top of the market dynamics, there's also been a number of BC-specific factors for the decisive actions we took in this environment. In Global Cocoa, we sharpened our return focus to prioritize volumes within cocoa and also towards chocolate, where we see the higher returns in the context of higher bean prices and our deleverage agenda. The impact is expected to continue into half year 1 of fiscal '26. In North America, the intervention in our Toluca, Mexico factory at the start of the fiscal year saw a residual impact as we worked through all of that to get customers back and requalified. And finally, our SKU rationalization efforts, which are now complete, impacted volumes for Gourmet, especially in Western Europe. At the same time, we did focus our strategic direction on the growth platforms, which have shown resilience. Cacao coatings, which we used to call our compound business saw positive growth overall, particularly driven by high single-digit growth in Western Europe and double-digit growth in Latin America, where we have supported our customers with innovation and reformulation. In Specialties, we saw particularly strong growth in our inclusions business. And finally, in EMEA, the region was impacted by the China microclimate, but we saw double-digit growth in key geographies like India, Indonesia and the Middle East, supported by innovations, our actions to delayer our route to market and portfolio segmentation. These market dynamics have led to 5.3% decline in chocolate volumes. And for the group, we saw a decline of 6.8%. So the group decreased more than chocolate as Global Cocoa declined by 12.8% with a strong impact from the negative market demand to the higher prices on the one side, but also due to the prioritization reasons that I outlined before. I will, therefore, focus this slide on Global Chocolate first by region and then by segment. Starting by the regions to the left of the page, Western Europe saw a 6.6% volume drop as the demand there continue to be impacted by higher prices and the knock-on effects of all of that on customer behavior as well as some effect of SKU rationalization. Central Eastern Europe declined by 4.4% with a very challenging customer environment, particularly for food manufacturers that are local. North America saw a decrease of 6.7% as new customer wins were offset by the difficult market environment and the impact of the Toluca intervention I talked about. Latin America saw a strong growth of plus 6%, driven by innovative customer solutions, particularly for cacao coatings, again, compound. And finally, EMEA saw slightly negative growth as the demand pressures in China and the developed markets offset the double-digit growth I just discussed for India, Indonesia and the Middle East. By segment, to the right of the page, Gourmet has been more resilient as growth in EMEA, Latin America and CEE was offset by the challenging environment we saw on that in Western Europe and North America, again, here impacted by the SKU reduction and the Toluca intervention. Meanwhile, the Food Manufacturers segment was impacted by customer behavior shifts in this context of volatility and significantly higher prices as we've seen across the whole market and as I talked about earlier. Moving to profits. And first, recurring EBIT. Later, I'll talk about net profit. Recurring EBIT was CHF 703 million, increasing by 6.4% in constant currencies. Looking at it per tonne, we saw a 14% increase, showing that the impact from the lower volumes was significant. Now EBIT benefited from mix as the higher profit segments like gourmet specialties and cacao coatings saw better growth than the overall group. Importantly also, the cost-plus model enabled us to successfully pass on the higher financing costs of this high bean price environment with a strong improvement in pass-through in half year 2 after some gaps we had seen in half year 1 as it does require time in a forward selling business to pass this through. Third, delivery of the BC Next Level cost savings also benefited EBIT. At the same time, we've also seen a number of offsetting costs, some temporary, some structural. In particularly, unprecedented market disruption costs, especially in half year 1, such as the impact of steep backwardation on rolling costs and high market prices that are raising carry cost of our inventories. These already improved significantly in half year 2. Also, we saw an impact of the lower volumes on the fixed cost base and inflation. And finally, we made some structural investments in customer experience and internal capabilities. For example, digital investments, supply chain investments such as enhancing our bean blending flexibility and capabilities, people investments and some other cost inflations, partly due to the cocoa environment like higher insurance costs on the much higher value of the beans that we are transporting around. Closing this section on recurring net profit. Net profit was at CHF 250 million or CHF 267 million at constant currency, down 36% in local currencies. However, it's very important to distinguish between half year 1 performance of minus 69% and half year 2 performance, which was flat versus last year. Half year 1 net profit was heavily impacted by the speed and the magnitude of the bean price increase and the corresponding working capital impact and the time it takes to fully pass through this higher cost in a forward selling business. Half year 2, however, we did see a strong improvement to being flat versus last year, showing the strength of our actions with around 3% profit generation versus half year 1, driven by further actions to price through higher cost of financing, our cost of financing increased sharply to -- with 170 million year-on-year in sync with the higher working capital needs that we had throughout the year and the additional funding we raised for that. And we took actions to price through those financing costs, which further took effect in half year 2. Second, a bit of market stabilization with significant easing of the backwardation in the cocoa market. And this means that the gap between the near term, the more expensive prices has been narrowing versus the long-term less expensive prices. So that has been helping in half year 2. And third, the impact of our end-to-end value chain projects and planning improvements. With that, I will hand over back to Peter, who will talk more about the actions that we take to enhance the resilience of BC and make us an even stronger leader in this industry. Peter Feld: Thank you very much, Peter. So the last 2 years have been, in many ways, unprecedented. The market environment has radically changed. The entire industry was disrupted. Today's full year results presentation provides an opportunity for us to reflect about what we've done and about the journey ahead of us. So looking back, how we have been delivering BC Next Level while taking decisive actions in a radically changing environment. And looking ahead, how we are pulling all levers to deleverage and decouple from the bean price while enabling growth and returns. So let's dive in. So BC has seen unprecedented time over the past 2 years. We are unlocking our full potential with BC Next Level by progressing relentlessly to weather the new normal. We've launched our strategic investment program, BC Next Level 2 years ago. We are advancing Barry Callebaut to become the trusted adviser of our customers, best value, best service, best sustainability and food safety and quality with the goal of creating a better customer experience, a better scaling Barry Callebaut and a onetime cost improvement of 250 million. As you know, due to the disruption and bean crisis and also the tariff situation in North America, we announced a delay by 12 months. Now let me be clear. BC Next Level is delivering. More than 30 initiatives are hardwired, way more than halfway through. But unfortunately, due to these external shocks, the savings uplift will only be visible in the bottom line later. We have achieved a lot since we have started our journey 2 years ago. We've talked about the BC Next Level transformation during our results presentation about our new operating model, our footprint optimization, the SKU reduction to name a few topics shared so far. But BC Next Level is much more than this. It is a strategic investment program with 36 initiatives that bring tangible benefits to Barry Callebaut and importantly, our customers. Now we won't have time to look at all of the 36 initiatives today. I want to focus on a few to illustrate the benefits that BC Next Level brings to BC and our customers. Before we go there, I want to thank our teams in Barry Callebaut who have worked tirelessly to get us where we are today. Thank you very much. Starting with food safety, a cornerstone of our business. We have elevated food safety to the next level and installed 3 fire lines for safety to provide certainty to our customers at all times. One, full product testing before releases, 100% positive release; two, rigorous supplier compliance; and three, investments into technology and factory design. A great example are the auto samplers we have been installing, precise, repetitive and efficient sampling for best results. All of this is part of our larger food safety agenda. As part of Next Level, we've done many things to improve our supply chain performance. I want to share 2 examples today. The first one that you see on the page right now, we have introduced real-time track and trace for all our road shipments in Europe and North America. We are testing this as we speak and will soon be ready to have everything at our customer fingertips. Customers will know when their order is ready, when it leaves our factory, when it arrives at their factory, if there is any delays. On time, in full, in spec and quality delivery is a critical part of our customer journey. The benefits are obvious. With a similar intent, we've launched Ocean Edge with DHL to give end-to-end visibility on our ocean freight. We've massively improved ocean shipments with efficiency benefits, detailed tracking, centralized document repository. BC Next Level is a key enabler for a more scalable Barry Callebaut. The next example I want to give is our new factory operating system, BCOS, a milestone in Barry Callebaut's history, a global standardized way of working to be established in all our factories. 29 locations are going live by the end of this year. We see remarkable results in a factory where we have already introduced BCOS so far. The training and the mindset shift enabled a 20% more efficient production on a 6-month period across the lines that started first. This is huge and the benefits will be coming in the future. All our new factories like Brantford in Canada and Neemrana in India that we've started up this fiscal year are starting with BCOS from day 1 with all its benefits. BCOS is a backbone to create a better scaling Barry Callebaut for the future. The next example is our global business services that now operates from our 4 hubs: Lódz in Poland, Hyderabad in India, Monterrey in Mexico and Kuala Lumpur, 24/7 capabilities around the globe. All four hubs are fully up and operational. Lódz and Hyderabad drive global processes, Monterrey and Kuala Lumpur support regional operations. GBS brings significant benefits and efficiency benefits for Barry Callebaut. But importantly, it is also the base for better, more consistent service to our customers around the globe. Integrated processes, standardized workflows, end-to-end process ownership, clear benefits for BC and for our customers. And the last example for today, and we're only covering a fraction of the BC Next Level programs. If you haven't realized by now, our annual report and this presentation looks slightly different. We've launched Masters of Taste as our new brand purpose with our global power brand Callebaut. It underscores our deep commitment to be #1 trusted adviser for our customers. As you know, taste is by far the most important purchase driver in the chocolate industry, confirmed by 84% consumers globally. This brand purpose for us brings all of Barry Callebaut employees and our partners together and helps to drive a stronger value perception with our 15,000 customers globally, especially in the Gourmet segment. As earlier and shortly after announcing BC Next Level, the cocoa crisis hit the industry. For decades, cocoa and chocolate prices have been comparatively stable with relatively low volatility. We all know what happened over the past 2 years. The first price spike in '24, making chocolate 3x more expensive within 4 months, a second spike in '25. Today, we're still 2x higher compared to historic levels. This unprecedented situation on bean price, volatility and supply introduced challenges and require decisive action. We needed to tackle a lot of challenges resulting from the high and volatile bean prices and the more difficult supply situation. Increased working capital requirements to fund the inventories, rapidly increasing our leverage as well, changes in customer behavior, more short-term bookings, delayed call off, a lot of conversations with customers not used to such rapid changes in prices. Challenges for the industry to source the beans from the right origins and the right quality. Demand and supply forecasting challenges in uncertain environment with ripple effects throughout the entire value chain, a lot in parallel, and we have been addressing it. We have acted swiftly and decisively, including by deciding to push forward with BC Next Level. To address the bean price volatility, we installed cross-functional task forces to effectively respond to the temporary price spikes, clear action plans in rapidly changing market conditions. I would say it brought all of Barry Callebaut closer together as a team. The level of collaboration across cacao, chocolate and the different departments is probably the highest it has ever been. As a joint team, we've secured the right financing for this environment, including the 2 billion of bond issuance in January and February '25, less cash-consuming solutions for daily market volatility as explained by Peter earlier. But also lots of actions to secure the bean supply. We quickly diversified and expanded our traditionally more Ivory Coast and Ghana-focused origin mix. We drastically reduced our bean and produced stock inventory through various measures to minimize working capital needs. And we have a clear plan what needs to happen in the future to make Barry Callebaut even more resilient. Let's look ahead. The focus forward is clear: deleverage and return to growth. Before we get into it, I want to provide an outlook on the cacao market. Our views differ short term versus long term. Short term, in other words, for the upcoming crop cycle over the next 6 months, we are cautiously optimistic on supply. It is expected to be broadly similar to this past year, likely a slight decrease in West African crops to be offset by growth in the other origins. Cacao prices at 2-year lows, also positive, but the volatility remains structurally higher than before the crisis and customers are all still adjusting to the changing environment. So temporary price spikes are not out of the question yet. Long term, structural challenges remain for the industry to solve, climate change, diseases, farming conditions. We are leading the industry to secure supply, and I will share more details in a minute. The main message I want to leave with you, we are preparing Barry Callebaut to weather higher prices and volatility for longer while working to decouple the business from bean price fluctuations. Let's get into the crop. Prices. We've all observed the recent significant drop in cacao prices. Three topics I want to highlight. One, the cacao terminal market is now below GBP 5,000, a level we believe our customers have largely priced through in retail. That's good. Short term, the market seems to have found a price that works for farmers, processors, our customers and consumers. Too early to tell, but cautiously positive to see. Two, for the first time in 2 years, the forward curve is flat. You pay the same for cacao delivered in December of this year and December of next year. This is very important. It incentivizes our customers to book rather than wait for lower prices in the future. It also reduces rolling costs associated with hedging significantly. The flat curve is good news. Three, volatility has reduced, but it is likely here to stay, which brings us to the next slide. Volatility. Looking at the daily change in cacao prices, let us think in before '24, cacao prices changed around [indiscernible] changes on a daily basis. This is unprecedented in terms of speed of change. Volatility has come down, yes, but we continue to observe strong reactions around selected news and [indiscernible]. To be resilient in this environment and to protect us. Volatility is likely here to stay, and we are prepared for it. Our quarterly pricing, which is tied to cacao prices, of course, has peaked in quarter 2, '24, '25. Nielsen quarterly pricing, the sellout data is only now starting to stabilize, in line with a typical 3 to 6 months B2B to retail delay we see in the industry. We believe customers and consumers are adjusting to the new normal. Consumers' appetite for chocolate remains strong. It is the #1 preferred consumer flavor by distance. Customers, we believe, have largely priced through the current terminal market levels, and we are proactively collaborating with them on recipe optimizations, new product launches and other efforts. Short term, our customers will still continue to navigate consumer readjustments on a case-by-case basis, but we believe we are through the worst as an industry. Let me also say, chocolate has been far too cheap for far too long. We believe actions are required to ensure long-term supply of our beloved cacao. As I said in the beginning, the long-term structural challenges are not resolved. A significant part of today's cacao supply is at risk due to climate change and disease. We are tackling this proactively, and we are leading the industry to ensure a predictable long-term supply across four areas with ingredient innovation. Mid-July '25, we announced our partnership with the Zurich University of Applied Sciences to explore cacao cell culture technology. And today, we are pleased to announce a long-term commercial partnership with Planet A Foods. More on a few slides, 2 examples amongst many taken to deliver new chocolate experiences with less or no cacao content. Through our sustainability program supporting the leading consumer goods companies of the world, the scale of these programs is massive and by far the largest in the industry. I want to use the opportunity to reiterate that we are ready for EUDR. We are supportive of the legislation. It is important to give the entire industry a level playing field. We are ready for -- at Barry Callebaut for our customers, and we believe traceability is the right thing to do. And we are also driving investments into small order farming and large-scale high-tech farming. So how are we progressing with our Future Farming Initiative? Our Future Farming Initiative is designed to modernize sustainable cacao farming at scale, a catalyst to the industry to invest in farming. Under the leadership of Steven Retzlaff, who led over 2 decades our Global Cacao business, we are going forward, and we are having good news on that side. Many elements are in place to scale the future of farming. The team is making strong progress. We've built a team of industry-leading experts working tirelessly. We have the largest nursery established in Brazil, two farms to test and improve farming methods, and we're driving productivity investments such as our AI-based cacao port harvesting robot. We've also identified a funnel of properties that fit our criteria for large-scale cocoa farming. Advanced discussions with partners and landowners to put funding and scaling models are in place. So the ingredients to really unlock the future farming opportunity are here today. The team is now working on executing the plan. So talking about our long-term priorities. We remain focused on our four strategic growth priorities and continue to drive improvements in execution. A few thoughts how we are progressing on each of them. One, deeper partnerships. We are the trusted partner of choice for innovation and reformulation. Customers are looking towards us to provide our solutions or our new commercial centers of excellence are driving capabilities and impact while our new customer segmentation allows us to be more tailored in our service offering. Since the cacao crisis, outsourcing was not the top priority on our customers' agenda. Today, we are making progress nicely on some larger opportunities for the future. We remain bullish on outsourcing as a key enabler to strengthen our strategic partnerships and by more deeply interlinking our supply chain to bring benefits of our scale to our customers. Two, as shared, we've launched Callebaut Masters of Taste. We also successfully launched our pilot direct-to-consumer web shops in Germany and Austria for our Gourmet business and launched our digital Callebaut Academy. Three, we are continuing to improve the scalability of our specialty offering through a more focused portfolio, accelerating innovation in cacao coatings and expecting and expanding into non-cacao solution and experiences. Four, we continue to see a huge opportunity in getting to fair share in EMEA with China completely untapped. The team is progressing nicely in key markets as evidenced in the numbers that Peter has shared with you earlier. We are preparing for a return to growth to innovate, lead and grow. Our Net Promoter Score that our customers have given us has increased significantly compared to last year, a great step towards the ambition of delivering best customer experience. This increase is driven by a few factors. Our customers especially highlight our product quality, the effective solution advisory, our understanding of their business needs and the breadth of our portfolio. This is our ambition, being the trusted adviser to our customers. Great to see the progress on customer experience. We have in Barry Callebaut chocolate solutions for any customer needs from cacao products to decorations and inclusions. Our ambition is clear, leading in chocolate, growing in cacao coatings and launching non-cacao. I spend -- I want to spend a bit more time on 2 of them, cacao coatings previously named compounds and non-cacao solutions, and we will go a little bit more into these exciting news. There are many reasons to accelerate our growth in cacao coatings or as we call them before, compounds. It is very high on any customer's innovation agenda right now, and it makes financially sense. Lower capital intensity than chocolate, you need less beans per ton of product, higher returns than chocolate with attractive profitability, higher growth than chocolate driven by current cacao price dynamics and push into reformulations. You see this reflected in our numbers. Cacao coatings is outperforming chocolate in most regions. I want to call out Western Europe, in particular, the largest chocolate region in the world, where we see promising growth in cacao coatings. While our global chocolate business overall has declined, cacao coatings have grown substantially in many regions, if I may add. More to come. We are continuing to invest in this exciting category, and this brings me to another exciting news to share. Earlier today, we have announced our commercial long-term partnership with Planet A Food, the German food tech innovator behind ChoViva. This partnership marks a key milestone in diversifying our portfolio and capturing the exciting opportunities in chocolate alternatives without cacao. It is also exemplary in how we innovate, lead and grow by embracing technology to open further avenues for growth while enhancing our resilience to today's cacao market volatility. Let me be clear, these non-cacao innovations are not meant to replace traditional chocolate, but to complement them, expanding our portfolio to keep -- to meet growing customer and consumer demand. Together with the team at Planet A Food and its motivating founders, Sarah and Max, we can scale the production of irresistible chocolate-like creations that broaden choice without compromising on taste, quality and our commitment to the planet. So let me zoom out again. We are well on our way with many strategic actions spanning our entire value chain to make Barry Callebaut less bean price dependent and drive growth. The goal is simple: deleverage, decouple from bean price, enable growth. This is guiding our actions throughout the organization. We are increasing our financial agility, solutions that breathe with the bean price and consume less cash. We are reorienting the purpose of cacao with a clear focus on ROIC targets for the third-party sales. We're driving a step change in digitization and analytic capabilities. We have improvements in sourcing, as discussed previously, and conscious decisions on product and geographic portfolio to drive growth. Many new products are requiring less working capital. We've improved our operations already significantly, reducing transport time, improved visibility on stock levels, better end-to-end collaboration across cacao and chocolate, all to capture incremental value across our value chain. Our ambition is clear: deleverage, decouple from the bean price and enable consistent profitable growth. So with that, we're moving to the outlook for the year ahead. While we've seen a stabilization in cacao bean prices, it is clear that we are still operating in a challenging environment. Our customers and the entire industry are still digesting cacao prices 2x above historic levels and the ongoing B2B efforts of that will remain pronounced, particularly in the first half of this fiscal. Our working assumption is for a bean price in and around GBP 5,000 with continued volatility, albeit at lower levels than last year. While we've taken steps to enhance our resilience to temporary cacao bean price spikes, of course, if this were to happen, it would have an impact on our delivery of '25-'26. As you know, the largest impact of our cacao bean prices on cash and leverage with a likely knock-on impact on volumes and profit as our customers are likely delaying orders and adjusting their purchase behavior as we saw last year as well as further prioritization in Global Cocoa. When it comes to guidance, our clear focus is to deleverage below 3.5x and prepare for a return to growth. H1 '25, '26 is expected to remain challenged as customers and consumers continue to manage higher prices, while we aim for improvements in H2. On volume, global chocolate is expected to see mid-single-digit volume decrease. With a focus on ROIC in global cacao, this will result in mid- to high single-digit volume decrease in Global Cocoa. As a consequence, we see group volume is expected to see mid-single-digit decrease related to bean price developments impacting global cacao return prioritization. In particularly, while we don't typically provide guidance by quarter, we wanted to be transparent and proactive share what we expect as a significant volume decrease in Q1. The key reason relates to North America, where we temporarily paused our production site in Saint-Hyacinthe in Canada due to a technical malfunction with one piece of our roasting equipment. The factory is a significant contributor to the overall North America production was closed for around 3 weeks. The site is back up running. And while we are doing everything possible to deliver our customer orders as soon as possible, this will have an impact on H1 performance for North America. We've agreed with the Board to invest in a new facility in the United States as well as taking significant upgrade investments in existing network. This decision earlier this year comes with a delay following more clarity on the tariff situation. On profit, we expect low to mid-single-digit growth in EBIT recurring and double-digit growth in profit before tax recurring, both in local currencies. These are on a recurring base and exclude remaining BC Next Level onetime OpEx investments of around CHF 60 million to be spent on digital and on growth initiatives. So to conclude with three clear focus areas for us this fiscal year. First, deleverage to less than 3.5x net debt to EBITDA and delivering strong cash generation. Second, prepare for a return to growth with a clear focus on customer experience, competitiveness and unlocking new solutions for our customers, leading in chocolate, growing in cacao coatings and launching non-cacao solutions. We will be third, relentlessly addressing optimization opportunities for this new bean price and quality environment. So with that, we are building an even stronger leader, and we are confident that Barry Callebaut can win in the new market reality. Thank you very much for listening. We will now move to the Q&A session, and I will hand over to the moderator to start the Q&A. Thank you. Operator: [Operator Instructions] Our first question is from Jörn Iffert from UBS. Joern Iffert: Two as guided. The first one would be, please, on your volume outlook being down mid-single digit in fiscal year 2026. I mean, don't you expect that as you also highlighted, the GBP 5,000 COGS impact on the beans is worked through. We are maybe even entering a deflationary environment in chocolate going to 2026 or at least incremental price will be quite limited. So why do you expect to underperform the global chocolate market volume growth again in 2026? Is there anything on in-sourcing happening? Is there anything where you see ongoing SKU rationalization on customers? Have you lost the customer? This would be the first question. And the second question on the cost savings, can you please remind us what is the total aggregated net saving run rate we have seen now in fiscal year '25 in the EBIT? And what are the incremental net saving benefits in fiscal year '26 and then also '27? Peter Feld: Yes, first from my side, thank you very much for your questions. Let me just come back to your first question, which was on volume. Look, I think, as you know, we are a forward-looking business. And as we've just shared, we obviously continue to look very closely at what customers are doing. We believe, as per our information that our customers have about price through 30% of the price point that we see today. However, there's still discussions and we see still discussions happening between our customers and the retailers as they -- or the end customers as they bring the products into the market. So that is one of the elements why we're cautiously positive on it, but we have to recognize that we're coming from a low run rate there. The second thing that we have informed you about is the incidents that we had in the Saint-Hyacinthe facility in Canada that obviously had an impact and that we are having behind us, but that obviously will impact the first half year outlook on the business. The second question that you've asked on -- Next Level synergies. Let me tell you that we've had in the end of the fiscal year '25, about 60% in the numbers and about 70% hardwired for synergies going forward. So progress in line with what we had set out on the agenda there. But as we've explained to you earlier, we have other cost elements that we have to address, and there's a whole array of task forces underway to deal with the new bean price and bean quality environment as we speak. Operator: Our next question is from Jon Cox at Kepler Cheuvreux. Jon Cox: A couple of questions for you. One a point of clarity. i.e., I'm trying to ask another two on top. This Saint-Hyacinthe in Quebec facility closure, that is your biggest facility in North America. Am I right thinking it's like 300,000, 400,000 tonnes capacity? You said it's just closed for a few weeks and you lost some customers. Can you just elaborate a little bit on that? I'm just trying to parse out what the impact of this thing will be on the guidance for the year. Second question, just to come back on the cost savings. Your EBIT level recurring is the same as it was last year. And I know there's a load of different things going on, but we're not even 10% above we were in terms of recurring EBIT from when you actually started this program. I'm just trying to get a handle on how much is gone in FX. I'm guessing half of it is gone. So that 187 net EBIT gain we should have expected over 3 years now to 4 years is probably half of that amount. And as part of that, what should we see, because we can see EBIT per tonne is improving. Is it just a matter of seeing that volume growth even when it does improve, we're going to see a big step-up in EBIT growth because you're saying that eventually, it will be shown in the bottom line, but we're just not seeing it at all. So that's a sort of broader cost savings and final impact. And then just lastly, on the financials line, we had a minus CHF 370 million there, you're talking about CHF 700 million of debt falling due, which is maybe 20% of the debt, which you've sort of used as part of this problems with the balance sheet. Why can't we expect that financials line, the net financials to come down by 20% per year over the next couple of years? It just -- it's sort of like -- it's a big balloon on that net financials and probably going to contribute to pretty high EPS cuts on FY '26 because it just doesn't seem to be moving down much, even though your efforts on deleveraging are far better than expected in H2. Peter Feld: Thank you, Jon. Thanks for the questions. Let me take the first one. So the St-Hy impact has been an impact that was driven by an equipment that shut down one of our roasting facilities. You're right, it's one of the big factories, especially also for the cocoa that goes into North America. So there's a triple effect that we actually see from that. For me, the important aspect is that we have concluded with the Board to invest significantly in the North America network to bring it to the same performance level that we expect to have in reliability. And combined with the work on BCOS, we were confident that we actually will make the improvements needed for that facility. This incident has been with us for about 3 weeks. It's a proactive activity that we have done. And obviously, there's a trickle-on effect for our North American customers. Look, we want volume back from any of those incidences that we had from the decision we took in Toluca last year, the same situation here. It's extremely painful. But as I said in my introduction, we have a clear obligation to our customers when it comes to quality, performance, reliability, and that's the rigor that we're putting into Barry Callebaut's new product supply infrastructure to really go forward. So it's a lot of work that actually is impacted there and that we're doing. I'm thrilled to see that we have approval from the Board to build a new facility in the United States as well as to upgrade significantly the network across North America as we speak. Peter Vanneste: Yes. And I'll take your next two questions, Jon, on the -- first of all, you're talking about EBIT and the savings. I wasn't really sure you talk about backward or forward, but let me give the overall picture. EBIT has gone up indeed by 6% over the last year. We talked about the moving parts just now in the presentation. There's a positive about the mix for sure. There's positive about passing on those financing costs, right, throughout the year. There's positive about Next Level savings rolling in, as Peter was talking about. But there is important offsets as well, which are linked to the disruption that we see in the market. Some of them being temporary because we need to price much faster, much more frequently pricing teams in place to do that. Some of them also a bit more structural, which is really about part of the backwardation costs that we're carrying that were very high, carry costs that are higher, some investment in capabilities like digital insurance costs. There's a lot of offsetting costs as well that have been not making it see as much as you would have seen and we would have seen in the EBIT otherwise. You asked about ForEx. We had a 45 million ForEx impact. If you then look at the reported, right? We had a 45 million impact indeed last year canceled out with the ForEx and the strengthening of the Swiss francs. We do expect another CHF 15 million on that next year, especially driven by the Turkish lira and the U.S. dollar. So also next year, we'll have smaller, but also as it looks now, a CHF 15 million impact on the ForEx. So that's what played on that line. And then your last question was about financing costs and the pass on and especially the level, I think you asked. Yes, we landed the year at 377 million finance cost, which is obviously a big increase versus last year, an increase of about 170 million. Very much linked, obviously, to the bean price that spiked and the fact that we then, of course, had to finance this. There's a lot about the value of the inventories, as I explained in the presentation. So we did the two bond issuances in early this calendar year, which obviously played a big role. That's a step-up that we are seeing. Next year, we will have lower levels. Actually, H2 has been lower than H1 last year already despite this funding of the two instruments in the beginning of the year because we already -- we're working on some of those levers that we've explained in the presentation. And I think that's the positive news, right, that we are building on the operational sourcing and financial agility to bring back our working capital, which allows us to bring back our financing costs. So for next year, we do expect to be at least 40 million lower than where we've been reporting finance costs this year. We stay in a very volatile period. We are -- we have the harvest -- the peak harvest coming up, so we need to be a bit prudent. The good news is that we're making this good progress on working capital. The other good news is that we have maturities of 700 million every single year for the next year. So it allows us to pay back debt that we don't think is we need to hold. We are doing that already. We pay -- we are reducing commercial paper. We paid back some bilaterals. So we're certainly going to push on that lever as much as again, the bean price environment and the working capital progress is allowing us. Operator: Our next question is from Alex Sloane at Barclays. Alexander Sloane: Some follow-ups. Just in terms of the volume outlook, I appreciate you haven't sort of quantified the impact of this incident. But I mean, in terms of the phasing of that mid-single-digit decline through the year, would you expect to be in positive growth in the second half of the year? And then secondly, if I can just come back just on -- in terms of -- there's a lot of moving parts on the next level. But in terms of the CHF 187 million kind of net impact that you're targeting to the bottom line, could you maybe spell out sort of how much of that you actually think will have landed and be visible in fiscal '26? And how much of it will have landed and be visible in fiscal '27 at this point just in terms of sort of how much more is to come because I'm a little bit confused on the moving parts there. Peter Feld: Yes. Thanks, Alex, for your question. Let me just start on volume with a different focus. I think we need to be very clear that we're driving volume growth in the chocolate solutions, which is chocolate is our global chocolate, and we are focusing on that. As we've said in the outlook, we will have a tough quarter 1 start, and we are seeing H1 to be down. We hope to recover that quite a bit in H2. And that's, I think, the key message that lands us into the outlook that we've given to you on global chocolate mid-single-digit decrease for the fiscal year. When you look at cacao, then we have guided you that we're focusing the cacao on the core KPI to be ROIC. And for us, that is very important to understand, specifically when it comes to liquor and to butter sales to third party. That obviously correlates with leverage and our objective to decrease our leverage, and that needs to be the #1 priority. So we're focusing Global Cocoa third party on ROIC, which will then result at current bean prices of 5,000 as we have assumed, to a decrease of mid- to single high digits. As I've explained earlier, when we see the bean price change and just looking back 1 year, you will remember that from the 1st of November '24 to the end of November '24, we literally had seen a doubling in bean price just in 30 days. That obviously has a big implication, and that's why we're giving the guidance in a distinct difference between chocolate, where we will clearly focus on regaining market share and volume. And on the other side, on Global Cocoa, where we'll focus on ROIC in order to manage our leverage -- deleverage objectives. Peter Vanneste: Yes. And Alex, on your question on the Next Level savings and then the total EBIT, again, and I'll try to be a bit more specific, right? The individual projects that we're delivering on Next Level, as Peter also mentioned, they are delivering, and we do get those savings on, let's say, GBS. We moved all these people in shared service centers. So there's certainly labor arbitrage element, which is straight into the pocket. There's the factory closures that obviously also help directly. So it's undoubtable that these savings are landing in the P&L as such. But at the same time, we do have significant costs about disruption -- the disruption, the bean quality has worsened, which means that leads to higher cost in our factories. We need to manage higher volatility over the last year that led to our impact on our cost, which means that net, you didn't see the effect. If we look forward specifically, we will do two things, right? We will continue to deliver and some of it will now roll of those savings of the individual projects into the fiscal year. At the same time, we will be focused on building down some of those temporary disruption costs that I've been talking about. Order of magnitude, I think you can talk about, about CHF 100 million that will be contributing to the P&L next year. But again, it's a combination of delivering the project as such and managing the cost of disruption down in parallel. Operator: Our next question is from Edward Hockin at JPMorgan. Edward Hockin: I've got two, please. One quick one is embedded within your volumes guidance for the coming fiscal year, can you tell us what assumption you're making on the end market volumes, so versus that minus 3.5% that the market declined by in FY '25, what you expect for '26? And my second question, please, is on the free cash flow building blocks. So if I'm looking at Slide 8 in the presentation. Can you maybe talk about FY 2026, how some of these moving parts should evolve to the operational free cash flow? Should we think of this 1.1 billion, 1.2 billion as a new steady-state level? To what degree should the bean price free cash flow turn positive? And just remind us of CapEx plans, what kind of level we should be expecting for FY '26? Peter Feld: Thank you, Edward, for your question. On the volume guidance, and specifically, when we look at the end consumer market, we continue to be very positive that chocolate will remain the #1 ingredient in any food product globally. It's the key driver for our business. And as I always say to our employees, we have a great luxury to operate in this business that creates a little happy moment for consumers around the world whenever the sun shines or it's raining. And I think for me, that is the paramount important element here. We have 2.5 billion consumers entering the market in Asia that now have the opportunity to invest in this category. So great trajectory looking forward. It's a great category, and I'm convinced that we will see stabilization as consumers will also adjust to the higher price points. What we've shared earlier in the presentation is that our customers have in the latest Nielsen report, seen in FMCG, so in what Nielsen really tracks, not Gourmet because that is less covered, actually hardly covered by Nielsen. We see on the FMCG side that 30% of consumer price has gone up, driven by the chocolate industry. We had guided for that a while ago that, that is roughly by category a little bit different because you always have more or less chocolate on the product, but that's certain of what we've seen. So we believe that consumer prices have been taken at this point in time to the current bean price level of about EUR 5,000 or less or GBP 5,000 or less. So that's the part there. So we keep on being hopeful that the category, and convinced that the category going forward will be a great category to invest in. However, as our customers are bringing that price further into the market and especially on the gourmet side, where we operate around the world with many distributors who then actually serve the end customers, the smaller bakeries, the patisserie shops, that obviously is a longer cycle that our customers have to work through. And that is why we believe there's a disconnect still that needs to happen as in that specific industry, the prices probably have not yet gone completely through. So this is why we are thinking that the guidance that we've given to you is an appropriate guidance on the chocolate business because we think that we believe on the long term very clearly that there's a fantastic category to invest and operate in. And on the other side, we still believe that there is some digestion that needs to happen as the entire industry moves to a 2x price point on its key ingredient, cocoa bean. Peter Vanneste: And on the second question on the cash flow page in the presentation and looking forward, we are looking at, and obviously, that is needed, because we're deleveraging towards 3.5x at least. We're looking at a positive -- a strong positive free cash next year of about CHF 1 billion in our planning, which is based again on that assumption that we made about 5,000 bean price. Of course, it fluctuates as you -- we all know very well by now, fluctuates a lot around that. Thanks to continuing to work on those big pillars that help us to make the big step in half year 2, the operational agility, the sourcing agility, the financial agility that helps to bring it down. So specifically to your questions on those components, we will have -- if you're looking at the page, the yellow part, the investment CapEx and Next Level CapEx will have a number next year, which is similar as what you've seen in fiscal '24, '25 with about CHF 300 million CapEx and CHF 60 million one-off investments that we plan to do in Next Level. And then the rest will mainly be operational free cash flow progress, which is the green part on the side. There's a little bit still rollover of bean price benefit because we're -- if the bean prices come down and the fact that we're forward selling, there's a bit of the benefit that we still need to come, but that's really the small part of what's remaining. The big part to get to the CHF 1 billion will be operational free cash flow further improvements. Operator: Our next question comes from Tom Sykes at Deutsche Bank. Tom Sykes: Just trying to sort of nail down the bridge on getting to EBIT growth. So are you expecting the gross profit to be up on volumes being down mid-single digit? Then on the volume outlook, are you expecting volumes -- what are you expecting to happen to volumes, excluding North America, please? And then finally on -- just to understand the sort of customer behavior, where do you think inventories are for your largest customers vis-a-vis the, the kind of run rate of demand? Because I guess part of the bull case is that there's potentially a restocking as some of those volumes come back or at least as some demand comes back. But it's difficult to understand where quite the sort of industries or your customers' inventories are relative to the run rate of demand. So if you had any thoughts on that, that would be great, please. Peter Feld: Do you want to take the EBIT? Peter Vanneste: Yes. Your question on EBIT, I think, was specifically on the gross margin and the moving parts on EBIT for next year. Obviously, the biggest impact on EBIT next year will be the impact of the volume, right? The mid-single-digit negative volume is impacting obviously, on the gross margin line. While there will be a mix positive level because we will have as this year, right, over proportionally growing in those areas, specialties, gourmet, that delivered the better margins. There will be a plus on Next Level savings, which is somewhat above, somewhat below gross margin and offsetting some of those structural cost disruption costs that I've talked about, reducing those. So those are the four big moving parts. There is one other part, which is the pass on of the financing costs, which also has a play on EBIT. If we have less financing cost to pass on, that might have a mechanical effect on EBIT, which is why we're guiding also on net profit before tax. But really, those are the 3, 4 components that drive the EBIT for next year. Peter Feld: Yes, Tom. And then to your other two questions on volume, let me start there. So obviously, we are impacted in North America quite a bit because of the size of Saint-Hyacinthe, as we discussed before. We do see Europe a bit more stable in that situation compared to North America very clearly, as our motives for the factories have improved significantly across all of Europe. We are also in significant reformulation activity as I mapped out to go from certain chocolate solutions into the cacao coating side of things. And actually, we're leading with innovation on that, which is -- which we're thrilled by our customers actually coming to Barry Callebaut to ask for those innovations to really make a step change. So that's the positive things that we're seeing on Europe. On EMEA, excluding China, I want to leave China aside for a second. And LatAm, we are a bit more positive, clearly striving to deliver positive growth on these environments. And in China itself, as we've said many times, chocolate hardly exists. It's a long-term growth opportunity for the industry and for Barry Callebaut, and that's what we're trying to unlock, probably not having a huge impact in this fiscal year on China, but we believe that there's a great opportunity going forward in that aspect. On inventory, let me just share that one of our Next Level activities is also to have a better understanding of our inventory levels at our top customers, especially on the gourmet side. You can imagine that we have good discussions with our larger accounts where we will soon talk about the G20, more than the GCAs, as historically we've done that make up about 65% of the volume of Barry Callebaut globally. On that volume, we have good discussions with our customers to understand where they are. They have clearly shortened the inventory cycle significantly as the bean prices spiked last year and going into '25 -- calendar year '25, and they retained at low level. So now the good thing is we see a bit more positive momentum since 3 months ago, the bean price actually came down a bit. So we had a bit of a catch-up in that, and we're excited about it, obviously. And as Peter has shared in his presentation, the forward curve is obviously very attractive to actually book today, right? So that's the aspect there. On the Gourmet side, our new Next Level capabilities is bringing our top customers in Gourmet, the top distributors in Gourmet to actually allow us to see their inventory levels. We're building that database up. The software has been established. We're now in deep discussions with our customers to have far better visibility on that, and that will give us a far better understanding of the flow-through of products as we have that long supply chain from the beans all the way to the end consumer. Operator: At this time, the Q&A session has now concluded. So I will hand the call back to Peter Feld for closing remarks. Peter Feld: Well, thank you very much for attending our annual results conference today. We're very much looking forward to the individual discussions that we will have with many of you later on. Thank you very much for attending, and I'm handing back to the operator. Operator: Thank you. This concludes today's conference. You may now disconnect from the call.
Operator: Good day, and thank you for standing by. Welcome to the Avista Corporation Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Stacey Walters, Investor Relations Manager. Please go ahead. Stacey Walters: Good morning. It's great to have you with us for Avista's Third Quarter 2025 Earnings Conference Call. Our earnings and third quarter Form 10-Q were released premarket this morning. You can find both documents on our website. Joining me today are Avista Corp. President and CEO, Heather Rosentrater; and Senior Vice President, CFO, Treasurer and Regulatory Affairs Officer, Kevin Christie. We will be making forward-looking statements during this call. These involve assumptions, risks and uncertainties, which are subject to change. Various factors could cause actual results to differ materially from the expectations we discuss in today's call. Please refer to our Form 10-K for 2024 and our Form 10-Q for the third quarter of 2025 for a full discussion of these risk factors. Both are available on our website. I'll begin with a recap of the financial results presented in today's press release. Consolidated earnings year-to-date in 2025 were $1.51 per diluted share compared to $1.44 year-to-date in 2024. For the third quarter of 2025, our consolidated earnings were $0.36 per diluted share compared to $0.23 per diluted share for the third quarter of 2024. Now I'll turn the call over to Heather. Heather Rosentrater: Thank you, Stacey. I want to start by highlighting that our third quarter results underscore the strength of our core utility operations and our disciplined approach to cost management. Year-to-date results at Avista Utilities of $1.63 per diluted share reflects a nearly 15% increase over 2024's year-to-date results. This reflects the constructive regulatory outcomes and diligent capital deployment that continue to enhance our financial performance and advance our long-term strategy. As we pursue our strategic initiatives, including the project shortlisted in our 2025 request for proposals or RFP, we remain firmly committed to supporting reliable and affordable customer service, community investment and shareholder value. Today, we are affirming our earnings guidance with Avista Utilities expected to be at the upper end of its guidance range and consolidated results expected at the lower end of the range due to valuation losses in our other businesses during the first half of the year. The 2025 wildfire season has ended, and I'm pleased with the significant progress we've made with our wildfire resiliency program. We concluded the season without needing to initiate a public safety power shutoff, fortunately, but we were well prepared to elevate our system into risk responsive levels as conditions warranted. This success is the direct result of strategic grid and process improvements, continued collaboration with communities and first responders and the dedication of our team. This summer, we completed pilot projects for both strategic undergrounding and installation of covered conductor. We'll be building on this work going forward. With the lessons learned and forming our key decision-making about where and how to deploy these technologies as we advance towards our grid hardening goals. In addition, we began installation of weather stations throughout our service territory. These stations bring critical real-time data to our operations team and inform future system design decisions. Our goal is to have a weather station installed on every circuit by 2029. We also expanded our network of AI-enabled cameras, giving our teams and first responders greater access to wildfire monitoring and early detection tools. By the end of 2026, we expect to have coverage of a majority of our high-risk areas through these technologically advanced cameras. All these tools continue to improve and expand the data that goes into our fireweather dashboard, which enables us to react faster to changing conditions and better understand and mitigate risk. This month, we will submit our wildfire mitigation plan to the Idaho Public Utilities Commission. We've been filing our wildfire mitigation plans with the commission for many years now. However, this will be the first wildfire mitigation plan filed after the Wildfire Standard of Care Act was passed by the Idaho legislature earlier this year. The new legislation establishes a standard of care for wildfire risk mitigation and utilities reasonably implementing their plans will now have protection against liability for wildfire in Idaho. And in Washington, we're working through the rule-making process with other stakeholders following the Washington legislation also passed earlier this year around filing and approval of wildfire mitigation plans. We kicked off our 2025 all-source RFP back in May, looking for up to 425 megawatts of new capacity and at least 5 megawatts of demand response. As I mentioned in last quarter's earnings call, we saw a positive response to the RFP receiving over 80 bids with 69 supply-side bids totaling nearly 14 gigawatts of capacity and 17 demand response projects offering almost 300 megawatts. We've narrowed the responses down to a short list and these bidders sent in more detailed proposals in October. There's 1 final chance for bidders to refresh their prices this month. From there, we'll make our final project selections and start negotiations before the year-end. The shortlist has diverse options with supply-side resources like wind, solar, storage, stand-alone and hybrid and thermal as well as demand response projects. There's a mix of ownership options, too, including self-builds, build transfer agreements and power purchase agreements, which gives us more financial flexibility. Some projects are in Montana and could leverage our existing transmission resources in the state as modeled in our integrated resource plan. A big focus is on taking advantage of federal tax credits before they expire. To fully qualify, selected projects need to begin construction by July 2026 and be online by 2029 to 2030. We are working with shortlist bidders to make sure everyone is on track to meet those deadlines and get the most out of any applicable tax credits. I continue to be optimistic about the opportunities ahead, particularly as we engage with potential large load customers. These conversations are increasingly central to our long-term planning and investment strategy. Our RFP is helping us evaluate new generation resources and system capacity and is playing a key role in informing our discussions with large industrial customers who are exploring expansion opportunities within our service territory. We're working closely with several of these potential customers to assess how incremental load can be integrated into our system in a way that supports reliability, affordability and long-term value. Serving this level of demand will require not only new generation but also regional grid expansion. System impact studies show we have capacity to accommodate a portion of these requests. With these near-term opportunities best suited to serve customers with scalable implementation capability. We are committed to being competitive in attracting these loads and we view them as an important tool to support customer affordability and as a catalyst for innovation, infrastructure investment and long-term value creation. We'll continue to update you on our progress in future calls. Now I'll hand the call to Kevin for more discussion of our earnings. Kevin Christie: Thank you, Heather. I'm pleased to report a beat to market expectations with our third quarter financial results. Our third quarter results reflect significant growth from the same period in 2024. The strength of our consistent operational execution, including constructive regulatory outcomes, customer load growth and our continuing commitment to cost discipline drive our success. Alongside our other initiatives, regulatory outcomes are key to our progress. And in the third quarter, we implemented constructive, approved settlements of both our Oregon and Idaho general rate cases. We expect to file our next Washington general rate case in the first quarter of 2026. In Washington, we were required to file multiyear rate plans of at least 2 and up to 4 years. While many of the details of the case are still in development, we are evaluating whether we file a 2-year, 3-year or 4-year rate plan. With good regulatory alignment, we are confident that a longer rate plan can be beneficial for us and our customers. The law also provides us with the ability to file a new plan during a 3- or a 4-year rate plan, if necessary. We continually invest in our utility infrastructure to support customer growth and maintain our systems so that we can safely and reliably serve our customers. Capital expenditures at Avista Utilities were $363 million in the first 3 quarters of 2025. We expect capital expenditures of $525 million in 2025. From 2025 through 2030, we expect capital expenditures of $3.7 billion, resulting in an annual growth rate of 6%. In addition to this base capital, our current estimate of the potential capital opportunity for both our RFP and the addition of a potential large load customer is up to $500 million from 2026 through 2029. If these opportunities materialize, we expect the potential capital to be weighted approximately 75-25 between a potential new large load customer and self-build opportunities. We also expect that this potential investment would be spread somewhat evenly throughout the 4-year period. These estimates do not include any incremental capital requirements that could result from incremental transmission projects like regional grid expansion. In July, we issued $120 million of long-term debt and we do not expect further debt issuances this year. We expect to issue up to $80 million of common stock in 2025. That includes $45 million, which was issued during the first 3 quarters of the year. In 2026, we expect to issue approximately $120 million of long-term debt and up to $80 million of common stock. We are confirming our consolidated earnings guidance with a range of $2.52 to $2.72 per diluted share for 2025. As a result of the $0.16 of losses associated with our investment portfolio year-to-date, we expect to be at the low end of the consolidated range. We expect Avista Utilities to contribute toward the upper end of the range of $2.43 to $2.61 per diluted share. Our guidance for Avista Utilities includes an expected negative impact from the energy recovery mechanism of $0.14 in the 90% customer, 10% company sharing band. We have incurred $0.12 under the ERM year-to-date. Due to the staggered timing of rate cases throughout our multiple jurisdictions, going forward, our expected return on equity at Avista Utilities is 8.8%. AEL&P continues to perform well, and we expect it to contribute $0.09 to $0.11 per diluted share. Over the long term, we expect that our earnings will grow 4% to 6% from the midpoint of our 2025 guidance. I'd like to finish by saying that at Avista, we have positive momentum, our core business is performing per our expectations, and we have much to be optimistic about as we look to execute upon our business plans. Now we'll be happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Shar Pourreza with Wells Fargo. Unknown Analyst: It's actually Alex on for Shar. So just on the $80 million equity needs you have out there for '26, you have a lot of incremental CapEx opportunities you've highlighted. So I just want to get a sense on additional funding sources. Would you look at other avenues? And maybe what about a divestiture of your other business to fund the growth at the utility? Is that something you'd consider? Kevin Christie: Yes. Thanks for the question, Alex. Yes, we're indicating that an expectation of up to $80 million for 2026 as we mentioned. And if we are fortunate enough to have additional spending opportunity or capital investment opportunity for the RFP, large customer or both, then that might change the equity needs, but not significantly so. And I would continue to expect that we would use our periodic offering program as the vehicle. It's not a significant enough increase in equity needs that we would need to do something more dramatic by making a sale of some business or something like that. Unknown Analyst: Okay. Got it. And just sort of just the messaging just around looks like the rate base outlook from 5% to 6%, you're now expecting that 6% at the utility. Can you just remind us if that includes the incremental CapEx opportunities you've highlighted or would that push you past that 6%? And can you just walk us through what that means to your 4% to 6% earnings range over the long term? Kevin Christie: As we continue to have opportunity to add to our capital plan and if it comes in the form of the items we highlighted and/or additional transmission, that would help take us towards the top end of our growth range that we stated at 4% to 6%. I don't believe it would take us above that, but let's see what happens with large loads. And there's -- as Heather indicated, there's a lot of great conversation going on with potential developers. Operator: [Operator Instructions] Our next question comes from the line of Julian Dumoulin-Smith with Jefferies. Brian Russo: It's Brian Russo on for Julian. Just on the upcoming Washington MYRP filing. You mentioned that you're evaluating the 2- or 3- or 4-year plan. Just curious, how do you manage around external risks of inflation and interest rates and even power costs while under more than the 2-year plan that you're currently in. Would you need to seek ERM modifications to kind of insulate yourself from power costs? Kevin Christie: Well, there's a few aspects here that I want to get into with you, Brian. First, after a 2-year period. So let's say, hypothetically speaking, that we file a 4-year. And we move our way through the first couple of years or even just the first year, and we find that we're off track either because of inflation or we've had additional investment opportunities that aren't reflected in the case. Then we have the opportunity to refile, so that case then becomes a 2-year and you, in essence, start over. So we've got a wonderful set of optionality to move forward if we need to by, in essence, cutting that case back from 3 or 4 years to a 2-year case. In addition, as we think about how we would proceed, and again, these pieces are all coming together. So it's all preliminary. We would expect to have power supply resets in each subsequent year, at least that would be our objective as we go into the case. So when you ask about the ERM, that's how we would address that. Now I'll just proactively answer a question about the ERM. We have talked about how the outcome from the last case wasn't quite what we had hoped it would be in Washington. And we've gone through that workshop process that we felt we were obligated to do. We had great conversations with the parties that involve -- get involved in these workshops. And our approach going into this next case is to likely not try to modify the ERM itself. And that's because of the order that we heard from or in our last case in the commission, the words that they used and Puget is still out working on a proceeding that comes well I think, towards the middle of next year, we'll have a better idea of whether or not Puget had success modifying their ERM-like mechanism. So we're going to set the ERM aside for now, and then we're going to look to see if Puget has success and if they do, then we'll try to move forward with something similar. And what we're going to focus on is resetting power supply cost at a more appropriate level. And we think we have a path to setting power supply at that more appropriate level. And if we're able to do that, then the impact of the ERM is somewhat muted. Brian Russo: Okay. Great. I think are we still assuming a power cost drag in 2026 per your most recent disclosures? Kevin Christie: Yes. We're -- I think our disclosures have covered that pretty well. I'll reinforce that without a change to the ERM and given how power supply was set in the last case that we would expect a drag from the ERM. Now hopefully, because of weather and other factors, it won't be as severe as it is in 2025. but it's too soon to be able to predict that. Brian Russo: Okay. Great. And just can you remind us again on the other businesses, how the mark-to-market works. I think there's a quarter lag, right? So this September quarter actually reflected June mark-to-market values. So it's possible, hypothetically, in your year-end update that could capture September clean -- mark-to-market clean energy investment values, which arguably were well off their lows following the old BBB and executive order, et cetera. Kevin Christie: Yes, you're following it pretty well, Brian. And yes, there is a quarter lag for some of our investments, a fairly significant amount of the investments. And so this quarter reflects second quarter for those investments, and we'll see how it turns out for the rest of the year. We're, as we've mentioned before, not able to call the bottom, but we're encouraged that we saw the impacts in the first half of the year. And then this quarter, it flattened out to some extent. And the dust seems to be settling around some of the clean energy narrative that had been out there. So we're optimistic. But again, it's hard for us to be able to call whether or not that will completely turn around by the time we are talking to you next quarter. Brian Russo: Okay. Great. And then just lastly, on the increment -- potential incremental CapEx. How should we think about kind of the mix of debt and equity financing? Is it 50-50 or something different than that? Kevin Christie: Well, our base capital plan that we've described and the amount of debt versus equity for base capital for this year and as now we're describing for next year is $120 million debt, $80 million equity and then if we have incremental spending opportunities after that, there's, of course, a lot of complexities that we would have to work our way through. But generally speaking, I'd expect incremental capital to be in roughly 50-50. Operator: I'm showing no further questions at this time. I would now like to turn it back to Stacey Walters for closing remarks. Stacey Walters: Thank you all for joining us today and for your interest in Avista. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Fineco Third Quarter 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Alessandro Foti, CEO and General Manager of Fineco. Please go ahead, sir. Alessandro Foti: Good morning, everyone, and thank you for joining our third quarter 2025 results conference call. In the first 9 months of 2025, net profit at EUR 480.5 million and revenues at EUR 969.6 million, supported by our nonfinancial income, investing up by 10% year-on-year, thanks to the volume effect and the higher control of the value chain by Fineco Asset Management, and brokerage is up by 16.5% year-on-year, thanks to the enlargement of our active investors. Importantly, if we zoom on our quarterly dynamics, net profit and revenues were back to the sequential quarter-on-quarter growth. Our net financial income has already bottomed out and fully absorbed the decreasing interest rates and was up around 2% versus the second quarter on the back of positive deposit net sales and positive reinvestment yield. Operating costs well under control at EUR 259.9 million, increasing by around 6% year-on-year by excluding costs related to the growth of the business. Cost income ratio was equal to 26.8%, confirming operating leverage as a key strength of the bank. Moving to our commercial results. The underlying step-up in our growth dynamics gets crystal clear month by month. This is underpinned by the positive tailwinds from structural trends, and we are leveraging on this solid momentum through a more efficient marketing. The result of this acceleration has been clearly visible in the first 9 months of 2025. First of all, we added around 145,000 new clients, up by 33% year-on-year. In October, new clients are around 19,000, the second best month on record, up more than 25% year-on-year. Second, our net sales were EUR 9.4 billion in the 9 months up by strong 36% year-on-year. In October, estimated total net sales saw a further continuation of this trend at around EUR 1.3 billion, up by more than 30% year-on-year. The mix was very positive with assets under management at around EUR 0.5 billion net sales, up by more than 20% year-on-year. Deposits at around minus EUR 0.1 billion, and assets under custody at around EUR 0.9 billion, leading to the best month ever for brokerage revenues at around EUR 31.5 million. Our capital position continued to be strong and safe with a net common equity Tier 1 ratio at 23.9%, and a leverage ratio of 5.11%. On the right-hand side of the slide, you can find the summary of our guidance. Our outlook for 2025 has improved, thanks to the acceleration of the structural growth and under it, our business model. More in detail, our net financial income bottomed earlier than expected in the second quarter, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with the lower interest rates. Brokerage revenues for 2025, we expect a record year, thanks to the continuously growing floor driven by the higher asset under custody and enlargement of our active investors. October revenues are just the latest evidence of the higher floor of the business. Banking fees are expecting a slight decrease in 2025 versus 2024 due to new regulation on instant payment. On operating costs, we expect a growth around 6% year-on-year, not including a few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million, mainly for marketing and Fineco Asset Management and AI. Finally, in 2025, we expect a payout ratio in the range between 70% and 80%. On 2026, we expect all the business areas to contribute positively in terms of growth to our revenue growth. Net interest income is expected to grow year-on-year on the back of positive deposits, net sales and reinvestment yields. On investing, we expect a solid growth on our asset under management net sales. Banking fees expected to grow on the back of a higher number of clients. Brokerage revenue expected to grow, thanks to the increase of the asset under custody and active investors. On 2026 guidance, more details will be provided during the next year, Capital Market Day on March 4. Let's now move to Slide 5. Before moving into the details of the presentation, let me stress that month after month, Fineco is recording a continuous acceleration of its growth dynamics supported by a very healthy underlying quality. As you know, our business model relies on diversified and quality revenue stream, allowing the bank to deal with any market environment. On the banking revenues, our net financial income is a capital-light one with lending being only in an ancillary business, and it's driven by how our clients valuable and sticky transactional liquidity. Let me stress that deposits are joining our platform for the quality of our banking services and not due to aggressive commercial campaign on short-term rates. That's why our deposits are so valuable and our cost of funding is practically close to 0. Our investing revenues are recording and healthy and future-proof expansion as they are already aligned with clients' rising demand for transparency, efficiency and convenience. This approach is mirrored in the quality of our revenue mix, which is almost entirely recurring with a very low percentage of upfront fees and no performance fees at all. Finally, our brokerage is clearly experiencing a further step up on the floor of the business, thanks to the capability of our platform to have a structurally higher number of active investors, leading to a structurally higher stock of assets under custody. This is driven by the structural increase in client interest to be more active on the financial market, and this is building a bridge between the brokerage and investing world, which we are the only one able to scoop given our market position. Let's now move to Slide 7 and start commenting on the most recent plan. Net financial income fully absorbed the decreasing market rates, thanks to the organic growth and our valuable deposit base. This net financial income was up by 1.9% quarter-on-quarter, led by the positive deposit, net fees in the higher reinvestment yield of our bonds running off. This despite the still declining average 3-month Euribor. Let me quickly remind you the quality of our net interest income, which is capital light and driven by our clients' valuable and sticky transactional liquidity. That's why our deposits are so valuable and will be the driver going forward for the growth of our net financial income. Let's now move on to Slide 8. Investing revenues reached EUR 295.6 million in the first 9 months of 2025, increasing by a solid 10% year-on-year on the back both of growing volumes, thanks to our best-in-class market positioning and of the higher efficiency of the value chain through Fineco Asset Management. Let me remind you the great quality of our investing revenues mirroring our transparent and fair approach towards clients. Our revenues are mostly driven by recurring management fees with very low upfront and no performance fees at all. Let's move on to Slide 9. In this slide, we are representing the 2 main sources of growth for our investing business going forward. On one hand, the Fineco Asset Management is progressively increasing the control of the investing value chain, its contribution to the group net sales has been consistent over the cycle, thanks to its incredible time to market in delivering new investment solutions aligned with clients' needs. The contribution of Fineco Asset Management, assets under management after the total stock of assets under management has been steadily growing, and it's now equal to 39%. On the other hand, being a platform, Fineco is the best place to catch the latest trends in terms of client investment behaviors. There is a clear change underway in the structure of the market with clients increasingly looking for transparent, efficient and convenient solutions. All of this is channeling a strong demand towards advanced advisory services and with an explicit fee where Fineco is by far the best positioned in Italy, as you can see down in the slide. Let's now move to Slide 10 for a focus on brokerage. Brokerage registered a very strong first 9 months with EUR 187 million revenues driven by our larger active investment base and growing stock of assets under custody. October further built on this, delivering a record month with EUR 31.5 million estimated revenues. Let me stress that the revenues to our assets under custody are expected to grow as we roll out our new initiatives on stock lending, auto forex, ETFs and systematic internalizer. Average revenues in the 9 months are around 7.3% higher versus 2020 with much healthier underlying dynamics. This is driven by the structural increase in client interest to be more active on the financial markets and building a clear bridge between the brokers and investing world. The brokerage business represents the best sign of how fast the structural financial market is evolving as technology is driving a swift change in clients' behaviors, thanks to higher transparency. For this reason, we consider the brokers Italian market very underpenetrated, and we see a strong opportunity to grow despite already being the market leader. And again, October numbers are a clear sign of this opportunity. Let's now move on the Slide 12 for a focus on our capital ratio. Fineco confirmed once again capital position well above requirement on the wave of a safe balance sheet. Common equity Tier 1 ratio at 23.93%, and the leverage ratio at a very sound 5.11%, while risk-weighted assets were equal to EUR 5.81 billion, total capital ratio at 32.53%. As for the liquidity ratios, liquidity coverage ratios is over 900% and net stable funding ratio is over 400%, while the ratio, high-quality liquid assets on deposits is at 80%, well above the average of the industry. Going forward, we confirm that we will continue to generate capital structure and organically, thanks to our capital light business model. Given the strong acceleration of our growth, we are taking more time to have a clear view on deposit net sales going forward and the underlying dynamics are strongly improving. If despite the strong acceleration in our growth, there will remain excess capital, we will decide on the best way to return it back to the market. Now let's move to Slide 18. Let's now focus on our guidance. Our outlook for 2025 has improved thanks to the acceleration of the structural trends behind our business. More in details, our net financial income bottomed earlier than expected, thanks to the positive deposit net sales and reinvestment yields. On investing, we are experiencing the solid year-on-year increase of our assets under management net sales currently with lower interest rates. Brokerage revenues are expected to remain strong with a continuously growing floor, thanks to the higher asset under custody and the enlargement of our active investor base. For 2025, we expect record revenues with October number being just the latest evidence of the higher floor. Banking fees are expected with a slight decrease compared to 2024 due to the new regulation on instant payments. For 2026, we expect all the business hires to contribute positively to our revenue growth. The net interest income is expected to grow year-on-year on the back of deposits, net sales and reinvestment yields. On investing, we expected solid growth of our assets under management net sales. Banking fees are expected to grow on the back of higher clients. Brokerage revenues are expected to grow, thanks to the higher asset under custody and the enlargement of active investors. On 2026 guidance, more details will be provided during the next year Capital Market Day on March 4. On operating cost for 2025, we expect to grow at around 6% year-on-year, not including few millions of additional costs for growth initiatives in a range between EUR 5 million and EUR 10 million mainly for marketing, Fineco asset management and AI initiatives. Cost/income, we expect it comfortably below 30% in 2025, thanks to the scalability of our platform and the strong operating gearing we have. On the payout ratio, we expect that for 2025 in a range between 70% and 80%. On leverage ratio, our goal is to remain above 4.5%. Cost of risk was equal to 7 basis points, thanks to the quality of our lending portfolio. And for 2025, we expect it in the range between 5 and 10 basis points. Finally, we expect a robust and high-quality net sales and the continued strong growth expected for our client acquisition as we are in the sweet spot to keep on adding new market shares. Let now move on to Slide 19 for a deep dive on our growth opportunities. Fineco enjoy a unique market positioning to catch the long-term growth opportunity, resulting by the huge Italian households whilst in the fast-changing clients' behaviors. In the graph, you can see the strong potential of our growth given the stock of financial wealth on the Italian families. Our market share is still small, and the room to grow is huge. We are very positive on our future outlook as we have no competition on our market positioning. As a matter of fact, Fineco is the only big player with a service model truly based on transparency, efficiency and convenience. Moving now to Slide 20. The step-up of our growth trajectory is clearly materializing, as you can easily see in our recent client acquisition. On top of the slide, you can see the impressive acceleration of new clients, which is further building up in the first 9 months of 2025. This acceleration is very healthy because it's based on the quality of our offer and not on an aggressive marketing campaign with short-term rate remuneration. As a result, all our new clients are improving the metrics of the bank by bringing more deposits or more business for brokerage and investing. This value is recognized by our clients, as shown by our customer satisfaction of 94% and our Net Promoter Score way above the industry average. Let's now move to Slide 21. The cumulative growth on high-quality new clients is translating into better net sales dynamics shown by the 36% increase of our total net sales year-on-year. Let me share that the mix of our net sales mirrors our positioning as the reference partner for all clients' financial needs, with asset under management is driven by client interest for transparent, efficient and convenient investment solution. Our banking platform is attracting valuable transaction liquidity. Finally, asset under custody are clearly sign of the increasing clients' engagement on our brokerage platform, thus contributing to our revenue generation. On top of this, we see a sizable mix shift opportunity coming from the huge stock of Govies of our clients, both over the last couple of years. Let me now hand it to Paolo, our Deputy General Manager and Head of Global Business, to comment on Slide 22. Paolo Grazia: Thank you, Alessandro. Good morning, everybody. As you know, the financial industry is quickly heading into an inflection point and it's going to be heavily reshaped by technology. Thanks to our deep internal know-how and data control, Fineco is the only real player able to take massive advantage from it and to further accelerate our growth journey. This will be reached with our usual cost effective approach. We are planning to launch an efficient and pervasive AI implementation in 2 directions. First, focusing on productivity of our network of personal financial adviser; and second, playing attention to the cost efficiency and the bank -- of the bank by reshaping the internal processes. While on the latter, we will update the market in the next month. We have already started to reengineer our financial adviser platform with the integration of an AI assistant. This is a key enabler to boost our network productivity and deliver a better quality service to clients, and ultimately improving our revenues growth via stronger net sales and assets under management. Our very first initiatives are already live and widely used by our network. Our financial planners have in their hands a powerful AI assistant, which is going to be a game changer for wealth management. In the slide, you can see the main features of the AI assistant, among which is worth underlying, one, the portfolio builder, a powerful tool to immediately create quality portfolio fed with Fineco financial logic and optimize on client goals. And the portfolio builder is also a content creator, a communication tool able to create professional and customizable reports, proposals, portfolio reviews and brochures automatically generating narratives, content to support the financial planners. It's also a powerful marketing tool, allowing for comparison of existing portfolio of prospect clients. The AI system is also a search tool, a faster info-search process for internal memo and communication. The next wave of AI implementation will focus on CRM for our financial advisers, fully integrated with client data. It will empower our financial adviser to manage their agenda more efficiently, enabling a structured approach to client engagement and cross-selling by streamlining customer management and unlocking new commercial opportunities. This will represent a further step in enhancing productivity across our network and driving for an even stronger growth. Finally, we are working to bring an AI powered search tool also to our brokerage client, our finance clients, allowing for an even easier experience to our state-of-the-art platform. I will hand it back to Alessandro to move on Slide 23. Alessandro Foti: Thank you, Paolo. Let me now focus on our assets under custody, a component to our business that is sometimes undervalued by the market, but that is the real cornerstone of our fee-driven growth. This is true for investing as assets under custody remains the main source fueling our asset under management sales. As you know, around 90% of our growth is organically driven. As a consequence, new clients tend to show an asset allocation more skewed towards assets under custody, and the job of our financial advisers is to improve their mix into asset under management. For brokerage, the expansion of assets under custody and the growing base of active investors are key factors leading to a structurally higher floor in our revenues, which we expect to grow as we roll out our new initiatives on the stock lending, after-tax, ETFs and systematic internalizers. Finally, in the fast-growing ETF space, we are exploring new revenue opportunities, which we expand moving into Slide 24. Fineco is uniquely positioned to capture the strong client-driven shift towards more efficient investment solutions such as ETFs. The stock is quickly on the rise and now exceed EUR 15 billion. And ETFs now accounting for half of the asset under custody net sales. Thanks to our focus on transparency, efficiency and convenience, we are the only player capable of fully recognizing and monetize the structural trend with no harm on our profitability. First of all, the growing interest on ETFs is generating a positive volume effect for our investing business, thanks to our advanced advisory wrappers made of ETFs, we can move in the investing world of clients that are not interested in traditional mutual funds, thus we have no cannibalization risk on the existing fund business. At the same time, our leadership in ETFs retail flows makes us the main gateway for issues into the Italian retail market, while we currently manage all cost to handle clients without recurring fees from ETFs, talks are underway with our partners to find a fair balance. Finally, Fineco Asset Management is going to be playing a big role in the ETFs world, our Irish firm already launched its first active ETFs, and more are going to be introduced. Thank you for your time. We can now open the call to questions. Operator: [Operator Instructions] The first question is from Marco Nicolai of Jefferies. Marco Nicolai: First question is on the brokerage number for October. So almost EUR 32 million in a month. It's a record number. Just wanted to know if there is some -- so what's the impact from the BTP Valore issuance? And if you can comment on the underlying trend x the BTP Valore revenues? Then another question on the crypto front. I think you didn't mention it in the various projects in the presentation, you mentioned AI and other projects but not crypto. Just wanted to know if you had any updates there on the talks with Bank of Italy? One of your peers got recently the MiCA license from Cyprus in the past days. I don't know, my perception is that there could be other geographies that are quicker than Italy in granting these licenses and if that could slow down your projects here and the growth you could have in brokerage coming from the crypto side? And then another question on the payout. You mentioned 70% to 80% for 2025. I guess your leverage ratio will be well above your minimum targets for '25. And if that's the case, shall we consider 80% for 2025? Or you think there are other moving parts in the leverage ratio that could negatively affect it? So these are my questions. Alessandro Foti: Let me start by commenting on the October brokerage numbers. The impact of the -- from the BTP Valore has been more or less in the region of EUR 5 million. So this means that in any case is remaining so excluding the contribution of the BTP Valore, the numbers are EUR 26 million revenues in the month of October, that is quite significantly above the average of the revenues generated in the previous month. And this clearly is clear, perfectly current with the underlying trends that we are commenting by some time. So there is a continuous quite significant growth of the base of clients whereas continuously adding new active investor to the platform. Second, the continuous building up of assets under custody is clearly contributing in that direction because clients are not trading -- are trading stocks and trading bonds and they are trading ETFs as well. And so we remain extremely positive on the future evolution of brokerage exactly for the reasons we commented during the presentation. So structural changes underway and a continuously growing quite significantly the important growth in terms of number of clients and the Fineco emerging as the clear winning platform here in Italy. On crypto, I leave the floor to Paolo for giving the latest update on what's going on there. Paolo Grazia: So the crypto is still a project. We're still in talks with the regulator. We have no news for now from the last call that we had. We are very aware that we have plenty of competitors that are getting the MiCA license. Unfortunately, in Italy, there is nobody yet, I guess, that has MiCA license, but we keep on talking and explaining our view to the regulators, and we hope we will come with a solution in the next few months. Alessandro Foti: On the payout, we clearly, what we want to make very clear that Fineco is a growth story, it's a unique growth story because the uniqueness is represented by the fact that we are combining together an incredibly pool of growth together with a quite generous payments of dividends. But we are not a dividend stock. So clearly, our goal is not to give the market the highest possible dividend. So our main goal is to keep on accelerating as much as we can in directional growth. At the same time, remaining in a very compelling story from a dividend point of view. So clearly, we will see. So now, we are at year-end, we are going to take the final decision, which is going to be the final dividend payout. But so there's that. Again, my opinion there, the most important takeaway that again, Fineco is a quite unique case in the financial industry, strong growth and at the same time, very generous deal. Operator: The next question is from Luigi De Bellis of Equita. Luigi De Bellis: I have 3 questions. The first one, so in the recent months, Fineco has seen an acceleration in new client growth. What has changed to drive this momentum? And if do you expect this trend to continue at the same speed in terms of client acquisition? And can you comment also on the quality profile of this newly acquired client and also the acceleration that we are seeing in the net bank transfer that you mentioned in the Slide #7, that is above plus 20%. The second question on the asset under custody so a huge amount reaching EUR 52 billion. You mentioned the revenues on assets under custody expected to grow. Can you elaborate on this and the speed of this acceleration expected? And the last question on the Germany project. So could you provide an update on the initiatives? What are the current development and expected time lines for the rollout? Alessandro Foti: Yes. Regarding the acceleration of new clients, what is driving this growth is clearly structural tailwinds because as we explaining continuously that Fineco is the only one large established significant bank in Italy that is really offering efficiency, transparency and convenience. And this kind of demand is rapidly growing, driven by the completely different technological landscape, which I think is much easier to make comparison. It's -- everything is the information is spreading out incredibly rapidly. And then there is quite significantly accelerating process of generational passage. So Fineco is the -- so now that there is the x generation that is mostly entering into the game. And this generation is characterized by significantly different habits and behaviors by the previous generations, where again, sorry if I'm repeating myself, the request for efficiency, transparency and convenience is emerging as a clear need. And Fineco is the only one player that is fully satisfied this -- for this reason, we think that really, the strong growth is going to continue, probably is going to keep on accelerating even more going forward because all these tailwinds are going to keep on gaining strength and momentum. And the acceleration of the net bank transfer has an immediate consequence of this because -- and this also is giving to me the opportunity to answer to the other questions on the quality of new clients. The quality is remaining extremely high and robust. We are not observing any kind of dilution in the quality of clients we are taking on board. And this clearly is mainly driven by the approach by the business model of the bank. Very importantly, Fineco is not attracting clients because it's taking shortcuts. We are not putting in place aggressive short-term initiatives for taking on board new clients. So we are not, for example, overpaying clients with high rates on the projects. By the way, in this moment, we have -- there are plenty of banks that they are making continuously very, very high offer on rates. But we're not -- and so the results that the clients that are opening an account in Fineco, they are opening an account just exclusively because they are interested in using our platforms, our services. And this really is very positive for the -- in terms of quality of clients, and is incredibly positive for the evolution of the revenue generation that is going to every single additional client we are adding to the platform is to some extent, contributing in increasing the revenues of the bank. And on the speed of growth in brokerage revenues, as we are saying. So the more clients we are taking on board, the more assets under custody we are keeping on building up and the more you can expect that the floor of the business is continuously going up. We are driving on the concept of floor because we are interested in seeing -- on seeing how brokerage is performing without considering the theoretically short-term impact caused by volatility. By the way, until so far, the volatility this year has not been particularly relevant, has been a level of volatility that has been, let me say, average. So this is clear. And so yes, brokerage to remain on the fast lane growth. On the time line and what's going on, on the Germany rollout, again, I'm leaving the floor to Paolo to give a little bit more flavor. Paolo Grazia: Yes, we have the plan. We finalized all the information we needed. And we still miss some internal approval, but we have the idea of rolling out by the end of 2026 in the friends and family mode. So this is pretty much the time horizon we have. Operator: The next question is from Enrico Bolzoni of JPMorgan. Enrico Bolzoni: So I have a few million brokerage given the very strong print. So you mentioned about the possibility of monetizing that you see in different ways. One of your European competitors recently announced the decision to offer securities lending on AUC, and they were quite specific so they disclosed that they think they'd be able to generate about 20 basis point margin on the AUC that are eligible for securities lending. So I wanted to ask you, first of all, where do you stand in that process? I think it's something in the past you mentioned you wanted to pursue yourself? Second question, what proportion of your AUC is eligible? And thirdly, if you can confirm that 20 basis point might be reasonable number to expect in terms of revenue that you could generate out of that? So that's my first question. And then my second question, I was looking at your AUM flows. So in the quarter, you had over EUR 900 million. You also disclosed that a good chunk of that, so roughly EUR 600 million came from Advanced Advisory Solutions, which is positive. But could you please disclose what was the margin on average on this EUR 600 million of AUM that actually related to what you see after. That would be helpful for us to understand whether indeed there is no margin dilution from these type of contracts. Alessandro Foti: Okay. Thank you. So regarding on the -- let me start by brokerage. Possibility to monetize assets under custody, yes, as we explained during the presentation. The way we have quite a very interesting additional evolution there in terms of increasing the margins generated by assets under custody. Let me remind, one is, for sure, represented by the stock lending. The bank is in the process of deploying a much an extremely structured platform for taking advantage by the stock lending and some. On the margins, clearly, 20 basis points we think that overall is a conservative number. So it probably can be even more. And on the proportion of assets under custody eligible, this is a moving picture because exactly one of the rationale behind the platform is going to expand as much as we can the eligible amount of assets under custody we have, and so particularly. Another clear direction is the -- as we were mentioning, is represented by the AutoFX and some of them, I will leave to Paolo and some -- if you want to make some technical comments on the AutoFX. Paolo Grazia: Yes. We have a growing number of orders that are going to the American, the United States market, NASDAQ and NYSE. So there is a lot of flows going there. And of course, there is big revenues attached because our clients, they have euros on their accounts and they trade on the USD. So the AutoFX is a new service that allows the client to be much more -- it's a faster mode of executing an order. So the exchange is made automatically by the platform. So this is something that is giving us a simpler order for the clients. So it's easier for the client to place the order. And for us, there is a slightly higher margin compared to the fact that before the client had to change every time the FX, the AutoFX is better for the client, but also better for us. Alessandro Foti: Then we have exactly, what we are continuously now -- is the other announcement in terms of revenues represented by ETFs. So what's going on there? We think -- we confirm that by year-end, we are going to finalize the first arrangement that you get by the ETFs were the recurring fees. Overall, at the European level, the industry is moving exactly in that direction. So the largest issues are progressively moving in the direction to close arrangements with the largest European players in terms of control of retail flows on ETFs, and Fineco is going to be one of them. And so this clearly, again, is confirming the importance to play big, to be really the reference platform there. On the asset under management flows. So on the margin, so we are not making any specific distinction. So for us, the margins, on the -- so for us, it's indifferent if the clients are putting in the advisory platforms, actively managed funds, ETFs, assets under custody because what the clients paying is an advisory fee that is totally different. It's totally not correlated with -- is independent by the -- what is put in the portfolio. So theoretically, the clients can ask of having a portfolio that is made exclusive by asset under custody. And for us, the margins are going to be exactly the same if the client is putting -- is having a portfolio represented 100% by actively managed parts. So this exactly is something that is the great advantage that Fineco has. Fineco is extremely advanced in making clients paying an advisory fee. And so being completely detached by the inducement based model. And so again, this is going to be another big trend that is emerging. Enrico Bolzoni: If I maybe, just a very quick follow-up. It's very helpful when you commented the 20 bps is perhaps low. I think that the idea behind that 20 bps is that a portion of the revenues will be shared with clients. So the underlying return could be actually higher than 20 bps. Is this what you are also thinking of? So 20 bps, could it be a number that you internalize so net what you pay to clients from securities lending? Or you think it could be generally an even bigger number? Alessandro Foti: So it's clear that when we are showing the margins, we are considering that we have to pay the clients because this is clearly by law. And so clearly, there is a gain so we can confirm that we think that also including what we have to pay to clients, probably this 20 basis point margin is on the conservative side. Operator: The next question is from Hugo Cruz of KBW. Hugo Moniz Marques Da Cruz: I just had a question around your comment on brokerage revenues and how that converts into P&L, particularly trading profit because when I look at consensus, it is trading flat, flattish going forward. So that doesn't seem to make sense to me in light of your comments that brokerage revenue should continue to go up. So if you could give a bit more color on how the brokerage revenues and trading profit, how we convert into trading profit? Alessandro Foti: First of all, let me remind you that for us, trading profit is not something that is driven by the bank taking some kind of risk, it's a kind of free of risk market making. So we are -- when we were mentioning among the components that they are -- we expect are going to keep on contributing in making the brokerage revenues growing, also the systematic internalization of orders of clients. And so we expect that the more we are going to keep on building up the volumes and business, and as well, we expect also the opportunity offered by the systematic internalizing -- internalization of orders is going to keep on growing as well. We are not surprised by the fact that the market tends to be a little bit always in a step behind what's going on in brokerage because as we said during the presentation, probably everything that is in the region of assets under custody and brokerage, brokerage has been probably a little bit the most misunderstood component of our business because clearly, as we are seeing assets, typically until the recent past, big growth in asset under custody has been not very well welcomed by the market. But the asset under custody clearly is the fuel for brokerage going forward and for the asset under management as well. So we think that brokerage is by definition on the fast lane of growth in the future exactly for a combination of structural reason, big growth of clients and a significant shift in the client's views and the increasing level of participation of clients, and the growing interest by clients for solutions like represented by ETFs, what is important to remind that when we're talking about brokerage, clients are trading on everything on the platforms. They're trading on stocks, they're trading on ETFs, but their trading on bonds as well. And so this is the reason why the brokerage is going to keep on doing very well. Operator: The next question is from Christiane Holstein of Bank of America. Christiane Holstein: My first one is on the CMD next year. So I know you flagged that you'll be announcing 2026 guidance. But just because there has been a CMD before, I was just wondering what else we can expect? Are you looking to also give a multiyear target, for example? Secondly, you previously highlighted the introduction of private markets in September. I didn't hear any update on this. So I was wondering if you could better say how that's been going and then how the interest has been from clients so far? And then thirdly, on investing management fee margin. So this has seemed to be relatively stable more recently. I know you also flagged the benefits from ETP on investing and obviously, FAM is higher margin. So as the uptake here improves, we should hopefully expect the margin to strengthen. But I was just wondering what your expectations are here. Alessandro Foti: So on the -- what you can expect by the Capital Market Day on the next March 2026. From Capital Markets Day, we are going to give a much further and much more important and relevant details regarding what you can expect in terms of our strategy, evolution, also the rationale behind the entering more in depth, also in the initiatives, what we are going, what we can expect we are going to deliver to the market. And yes, finally we are going to give to the market that something that is going to help you in better modeling on the longer term, the projections of the bank. Yes. We think that this is the right moment because as we are saying, the bank is technically entering in a significantly different -- it's moving throughout in a relevant inflection point because this is exactly what's going on in the market. And so we think that we -- is the right moment to share with the market more details regarding the extremely exciting future that we see ahead for this bank. Private market, this is going to be -- the placement is going to start within the next few days. So probably let me say, by the next week, the product is going to be launched and is going to be up and running, and we will see. We confirm that we remain quite positive because there is an evident demand by clients. And so yes, in the next few days, this is going to be deployed. And commenting on investment management fee markets. As you know, we don't like to drive the market on the fee margins because clearly, for us, what is important is the direct -- is the evolution of revenues because revenues is a combination of volumes and margins. And these are much more important because this tends to clearly to -- tends to better represent the evolution of the market. It's a matter of fact that Fineco is by definition in a much better position than the industry in order also of having more stable margins because we are definitely less under pressure. But for 2 main reasons. The first one that Fineco is historically positioned on the lower side in terms of commissions we are charging to clients. And so by definition, this is making us less exposed to the building up pressure on margins. Second, that the journey in terms of increasing penetration of the asset under -- Fineco Asset Management solution is still underway. And this is different by other participants of the industry that now has been where the percentage represented by the whole internal products has been -- everything has been almost done. And this, in any case, with Fineco remaining and the only one large and truly open platform because this continuously growing percentage of Fineco Asset Management products is not driven by the fact that we are expected to close down the platform. The platform is going to remain an open platform. It's driven by the fact that Fineco is incredibly great in delivering continuously extremely innovative solutions and incredibly fast on bringing this to the market and so being able to remain always a step ahead of the market. Operator: The next question is from Gian Luca Ferrari of Mediobanca. Gian Ferrari: Three for me, please. First, on the AI project that Paolo described, can you share with us some KPIs of the business case here? So how much you invested in this project? And if you calculate any IRR you expect from the project itself. Second question is on the EUR 22 billion bonds. How much is expiring in 2026? And if you can remind us what is the conversion rate you expect to have on those bonds? The final one is on your lending and particularly on the fact that the stock has remained flat at EUR 5.1 billion in the context of declining interest rates. So I was wondering if your clients have any appetite for a bit of re-leverage considering your very strong capital ratios and lower interest rates. Alessandro Foti: So on the AI project. So first of all, let me make few comments there. So Fineco, is in a great position in order to leverage on AI because thanks to the kind of bank we are, that Fineco is a tech company. So with AI, what is the most important element is not exactly how much you spend. But how much you are able to transform what you are investing in something that makes sense. So in the AI project, what is really -- so because everybody theoretically, there is no -- it's a commodity, the AI agents are commodities. And so the real difference is made by your capability of leveraging on high-quality, easily accessible base of data because if you don't have that, artificial intelligence is not going to work. And second, you had to be in the position to train your system, your products and so on. And again, you were back again to the point. So Fineco is -- being a tech company because Fineco is not just using technology, but is in control of the most part of the technology we are using. So this means that, for example, our data warehousing system has been by many years, a key strength of the bank. So for us, it's extremely easy to extract high-quality, easily accessible data. This make what you need in terms of investments much less than is presently requested by someone that sit on a much more complex infrastructure. So for example, if you are mostly leveraging on outsourced platforms or you sit on different layers of software, and so clearly, this is going to be to extract easily accessible and high-quality data is going to be really very difficult and incredibly expensive. The same way for the training the programs. So the more you are in control of your processes, the more you are in control of your platforms, and the easier it's going to be to go throughout the training process. You don't need to have, for example, external system integrator, taking care of you for training the process. And so this means that again, I think this is going to be much better in terms of results and much, much less expensive. And so honestly speaking, so our AI projects are what we expect to invest considering what to expect to get for this project. Honestly speaking, this is a completely meaningless point because we expect quite an important increase in the productivity of network. We expect a significant improvement in the process of the bank. But on top of that, what we expect to spend is going to be really fraction of the positive impact caused by the... Gian Ferrari: And on the increased productivity, any quantitative indication? Alessandro Foti: I think that -- so let me say. So also assuming, let me say, staying on the conservative side, and assuming, I don't know, a 10% increase in the productivity, this is going to be a huge number. So -- but Paolo can give you a little bit more color on this point. Paolo Grazia: Yes. On the KPI, we are really on unchartered waters because it's -- there is no -- there are some studies in the U.S. that they are saying that the productivity of the financial tech can improve up to 20%. And I think it's something that can be reasonable in my opinion. But again, still we are in unchartered waters. So we -- for now, we're just focused on deploying the service, on improving the service, on hiring the people inside the bank that are part of the AI team that is growing. And as usual, we focus and we put effort on having our own resources, our own people that develop the technology. And I think we're doing a great job, and we are very happy with the fact that we are very fast in developing new tools and delivering to the -- for now to the financial planner, to our financial planner platform. Alessandro Foti: On the expiring bonds, next year, EUR 4.2 billion in terms of reinvestment. So what we can expect in terms of transformation, for example, in asset under management solution. This clearly depends on the market conditions. So as much as we stay in an environment with short-term rates, low and the yield curve keeping or remaining positively shaped, if not even steeper. And this clearly is going to be -- is going to bode well for a continuously increasing transformation rate. But again, it's difficult to give you a precise number right now because -- but what we can say that the conversion rate is mostly driven by the combination of short-term rates staying low and the yield curve remaining. And the steeper it is, the yield curve and the better it is for the transformation process. On lending, yes, the stock is flat, but we are observing some interesting transformation because, again, we confirm that we don't have any particular appetite for the residential mortgage business that we consider by far the lowest profitable product that a bank can have on the shelf. For these reasons, we don't have any appetite for residential. We are providing residential mortgages just to our interesting clients. And so we expect that the overall stock on there is going to keep on declining. At the same time, there is a quite significant growing interest by clients for the Lombard loans. And Lombard loans are expected to keep on building up. We have in the pipeline a very interesting future developments there that we think are going to keep on making quite even more interested in using our Lombard loan solutions. Operator: The next question is from Ian White of Autonomous Research. Ian White: Just a few from my side as well, please. Firstly, just going back to the net management fee margin. It is about flat year-over-year by my calculations at 69 bps. Can you just help us understand the moving parts there? I'm looking at the details. The insurance products have declined, equity markets are higher, FAM penetration is higher. So are you able just to complete that bridge for me, why aren't we seeing more margin accretion there year-over-year, please? That's question one. Secondly, on Slide 23, you mentioned that the adviser network is focused on improving client mix from AUC into AUM. Can you just talk us through a little bit of what those efforts actually look like in practice. I'm wondering if it mostly requires convincing your clients to switch from being an execution-only customer to an advised customer? And also if you can share any figures there to help us better understand the flow of client assets from AUC into AUM, please? And that's question two. And just lastly, you mentioned in your prepared remarks the systematic internalizer as a forward-looking driver of growth in brokerage. Can I just clarify, is something likely to change there in the coming months that would increase revenue capture? Are there certain products where you might begin internalizing that you're not currently, for example? And that's my third question. Alessandro Foti: Let me start by the net fee margins. So the net fee margins remained relatively stable. And so exactly for the reasons we were describing. So the bank is definitely in a more comfortable position with respect to the industry because it's been always characterized by not overcharging clients with very high commissions. And so by definition, we are definitely less vulnerable than the industry on the building up pressure on margins. And second, the driver are mostly -- so yes, insurance is lower. So because -- and the equity markets are not growing particularly big. So still, we are not seeing any significant growth in terms of appetite by clients for the equity market. And for sure, Fineco Asset Management is continuously growing and is contributing on the margins because we had a better control of the value chain. And this despite the mix of the products, both by the client is remaining on the cautious side, mostly represented by fixed income solutions, in any cases, the better control on the exchange contributing. But again, we are not particularly -- for us, the main focus is on the evolution of the revenues because it's clear that overall, we are living in an environment so the huge difference between the, for example, the brokerage world and the investing world that, generally speaking, the investing world as an industry is, by definition, is expected to keep on facing pressure on margins. This is not the key, for example, for the brokerage business. So that's where the pressure on margin is going to be much, much lower. On the other hand, the more you are becoming sophisticated in managing the flows, the infrastructures and the more you are going to have room for increasing your margins, and this is exactly the key when we're talking about the systematic internalizer. Yes, Europe is progressively moving more and more in the direction of being more similar to the U.S. market where a growing component, large component of the profitability is represented by the management of flows. And this is exactly what's going on in Europe as well. So Europe has been lagging behind in a big way, but now, the situation is changing. The example is Germany. Germany is a market in which the percentage represented by the management of flows is quite high there. And yes, clearly, this business is a volume business. The more you are keeping on growing in terms of sites, the more you're keeping on hedging assets on the platform, the more you are going to have high-quality clients using the platform. And the more -- let me say, instead of using systematic internalizing, the management of flows is going to become an important driver in increasing the margins on the brokerage business. And as we are saying, we have plenty of initiatives on the pipeline that's exactly moving in that direction and that are going to deploy in the coming months. And internalizing something that's now you don't -- no, internalizing more that we are doing now that -- because really, we are practically internalizing everything. So ranging from stocks, ETFs. ETFs is emerging as a growing and important component of the -- internally in terms of internalization of flows and so on. So the direction is not internalizing, it's something that now we don't know, but internalizing more and more because clearly, this is -- because we are going to become more sophisticated, the growth on the volumes are going to help, yes, this is a big trend. Operator: The next question is from Alberto Villa of Intermonte SIM. Alberto Villa: Two very quick questions from my side. One is back on the new client acquisition, impressive trend there. I was wondering, how much they are contributing to the net sales in the first 9 months of 2025, let's say, the new clients you get -- you got in the last 12 months? And I was wondering what the average assets you get from a new client after 12 months, if that is already comparable to the average customer you have in-house or there is any, let's say, timing from the acquisition of the client to getting this -- moving the asset to Fineco? And the second question is on the advisory -- advanced advisory stock that has grown now to above EUR 37 billion. I understood that you have the same margin, whatever is the underlying assets the client has. I was wondering what has been the contribution in terms of revenues in the first 9 months of the year from the advanced advisory assets. Alessandro Foti: So in terms of what is the contribution of the new client acquisition, more or less, we can say that in terms of new total financial assets, 65% is brought by the new clients. So the 65% is driven by the new client acquisition, and the remaining part is the continuously growing share of wallet on the existing clients. Yes, this is more or less is the split. And after 12 months, so clearly, we have to make a distinction because there is a kind of polarization in the clients we're acquiring because one is that we have the relatively young clients, they're going big. And the other company that is growing big is represented by the rich clients or other banking clients. These are the 2 segments in which we are growing the most because this, by definition, are the 2 segments that are the most sensible to the concept of getting delivered efficiency, transparency and convenience. And typically, so we -- so yes, after 12 months, we can say that a large part of the -- on the assets of the clients have transferred into the bank. But still, we have a significant room for growing on our existing base of clients because we are making estimates on -- in order to understand which is the potential represented by clients that are theoretically perceived as more clients on the platform and then putting together the significant amount of information we have because having all clients using the transaction banking platforms, we know everything of the clients. So where they're living, how much they're making in terms of salary, the amount of taxes they are paying, where they are spending, how much they're spending. And so at the moment, our so-called still small clients that has an upside of the bank and average potential of another EUR 50 billion, more or less. I'm not saying that we're going to get all of that. But clearly, the more the trends, the new trends are building up in terms of strength and the more also we're going to be able to get even more share of wallet by our clients. The advanced advisory stock, no, we are not giving the split of these revenues. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: I've got only one last question. It is to ask you if you have already made some calculations about the potential impact of the Italian Budget Law for next year? Alessandro Foti: Not yet because everything is still so unclear that it's probably, yes, we are making some time, some simulation, taking -- considering the rumors that are on the market. But honestly speaking, it's a little bit -- I think that the risk is to -- is a waste of time because everything is still underway. But honestly speaking, we are completely not concerned by this because this is not -- for us, what is important is the structural trajectory of the bank. So this can be, okay, fine. It's part of the game, but it's not going to change anything. So we are not, honestly speaking, particularly neither concerned nor particularly interested in what's going on there. Operator: [Operator Instructions] Mr. Foti, there are no more questions registered at this time. Alessandro Foti: Thank you to everybody for the extremely interesting questions we got. As usual, we are absolutely at your disposal for entering in additional follow-up. And so thank you again for taking the time to participate to our financial results conference call. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning, and welcome to the Bio-Techne Earnings Conference Call for the First Quarter of Fiscal Year 2026. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Please go ahead, sir. David Clair: Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, President and Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal year 2025 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Investor Relations section of our Bio-Techne Corporation website at www.bio-techne.com. Separately, in the coming weeks, we will be participating in the UBS, Stifel, Stephens, Jefferies, Citi, Evercore and NASDAQ Healthcare Conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Kim Kelderman: Thank you, Dave, and good morning, everyone. Welcome to Bio-Techne's First Quarter Earnings Call on fiscal 2026. We began the fiscal year with continued strong execution, navigating a dynamic environment with discipline and strategic focus. Despite these efforts, organic revenue declined 1% in the quarter, primarily due to clinical stage timing from a couple of large customers in our cell therapy business and the anticipated ongoing softness in biotech funding. The headwind in cell therapy reflects the inherent lumpiness of late-stage clinical programs, which is, in this case, driven by favorable FDA Fast Track designation that support accelerated therapy approval time lines, yet they reduce near-term reagent demand. Importantly, underlying market trends remain constructive as demand from our large pharma customers was once again robust, and we saw encouraging signs of stabilization in our U.S. academic end market, particularly as the quarter progressed. Our ProteinSimple instrument franchise continued to build momentum China delivered its second consecutive quarter of growth and our spatial biology business resumed sequential improvement. Operationally, the team delivered sector-leading profitability with adjusted operating margin expanding 90 basis points year-over-year to 29.9%, exceeding our initial expectations. This performance reflects our deliberate focus on productivity and cost management while continuing to invest in the strategic growth pillars that will shape Bio-Techne's future. Now let's turn to the performance of our end markets, beginning with our biopharma customers, excluding cell therapy. The divergence between large pharma and emerging biotech spending patterns persisted in the first quarter. Revenue from our large pharma customers remained strong, increasing low double digits, reflecting continued demand for our tools and technologies. In contrast, the challenging funding environment in our biotech end market continued to weigh on spending behavior and resulted in high single-digit declines in Q1. Encouragingly, we are seeing early signs of stabilization in biotech activity levels. These include an uptick in M&A activity, favorable pharma in-licensing trends and the potential for lower interest rates, all of which support a more constructive outlook for investment levels in emerging biotech companies. Global academic markets remained stable overall in Q1. A modest decline in U.S. academic business was offset by mid-single-digit growth in Europe, where demand trends remained healthy. Within the U.S., it was encouraging to see improvement in our run rate business as the quarter progressed. From a geographic standpoint, revenue declined mid-single digits in the Americas, while both EMEA and Asia delivered low single-digit growth. In China, we achieved our second consecutive quarter of growth, supported by improving CRO pipelines and increased CDMO activity. Growth in the region was primarily driven by strong performance in our ProteinSimple analytical instruments and our spatial biology portfolio. Importantly, unlike last quarter, the instrument growth does not appear to be driven by tariff-related dynamics. Instead, it reflects underlying demand strength, and we believe that the business is well positioned for a return to stable growth in the region. Let's now turn to our growth pillars, beginning with the Protein Sciences segment, where end market dynamics led to a 3% organic revenue decline. In our cell therapy business, we were pleased to see a couple of our largest customers receive FDA Fast Track designation. This recognition enables an accelerated clinical development time line and eligibility for priority review by the agency and there with potentially expediting both approval and commercialization of these next-generation therapies. As customers progress through the development project, they typically front-load purchases of the reagents needed for a full completion of a specific clinical phase in their program. We have seen this dynamic play out firsthand at Wilson Wolf, where customer ordering patterns moderated as their clients progress through Phase III clinical trials and shifted their focus to the regulatory filing necessary for FDA approval. This is typically followed by an inflection in demand and a revenue ramp as therapies gain commercial traction. It is this clinical stage timing dynamic that introduced greater lumpiness in our cell therapy business in this quarter. Continuing with cell therapy, I'd like to provide a brief update on Wilson Wolf. As a reminder, we currently own 20% of the company and expect to complete the acquisition of the remaining interest by the end of calendar 2027 or potentially sooner, contingent upon the achievement of certain milestones. Wilson Wolf is a developer and manufacturer of the market-leading G-Rex bioreactor line, which enables high-yield, cost-effective workflows for cell therapy manufacturing. The G-Rex also allows the scaling of production and therewith treat a greater number of patients efficiently. The G-Rex grant program has successfully seeded hundreds of early-stage cell therapy customers and over half of those also utilize Bio-Techne's GMP reagents. We are very excited about the upcoming acquisition as the combination of Wilson Wolf's bioreactors with Bio-Techne's GMP reagents, our media and the ProPak cytokine delivery system create a compelling, lower cost and scalable manufacturing solution for cell therapy developers. Let's now turn to a suite of easy-to-use fully automated proteomic analytical solutions collectively known as ProteinSimple. These platforms are the preferred choice for fast, precise and intuitive protein analysis. Utilization of our expanding installed base remains very strong as customers increasingly rely on these systems to automate both critical and routine laboratory workflows, driving higher productivity in both biopharma and academia. This growing reliance was reflected in the cartridge consumable pull-through, which resumed its double-digit growth trajectory in the quarter. We continue to advance innovation across all 3 of our ProteinSimple instrument platforms, enhancing functionality, productivity and broadening their application scope. A key highlight is the upcoming launch of an ultrasensitive cartridge for our fully automated Simple Plex immunoassay platform branded as Ella. These next-generation assays will deliver a two to fivefold improvement in sensitivity over our current Simple Plex cartridge offering, enabling femtogram level biomarker detection in plasma samples. This breakthrough holds significant promise for accelerating neurodegenerative disease research and positions Bio-Techne as a leader in this emerging and impactful field. Adoption of our high-throughput Simple Western platform called Leo continues to build momentum with large pharma customers who valuate speed, simplicity and sensitivity in protein quantification and detection. We are very pleased with Leo's commercialization as the platform has exceeded both revenue and placement expectations in its first 3 quarters in the market. Combine this initial momentum with a growing order funnel and Leo is well positioned to become a standout performer in our instrument portfolio. Lastly, I'd like to highlight the continued success of our Maurice biologics platform, which delivered its sixth consecutive quarter of growth. This QA/QC solution is benefiting from a current wave of increased bioprocessing activity. Looking ahead, we see recent U.S. manufacturing investment announcements by several large pharmaceutical companies as a potential catalyst for accelerating growth in this business. And finally, our core portfolio of research use-only reagents, including our industry-leading catalog of over 6,000 proteins and 400,000 antibody types continues to demonstrate its enduring value to customers even amid challenging end market conditions. In the first quarter, sales of our core reagents remained consistent with the prior year, underscoring the resilience and essential nature of these tools in supporting foundational research across disciplines. Now let's turn to our Diagnostics and Spatial Biology segment, beginning with our Spatial Biology portfolio. In Q1, we delivered low single-digit growth in our RNAscope product suite, which enables biopharma and academic researchers to detect and visualize RNA and short microRNA sequences at a single cell level within intact tissue samples. We will further strengthen our leadership in spatial biology with the launch of ProximityScope, the first product to enable researchers to interrogate functional protein-protein interactions. This novel assay adds a powerful new dimension to multiomic RNA and protein detection. By introducing this additional layer of information to spatial biology, ProximityScope enhances researchers' ability to unravel complex biology and its connections to disease. It also embeds Bio-Techne’s spatial chemistries more deeply into automated translational research workflows. Momentum also continued with our COMET instrument, which saw solid double-digit growth in bookings year-over-year. Its fully automated multi-omic capabilities are increasingly valued by academic and biopharma customers and enable the discovery of novel biological insights. Spatial Biology continues to be our most academically concentrated business with a meaningful presence in biotech as well. Given the funding uncertainties in both end markets, we are encouraged by the positive momentum in this franchise. Lastly, our Diagnostics business grew mid-single digits in Q1, supported by balanced performance across our core diagnostic controls and our diagnostic kits for laboratories. We continue to see rising interest in our ESR1 test, which monitors resistance to standard therapies in breast cancer patients. Recent clinical trial data reinforced the importance of testing for ESR1 mutations, showing that switching patients that show this mutation to an alternative therapy nearly doubled life expectancy compared to the standard treatment. We also launched the AmplideX PML-RARA kit, a multiplex qPCR assay designed to detect all 3 major fusion variants associated with APL, an aggressive form of leukemia. This assay runs on widely installed qPCR platforms and delivers results in approximately 4 hours. This launch broadens our hematology menu alongside the QuantideX BCR-ABL kit and positions us for continued menu expansion. We also announced an expanded agreement with Oxford Nanopore Technologies, building on last year's successful launch of the AmplideX Nanopore Carrier Plus kit. This comprehensive carrier scanning panel targets 11 hard-to-sequence genes in a single workflow, offering laboratories a streamlined and efficient solution for genetic testing. And before I wrap up my prepared remarks, I would like to briefly highlight our progress on sustainability. During fiscal 2025, we achieved an estimated 40% reduction in Scope 1 and 2 emissions driven by our transition to 100% renewable electricity at our largest site located in Minneapolis. I encourage everyone to review the report in the Corporate and Social Responsibility section of our website. I'm proud of the team's continued progress on this front. To summarize, the Bio-Techne team continues to execute at a high level despite ongoing volatility across some of our end markets. Our focus on productivity and disciplined cost management drove a significant year-over-year operating margin expansion, exceeding our expectations for profitability. And while clinical stage timing in cell therapy created a headwind, underlying market trends are constructive. Recent data points suggest improving visibility for academic and our biopharma customers, which we expect will translate in stabilizing and ultimately strengthening demand for life science tools and specifically Bio-Techne's product portfolio. One thing remains clear. Our customers continue to rely on Bio-Techne's innovative life science tools to drive biological discovery, advance next-generation therapies and deliver precise diagnostic solutions that improve the quality of life for the global population. With that, I'll turn the call over to Jim. Jim? James Hippel: Thank you, Kim. I'll begin with additional detail on our Q1 financial performance, followed by thoughts on our forward outlook. Adjusted EPS for the quarter was $0.42, flat year-over-year with foreign exchange having an immaterial impact. GAAP EPS came in at $0.24, up from $0.21 in the prior year period. Total revenue for Q1 was $286.6 million, representing a 1% year-over-year decline on both an organic and reported basis. Foreign exchange contributed a 1% tailwind, while businesses held for sale created a 1% headwind. Excluding the timing impact from our largest cell therapy customers who received FDA Fast Track designation, organic growth was plus 1% for the quarter. From a geographic lens, North America declined mid-single digits as strength from large pharma was offset by order timing in cell therapy and continued funding pressure in biotech. Europe grew low single digits, led by consistent performance in academia, while Asia also posted low single-digit growth, marking its second consecutive quarter of sustained momentum. By end market, biopharma declined mid-single digits overall. However, excluding our largest cell therapy customers, biopharma grew low single digits, driven by strong pharma demand, but partially offset by biotech softness. Academia was flat with solid growth in Europe, balancing modest declines in the U.S. Below the revenue line, adjusted gross margin was 70.2%, up from 69.5% last year. The improvement was driven by the Exosome Diagnostics divestiture and ongoing productivity initiatives. Adjusted SG&A was 32.1% of revenue, nearly flat versus 32.2% last year. R&D expense was 8.2%, also stable compared to 8.3% in the prior year. This consistency reflects the benefits of structural streamlining and disciplined expense management, partially offset by targeted investments in strategic growth initiatives. Adjusted operating margin reached 29.9%, up 90 basis points year-over-year. This improvement was fueled by the Exosome Diagnostics divestiture and productivity gains, partially offset by volume deleverage. Our better-than-expected margin reflects deliberate management of productivity and cost containment measures aimed at maximizing operating leverage in a dynamic environment. Below operating income, net interest expense was $1.8 million, up $0.7 million year-over-year due to the expiration of interest rate hedges. Bank debt at quarter end stood at $300 million, down $46 million sequentially. Other adjusted nonoperating income was $2.7 million, down $1.3 million from the prior year, primarily due to foreign exchange gains last year related to overseas cash pooling arrangements that did not recur. Our adjusted effective tax rate was 22.3%, up 80 basis points year-over-year, driven by geographic mix. Turning to cash flow and capital deployment. We generated $27.6 million in operating cash flow during our Q1 with $5.4 million in net capital expenditures. The year-over-year decline in operating cash flow was due to the timing of cash tax payments. We returned $12.4 million to shareholders via dividends and ended the quarter with 156.4 million average diluted shares outstanding, down 3% year-over-year. Our balance sheet remains strong with $145 million in cash and a total leverage ratio well below 1x EBITDA. M&A continues to be a top priority for capital allocation. Now let's review our segment performance, beginning with Protein Sciences. Q1 reported sales were $202.2 million, down 1% year-over-year. Organic revenue declined 3% with a 2% benefit from foreign exchange. Excluding the cell therapy timing impact, organic growth was plus 1%. Growth was led by our proteomic analytical tools business with notable strength from large pharma customers. Protein Sciences operating margin was 38.4%, down 100 basis points year-over-year, primarily due to volume deleverage and promotional activity, partially offset by operational productivity. In our Diagnostics and Spatial Biology segment, Q1 sales were $79.5 million, down 4% year-over-year. The divestiture of Exosome Diagnostics negatively impacted reported growth by 7%, resulting in 3% organic growth for the segment. Diagnostics Products grew mid-single digits, while spatial biology was flat. It's worth noting that this segment grew mid-teens organically in the prior year, creating a challenging comparison. Segment operating margin improved to 11.2%, up from 5.1% last year, driven by the Exosome Diagnostics divestiture and productivity initiatives. We expect continued margin expansion as our COMET spatial biology platform scales. In summary, the team delivered strong execution in Q1 despite persistent market headwinds, including biotech funding pressures, NIH budget uncertainty and lingering tariff concerns. Encouragingly, recent data points suggest improving end market clarity. While biotech funding remains down approximately 19% year-to-date through October, industry reports show a 6% sequential increase in our Q1 and October making the strongest funding month of calendar 2025. Combined with recent large pharma pricing and onshoring agreements with the U.S. administration, we anticipate improving conditions for biopharma. On the NIH front, September outlays rose 8% year-over-year, closing the government's fiscal year on a strong note. While the current government shutdown clouds visibility into the fiscal year 2026 budget, both Senate and House appropriation bills suggest a flat NIH budget year-over-year. Encouragingly, we saw signs of stabilization in the U.S. academic market as the quarter progressed. As Kim noted, we're excited about the FDA Fast Track designation awarded to our largest cell therapy customers. These designations accelerate clinical time lines but reduce near-term reagent demand. Following strong ordering in early fiscal year 2025, these customers are now progressing through their Phase III trials, resulting in a temporary slowdown in reagent purchases. We expect this headwind to intensify in Q2, impacting growth by approximately 400 basis points year-over-year before moderating in the second half of the fiscal year. Despite these headwinds, we anticipate overall Q2 organic growth to be consistent with Q1. This outlook reflects continued strength in pharma, renewed growth in China, a rebound in spatial biology and gradual stabilization in U.S. academic and biotech end markets. As we lap prior year headwinds that began with the U.S. administration's policy changes in early calendar 2025, we expect to return to positive organic growth in the second half of the fiscal year. From a margin perspective, we remain focused on balancing growth investments with operational efficiency. We're pleased with the margin upside delivered in Q1 and remain on track to achieve at least 100 basis points of margin expansion for the full fiscal year. That concludes my prepared remarks. I'll turn the call now back over to the operator to open the line for questions. Operator: [Operator Instructions] First question will come from Dan Leonard with UBS. Daniel Leonard: My first question, I appreciate all the quantification on the GMP protein timing dynamics. But what I'm curious about is how long might that air pocket persist? And how are you thinking about growth right now for GMP proteins in light of that greater than 30% growth in the prior year? Kim Kelderman: Dan, thank you for the question. Well, first of all, these 2 customers, in particular, we're very excited about the Fast Track designation. It's obviously a very positive sign for these 2 customers and the therapies they're working on. But as you understand, short term, this gives us a headwind. And to be precise, this Q1, we saw a headwind of about 200 basis points based upon this phenomenon. It's on top of a prior year of 60% organic growth. For Q2, that will be worse. So Jim already mentioned, 400 basis points, which would then lap a 90% prior year organic growth in cell therapy. And from there, the second half of the year, the headwinds will fade. In the meantime, what we will continue to do is to build the funnel, right? Right now, we're sitting at 700 customers, 85 in clinical phases, 16 of those in Phase II and 5 in Phase III. And we are also very positive about the underlying recovery in the biotech markets. So yes, that will then result in us having to manage through this valley. I think we've positioned the company really well to continue to protect the bottom line, and we're very positive about all the other underlying strengths. So that's basically how we see the year rolling out. Daniel Leonard: Understood. And my follow-up, Kim, are you still managing the business as a low single-digit grower in fiscal '26? Or have those plans changed given the Q1 result and the upcoming comp you're facing here in Q2? Kim Kelderman: No, not at all. No change there. As I mentioned, of course, the good news of these fast-track approvals was somewhat of a short-term surprise for us. But our commitment and our conviction of cell therapy markets doing great over time remains exactly the same. And with some positive signs from the other end markets that we serve, we feel that the low single digits for the year is still very, very feasible. And as you saw from the Q1 margins, we've managed to protect the bottom line even with a little bit of a headwind. We will always want to be on the safe side of that. But in the meantime, we're ready for higher volumes in all the other product lines and for accelerating results. Operator: Our next question will come from Matt Larew with William Blair. Matthew Larew: Maybe I'll just follow up on that point there. Kim, you referenced the headwind accelerating, I think, to 400 bps in the fiscal second quarter, but still targeting low single digits for the business for the year. So it sounds like you are seeing an improvement in the underlying core, and I think that would suggest sort of mid-single-digit growth in the back half of the fiscal year, which may be consistent with what some of your peers have said 3% to 6%. So can you maybe just speak to ex-CTX, how you see the balance of the year unfolding in light of the macro dynamics you referenced? James Hippel: Yes, Matt, this is Jim. Thanks for the question. I'll jump in on this one. So you are correct. I mean we are -- in the underlying business, we're seeing, I'd say, a gradual improvement/acceleration of our end markets and our relative performance. So as I talked about, if you exclude just these 2 cell therapy customers, our organic growth would have been 1% for the company. Looking ahead to Q2, what really the guide implies is roughly a 3% growth, ex these 2 customers. And that's before we get into the back half of the year where we start to lap the U.S. administration policy changes that's impacted our entire industry, particularly academic as well as you may remember, we talked about this last quarter, our Diagnostics business, in particular, was -- it can be lumpy from quarter-to-quarter, had very -- last year was very, very strong in the first half, a little bit less so ordering in the second half, and that pattern is a bit flipped this year where we're expecting a stronger ordering pattern in the second half versus the first half. So both the markets gradually improving. Our specific product lines, namely our spatial, our ProteinSimple product line and even the region in Asia overall, but especially China, are all seeing some very nice positive momentum. Combine that with lapping easier comps in the second half of the year suggest a continued strength in underlying performance absent these 2 customers. Matthew Larew: Okay. Great. That's really helpful, Jim. And then on the biotech side, you referenced sort of the variety of improving macro indicators and obviously, recently, some of the nice news on biotech funding. Historically, you've thought about kind of a 2- to 3-quarter lag there. I'm curious given how long we've sort of been in the doldrums, if you expect that to be the same time line or perhaps you've already started to see some signs of life from some of your biotech customers who might feel better about the interest rate environment and their ability to raise capital? Kim Kelderman: Yes, Matt, I'll take it. So we feel that biotech funding, as you referred to over the last couple of months has definitely increased, specifically the last month has been very, very positive. The lower interest rate environment also is helpful, increased levels of M&A much higher than prior year. And then we also see a very encouraging number of licensing deals into biopharma, making it a more investable space and there with -- we feel positive about the momentum in there. Yes, in the past, a couple of years ago, when we were looking at funding issues, we felt that the funding at that time came into companies that really had to start with brick-and-mortar, maybe with clean rooms and then work their way into starting their programs. Currently, in some occasions, that might still be the case, but we feel that overall infrastructure is in place and that many companies are fundraising to kick their programs off and/or to add some of the programs. And that will create an environment where the dollars probably will flow much quicker to us than the 2, 3 quarters we've mentioned in the past. Operator: Our next question will come from Puneet Souda with Leerink Partners. . Puneet Souda: Kim, I wanted to understand on the GMP protein side. Could you talk about just knowing the number of trials that you're involved with, the ones that have Fast Track designation and the ones that are program starts, can you maybe -- or clinical trial starts, maybe can you talk about -- are you continuing to see the momentum on new clinical trial adds? And for the same-store customers that have Fast Track designation, I mean, when do you think -- just given the timing, ordering pattern, the size of the trials, can you give us a view into when this business starts to recover again for GMP proteins? Because obviously, it's been a bright spot for you. But just given the challenges, I wanted to understand when can that start to recover? Kim Kelderman: Thank you for the question. Yes, the clinical starts have been relatively flat and steady. So we don't see a significant decline in the activity there. There's certainly some turnover. There are new companies that are starting new clinical trials, and there are companies that are actually adding to their number of clinical trials. We've also seen some exits and cancellations, basically a maturing of the market where 3, 4 years ago, basically any novel technology or any novel treatment was getting funded. And some of those were basically more about how exciting these possibilities in the cell and gene therapy were versus the true viability if it comes to scalability as well as well as the affordability. And we feel that all the new programs are much more in line with what cell and gene therapy is really, really fit for. And we actually, from a Watson Wolf as well as Bio-Techne point of view, have always wanting to enable a scalable as well as an affordable treatment coming out of the cell and gene therapy efforts. So we feel that we're really well positioned to continue to feed this end market. Puneet Souda: Okay. That's helpful. And then if I could ask on the academic side, net-net, academic sentiment is improving. I appreciate that. But there is multiyear funding number of grants that are lower in '26 versus '25, more concentration, fewer grad students, fewer bodies in the lab, fewer post docs. So how does that impact your business into '26 and beyond? And then when we look at the guide overall, Jim, low single digit is lower than a large-diversified peer in the space in life science tools. Just wondering, historically, you've grown ahead of that peer by a few points. Is that still the assumption longer term? And by that, I mean '26 and '27 -- eventually into '27, I mean? Kim Kelderman: Yes, I'll take the first part then, Puneet. So yes, we have seen stabilization in the NIH markets and specifically in academic U.S. Academic Europe has continued to grow mid-single digits. In the U.S., it's been a little lower, but definitely stabilizing. And we can see it from the overall activity level from our run rate, our core products. And then we've always talked about how we feel that the number of NIH grants is important, but that they are aligned with our research areas, the ones that we serve as a company is more important. And we can clearly see a positive mix if it comes to these grants for us. And then at the end of the day, we are encouraged by the fact that there are still bipartisan support for a flat NIH budget for the coming year. So we feel overall that that this market is -- has bottomed down, that is now stabilizing and that it will be a positive driver for us going forward. James Hippel: And then, Puneet, if I understood your question correctly, it's kind of like how do I think about our performance relative to the space overall. And we've always talked about our level of outperformance and do we expect that to continue going forward? And the answer is absolutely, yes. I think what we're seeing right now is a bit of a transition. As you would expect when there's kind of a turn in trajectory of the business, you look at the peer sets, those obviously that have a more portfolio that's diversified outside even life sciences, but applied markets are accelerating, recovering earlier. Those that have a higher bioprocessing presence are recovering earlier, which is actually a good sign downstream for eventually for discovery. We peel back the onion and look at our very specific areas of where we play versus our competition. We feel like we're either holding our own or doing better. So for example, in our core reagents, globally, basically, we're sitting at flat growth in our core reagents, which based off of our intel and our peer set, we're still doing as good, if not taking share there. Our ProteinSimple franchise continues to do better than the market at mid-single-digit growth. Our spatial biology franchise has been hampered by their academic presence, but we've seen a turn of momentum there this most recent quarter, and we're seeing that momentum continue here in the second quarter. So we believe that will get back to the trajectory. that we're used to seeing. And then cell therapy has been one of the reasons for our outperformance in the past, and that's going to be a bit of a headwind for us in the coming quarters. But once we lap those and particularly once we get into fiscal year '27, we'll be completely behind those tough comps with these 2 specific customers, and that will continue to be an accelerator of growth relative, we think, to our peers. So hopefully, that gives you enough detail to noodle on, but that's how we think about it. Operator: Our next question comes from Patrick Donnelly with Citi. Patrick Donnelly: Maybe one on the Wilson Wolf piece. I always try to keep tabs on that. Can you just give an update as to what the quarter looked like there, what the momentum looks like? Is there potential for anything to trigger before the end of that -- the time line, even if they don't hit some of those milestones? I would love just a little more color on how you're thinking about that piece. Kim Kelderman: Patrick, thank you for the question. Yes, Wilson Wolf had a flat quarter, also looking at some of the biotech headwinds from the past, the past couple of quarters from a funding perspective. We -- overall, the 12 months trailing sits at mid-teens -- low to mid-teens. And yes, we feel that overall, that business is also very well positioned to accelerate again to their numbers entitled growth rates. And yes, we feel that will be a great acquisition serving the cell therapy market. The question regarding the triggers, whether we would be able to own it earlier, I bet that John Wilson will still think that we -- he will be able to meet the EBITDA triggers. But we are supportive, of course. But with the current market conditions and some of the headwinds, it will be a little tougher, which for us basically doesn't make a huge difference because the deal is structured in a way and you know how it is structured that at the end of the day, we would pay 4.4x 12 months trailing revenues. And that then we'll calculate the purchase price. And we're rooting for the team, and we see that they have plenty of pipeline to be proud of. Operator: Our next question will come from Dan Arias with Stifel. Daniel Arias: Jim, apologies for going back on the same question that was asked about 2Q, but I just want to make sure I understand the cadence here because it sounds like you feel like demand has troughed and it's on its way back, and now it's really kind of just about rounding the corner on growth itself. So plus 1% organic this quarter, ex the GMP customers and you're expecting the same thing next quarter ex those accounts, 3% without them, so 1% with them presumably despite the comp being 5 points, more difficult. So like the underlying momentum that you guys are talking about basically feels like it can drive 500 basis points or so of sequential improvement in the context of the compares, excluding these 2 accounts, obviously. James Hippel: Yes. So let me just -- I'll repeat some of my comments to make sure I'm clear. So yes, you're correct that in this current quarter, we just passed Q1, adjusted for these 2 customers of cell therapy out of our numbers, we would have grown 1% overall. And looking at Q2, the same 2 customers provide a 400 basis point headwind, but we're projecting the same overall growth that we had in Q1. So that would imply that the underlying business outside of these 2 customers accelerates to 3% organic growth from the 1% we had this quarter. Daniel Arias: I see. Okay. Okay. And then can you just maybe refresh us on what kind of 80-20 type rule exists when it comes to these cell therapy accounts? I mean there's obviously a concentration here. So for instance, what portion of the GMP revenue base is coming from the 2 customers or, say, the 5 Phase III partners that I think you mentioned that you have? Kim Kelderman: Yes, Dan, we have not talked about exact numbers as to what account amounts to what portion of our pipeline. But overall, we do know that the later in the stages, the larger the orders become, right? The volumes become larger. And then at the end of the day, the size of each account is, of course, also predicated on how many clinical study subjects do one need to run and how much raw material do you need per treatment. So there's a big variability, and that's why it's really hard for me to answer it because an account with a big indication and a large amount of proteins in a Phase II could be ordering more than a Phase III for a specific disease, exotic disease. So therefore, it's hard to answer the question. Overall, we always look at the total pipeline. And we've really done some real -- we made some real progress in adding customers to our pipeline, and we're sitting at 700 now. So overall, we are very confident that we're driving the underlying growth and that we're participating in the market in a real significant way. Operator: Our next question will come from Kyle Boucher with TD Cowen. Kyle Boucher: I wanted to ask on the spatial side of the business. It sounds like pretty decent sequential growth there and trends sort of improved. I know you had some headwinds in the fiscal fourth quarter. Was there any catch-up in fiscal Q1 from some of those disruptions you saw at the end of the last fiscal year? Kim Kelderman: No, we don't believe that there is a catch-up there. We truly see overall broad recovery in the ACD reagents, the RNAscope. We made it back into the black, which is really encouraging to see. And as I mentioned, real broad recovery. And then the instruments, yes, they had a little bit of a tougher time like other instruments in relation to the academic side of the market. But we have a real nice momentum that we saw in the order book. So overall, we know that the reagents have been improving sequentially, not based upon lumpiness or quarterly order timing, but more just by broad activity level. And the instrument funnel is growing really, really nicely knowing -- looking at our order book. Kyle Boucher: Got it. And then maybe on the margin side, it came in pretty good in the fiscal first quarter, even considering the minus 1% organic. But I guess next quarter, assuming the same level of growth, minus 1%, what does that sort of imply for the EBIT margin in the fiscal second quarter? James Hippel: Well, we haven't given specific guidance on margin by quarter, but we've seen as the quarter progressed and we realized we were going to have these headwinds with these 2 specific customers, GMP proteins, of course, are a very profitable part of our business. So we've made sure we've taken even additional productivity actions to counter those, which allowed us to get the expansion we got this quarter, but more importantly, prepare us for the headwinds yet to come, especially in Q2. So it gives us even more confidence in our ability to achieve our 100 basis point expansion goal for the year and maybe even do a little bit better. But obviously, how the top line plays out will have a lot of determination as to whether there's upside or downside to that figure in any given quarter. But right now, we're feeling pretty good about margin overall each and every quarter. Operator: Our next question will come from Catherine Schulte with Baird. Catherine Ramsey: Maybe first for the fiscal second quarter outlook, what does that assume for a government shutdown impact? And can you maybe talk through the range of outcomes if we get a reopening tomorrow versus a month from now? James Hippel: Catherine, this is Jim. I'll just start by saying that we're obviously in more record territory already with the government shutdown. And we haven't seen any noticeable major differences in our academic customer buying patterns like this month versus the prior month. So again, we're encouraged that academic has appeared to have stabilized over the past quarter, and we're seeing that continue thus far even with the academic shutdown or even with the government shutdown, sorry. Catherine Ramsey: Okay. Helpful. And then on the GMP headwinds, what are your assumptions for the back half of the year? I know they should ease. Is the easing of those due to them annualizing? Or are you assuming some of that ordering resumes? James Hippel: It's really more about how much they ordered in the first half of last year, these 2 customers versus the second half, and they ordered less in the second half than they did in the first. There still will be a headwind. It should be -- it will definitely be less than what we saw in Q2. And we'll give you more ideas as the quarter approaches in terms of what we're seeing from these 2 customers this time next quarter. But as of right now, we're not assuming much of any buying for these 2 programs, and it's still a headwind in the second half, but not as severe. Kim Kelderman: Yes, the comparables become easier, right? Comparables become easier, Catherine. And in the meantime, these companies also need to start validating processes and their manufacturing. So we feel that the second half will be less impacted by this phenomenon than the first. Operator: Our next question will come from Justin Bowers with Deutsche Bank. Justin Bowers: So in the prepared remarks, you talked about instruments that could benefit from the onshoring and reshoring dynamic. Can you point to which cohort of instruments across the portfolio that might be the beneficiary -- biggest beneficiaries of this and potential timing of when we might see some benefit from that? Kim Kelderman: Yes. Thanks for the question. In particular, we are thinking about our biologics instrument line. It's been growing really nicely compared to market, and we feel it's taking market share in several applications that it serves. And as you can imagine, with onshoring, with more locations, companies typically will utilize similar instrumentation and methods as they did in their primary locations. So we feel that we can copy our successes that we've booked in Europe and in the past in this particular end market in large pharma, and that will translate to some momentum going forward. Operator: Our next question will come from Daniel Markowitz with Evercore ISI. Daniel Markowitz: I have a couple of quick ones. So first, on cell therapy customer order timing, I just want to make sure I understand the driver here correctly. And sorry for asking another question on this. Have these customers who received FDA Fast Track already placed orders for their Phase III clinical trials and you've already recognized revenues for those Phase III projects and now you're just waiting for them to commercial. I just want to make sure I'm understanding that right. Kim Kelderman: Yes. Thanks for your question. Don't apologize. I mean it's obviously a real result driver for this quarter specifically. Now the Fast Track designation, yes, after your initial results in this case -- in these cases, while in Phase II, the Fast Track designation would give you a whole path to accelerate your clinical studies. And we feel that these customers, and of course, there's always a firewall, but we feel that these customers have ordered enough to finalize their clinical trials. And that's not uncommon. Typically, you buy your raw materials in quantities to make sure you don't have to deal with a new lot of raw materials during your clinical trials. So yes, the materials for their Phase III for what they have to do would already, in our assumptions, have ordered last year. And the materials that you would need for commercialization and for validation of your production lines, we feel is still to come. Daniel Markowitz: Understood. That's helpful. And then the second one, you mentioned promotional activity in Protein Sciences when talking about the margins there. Can you talk about these activities? Where were they focused? And would you expect them to continue in the coming quarters? And then I just had one more quick question at the end. James Hippel: Yes, I'll try to take that. This is Jim. So on the promotional activities, as you can imagine, we all know the academic environment is tough right now. Biotech environment has been tough. And so therefore, you want to make sure that you stick with your customers in good times and bad. And so that means perhaps a little bit heavier discounting, promoting certain product lines, helping with their solutions. So it's really more about supporting our academic and biotech customers as they as they go through a tough time right now. And so those additional promotional activities, I think, helps our absolute performance relative to those markets as well. So at the end of the day, it paid off. Kim Kelderman: Yes. And if I add to that, our grant as well as some promotions to get into projects early on even in tough times, especially from the story that we just went through, you could clearly identify that being in a project or -- and driving the funnel of companies and/or projects that are using your materials is very important. So in constrained markets, we want to make sure we build the funnel and actually double down on all the projects that are currently going on. They're obviously very viable and important because they're still getting invested in -- so being part of those is of the utmost importance to make sure that you can continue to accelerate and outperform the rest of the market, and that's exactly what we're doing. Daniel Markowitz: Okay. And then my last one, it's impressive you're able to deliver on margins and EPS despite the customer timing in a very high-margin business. I'm curious if there was anything you wanted to call out that helped flex the business to make that happen. One thought that came to mind is maybe 1Q had less ExoDx reinvestments and you let more of it drop down to the bottom line. And then what's expected for the balance of the year? Anything you wanted to call out on that front? James Hippel: I mean, yes, so as we talked about, we continue to want to balance our cost initiatives and productivity initiatives with reinvestment back into our growth drivers. And it's a lever we have to work with. And so it's a combination, I'd say, of the timing of some of those investments, perhaps pushing them out to later in the year in some cases, but also accelerating on the productivity front. So we initiated some new streamlining activities this quarter, which bolstered our efficiencies and will set us up to be able to continue that -- to deliver that margin performance even with these new headwinds that we're facing here with the cell therapy. Operator: Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the LENZ Therapeutic Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. At this time, I'd like to turn the call over to Dan Chevallard, Chief Financial Officer. Please go ahead. Daniel Chevallard: Thank you. Good morning, and thank you for joining us today. My name is Dan Chevallard, Chief Financial Officer of LENZ Therapeutics. I'm joined today by Evert Schimmelpennink, President and Chief Executive Officer; and Shawn Olsson, Chief Commercial Officer; as well as Dr. Mark Odrich, Chief Medical Officer, who will join us for the question-and-answer session. Before we begin, I would like to remind you that this call will contain forward-looking statements regarding LENZ's future expectations, plans, prospects, corporate strategy, regulatory and commercial plans and expectations, cash runway projections and performance. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors and risks, including those discussed in our filings with the SEC, which can also be found on our website. In addition, any forward-looking statements represent only our views as of the date of this webcast and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statement. The company encourages you to consult the risk factors contained in our SEC filings for additional detail, including in our third quarter 2025 Form 10-Q, which is being filed today. With that, I will now turn the call over to Ev. Evert Schimmelpennink: Thank you, Dan. Good morning, everyone, and thank you for joining us. This is an incredibly exciting time at LENZ as today marks our very first earnings call as a commercial company. The third quarter and recent period have been truly transformational for us, defined by the FDA approval of VIZZ in July, which came ahead of our August PDUFA date and by the successful commercial launch of VIZZ in the U.S. in early October. VIZZ is the first and only aceclidine-based eye drop for the treatment of presbyopia in adult. We are proud to have brought this important innovation to the market. We're now just 1 month into the launch, and our main focus is on giving doctors the opportunity to experience VIZZ in the real world, trying it themselves, with the staff and with some other patients. And already, we're seeing tremendous enthusiasm from the eye care professional community as VIZZ makes its way into their practices. As of the end of October, more than 2,500 doctors have already prescribed VIZZ. What's particularly impressive is that 40% of those prescribers have already written multiple prescriptions. All of this has led to over 5,000 paid scripts for VIZZ being filled by [indiscernible] in October, a number that represents a very impressive start of our launch, clearly showing both consumer interest and satisfaction with VIZZ. And these are just some of the early milestones, only about 4 weeks into our launch that we're very encouraged by. This early adoption is aligned with the consistent and very positive feedback we are hearing. Doctors tell us, VIZZ delivers rapid meaningful improvement in vision and a long duration of effect for a broad group of presbyopes. They also point out that it's clearly differentiated from anything that used before. Anecdotally, we hear about noticeable improvements in distance vision and the early feedback that we're getting from the fields also suggest that instances of headache, the side effect that we were most focused on in our clinical trials appear to be minimal. All of this aligns with the fact that aceclidine is the only pupil-selective and [indiscernible], which again really bodes well for the uptake of VIZZ. In line with our label, the most noted AEs appear to be brief initial staying on installation and transient hyperemia. And based upon early results, we're hearing more of it than we initially expected. AEs in our trials, like an all well-run clinical studies are a combination of doctor observations and direct patient feedback doctor asks for. Our initial thoughts on the potential variance is driven by 2 main factors. First, in our trials, doctors would dose the patient and then return to them for the first set of measurements 30 minutes later. By then the redness, if it happens, lessens or resolved. And second, the following 5 days, subjects would dose at home. And by day 7, the next in-office visit, the patient had already progressed past the Tachyphylaxis phase. This appears to be very much in line with what doctors and patients are reporting now. But stinging and redness tend to be short-lived and fade quickly for most people and the rapid and very noticeable improvement in near vision outweighs these highly transient early effects. Importantly, many doctors describe it as Tachyphylactic, meaning it becomes less noticeable after just a few days, in line with what we're hearing from patients as well. We've already tailored our field messaging based on this feedback, helping doctors to set expectations and share their experiences with confidence, so patients know exactly what to expect and why it's worth it. And we're seeing this work in their practices. As I mentioned, this fourth quarter is really focused on providing doctors with confidence and the right processes to prescribe VIZZ. That is essential groundwork as we prepare for our direct-to-consumer campaign early next year. Ensuring that ECPs and their staff are ready to serve what we believe will be a significant inbound wave of patients. We think of our DTC campaign as the second phase of our launch, and we're thrilled to announce that Sarah Jessica Parker will serve as a spokesperson. She needs no introduction. SJP as we prefer to be called, is an iconic figure and like this truly represents a category of 1. We believe this partnership perfectly reflects our brands and the confidence, style and authenticity we wanted this campaign to embody. And we are excited to share more as we roll out the campaign in early 2026. We also strengthened our balance sheet during the quarter. In October, we completed a direct placement to a single large institutional investor through our ATM, raising more than $123 million and bringing our current total cash position as we launch VIZZ to roughly $324 million. All these significant milestones position LENZ as a disruptive new entrant into the ophthalmology space as we look to establish this as a standard of care for adults frustrated with presbyopia. We've talked before about the 3 phases each doctor moves through as they get ready to recommend us, awareness of VIZZ, confidence in the product and willingness to prescribe. Let me touch on where we are in each of these areas at the end of October, roughly 4 weeks after the first samples reached the field. First, we've made tremendous progress on awareness for VIZZ among the eye care professional community. The mid-October survey showed awareness among doctors at 90%. This is an outstanding number for such an early stage of launch and speaks to the strong engagement we're seeing. And we believe it bodes well for product uptake and long-term adoption. Moving to confidence. As we spoke about, VIZZ is built through real-world experience. It's about doctors using VIZZ themselves, observing its effect and hearing positive feedback from start and early patients. Driving that experience for October alone, we've already distributed more than 70,000 samples to roughly 7,000 offices, initial average of about 10 five pack samples per office. The interest level has been very high, not only from our target doctors, but also from many outside vet group. That tells us the word is spreading and the enthusiasm is broad. And finally, willingness to prescribe. This is where awareness and confidence translate into action. As I mentioned earlier, more than 2,500 doctors have already prescribed VIZZ in the first few weeks and over 1,000 of them have prescribed multiple times. VIZZ has resulted in over 5,000 filled scripts in October. That's an incredibly strong start VIZZ early in the launch, something we're pleased with and want to recognize our sales force for. We've been lucky to have been able to pick the best of the best at our specialty reps, and they are out in the field delivering each and every day. Having them building this willingness to prescribe with the ECP community is fundamental to our success and sets us up for the next phase, our direct-to-consumer campaign in the first quarter of 2026. Before I hand it to Shawn, I want to reiterate our confidence in VIZZ and the strength of this launch. We know the efficacy of VIZZ is excellent and what we're hearing from doctors in the field continues to align closely with them, if not better in some cases. VIZZ is the first and only truly practical pharmacologic solution for presbyopia, one that restores near vision without compromising distance vision and that integrates seamlessly into everyday practice. As I said before, this is more than just a product launch. This is the start of a new category, one built on real-world efficacy, genuine doctor and patient confidence and seamless access to both samples and product. With that, I'll hand it over to Shawn Olsson, our Chief Commercial Officer, to share more color on how the launch is progressing. Shawn? Shawn Olsson: Thank you, Ev and good morning, everyone. As a quick reminder, presbyopia is the largest unmet vision condition in the United States. It affects approximately 128 million people, population nearly 4x larger than those of dry eye. In fact, presbyopia affects more Americans than dry eye, demodex, child myopia, macular degeneration, diabetic retinopathy and glaucoma combined. Our commercial organization remains fully focused on one clear objective in Q4 and the first pillar of our commercial strategy, driving doctors to recommend VIZZ. We know that eye care professionals adoption is the critical foundation for our launch, and we're executing a clear 3-step strategy. First, driving eye care professional awareness of VIZZ, then building confidence and ultimately establishing willingness to prescribe. Let's start with driving awareness of VIZZ. Our awareness phase has been highly successful and is largely complete. As Ev mentioned, we successfully achieved 90% eye care professional awareness of VIZZ since approval. This is a phenomenal awareness driven by a robust multichannel campaign. This included a broad media plan with over 5 million digital impressions, a strong presence at major industry events such as Vision [ XO ] West, Academy Optometry and the Academy of Ophthalmology and the exceptional effort of our 88-person field sales team. We're conducting over 13,000 calls every 4 weeks. Our memorable singles global brand name has also contributed to this remarkable awareness. Moving into building confidence in VIZZ. In October, we progressed from the awareness of VIZZ to the confidence in VIZZ. This stage is powered by real-world experience through our sampling strategy and peer-to-peer engagement at speaker drove app. To date, we've distributed over 70,000 samples to 7,000 ECP office, driving exceptional engagement. We're seeing positive organic stories emerge across LinkedIn, TikTok, Facebook and other social media platforms as both ECPs and patients share their experiences. One notable story involved a skeptic doctor converting to a VIZZ believer after a LENZ sales rep challenged them to put VIZZ to the test. This ultimately ended up with the eye doctor and patients sharing their positive experience with VIZZ on FOX News, which ultimately was syndicated across multiple markets. We also launched our KOL-led speakers bureau in October. We have already held over 50 of the 140 events planned for Q4. These sessions highlight VIZZ's unique MOA, robust clinical performance and ease of integration into the practice. To ensure credibility, our speakers were among the first to receive product samples and share their real-world results. Ultimately, we're seeing great progress and the confidence in this phase. The feedback is positive, and it's clear this product is highly effective at restoring near vision with a rapid onset and long duration. As a reminder, the primary issue with the long-term adoption of UE was for most patients, it did not work. And when it did work, it did not work long enough. We continue to see this as a category of 1, and this stands alone in this category as the only drug achieving the necessary sub-2 millimeter people to restore near vision for up to 10 hours in both clinical trials and real-world use. We continue to hear great feedback from eye care professionals and their enthusiasm and person experiences are building strong confidence in both the product and its result. Finally, we move to willingness to prescribe, the culmination of awareness and confidence. Our goal is to bring ECP to this stage by the end of Q4. Already more than 2,500 ECPs have prescribed VIZZ with 40% writing multiple prescriptions, resulting in over 5,000 prescriptions filled through October. We believe this clearly demonstrates a strong belief in the product's performance and alignment with the patient's need is already being established for an effective presbyopia solution in the first few weeks of launch. Looking ahead to the consumer phase, as we prepare for 2026, we are well positioned to transition to the consumer phase of our launch. This category has proven to be highly responsive to promotion, both from prior launches and the organic virality surrounding VIZZ. In Q1 of 2026, we will initiate our direct-to-consumer campaign, driving the second pillar of our commercial strategy, which is consumers to request us finding. Our team has been preparing extensively for this consumer campaign. As a Category 1 product, we must break through the advertising clutter as we compete for the consumers' views, inspire authentic belief in VIZZ and ensure consumers see VIZZ as a worthy investment. To achieve that, we knew we needed a direct-to-consumer campaign spokesperson with stopping power. who resonates with our target consumers, who is an authentic user of VIZZ and aligns to a category of one lifestyle product. We are excited to share that we achieved all of these objectives and partnered with Sarah Jessica Parker to lead the VIZZ DTC campaign. In fact, our marketing team just completed the commercial shoot in New York City with SJP yesterday, and we are thrilled. The marketing team's efforts are now focused on finalizing the creative assets and ad spots to support our Q1 2026 consumer campaign launch. We look forward to providing further details on our exciting DT strategy in the months ahead. With that, I'll hand the call over to Dan Chevallard, our Chief Financial Officer, to highlight our financial results. Dan? Daniel Chevallard: Thank you, Shawn, and good morning. As has been mentioned, the third quarter of 2025 and recent period has been an extremely productive and exciting time at LENZ, headlined by our FDA approval and the commercial launch of VIZZ, but also included great progress with our ex-U.S. strategic partners and more recently, from the standpoint of substantially strengthening our balance sheet, which I will go to in a moment, not to mention the exciting news that Shawn just shared on our DTC campaign. Importantly, and before I proceed, please note our first product sales of VIZZ occurred in October. So, there were no product revenues in the third quarter. The script data that we highlighted today was from the month of October only. As Ev mentioned, in early October, we received a meaningful inbound inquiry from a single large institutional investor on our ATM, which ultimately resulted in an initial block trade of $80 million, but was then followed by a second block trade of approximately $44 million, exhausting the remaining available balance on our ATM program. Pro forma for these placements, we ended Q3 2025 with approximately $324 million in cash, cash equivalents and marketable securities. We view the timing, magnitude and conviction of this single inbound as a tremendous validation of our launch strategy and the promise of this and again, reiterate our cash on hand is anticipated to fund the company's cash runway to post-launch positive operating cash flow. I'd like to now turn to our ex-U.S. strategic partnerships where we had progress and advancements on multiple fronts. In the third quarter, we recorded total license revenue and received cash payments of $12.5 million, which can be broken into 3 parts. First, we recognized revenue -- license revenue and received payments for 2 separate $5 million milestones under our development and commercialization agreement with Corxel Pharmaceuticals in China, totaling $10 million, including a China-based regulatory milestone upon submission of the NDA for LNZ100 to the Center for Drug Evaluation of the NMPA in China and a U.S. FDA-based regulatory milestone upon the approval of VIZZ in the United States. In addition, and as we announced in July, we executed an exclusive license and commercialization agreement granting Laboratoires Thea to register and commercialize VIZZ for the treatment of presbyopia in Canada. Under the terms of the licensing and commercialization agreement, LENZ received and recognized as license revenue a $2.5 million upfront payment and will be eligible to receive over $67.5 million in additional regulatory and commercial milestone payments, as well as tiered double-digit royalties on net sales. Moving on now to our third quarter operating expenses. I previously discussed a planned ramp in our total operating expenses, specifically driven by commercial spend as we move into the second half of 2025. As anticipated, our total Q3 2025 OpEx increased to $31.4 million, a 44% increase over Q2 and well aligned with our operating plan. Total SG&A expenses increased to $27.6 million in Q3 compared to $6.5 million for the same period in 2024, driven primarily by the increase in commercial headcount, including the full financial cost of our sales force for the entirety of the quarter and substantial pre-commercial marketing, advertising and other commercial planning activities to support the commercial launch of VIZZ. Sequentially, SG&A increased quarter-over-quarter by approximately 116% from $12.8 million in the second quarter. I would like to highlight a key point that we have made on previous calls and in what will be a consistent objective and that we will continue to be measured in our spend on the general and administrative side of the organization as we aim to remain lean and efficient G&A team and have the predominant growth in SG&A be driven by spend to support our commercial strategy. Total research and development expenses decreased to $3.8 million in Q3 2025 compared to $6.5 million for the same period in 2024. Sequentially, R&D expenses decreased quarter-over-quarter by 58% from $9.1 million in the second quarter. As a reminder, the majority of our research and development expenses prior to FDA approval of VIZZ enjoy -- prior to the FDA approval of VIZZ in July of 2025 were dedicated to our manufacturing operation efforts to establish pre-approval commercial product and sample inventory to support our launch. Finally, our net loss per share, both basic and diluted, was $0.59 per share in the third quarter of 2025 on a net loss of $16.7 million compared to a net loss per share of $0.38 per share in the third quarter of 2024 on a net loss of $10.2 million. We ended Q3 2025 with approximately 28.6 million shares of common stock outstanding. Pro forma for the October ATM activity I noted previously, we have approximately 31.3 million shares outstanding today. In summary, we feel this quarter and recent period has been on schedule from a spend perspective and are pleased to have recently bolstered our balance sheet from both dilutive and nondilutive sources. It has never been in a stronger financial position than we are today to support the VIZZ launch. With that, I'll turn the call back over to Ev. Evert Schimmelpennink: Thanks, Dan. To conclude, I'm exceptionally proud of the LENZ team for all that we have accomplished, an early FDA approval for VIZZ, preparing the team for launch, maintaining an extremely strong financial foundation and now seamlessly executing in these first weeks of our launch. Driving ECP awareness, confidence and willingness to prescribe ahead of activating our DTC campaign in Q1 2026. We look forward to our early momentum to continue and updating you on our progress as we launch this as a true category 1 product. And with that, I'd like to open up the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Stacy Ku from TD Cowen. Stacy Ku: Thanks so much for providing such a fulsome update. So, first question is on the speaker-led bureaus and maybe some of the other approaches you are all taking to appropriately set expectations. Could you maybe talk further about how the commercial team is working with these KOLs to maximize discussion and expectation setting on the VIZZ profile, just provide a little bit more detail here. I just want to make sure we understand how motivated patient is able to appreciate the efficacy versus the transient redness and stinging. That's the first question. And then second, wondering if you're able to disclose some of the week-over-week cadence of prescriptions for October as we think about those over 5,000 prescriptions that are coming from the clinicians. And then last question, I wanted to just understand -- still early days, but if you're hearing any anecdotal feedback, be curious if any folks are immediately opting for the 3 months versus 1 month. Just trying to understand how the patients are trialing these days. Evert Schimmelpennink: Thanks, Stacy. Good questions in there. We'll pick them up one by one and tag team on it. So, on your first one, I think importantly, just to highlight that what we're not hearing is this product doesn't work. So, the discussion actually usually focuses on that, that people realize and doctors realize that as soon as you put a drop in somebody eyes, but in and totally 10, 15 minutes, your vision improves. That's very important to realize, and that's what we continue to hear back. And like we said, what we're also hearing is that people notice that also the distance vision in many instances approves. That's always the center of the discussion. Now no different than when we launched this product and how we prepare for it. Like with every product, it's important to set expectations and tell patients that these are the positive things that you are going to likely experience and you may be one of the patients that experiences one of the side effects that is on the label. That's setting up expectations was always and continue to be a focus of our sales force and are doing that extremely well. What we've seen is, as I highlighted in the call is that I think like most miotics, we were in our trial and in preparation for launch, most focused on potential headaches in a small subset of the population, and that doesn't appear to be happening a lot. So, one of the few almost minor changes that we've made there is that as the sales force talks about some of those potential side effects, the focus has now shifted away from this potential headache more to the potential redness. Our trend here is I think that's important to highlight as well and that with a few days of use, that's something that for most patients no longer happens. And again, there, it's important to realize that this is nothing new for an eye doctor. If they fit somebody with bifocal lenses, they tell them to use it for a couple of weeks to get used to it. Same for many other products. So, this truly is not a big thing. What we're hearing from doctors and for many of them is if this really is something that allows patients, they immediately offer up some eye whitening agent to use in those first couple of days. So, that's what we're doing on the sales force end in those 13,000 calls that they're doing on a 4-week basis. Maybe Shawn can talk about what we're doing on the KOL side on the speaker bureau. Shawn Olsson: Yes. Absolutely. So, thanks for the question, Stacy. So, when you think of all these speaker bureau events, we're running over 140 this quarter alone, and that will continue on in 2026. So, obviously, in our speaker bureau, we lay out the expectation setting for patients in there as well as how to introduce it to the patient. In that section specifically, we've now updated our speaker bureau deck, and we actually lead with highlighting the discussion around eye redness and how its transient goes away. I think that's very important. We've also incorporated actual real-life photos of the before and after every -- at 5 minutes, 15 minutes and 30 minutes, so people can see the transient nature on it, as well as the pictures of the eyes from day 1 and day 4. And so it can contextualize for the doctors. Again, this is something they're used to. This is a item that really focuses on near vision and it does a great job restoring your vision quickly and long versus the transient nature of the redness. Evert Schimmelpennink: Thanks, Shawn. And real quick, and I'll combine your next 2 questions on trends in script data and [indiscernible]. Important again is that we really look at this fourth quarter as getting that experience of VIZZ out there. We're truly very encouraged by the initial script data that we see. Just to remind everyone, initially and up to, frankly, not even fully now, the product was only available in the pharmacy, which is why we continue to highlight that full availability of the product is not going to be until the middle of November. What that means is that not all retail pharmacies are fully available or patients that go there might not immediately be able to get that product. So, against that backdrop, we are very encouraged to share that we've already had 5,000 filled scripts. I think it's too early to start sharing what the trends are. One thing that we do notice that actually, if you look at Symphony data, it's more accurate than we initially thought. So, I'll leave you with that comment there. And then we are seeing some patients opt in for the treatment. Again, that's only available through e-pharmacy. So, it doesn't make sense at this moment to comment on what that percentage is. That's something that we feel once we have that full quarter behind us, this full quarter behind us, and we truly have both channels fully available, that's a more meaningful step to look at. Operator: Your next question comes from the line of Yigal Nochomovitz from Citigroup. Yigal Nochomovitz: Congrats on the early launch process. I had a few. I guess with regard to the 5,000 or over 5,000 paid scripts, I wonder if you could contextualize that in the context of what we saw with VUITY and how you compare in the early days there. And then obviously, you're essentially flooding the market with samples. And so could you just comment on the conversion from samples to paid scripts and how you expect that to evolve over time? And then lastly, if you could briefly just comment on the choice of the spokesperson in SJP, how did you arrive at her? Has she used the product yet? Evert Schimmelpennink: Thanks, Yigal. Great questions. Like I said, we're very encouraged by what we're seeing in our launch. I think different than VUITY this is very much focused on driving that experience. So, getting to the amount of scripts that we've just shared, again, like I said earlier, not the full channels firing just yet is something that we think bodes really well and compares really well to what we saw there. I see the second part of your question there, the sample conversion? Yigal Nochomovitz: Yes. Evert Schimmelpennink: Yes, sorry. The sample conversion is something that I know is something that people look at for maybe more traditional launch. Remember that this sample is just a 5 pack, and it's all about making sure that whoever wants to try the product has access. So, definitely just early in the launch. We're not as focused on what that conversion is, but much more focused on making sure that really every meaningful doctor's office in the country has availability of samples. Also, what we're seeing is that the very first thing that happens as our reps deliver the samples is the doctor reps open a pack, product in their own nice and the staff. So again, I think early on, it's not really a metric that we're focused on also from a cost of goods perspective. This is not a very meaningful part of our P&L. So, in short, we'll continue to float the market with samples. We think it's a great tool that will drive patient uptake. Shawn Olsson: And then the last question on the choice of spokesperson. So, when we're evaluating the spokesperson for VIZZ, we had a lot of criteria that we analyzed against. One, the person had to be authentic, right? Really had to be someone that was a presbyope. It had to align to our consumers. Again, when we look at the early sales of VUITY, we knew that it was predominantly in major metropolitan areas. It also biased a little bit more towards female than male. We want to make sure we got consumer aligned this. We want to make sure we also had alignment with our brand. When we think of VIZZ, we wanted someone that's elevated, someone that's a category of one or someone that stands out amongst everyone else. And our first choice was Sarah Jessica Parker for this, and we couldn't be more happy. Now this is a person who is authentic. One of our requirements is they must have used the product, tried the product and they liked it. And one of the reasons we waited until now to share who that slurry was is we need to get them samples so they can try the product and get them on to VIZZ. And so this person -- Sarah Jessica Parker has used the product and does like the product. We're really excited to partner with her and to launch in Q1 of 2026 with that campaign. Operator: Your next question comes from the line of Biren Amin from Piper Sandler. Biren Amin: And thanks for sharing a lot of the metrics around the launch. I had a question around that. So, you highlighted how you detailed the 17,000 unique eye care professionals. And of those, I think about 7,000 ECP offices have been sampled and then 2,500 ECPs are now unique prescribing. So maybe just talking through that funnel, is the expectation in the next few months that the remainder of the 10,000 ECP detailed that haven't been sampled will be sampled. And then the conversion rate from sample to prescribing ECP, what characteristics are you seeing on that? And is the expectation that, that number will grow given the samples across the 7,000 ECPs? Evert Schimmelpennink: Thanks, Biren. Shawn, I will again tag team him on this one. So, as we think about providing samples to these offices, again, the call rate at the moment, and we've got no reason to believe that this is going to change is about 13,000 visits every 4 weeks by our sales force, which again is a tremendous achievement and want to highlight the great work that they're doing out there. If we say 7,000 sample or 70,000 samples delivered, that's 7,000 offices. What we know and what you see is that many of these offices have more than one doctor in it. So, the actual amount of doctors that have samples will be slightly higher than the 7,000. But ultimately, as I mentioned earlier, the aim is indeed to have samples available at every office that wants it. So, we'll continue to push for that. The current focus is really to get our sales force to those targeted doctors, doctors that are prescribing doctors that have maybe previously prescribed VUITY. But what we are seeing, and I mentioned that in my prepared remarks as well, is that there's a lot of interest from offices outside of those initial 12,000 to 15,000 that we're focused on. So, we're definitely putting mechanisms in place to ensure that we can provide them with our background and samples for the product as well. And definitely, that number continues to grow. And we see that, frankly, on a daily basis on the numbers that we see coming in. So, maybe Shawn can talk a little bit more on what we see in doctors that are -- those first ones that are converting into being less. Shawn Olsson: Yes. So, we'll continue to roll out these samples over the next few months. Our samples, as a reminder, will be always ongoing. We want the patients to try the product before they actually move into a script. When we look at these writers, what we're seeing is, again, general trends as expected, right? When we look at the VUITY launch, we saw that the early adopters are those in metropolitan areas, those that are predominantly optometrists, and we continue to see that, and we continue to focus on those people in terms of our call cycles and continued rollout of samples. Operator: Your next question comes from the line of Marc Goodman from Leerink Partners. Marc Goodman: Two questions. First, for the patients who've gotten prescriptions, can you give us any sense of like what are they like? Are they men? Are they women? Do they tend to be your typical early presbyopes? Are they a little bit later? Just anything you can tell us about them and what would be unique about them? And then second, on the DTC, just how extensive will this be? Is this going to be like analog where you're watching 6:30 news on television like the old days? Or is it digital only? Evert Schimmelpennink: Yes. Great question, Marc. Thanks for that. So, if we look at the filled prescriptions to date, because this is coming through our e-pharmacy, we do have a lot of information on the demographics of patient. And again, it's in line with what we expected, right? So, we see the prescriptions. It's mostly people in that 45 to 65-year-old age group, right, still gainfully employed. We are seeing a bias towards female over male, again, as expected, and we're seeing it in those metropolitan areas. So right, really those more developed areas along with what we saw with VUITY and being the biggest space in markets. This is great confirmation before I move on to what your second question is your DTC. These are the areas the adopters expected and that we're seeing and our DTC has targeted them as well. And what we find in these early adopters is they're not necessarily on analog TV or linear TV is the other common name for it. What we see is they're spending time on a more digital environment, which is your Instagram, your Facebook, your YouTube and your Pinterest. And so that's where the majority of our DTC will be focused. So, it is predominantly digital and hitting on where they spend the time. The great news is with our already market research that told us the early patients are as well as the confirmation of what we're seeing in early patients, we can further target them through where they live, what they research online, what their annual income is to have a successful DTC campaign. Operator: Your next question comes from the line of Jason Gerberry from Bank of America. Pavan Patel: This is Pavan Patel on for Jason. First is, can you maybe help us break down the use of e-pharmacy versus traditional retail pharmacies within those initial 5,000 scripts? Just trying to get a sense of how closely we're going to be able to track those patients and get a sense of expected refills. And I think Ev may have mentioned that there's some supply that's being available on e-pharmacies that is different versus retail pharmacies. Just if you could clarify those comments. And then my second question is with regards to the SG&A run rate for 4Q. I guess, how should we be thinking about that? And then as we look towards 1Q of 2026, can you just help us quantify the expected step-up in spend associated with the new DTC campaign with the spokesperson? Thank you. Evert Schimmelpennink: I'll take the first one and Dan will talk about the SG&A. So, like I explained earlier, currently in these first weeks of launch, initially, the product was only available through e-pharmacy. And only in the last couple of weeks, slowly, the retail pharmacy has come online. So, whatever that split at the moment is, it will not be representative of how this will go forward. So, I think it's too early to give any call on what that split is. What we are seeing, and I think that's expected is that Symphony and IQVIA as it comes online will have a good sense, we expect of the product that's flowing through retail, less so on the e-pharmacy side, although as I mentioned earlier, we're surprised to see that Symphony is tracking the e-pharmacy side to a degree. And then I think your question was around the difference in availability of product through e-pharmacy. I think as we mentioned a lot, there's a 3 pack that's available for consumers to buy at a discounted rate of $198 per pack. That $66 that could translate into $66 a pack, which obviously compares to the $79 if you do a one pack. Importantly, from a bottom line perspective, it's the same to us, but obviously gives that advantage to the patient. That pack is only available through e-pharmacy. So that's the difference there. And then on the SG&A side, I'll hand it over to Dan. Daniel Chevallard: Thanks, Ev. And Pavan, thanks for the question. So just to break down the OpEx overall, what we talked about this year were 2 trends. One was you should expect SG&A to ramp into the second half, which I'll characterize for you. And then you also should expect R&D to do the opposite, which also has done. So, R&D of $9.1 million in the second quarter down to $3.8 million in the third quarter, you should expect that to continue to taper. And on the SG&A side, having spent $12.8 million in Q2 for SG&A and that bumping to $27.6 million in Q3, that trend is what you could reasonably expect. Now Q3 did include some one-timers you would expect around the moment of launch. There were some onetime costs. But what we've always said for 2026 was assume a commercial spend of $80 million to $100 million per year, inclusive of the DTC. And then layer on top of that, the G&A spend on the order of $20 million to $25 million. That kind of 4:1 ratio we've consistently talked about of sales and marketing versus G&A. I would just reiterate that at this point in time. So, if you take those assumptions and model them into 2026, we would be comfortable with that and are continuing to guide in that way. Operator: Your next question comes from the line of Lachlan Hanbury-Brown from William Blair. Lachlan Hanbury-Brown: Congrats on the progress. I guess, you mentioned that there's been a decent amount of nontarget doctors that have expressed interest and you're putting mechanisms in place to support them. Can you just elaborate on what that is? I mean are you going to need more sales reps to support what looks like thousands more doctors than the current target list? And then maybe a quick second one. Any comments on the sort of average time to fill at the moment that you're seeing in the e-pharmacy so far? Evert Schimmelpennink: Great question as well, thanks. So, on the non-targets, one of the mechanisms that is in place is that we also have an inside sales force of 10 people that are available to connect with those offices. And we do have a mechanism where we can actually ship samples to them. What you also see is that for sales force, and we definitely again want them to continue to focus on our target accounts even in the same literally street as an untargeted one that is prescribing and that's obviously data that's all available. That's an easy stuff for them to make as well. But some of the things we've always spoken about, and you guys know that, that over time, we may increase the sales force. We have no plans to do that any earlier, but it is obviously something that we'll continue to look at. And as soon as that makes sense, we will pull that, that trigger. So that's on those 2 mechanisms. And then time to fill can be very quickly. We see and that's what's in place on the e-pharmacy side that you leave the office with a script in hand, you fill it out on your phone and just normal shipping is in most instances, 2 to 5 days. If you really want the product earlier, that's a priority shipping in place as well. And we see that work well on the retail side, similar timelines at the moment. So, we don't think that there's like a hurdle or a delay in filling the script. Lachlan Hanbury-Brown: Okay. And then maybe another one. You mentioned in the press release, I think there are about 9,000 ECPs have opted into the find a doctor tool on.vizz.com, which seems like a great number so far, but that's obviously not the whole target universe. So, I was just wondering what is sort of the barrier to getting the rest of the targets to opt in? Is it that they want experience or you just haven't got to them yet to talk about it? Evert Schimmelpennink: No. Thanks for actually bringing that question up. I think it's an important distinction that unlike different companies or what we often see is where you just buy a data set, but in our case, eye care professionals, we want this to go very differently. It's an opt-in process. So, doctors have actively one BD their own, 2 have samples and then 3 opt in to find a doc, it's a bottoms-up fill. And again, I think the number that you're seeing there highlights the enthusiasm that doctors have for the products. Anything you want to add, Shawn? Shawn Olsson: I say again, it's early in the launch. We're already continuing to see that grow very rapidly. And the great thing is by making sure it's this bottom-up build, it's people that we know that we've spoken to multiple times, they're understanding the MOA differences, they believe in the product, and then we're bringing them on to this process of our money back. Operator: Your next question comes from the line of Gary Nachman from Raymond James. Gary Nachman: So, back to the initial people using VIZZ, so the 5,000 first Rxs, can you also profile them a bit in terms of the buckets you've talked about? Are they contact lens wearers, LASIK patients, those getting aesthetic treatments? And are you seeing any pushback at all with consumer sentiment generally pretty low with the price of VIZZ? Is that holding back any Rx uptake? Daniel Chevallard: Great question, Gary. Thanks for that. So, when we look at the initial users, we can't see a lot of data. What I can tell you on these initial users is there are people that are already in the practice because we haven't turned on DTC yet, it's really doctors speaking to patients that are already coming through their practice. So, it's mostly those. We can't break it out into which bucket yet of are they post LASIK or not. We'll be able to get better insight in that after we turn on our DTC and we've targeted those groups. But it does appear to be those already in the practice would then lend itself more towards like the contact lens users or people that are just going in for random checks more than the other groups. In terms of pricing, we're not hearing much pushback at all on pricing, which is great. I think the biggest feedback we're hearing is, hey, this product works, it works fast and it works long. And so, we really see that as promising and haven't seen pushback on pricing. Gary Nachman: Okay. And then just one more for Ev. The distance benefit that you're hearing pretty consistently, it sounds like in addition to the near vision benefit. How important is that for VIZZ's overall profile and how patients are viewing that? And will you consider a study looking at distance vision maybe to add to the label in addition to whatever data you have already? Evert Schimmelpennink: Thanks, Gary. So, we are indeed hearing it, and that's great and something, obviously, in our Phase III data, we saw that some 41% of people in the study show if we measure the distance vision improvement there. That's clearly something that in practice translates. So that's great. It's all anecdotal at the moment. It's not key in our mind to make this successful as a near vision improvement drug. But obviously, it's a nice added benefit. We're hearing doctors experiment with it in that way and maybe experiment is not the right word, but they see again highly anecdotally that people that are minus half, minus 1, minus 1.5 are able to go without their distance correction. Highly anecdotal, something that we are obviously following, something that we are thinking of maybe ultimately do a different study on because that could be a group of patients that you can actually serve with our product as well. So again, great to see encouraging, not a make or break for the success of this as a presbyopia drop, but obviously very nice benefit. Operator: Your final question comes from the line of Matthew Caufield from H.C. Wainwright. Matthew Caufield: And obviously very excited for the launch. You had mentioned the focus on optometrists compared to ophthalmologists. And I was just curious how you anticipate that specific split playing out in the near term regarding the sales force targeting for driving the launch and how that might evolve in the coming quarters? Shawn Olsson: Yes. Thanks, Matt. So when you look at our sales force targeting, it's aligned to where we saw the early prescribers of VUITY. So their targets are roughly 80% optometry and then 20% ophthalmology. And so, we'll continue to look at the prescriber base, but don't see any changes to that mix in the near term right now. We're seeing consistently that, again, this does continue to be an optometry play product. And so, we're confident in that 80-20 split. That concludes our question-and-answer session. As I'm showing there are no further questions, thank you for your participation, and we now conclude today's conference call. You may now disconnect.
Operator: " Clive Kinross: " Sheldon Saidakovsky: " Devon Ghelani: " Andrew Scutt: " ROTH Capital Partners, LLC, Research Division Jeff Fenwick: " Cormark Securities Inc., Research Division Matthew Lee: " Canaccord Genuity Corp., Research Division Rob Goff: " Ventum Financial Corp., Research Division Stephen Boland: " Raymond James Ltd., Research Division Operator: Good morning, everyone. Welcome to Propel Holdings Third Quarter 2025 Financial Results Conference Call. As a reminder, this conference call is being recorded on November 5,2025. [Operator Instructions] I will now turn the call over to Devon Ghelani, Propel's Vice President of Capital Markets and Investor Relations. Please go ahead, Devin. Devon Ghelani: Thank you, operator. Good morning, everyone, and thank you for joining us today. Propel's third quarter 2025 financial results were released yesterday after market close. The press release, financial statements and MD&A are available on SEDAR+ as well as on the company's website, propelholdings.com. Before we begin, I would like to remind all participants that our statements and comments today may include forward-looking statements within the meaning of applicable securities laws. The risks and considerations regarding forward-looking statements can be found in our Q3 2025 MD&A and annual information form for the year ended December 31, 2024, both of which are available on SEDAR+. Additionally, during the call, we may refer to non-IFRS measures. Participants are advised to review the section entitled Non-IFRS Financial Measures and Industry Metrics in the company's Q3 2025 MD&A for definitions of our non-IFRS measures and the reconciliation of these measures to the most comparable IFRS measure. Lastly, all dollar amounts referenced during the call are in U.S. dollars unless otherwise noted. I am joined on the call today by Clive Kinross, Founder and Chief Executive Officer; and Sheldon Saidakovsky, Founder and Chief Financial Officer, will provide an overview of our Q3 2025 results and observations on the overall economic environment before covers the financials in more detail. Before we open the call up to questions, Clive will provide an update of our strategy and growth initiatives for the remainder of 2025 and into 2026. With that, I'll pass the call over to Clive. Clive Kinross: Thank you, Devin, and welcome, everyone, to our Q3 conference call. Building on a strong first half, we are proud to deliver another quarter of record results. Amid a dynamic macroeconomic environment, our AI-powered platform and disciplined risk management drove stable credit performance while delivering profitable growth. Before speaking about what we're observing in the broader economy and our consumer segment, I'd like to highlight our record third quarter results. We delivered another quarter of strong growth with record quarterly revenue total originations funded and ending forward momentum from the first half of the year, we experienced healthy consumer demand and stable credit performance through Q3. At the same time, given evolving macroeconomic conditions and a modest uptick in delinquencies during the quarter, we and our bank partners maintained a tight underwriting posture, particularly in the U.S., making targeted adjustments to preserve credit quality in line with seasonal expectations. Even with these prudent measures, we achieved record total originations funded of $205 million, up 37% year-over-year and record revenue of $152.1 million, an increase of 30% from Q3 2024. On the bottom line, net income rose by 43% to $15 million and adjusted net income increased by 16% to $16.2 million compared to the prior year. to what we observed in the macro environment and with our consumer segments. In the U.S., growth remains steady. However, inflation in essential spending categories such as food, shelter and health care remains elevated with each increasing more than 3% year-over-year, weighing more heavily on the consumers we serve spend a greater proportion of their income on these essentials. Furthermore, according to the Federal Reserve Bank of Atlanta, median nominal wage growth for lower income workers was 3.6% in August 2025. As a result, real wage growth for our consumers, while still moderately positive, has moderated in 2025. In addition, the resumption of student loan collections in Q2 has put additional pressure on some of our consumers. these pressures on our U.S. consumers during the quarter, we and our bank partners made proactive underwriting adjustments to ensure our credit performance was in line with seasonal expectations. This is the benefit of our AI-powered platform and the resiliency of our business model. We benefit from the quick feedback loop where slight changes to the macro environment and consumer behavior are detected immediately and we are able to adjust our underwriting instantly. Notwithstanding some of the pressures we are observing in the U.S. employment remains healthy and continued job growth across key sectors where many of our customers are employed. The resiliency of our consumers cannot be understated. The are jobs demand and often interchangeable and consequently are able to replace lost income. Overall, the U.S. consumer remains resilient. However, we are taking a deliberately cautious stance in the U.S. market to prioritize strong credit performance and profitable growth. In Canada, revenue grew by 41% year-over-year to a record level in Q3, though the market still represents approximately 2% of total revenue as we continue to scale forward. Credit performance was particularly strong and is reflective of previous refinements to our risk model, further demonstrating our ability to adjust to macroeconomic conditions quickly and the resiliency of our operating model. This performance is even more encouraging considering the backdrop of the broader Canadian economy, which has softened due to U.S. trade tariffs and with relatively higher unemployment of 7.1% the Bank of Canada cut rates by cumulative 275 bps since mid-2024 to a policy rate of 2.25%. We continue to monitor the impact of recent trade measures and are encouraged by the federal budget stronger focus on driving investments in Canada, including much needed reforms to stray. I had the opportunity to meet recently with Minister Solomon, Canada's Minister of AI. I was encouraged by the government's commitment to be a global AI leader and hope the AI strategy set the table later this year will include specific support for public companies like Propel who choose to build innovative businesses here in Canada. Turning to Lending as a Service. We achieved record revenue, which exceeded $5 million in Q3, representing growth of more than 4x from last year and sequential growth of approximately 13% we launched in additional states, further broadening our geographic footprint. This expansion in addition to strong returns has led to increased commitments from our partners, which will fuel further growth. In the U.K., we delivered record originations and revenue in Q3 while maintaining strong credit performance. Prior to Propel's acquisition of Market, the U.K.'s record monthly loan originations was approximately 7,600 has grown consistently month by 78%, totaling roughly 13,500 originations in September, demonstrating the market opportunity and our ability to successfully scale in new geographies. Our performance in the U.K. was supported by a resilient economy. The U.K. has seen inflation trending towards the Bank of England target. Unemployment remains low at 4.7% and wage growth is outpacing inflation, supporting spending and credit demand. Lastly, reflecting our continued strong results and solid financial position, our Board of Directors has approved another increase to our dividend from $0.78 to $0.84 per share annually in Cans. 8% increase represents our ninth consecutive dividend, underscoring our strong financial performance and ongoing commitment to delivering shareholder returns. I will speak more about our outlook and business development pipeline for the remainder of 2025 and into 2026. But first, I'll turn the call over to Shell. Sheldon Saidakovsky: Thank you, Clive, and good morning, everyone. We're proud to deliver another quarter of record results and of achieving strong profitable growth while maintaining our disciplined approach to credit. Given the uncertain economic environment and the uptick in delinquencies observed during the quarter, we and our bank partners operated with a more measured underwriting posture in Q3, particularly in North America. Notwithstanding this dynamic, consumer demand across our operating brands remained healthy. And together with our bank partners, we achieved record originations from both new and existing customers during the quarter. This resulted in record originations funded of $205 million, an increase of 37% from Q3 of last year. This growth drove ending CLAB to a record $558 million, up 29% year-over-year. Consistent with our disciplined underwriting posture, we and our bank partners prioritized a higher proportion of volume from return and existing customers to strengthen credit quality in North America. In addition, within our U.S. portfolios, we and our bank partners focused originations more on higher credit quality consumer segments that carry a lower cost of credit. In contrast, in the U.K., where credit performance remained very strong, we emphasized new customer originations. Overall for Propel, new customers represented 44% of total originations in Q3, consistent with prior quarters and reflecting our balanced and deliberate approach to growth across all markets. Our record loans and advances receivable balance and ending CLAB drove record revenues of $152.1 million in Q3, representing a 30% increase over Q3 last year. Our annualized revenue yield in Q3 was 113%, a modest decrease from 114% last year. This decline primarily reflects the shift toward returning and existing customers, the emphasis on higher credit quality new customer originations at lower fee tiers the continued aging of the portfolio, including graduation and the ongoing expansion of Fora. These factors were partially offset by the higher-yielding quid market portfolio and our last revenue. Turning to provisioning and charge-offs. Our provision for loan losses and other liabilities as a percentage of revenue was 52% in Q3 2025, consistent with Q3 of last year and within our targeted range. As noted earlier, we experienced a modest uptick in delinquencies within the U.S. portfolios, reflecting normal seasonal trends and the broader macro pressures on our consumer segment discussed earlier. In response, we and our bank partners implemented underwriting adjustments and moderated new customer originations to maintain credit quality and deliver strong results within our established loss rate targets. In the U.K., while delivering record originations, Quid Market continued to deliver strong credit performance. Furthermore, in Canada, where we've been operating with optimized underwriting and a tighter posture for several quarters, we experienced our strongest ever quarterly credit performance in Q3. Taken together, credit performance for Propel as a whole remained well within our targeted range, reflecting the diversification benefits of our multi-market platform and the strength of our disciplined underwriting capabilities. Credit performance also continues to be supported by, firstly, the effectiveness of our AI-powered platform and disciplined underwriting by Propel and our bank partners; and secondly, the continued scale and maturation of the loan portfolio with a higher proportion of originations from return and existing customers who historically demonstrate lower default rates than new customers. Net charge-offs as a percentage of CLAB was 12% in Q3, also within our target range and consistent with seasonal trends. Overall, both the 52% provision and 12% net charge-off ratios remain firmly within expectations and continue to support strong unit economics and sustainable profitable growth. Turning to profitability. Adjusted net income increased to $16.2 million in Q3 2025, up 16% from last year. On an EPS basis, diluted adjusted EPS grew to $0.38 for the quarter. For the 9-month period, adjusted net income increased to $58.7 million and diluted adjusted EPS grew to $1.39, both representing 9-month period records. As a reminder, all figures are expressed in U.S. dollars. The year-over-year increase in earnings reflects the company's strong top line growth, stable credit performance and disciplined expense management. I would note that our IFRS net income increased by 43% year-over-year, which is a larger increase relative to the adjusted measure. This is a result of two main factors. Firstly, a lower quarter-over-quarter CLAB increase in Q3 2025 relative to last year resulted in a relatively lower Stage 1 add-back this quarter. And secondly, transaction costs relating to the QuidMarket acquisition were expensed in Q3 last year, thereby reducing our Q3 2024 IFRS net income. On a return on equity basis, our annualized adjusted ROE for Q3 declined to 25% from 45% last year. For the year-to-date period, annualized adjusted ROE was 33% versus 52% last year. The declines were driven primarily by the CAD 115 million equity offering completed in Q4 2024 to finance the QuidMarket acquisition. We believe these metrics demonstrate strong returns to our investors as well as our ability to efficiently utilize shareholders' capital. Acquisition and data expenses increased by 41% to $18.3 million in Q3 2025, driven primarily by strong total originations funded growth and an increase in the cost per funded origination. Cost per funded origination increased to $0.089 per dollar in Q3 from $0.087 per dollar last year, while cost per new customer funded increased to $0.204 per dollar from $0.193 per dollar funded last year. Overall, these costs remain well within our acceptable range to achieve targeted profitability during a period of significant growth. Other operating expenses represented 15% of revenue in Q3 compared with 16% in Q3 last year. This reduction reflects several factors, investments in AI, driving operating efficiencies and the inherent operating leverage in our model. At the same time, these have been somewhat offset by the increased operating expenses this year due to our investments in our infrastructure to support forthcoming business development initiatives. These initiatives, several of which are nearing launch are expected to meaningfully contribute to growth and profitability as they scale. Lastly, operating expenses were impacted last year by onetime transaction costs relating to the Quip Market acquisition. Our profitability also benefited from a lower overall cost of debt, driven by recent interest rate reductions and improved credit facility terms. Combined, these factors decreased our cost of debt to 11% in Q3 from 13.4% in the prior year. Any further reductions in interest rates as we experienced in the U.S. and Canada last week will further benefit profitability. Overall, our adjusted net income margin was 11% in Q3 compared to 12% last year. The modest year-over-year decline in margin percentage primarily reflects a lower Stage 1 provision add-back and the strategic investments being made to support our growth initiatives. These initiatives are expected to drive growth and margin expansion over the long term. Turning to Propel's capitalization. At the end of Q3, we had approximately $125 million of undrawn capacity across our various credit facilities, and our debt-to-equity ratio was approximately 1.2x, reflecting a well-capitalized balance sheet and continued financial flexibility. We believe that our strong balance sheet, debt capacity and cash flow generation position us well to support the continued expansion of our existing programs, new growth initiatives and the recently increased dividend. Lastly, I want to provide an update on the integration of our U.K. business, which, as Clive mentioned, has achieved significant growth ahead of expectations. We successfully completed the integration of financial, corporate and IT systems ahead of schedule, including the identifying of enhanced acquisition, risk and analytics capabilities. We're now focused on accelerating growth through ongoing product enhancements, opening new customer acquisition channels, product expansion and the continued refinement of our underwriting and analytics strategies, all of which are helping us capture a greater share of the addressable market. Recently, Noah Buckman, our President and Chief Revenue Officer, joined me in the U.K. to meet with senior U.K. leadership and discuss new business development initiatives. These included potential strategic partnerships, marketing channels and innovative opportunities to further expand our U.K. footprint. The market remains full of potential, and we're confident the U.K. will continue to be a meaningful and growing contributor to Propel's success in 2026 and beyond. I'll now turn the call over to Clive. Clive Kinross: Thanks, Sheldon. We're now more than a month into our fourth quarter, and we and our bank partners continue to operate with a deliberate and disciplined underwriting stance. Operating in a dynamic macroeconomic environment and having observed a slight uptick in delinquencies in Q3, we proactively adjusted our underwriting to prioritize credit performance. Macroeconomic backdrop remains uncertain, particularly in the U.S. where persistent inflation in essential spending categories and moderating wage growth continue to pressure lower income consumers. The recent federal government shutdown has also temporarily impacted some consumers further tightening household budgets. When we provided our initial 2025 guidance in March, the economic backdrop look materially different. Since then, new U.S. trade tariffs, sustained inflationary pressure and slower real wage growth created a more cautious operating -- given the evolving dynamics and consistent with our long-standing commitment to profitable growth, we are maintaining a cautious risk posture. As prudent operators, we have always prioritized disciplined risk management over short-term expansion. This deliberate approach ensures we protect credit quality, sustain profitability and position the business for long-term success. Importantly, we're continuing to see the benefits of these actions with continued stability in portfolio performance despite an uncertain macroeconomic backdrop. Reflecting this disciplined stance and the resulting slower pace of NCA growth, we are modestly revising our 2025 guidance. We now expect NCAB growth to come in moderately below the low end of our previously communicated range with the adjusted margin and adjusted return on equity metrics following a similar trend. Important we continue to expect to be in line with our full year targets for revenue, net income margin and return on equity. While growth has moderated this measured approach is deliberate so that we can remain well positioned for continued profitable growth heading into 2026. Looking ahead, our business development pipeline is robust, and we are well positioned heading into 2026 with several strategic initiatives underway. Starting in the U.S., which remains our largest market, we continue to see significant untapped potential. In the weeks and months to come, we expect to announce strategic initiatives designed to expand our addressable market by introducing new products, expanding into new geographies and building new partnerships. In Canada, while the impact of U.S. trade tariffs and a higher unemployment rate are weighing on consumers, the market remains sign government of Canada recently noted there is a clear need for greater competition in financial services. We're actively pursuing partnerships across Canada's fintech ecosystem to deliver modern forward credit solutions and expand access to credit for Canadian consumers. In the U.K., strong originations and credit performance continue to exceed expectations. We now expect top line growth of more than 50% in 2025, our first full year since acquiring Markets. The business is well positioned to accelerate this momentum into 2026 and beyond as we further expand our product set, deep partnerships and further leverage our technology and analytics cap. Just over a year since joining Propel, the U.K. team has exceeded all of our expectations, demonstrating the passion, discipline, expertise and focus on profitable growth that position us to succeed in this market. A key pillar to our growth strategy is geographic expansion and through the recent performance of the U.K. and Canada, we are already seeing the benefits of that diversification strategy. AI is also central to our growth strategy and has been integral to our success. As you know, for the past decade, AI has been a differentiator to underwrite underserved consumers at scale. But with the advancements in generative AI, we go even further to embed AI into every -- over the past several quarters we've made significant investments in partnerships to enhance productivity and decision-making across the organization from improving customer service and satisfaction to streamlining marketing to accelerating software development. While these investments weigh on profitability in 2025, we are already seeing efficiencies materialize. For example, we set records for percentage of customers in Q3 this year at approximately 60%, up from 50% in the prior year. When we look at other gains made year-over-year, loans originated per agent in Q3 2025 were 53% higher in Q3 2024. The gains are in our origins Use of AI generative tools and software engineering has doubled unit test, meaning that one developer is able to produce more accurate and stable code, which in the longer term saves developer resources. We expect to see these initiatives accelerate into 2026 as we improve service levels whilst also driving increasing bottom line margins. Ultimately, while technology and AI at our foundation, it's our people that have made Propel a success. The passion and focus of our teams across North America and the U.K. turn innovation into performance and ambition into results. Our voluntary turnover is around 3%. And looking at our senior leadership team where the average tenure is more than 7 years, the turnover is even lower. People who come to Propel stay at Propel and in doing so, strengthen our company. Powered by investments in AI by our people, Propel continues to be recognized for exceptional growth and performance. In the past quarter alone, we were named to the Global [indiscernible] companies, Deloitte Technology Fast 50 and the TSX 30, where we ranked as the sixth best performing stock over the past 3 years. These achievements reflect what our shareholders already know. We've built a powerhouse that delivers quarter after quarter. It's now been 4 years since our IPO. And over that time, we've delivered consistent compounding growth, including 16 consecutive quarters of year-over-year revenue growth of at least 30% figin6000ans and serving hundreds of thousands of consumers across North America and the U.K. 50% CAGR in LTM revenues and 55% in LTM adjusted net income and dividend increases, resulting in a cumulative increase of more than 120% and we're just getting started. That concludes our prepared remarks. Operator, you may now open the line for questions. Operator: [Operator Instructions] And your first question comes from Matthew Lee with Canaccord Genuity. Matthew Lee: I want to start with the guidance. If I've done the math correctly, it sounds like a pretty big step down in origination activity for Q4, even with credit remaining pretty steady. I understand you try to protect quality, but how quickly do you think you could turn that growth machine back on? And then when we look at 2026, should we be 20% to be the growth rate we're expecting on? Clive Kinross: Thanks so much, Matt. And maybe before I answer the question, let's just take a step back to see what's going on right now in the economy. I think a lot of people describe this economy as a K-shaped economy where kind of the rich are getting richer and those that are struggling, there's more and more of them that are struggling. I was actually on a call recently with TransUnion with the top economists over there, and they were just speaking about the bifurcation in the credit market. There's a real polarization with the super prime segment of the market growing and the other big growth is happening in the subprime segment of the market in terms of applications. Everything between the two is shifting to the two poles. And it's important to think about why that's happening. The unemployment rate in the U.S. has started to trickle up a little bit -- we don't know exactly what it is in this government shutdown, but the ADP data suggested that it's gone up in the last couple of months. I recently actually earlier this morning saw that they actually said there was job growth in October. So that's encouraging. But at the same time, given this backdrop, wages are also starting to have softened a little bit or wage growth particularly for our consumer, all of which translates to lower real wage growth. So that's different to what we've been experiencing in the last few years. On top of it, we're right in the midst of a big U.S. government shutdown, the longest U.S. government shutdown in history. And the easy thing for us to understand in that context is employees being furloughed, many of whom are not customers of ours in and around Washington, D.C., Virginia places like that. So we're not really impacted by that. government shutdown has impacted other areas of the economy. SNAP benefits go out to about 40 million consumers. Some of those consumers overlap with our customer segments. You also have the Affordable Care Act where prices are set to go up currently, even though it hasn't impact consumer spending yet, those two developments are certainly impacting consumer sentiment, which in turn is driving slower spending, particularly by our consumers and slowing growth down a little bit. So that's the broader market. And until the government shutdown is over, and I suspect now that these recent elections are behind us, the government shutdown will come to an end sooner rather than later. But until they are, we need to be prudent in the face of some of these risks. And as a result of that, as you say, we're prioritizing credit quality ahead of anything else we are growing at the pace that we continue to perform in line with our credit quality standards. Notwithstanding these comments, let me provide a little bit of additional color. The steps that we've taken in further tightening our underwriting has led to declining delinquencies. So we're already seeing the improvement in delinquencies in our partly in the U.S. market, which is where the majority of the adjustments were made. But bear in mind, we moved quickly to fine-tune or to tighten our underwriting and we move a lot slower to open it up as we start to see green shoots and positive signs in the economy. So we've already started to gradually open up from where we were and I absolutely suspect that by the end of the year, our approval rate will be where we thought it would be. But that said, it's going to take a little bit of time to grow into that. Just a little bit of additional color every day when I look at our management reporting systems, which are contrasting the volume of applications relative to the initial budget that we set at the beginning of the year, I can tell you I see green on the screen every single day, meaning the number of applications that we're seeing is significant and higher than our initial expectations, which really dovetails and is consistent with my comments about the polarizing economy that we're seeing right now. There's zero issue with the number of applications we're seeing. If anything, that's growing. And I do know in every single crisis that we've seen over the last few years, the global financial crisis of '08, the oil price collapse of 2014, COVID-19, the spike of 2023, our segment of the market has grown. So we absolutely expect that at the end of the day, with the pullback in risk, our segment of the market will grow significantly. And if anything, that we absolutely expect to return to the growth metrics in 2025. Now you meant 2026, sorry. Now part of your question was speaking about CLAB growth. Bear in mind more and more of the growth in our business is also going to be reflected in CLAB. We mentioned at the Canaccord conference earlier this year that we expect as a Service program, which is the CLAB to grow at around 10% in 2026. We don't -- we still have that position. And by the same token, as brilliantly as the U.K. is doing, we expect that to accelerate as well and continue to believe that, that will produce 100% growth in 2026, even though the impact on the CLAB is not that material. The final thing I'd like to say is we have several business development initiatives that we hope to be announcing in the coming days and weeks that if anything, will accelerate the growth beyond what I just spoke to. Sheldon Saidakovsky: Matt, maybe -- I just wanted to add one data point over here just on top of what Clive provided a lot of good context. We've seen this before. the beauty of our operating model is that we can adapt and shift very quickly, tighten and then once we like what's going on, we can, as Clive said, gradually open again. We saw this earlier in 2022. In Q4, just that as a data point, in Q4 2023, we had tightened relatively speaking, where we saw CLAB growth by about 36% in that quarter. And 2 quarters later, we were growing CLAB by 44%. So just to put into context a couple of data points, how we can shift things around. We've seen this in Q4 recently. And 1 quarter later, we were right back kind of with almost 10% absolute higher growth. Matthew Lee: That's helpful. So maybe just as a follow-up on that, if we have the government shutdown stopping today, for example, and credit quality starts looking better, could you be back to kind of steady state or historical growth by December? Like is that the speed at which you guys can move that machine? Or is there other things that need to kind of come into place before we reach that kind of level? Clive Kinross: Yes, certainly. So just to be clear and just to explain in a little bit broader terms the government shutdown and if we're seeing anything, even though SNAP benefits supposedly stopped this month, the states in the U.S. have different coverage for the SNAP benefits. Some of the southern states have a higher percentage of their consumers who are eligible for SNAP benefits. And for sure, you're seeing the impact of that in those states where they have relatively higher delinquencies than we've seen in other parts of the country. All of which is to say once the government shut down once the government opens up again, I absolutely expect to see those turning around relatively quickly, which again is what we've seen in the past. One of the benefits of doing this for 14 years is that there's nothing new under the sum we've seen this before and we know when we know when to put our foot on the gas. So from a new origination standpoint, we can absolutely be at the absolute number of new originations towards the back half of December as would have been the case. But what we cannot make up, we cannot make up a slightly lower at the end of and slightly slower growth in October relative to what we thought we would be, which means we can't make up the full difference heading into the end of the year. So where we thought that the CLAB in was going to be 25%, it's going to be less than that as you can see with our revised guidance, but we expect to end the year give or take the same number of new loan originations that otherwise would have been the case, and that will serve us well heading into 2026 over and above the new initiatives that we'll be announcing soon that will further fuel that growth. Matthew Lee: That's helpful. And then I just want to sneak one last one in here. Philosophically, your shares are trading at a place that's probably too low. Would you consider a buyback to be honest. Clive Kinross: Yes, philosophic, we think that we agree with you. And when I say we, I'm really referring more to our Board and our Board discussion as recently as last night where that became a much more serious consideration given where the share prices are, given where the shares trading, notwithstanding a company that's consistently demonstrated 30% quarter-over-quarter growth since being a public company, including the most recent quarter as well as 50% bottom line growth. So that's certainly a more serious consideration. We're thinking hard about it, Matt. We need to weigh that up against some of the big investments that we've got coming down the pipe to really launch some of these big initiatives which I think [indiscernible]. Operator: Your next question comes from Andrew Scott with ROTH Capital Partners. Andrew Scutt: [Technical Difficulty] So first one for me, something in the prepared remarks as you guys are talking about potentially expanding your footprint with the market. So could you kind of remind us of the competitive environment in the U.K., the market faces and your kind of belief and ability to capture market share there? Sheldon Saidakovsky: Yes. Andrew, thanks for the question. Yes, I mean, the U.K. market is very exciting. Obviously, it was our -- we really liked it to start with, and that was one of the key criteria in our acquisition strategy. We needed to really, really like and be bullish on the jurisdiction. Just to remind you and everyone just around kind of the thesis over there, there were a lot of regulatory changes in the U.K. from the Financial Conduct Authority a number of years ago. And that the regulator kind of acknowledged that they overcorrected. It led to a lot of kind of a huge growth in illicit lending or legal lending in the U.K. and an exit of a significant amount of credit supply. A lot of big players, actually a couple of U.S. big players used to operate in the U.K. and they exited after those significant regulatory changes. Quid market actually sort of survived through that as did a couple of other strong operators. But effectively, on the other side, that led to a vast sort of undersupply of credit relative to the demand in the market. There just weren't any dominant players like, for example, a goeasy that you see in Canada or some of our competitors in the U.S. There was nothing like -- there's nothing like that in the U.K. today, although demand is growing significantly. So that's kind of the competitive aspect over there, which allows QuidMarket to have grown by the percentages that they've grown by 30% to 40% before we acquired them, really by cherry taking good quality volume in the market. Now with us on board, applying our sophisticated underwriting and technology capabilities and having their systems ultimately integrate with ours us being able to open a number of marketing partnerships and channels that they haven't had before and applying our expertise in terms of profitability modeling and product expansion and finally, having the balance sheet to finance them will enable QuidMarket to really hit its stride and start growing in the U.K. So without having integrated all of this optimization that I'm speaking about, we're sort of on a path to do so, we're still pushing the growth in excess of 50% this year. But starting next year, we're expecting to accelerate that growth much faster as we really start to put our foot on the growth side and start integrating a lot of those -- a lot of our expertise and capabilities. Andrew Scutt: Really appreciate the color. And second for me, you guys have talked a lot about preemptively tightening the underwriting. But on the flip side, I was wondering, are there any initiatives you guys can put in place on the servicing side to kind of support your customers as they're going through the stress now? Clive Kinross: Yes. Look, to the extent that customers call us and ask us for concessions, obviously, we like to accommodate those where need be. There's certainly been a slight uptick in those requests, as you would imagine. And if you said to me what's the #1 reason for it, the #1 reason for it and what we keep hearing from consumers, which is one of the benefits of our [indiscernible] and government shutdown. So to the extent that they do that where possible, we try and accommodate those concessions to keep these consumers in good standing so that it doesn't impact their credit profile. From our perspective, it's obviously a little bit detrimental for a tiny portion of our consumers in so far as oftentimes, we'll waive the next payment. But once again, it's a tiny percentage of consumers, albeit has grown a little bit in this government shutdown. Hopefully, and based on experience, that will come to a halt as soon as things open up again. Operator: Your next question comes from Rob Goff with Ventum. Rob Goff: You talked about the new product developments in the last 2 quarters. Can you talk a bit further in terms of how significant you see the geographic expansion? How impactful are the new services? Are they more fine-tuning or new introductions... Clive Kinross: Yes. Yes, it's a great question. Let me think carefully, Rob, about how to frame it up because we're getting closer and closer to be able to provide more detail. I think what I we're always very, very concerned about our credibility and we're very concerned always about doing what we say we're going to do. So everybody on this call and most people have been long-standing investors know that about us. And sorry that I'm a little bit over here. And I also know that we've always said we prioritize credit quality over everything else and profitable growth over everything else. So I know a bit over there. But these are initiatives that are going to provide geographic expansion in our biggest market, that's the U.S. market and also going to facilitate the addition of new products also for underserved consumers but different segments of underserved consumers so they will expand our geographic reach as well as expand our consumer reach by offering products to products themselves and the underwriting and risk and marketing associated with those customers is not that different to what we currently have in place, which is why we feel highly confident that when we do launch these, we'll be able to hit the ground running and they will be incremental in a fairly sizable way early on of the launch. Rob Goff: I appreciate the sit. And perhaps more for Sheldon. It's encouraging to read the discussion with respect to quid market and talks about 100% growth next year. Can you talk about the significance of partnerships there and new services? Sheldon Saidakovsky: Yes. Rob, yes, the market is, as I mentioned, it's wide open over there. And I think that right now, markets acquisition strategy and acquisition, I would say, the channels through which they acquire customers look a lot like what ours looked, call it, probably 4, 5 years ago. Now over the last number of years, as our profile has grown, our capabilities have grown, we've been able to open up new channels and spend money on initiatives and marketing distribution channels that we never had before. We've gotten to scale in a number of them in the U.S. in the U.S. market. And with that, we'll be able to bring those capabilities and open up those channels in the U.K. So notwithstanding that, the company is still growing well in excess of 50% just given their marketing channels available to them right now. The way we're going to get well beyond the 50%, I mean, you mentioned 100% that is an official guidance, but we have spoken about that before. That's certainly possible, and we'll be able to achieve that by expanding some of their origination channels and entering into some key partnerships. So that's certainly part of our immediate strategy. Operator: Your next question comes from Jeff Fenwick with Cormark Securities. Jeff Fenwick: I wanted to focus in on the relationship you have with your bank partners. You referred to that making changes in conjunction with them. I was hoping you could just give us a bit of color in terms of just the balance of decision-making. Is there ever disagreement there? Who's really sort of driving the decisions in terms of adjustments to the credit box or the volume of originations that you're doing? And I think it's probably different between your sort of traditional model that you have with CreditFresh versus the lending as a Service programs that you're structuring now. But could you just maybe offer us a little bit of commentary around that? And are you in agreement or what happens if you disagree? Clive Kinross: Yes. No, it's a great question, and it's certainly a very collaborative approach. As you can imagine, we have an exceptionally close relationship across the board with our bank partners. Several key executives and employees at Propel are in contact with our bank partners on a regular basis. So they understand exactly what's going on with the business. They're tracking daily activities of originations, delinquencies, things like that. And more often than not, they're the ones leaning in and they're the ones suggesting that we tighten up and ask us for additional data to support those decisions. And more often than not, we're on the exact same page -- that's the way it's been since day 1. And the collaborative approach ultimately with them taking the initial initiative has worked exceptionally well and continues to work well in this environment. We're getting -- we're now getting more calls from them suggesting that with the demand -- the strong demand that we're seeing in the market and delinquencies coming back in line with where we expect them to, can we open things up a little bit more. And as recently as earlier this week – was it earlier this week? Yes, earlier this week, we already started to put some of those initiatives in place. Jeff Fenwick: And I guess within the Lending as a Service program, I mean that's one where I would imagine you've got partners both on the front and the back end on the funding side of things, like there's going to be something maybe a bit more of a dynamic the way that you work with those players are in a situation where they can say let's just stop when you want to go or help us understand how that relationship works. Clive Kinross: Yes. So yes, you're right in the sense that it's a 3-way relationship. And in that sense, those loans ultimately don't go on our balance sheet, they go on somebody else's balance sheet and not dissimilar to our bank partners, the purchasers who purchase those receivables are taking the activity each and every day, loan originations, the delinquency performance. And one of the reasons that they're increasing their commitments is because they're seeing the returns that we represent that they would see. But that said, similar to what's happened in our sponsorship business. We've had to maintain a tight underwriting posture for them too, meaning the way they've continued to those returns in Q3 was through a tighter underwriting posture, meaning the 4x-over-year growth that we saw would have been even higher had we maintained the same underwriting posture. We're now in a position, again, with our bank partners and with their support where we could start to open up a little bit. And as we do, we'll continue to drive more growth over there. The good thing is because they've gotten those returns, they all -- the majority of them last their -- so we're very well positioned to continue to expand and grow that program going forward. One of the things that I've been saying on the call leading up to this point is at the early stages of this program, it really has been an exercise of bringing on the capital at the same time as we expand our geographic reach over there and our distribution partnerships. And if anything, where we were playing catch up all the time was bringing the capital to the table. Where we are right now is that's almost balanced in the sense that there's almost enough capital to drive the growth to support the market demand. Jeff Fenwick: And then maybe just last one because we are in a bit of a dynamic environment here, is that maybe what's causing a little bit of delay in terms of the expansion of lending as a service. You did say you were making progress there, which is good to hear, but is it sort of that sort of dynamic that might be slowing down the process... Clive Kinross: Just say it again, if you don't mind, I'm not sure that... Jeff Fenwick: Sure. There was commentary that you're expanding lending as a service. But I'm just wondering, we haven't seen new announcements yet on that. Is there just some concerns maybe or maybe some hesitancy on those partners given the volatility we're seeing in the U.S. market to sign on the bottom line and move forward? Or what's the dynamic there? Clive Kinross: Yes. It's one of the interesting things about running a public company is the emphasis on quarter-to-quarter. And I would say that at a high level, and what's the impact from the slowdown for the long-term growth of the company, and I'll get to your question in a minute. I think that the fundamentals of providing credit to underbanked and underserved consumers have never been stronger. The market opportunity ahead of us is going to grow at the back of this. I was watching the election results coming out of the U.S. last night. And to me, the biggest element on the elections last night was affordability. That speaks to our customers. More and more of them are the underserved market is growing, the need for this type of credit is going to grow on a go-forward basis. Given the long-term trajectory, I would say that the growth is probably going to slow us down by maybe a quarter, maybe we'll get to where we're ultimately going to get to 1 quarter later. That's kind of how I would view it in light of these developments and I the same thing as it relates to as a service. One day, we're going to look at it and think back to the early days of some of the gyrations quarter-to-quarter, which ultimately will smoothen out over time, all of which is to say watch this space, you're going to see a lot of really interesting developments in the lending service arena that will, if anything, speak to accelerated growth there on a go-forward basis. Operator: Your next question comes from Stephen Boland with Raymond James. Stephen Boland: Yes. Just one question. Sheldon, in the past, you talked about diversifying your funding sources. I know with maybe slower growth, that's not a big requirement. You did talk about term debt in the past. I'm just wondering if there's any update in terms of funding sources going forward. Sheldon Saidakovsky: Yes. Steve, yes, we're constantly looking at ways to, number one, lower our cost of debt; and number two, sort of size up our capital requirement on a go-forward basis. Firstly, I mean, our cost of debt has come down quite a lot year-over-year to 11% from close to 13.5%. And that's as a result of our renegotiated credit fresh facility earlier in the year and the reduction in the rates, in the government rates generally. So any further reductions are going to be a tailwind for us. It will reduce our cost of debt further. And also, I would say that from an overall capacity standpoint, we're pretty well situated right now. I mean our debt-to-equity ratio is lower than 1.2:1 going into Q4. So we don't have an immediate need to upsize. And hopefully, we expect further reductions in our cost of debt just given future rate changes. With all of that said, we are looking specifically at increasing our capacity on the Canadian side, in particular. Clive mentioned earlier in the call that our credit performance in Canada, in particular, just this past Q3 was our best ever. So we're feeling better and more bullish on growing the Canadian side. And with that said, we'll look to optimize the capital structure over there, reduce the debt and increase capacity. And then also the term debt or high-yield bonds -- they're always out there for us, and we're always sort of examining them on when is the right time to go in and what the best use of proceeds will be. But that will, I would say, will eventually come. We just don't have any specific guidance right now. Operator: There are no further questions at this time. I'd like to turn the call back over to Clive. Clive Kinross: Yes. Thank you again, everybody, for attending our call this morning. I would also like to thank our investors and partners for their continued support and our vision of building a new world of financial opportunity. And as always, I would like to extend a big thank you to the Propel teams in Canada and the U.K. for delivering these outstanding record results and achievements. On that note, have an excellent day. And operator, you may end the call. Operator: Thank you so much for your participation. You may now disconnect.
Eric Boyer: Good morning, and thank you for joining Bentley Systems Q3 2025 results. I'm Eric Boyer, Bentley's Investor Relations Officer. On the webcast today, we have Bentley Systems' Executive Chair, Greg Bentley; Chief Executive Officer, Nicholas Cumins; and Chief Financial Officer, Werner Andre. This webcast includes forward-looking statements made as of November 5, 2025, regarding the future results of operations and financial position, business strategy and plans and objectives for future operations of Bentley Systems, Incorporated. All such statements made in or contained during this webcast other than statements of historical fact are forward-looking statements. This webcast will be available for replay on Bentley Systems' Investor Relations website at investors.bentley.com on November 5, 2025. After a presentation, we will conclude with Q&A. And with that, let me introduce the Executive Chair of Bentley Systems, Greg Bentley. Gregory Bentley: Good morning, as the case may be, and thanks for your interest and attention. I'm pleased to say that all quantitative metrics for '25 Q3 are quite in accord with our expected progress and outlook range for the year. But this quarter, Nicholas will highlight the significant product announcements and developments presented and observed at our Year in Infrastructure 2025 Conference last month, which I think also merit your firsthand review at the links here. Now I always look forward to discovering, through submissions for the Annual Going Digital awards, the unanticipated ways by which our users are ever creatively applying software and cloud services. This year, I was pleasantly surprised by the plurality of those citing contributions from AI. So upon observing this AI forward propensity at the level of projects and users, I reviewed with interest this year's AEC Advisors' survey of engineering firms participating in their annual CEO conference. You may recall that I previously reviewed 2 earlier such conferences where Bentley Systems helped with gauging progress and appetites in going digital. The surveyed firms together perform most of the contracted infrastructure engineering outside Asia with the distribution of their revenues by sector weighted, like ours, in favor of public works/utilities and resources. And within general building, corresponding to what we classify as the commercial facilities sector, the survey highlights a dramatic and interesting transition. AEC firms are now literally engineering the infrastructure for AI, as spending for construction of data centers, such as the project by digital construction leader, DPR, which served as the example throughout our Year in Infrastructure keynote presentations, ramps to soon overtake spending on office spaces. AEC Advisors shows that digital investment as an internal priority is also succeeding for engineering firms. For the last 5 years, they, in aggregate, have achieved continually increased profit margins at the same time as also higher growth in organic net revenues, the latter perhaps limited by capacity constraints as separately reported backlogs reached record levels. Underscoring market robustness, this organic revenue growth is still increasing, including through 2025 estimates and net of both annual U.S. inflation, in red; and in blue, U.S. GDP growth. AEC Advisors concludes that this growth in aggregate profit margin must be attributable to improvements in direct labor productivity as the total revenue percentage of other costs to support functions has risen continuously by almost 20%. This is despite real estate costs having declined since pre-pandemic by 25%, presumably owing to virtual and hybrid working enabled by our ProjectWise and other cloud services technologies. And most significantly for us, these firms' overall technology spending as a percentage of revenue will have increased by 40% over the 6 years through 2025. Combined with their organic revenue growth, their technology spending in dollar terms increased from 2019 through 2024 at a compounded annual growth rate of 13%, tolerably coinciding with the growth rate of Bentley Systems revenues, as I have reviewed in recent quarters, over our 5 years as a public company. I believe that we have thus effectively enabled AEC firms to keep up with accelerating demand despite now chronic engineering resource constraints by constantly improving their labor productivity through going digital. To understand changes now underway in the makeup and magnitude of AEC technology spending, this year, we again helped AEC Advisors with a supplemental AI survey, yielding sufficiently representative responses. In the interest of validating the prevalence of the commendable self-help AI initiatives that relatively surprised us within this year's Going Digital Awards submissions, we focused survey questions on AI that these AEC firms are already implementing, not just testing, to support their businesses. Excluding for this immediate purpose, more widespread AI implementations for generic business purposes such as finance, HR and legal, about 1/4 of responses report AI already being implemented around the periphery of applications such as ours to support the infrastructure engineering-oriented functions of design automation, construction planning or monitoring and/or asset performance and maintenance. Asked in what respects competitiveness would be advanced through faster AI adoption, these firms expect superior project delivery and quality, operational efficiency and clients' experience and satisfaction, but they have the greatest regard for AI's potential enablement of innovation and new services. To get to these benefits, the median reported level of AI implementation spending today, ranging from $6 million to $53 million is 19 basis points of gross revenue. That's on the order of 5% of the overall technology spending rate we just reviewed. And as a frame of reference, this already somewhat exhibits what such firms on average are spending on all of Bentley Systems offerings. Most significantly for us, these firms anticipate increasing their annual AI implementation spending over the next 3 years to a median ranging from $35 million to $164 million of 71 basis points, a multiple of almost 4 from today. If all other technology spending would just continue to grow at the same rate as over the last 5 years, this projected AI increment would cause total technology spending as a percentage of revenue to grow about 50% faster than at present. But we know the resulting AI impact will be such that rather than so extrapolate, we need to factor in the probable AI accelerated changes in infrastructure engineering business models as innovation and new services are enabled. This was the subject of dialogue with a diversity of thoughtful marketplace participants, including public and private sector infrastructure owners, as we helped lead a separate survey and convened an in-person discussion in September in London that culminated in this white paper: The impacts of Artificial Intelligence on the Built Environment. The majority of the 140 senior opinion leaders surveyed expect the impact of AI on current business models either to augur a major disruption and so are already taking steps to adapt or to impact to a significant extent. Interpreting the qualitative feedback as well, the knowledgeable white paper authors venture that AI will finally catalyze the long-awaited tipping point and engineering business model mix from hours-related revenue towards value price data-enabled services and performance/outcome contracting. To be sure, the emerging opportunities accordingly anticipated around automation, analytics and digital twins bode well for Bentley Systems' forward-looking initiatives. But to the extent that our accounts would become incented, and through AI increasingly able to more so minimize their currently generally billable engineering hours and days because they would instead be variously fixed in value and outcome pricing, what could be anticipated about the consumption of software and cloud services underlying our own business model. I could describe what we currently measure as consumption attended by a user and thus charged within E365 per day for our open applications and per quarter for ProjectWise and most term licenses. As our AI native plus generation of applications progressively roll out, the commercial norm for our attended consumption charging is likely to become a hybrid combination of these factors and of surcharges based on computing intensity. With our AI accelerating the pace of engineering productivity growth, attended consumption should generate commensurately higher value and hybrid monetization per relatively slowing time and/or frequency of attended usage. At Year in Infrastructure, Nicholas previewed the commercialization of an already evident source of incremental consumption with our application engines accessed through APIs to provide essential engineering context for simulations and analytics programmatically invoked by our accounts and users' AI agents. By virtue of our ingrained platform orientation, we are very enthusiastic about working with our enterprise accounts to prioritize development of many further such APIs and to arrive at reasonable monetization for the burgeoning value that API consumption will generate. Among potential AI-enabled business model innovations, the cited AI surveys show me that engineering firms and owners share our asset analytics aspiration for digital twins created and curated through AI to become the foundation for infrastructure inspections, operations and maintenance. Bentley Systems is investing resolutely to lead this charge internally and through our ongoing prioritization of capital allocation for pertinent strategic acquisitions. With critical mass for escape velocity gathering, I believe the resulting asset consumption will become, for us, another mainstay of subscription revenue growth, not only within owner operators, but also as their digital integrators with co-innovating engineering firms. My expectation for the confluence of our maturing incumbent consumption model and these new and incipient consumption streams is influenced by the way that these surveys and our enterprise subscription renewals show that infrastructure engineering executives are assessing against the backdrop of their engineering resource constraints, their current combination of record margins, organic real GDP plus growth and backlogs and their auspicious opportunities in the Infrastructure AI transform future. In the short and medium term, the prevailing sustainment of our E365 renewals, including for multiple out years at negotiated annual floor and ceiling escalations consistently averaging about 10%, reflects shared confidence of enterprise accounts and of Bentley Systems and the continued healthy overall gradient of a changing mix evolving to everyone's benefit of attended API and asset consumption. And now to review, as usual, our robust markets and execution, including also notably strong SMB and new logo growth, and to highlight our Year in Infrastructure announcements and feedback, over to Nicholas. Thank you. Nicholas Cumins: Thank you, Greg. A few weeks ago, infrastructure leaders from around the world gathered in Amsterdam for annual Year in Infrastructure Conference to showcase excellence in infrastructure delivery and performance through digital innovation. Amsterdam, celebrating its 750th anniversary, is a city built on land reclaimed from the sea through generations of engineering ingenuity. It was a fitting stage for YII and the Going Digital Awards. That same spirit of innovation took center stage. YII was also an opportunity to share progress on last year's key announcements such as integrating Cesium and Google geo data across our portfolio. But today, I will focus my remarks on Infrastructure AI, the theme introduced by Greg. The backdrop remains the same, whether to address climate concerns, ensure energy supply, or more broadly, support economic and population growth. Our world [Audio Gap] unprecedented demand for better, more resilient infrastructure, yet lacks the engineering capacity to deliver it. We must make existing engineers more productive by empowering them with better tools, smarter workflows and more connected data. At YII, the Going Digital Awards finalists once again showcased how Bentley software helped them achieve meaningful productivity gains, often in the range of 15% to 25% or more. These gains, while impressive, [Audio Gap] most advanced projects and don't reflect the industry as a whole. Scaling them across all projects will help narrow the gap between global demand and current capacity, but closing it requires a step change in productivity. That step change is just beginning to take shape, and it's AI. The AEC Advisors survey referenced by Greg shows large engineering firms making substantial investments in AI for design automation. For those building their own AI agents, Bentley can support them in several critical ways. First, we help them tap into past project designs. Every infrastructure asset is unique, but new designs shouldn't start from a blank screen. Historically, design data has been trapped in different file formats and proprietary systems. Bentley Infrastructure Cloud powered by iTwin. Data is ingested from a wide range of file formats and mapped to our infrastructure schemas, so that it can be queried, analyzed and reused, including by AI. In this context, we announced Connect, a new foundational layer to Bentley Infrastructure Cloud. Connect delivers a connected data environment for project and asset information, improving collaboration across the entire infrastructure life cycle. From there, ProjectWise for designs and construction workflows, and AssetWise for operations and maintenance. Connect will be generally available in December. Next, we help firms to create their own AI agents by providing engineering context, ensuring their AI recommendations are grounded in sound engineering logic and physical principles. Hyundai Engineering, a Going Digital Award winner in 2023, demonstrated this by using our STAAD simulation application to [Audio Gap] integrity of AI-generated designs. This year, I highlighted 4 similar examples in my keynote, all drawn from an even larger number of Going Digital Awards submissions that illustrated how Bentley applications provide engineering context to AI. Infrastructure engineering is a creative profession, but one where precision is nonnegotiable and consequences are real. The same way that infrastructure organizations have trusted our broad and deep [Audio Gap] applications to empower their individual engineers. They are turning to our applications to provide the same precision to their AI agents. Now as our applications were not designed to interact with AI agents, we also announced the Infrastructure AI co-innovation initiative, inviting our users to partner with us to explore how our applications need to evolve both technically and commercially, as Greg mentioned, to better support these AI use cases. At YII, we also highlighted the AI capabilities we are delivering to the broader engineering community, starting with our next-generation applications powered by AI. OpenSite+ announced that last year's YII for site engineering is now in limited availability. We also introduced 2 additional next-generation applications in early access this quarter. Substation+ for collaborative substation design and SYNCHRO+ for 4D construction modeling with AI-driven insights. [Audio Gap] applications feature Bentley Copilot, our AI assistant purpose-built for infrastructure engineering. We are also enhancing existing application with AI, bringing Bentley Copilot and AI-powered drawings production to OpenRoads and OpenRail. And we unveiled new search capabilities in Bentley Infrastructure Cloud powered by AI as demonstrated on stage with ProjectWise. One last point. We talked about how engineering firms are leveraging our software to ensure that the recommendations from their AI agents are trustworthy. A related topic is trust from the engineering firms in the data that we use to train our AI capabilities. The AEC Advisors survey shows security and data privacy as the top concern of engineering firms with respect to AI, and this is across all firm sizes. At YII, we reaffirmed our [Audio Gap] stewardship first outlined 2 years ago. Respect for intellectual property is foundational to Bentley's approach. Users control their data always. They decide if and how it is used for AI training. To uphold this principle, we implemented strict governance. Only data explicitly licensed or explicitly contributed by accounts for the benefit of the broader Bentley user community [Audio Gap]. Users can also fine-tune Bentley AI models with their own data for their exclusive use. And to ensure transparency, we introduced the Data Agreement Registry, an auditing system that shows exactly how data was used to train Bentley AI models. When others are vague on these critical topics, we lead with clarity. Overall, we were pleased with this year's Year in Infrastructure receiving great feedback about our comprehensive and principal approach to infrastructure [Audio Gap]. And I encourage you to check out our sessions and Going Digital Awards winners at yii.bentley.com. Moving on to our results for the quarter. We delivered a solid quarter in line with our expectations. Our year-to-date results position us well to finish within our outlook ranges for the full year, low double-digit ARR growth, approximately 100 basis points of margin expansion and robust free cash flow consistent with our long-term financial framework. Q3 ARR increased 10.5% year-over-year or 11% when excluding the impact of China. Growth was underpinned by net revenue retention rate of 109%. E365 performance remained solid, and we added 300 basis points of ARR growth from new logos again, primarily within the SMB segment. For the 15th consecutive quarter, we added at least 600 new SMB logos through our online store with retention in this segment remaining high. Turning to our [Audio Gap] sector. Resources was once again our fastest-growing sector in the quarter. We continue to see soft signals of improvement in mining exploration. Public works and utilities delivered another solid quarter, consistent with first half performance and driven by sustained global infrastructure investment. Power Line Systems remained a standout performer, benefiting from global demand for grid resilience and increased power generation. Growth in the industrial sector remained modest [Audio Gap] for facilities was flat. Looking at our geographies at a high level, Asia Pacific had a strong quarter, followed by the Americas and EMEA. Growth in Americas was solid, led by North America. In the U.S., our accounts continue to benefit from a favorable macro backdrop despite ongoing uncertainty, though less so from tariffs and policy shifts and the recent federal shutdown. To date, we have seen minimal disruption from the shutdown. Looking ahead, [Audio Gap] a full-scale permitting reform for energy infrastructure and critical minerals in the U.S. could happen in the coming quarters. Both our Power Line Systems and Seequent businesses are very well positioned to benefit from these developments. In EMEA, the Middle East continued to lead the region with another very strong quarter, followed by Europe and the U.K. Long-term opportunities are supported by robust investment in transport, water and energy, particularly in areas such as dual use infrastructure, data center expansion, and nuclear. There's also movement in Europe on permitting reform. The European Commission published guidance to help member states accelerate permitting and deployment of renewable energy and grid infrastructure as part of its broader effort to lower energy costs and strengthen supply security. In Asia Pacific, overall performance was strong with India and Southeast Asia standing out. Robust investment in India is expected to continue, supporting its 2047 vision for long-term growth and development. Growth in ANZ remained softer due to the slowdown in transportation spending in Australia. However, there is a general expectation that it will rebound driven by infrastructure projects tied to the 2032 Brisbane Olympics. China's performance was consistent with our expectations given the economic and geopolitical headwinds and represents only about 2% of total ARR. And with that, Werner, over to you. Werner Andre: Thank you, Nicholas. We've had a solid third quarter and are well positioned with respect to our financial outlook range for the full year. Total revenues for the third quarter were $376 million, up 12% year-over-year on a reported basis and 11% on a constant currency basis. Year-to-date, total revenues grew 11% and 10% on a reported and constant currency basis, respectively. Our mainstay subscription revenues grew 14% year-over-year for the quarter in reported and 12% in constant currency. And for year-to-date, subscription revenues grew 12% on a reported and constant currency basis. Subscription revenues represent 92% of total revenues, up 2 percentage points from the same quarter last year, reflecting improvements in the overall quality of our revenues visibility, growth consistency and margin contribution. Our E365 and SMB initiatives continue to be solid contributors. Perpetual license revenues for the quarter were $11 million, essentially flat compared to the prior year. Perpetual license sales make up only 3% of total revenues and will remain small relative to our recurring revenues. Our less predictable professional services revenues declined 2% for the quarter in reported and 3% in constant currency and now represent 5% of total revenues. We currently expect that our professional services revenues will remain at current levels for the remainder of the year. Hence, this would be for the full year about $5 million less than we had originally planned. It is still the case that the largest portion of these nonrecurring services relate to IBM Maximo implementation and upgrade work. Our last 12 months recurring revenues, which includes subscriptions and a small amount of recurring services, increased by 13% year-over-year in reported and in constant currency and represent 92% of our last 12 months total revenues, up 1 percentage point year-over-year. Our last 12 months constant currency account retention rate remained at 99%, and our constant currency net retention rate rounded down to 109%, led in magnitude by accretion within our consumption-based E365 commercial model. We ended Q3 with ARR of $1.405 billion at quarter end spot rates. On a constant currency basis, our year-over-year ARR growth rate was 10.5%, consistent with our seasonality expectations for the year, which included the favorable impact from the onboarding of our Cesium acquisition in '24 Q3 dropping off this quarter. Excluding China, our year-over-year constant currency ARR growth rate was 11%, with China being 2% of our total ARR. On a quarterly sequential basis, our constant currency ARR growth rate was 2.2%, below our '24 Q3 sequential growth rate of 3.2%, impacted by the timing of programmatic acquisitions and asset analytics deals. With regards to seasonality, we expect '25 Q4 to have higher year-over-year ARR growth compared to '25 Q3 due to the timing of potential acquisitions and anticipated asset analytics deals. Our GAAP operating income was $84 million for the third quarter and $284 million year-to-date. I've previously explained the impact on our GAAP operating results from deferred compensation plan liability revaluations and acquisition expenses. Moving on to adjusted operating income less stock-based compensation expense, our primary profitability and margin performance measure. Adjusted operating income less SBC expense was $104 million for the quarter, up 16% year-over-year, with a margin of 27.7%, up 100 basis points. Year-to-date adjusted operating income less SBC expense was $335 million, up 13%, with a margin of 30.2%, up 60 basis points. Our margin performance for Q3 and year-to-date has been strong, and we remain confident about delivering our full year adjusted operating income less SBC target margin of approximately 28.5%, representing an annual margin improvement of 100 basis points. As a reminder, our OpEx seasonality is always more heavily weighted towards the second half with our annual raises occurring as of April each year and our larger promotional and event-related costs also concentrated in the second half of the year and particularly Q4. Further, our OpEx seasonality in 2024 was impacted from head cost run rate savings from our '23 Q4 strategic realignment, which benefited the first half of 2024 and shifted some of our run rate and discretionary investments into the second half of 2024 and particularly Q4 2024. We therefore expect more than 100 basis points of margin improvement for the fourth quarter of 2025 when compared to 2024. Our free cash flow was $111 million for the quarter and $384 million year-to-date. This is generally consistent with our expectation based on our seasonality of collections and expenditures as well as the timing of cash tax payments, which are more concentrated in the fourth quarter. We are on target to meet our full year free cash flow outlook of $430 million to $470 million. With regards to capital allocation, along with providing sufficiently for our growth initiatives, year-to-date, we deployed free cash flow as follows: $135 million fully paying down our senior debt. $93 million in effective share repurchases to offset dilution from stock-based compensation, $10 million in convertible senior note repurchases and $64 million on dividends. With our senior debt being fully paid down, our net debt leverage, including all of our 2026 and 2027 convertible notes as debt was 2.2x adjusted EBITDA, down from 2.9x at the end of 2024. Our strong balance sheet and projected free cash flow generation will sufficiently fund our dividend, share repurchases and growth initiatives, including potential programmatic acquisitions. Our 5-year senior secured credit agreement dated from October 2024 provides a current undrawn $1.3 billion revolving credit facility. This provides sufficient flexibility to address the January 2026 maturity of $678 million in outstanding convertible debt while keeping our cash interest thereafter at about the same magnitude as in the recent past. Interest rates on our debt are protected through very low coupons on our convertible notes and very favorable terms of our $200 million interest rate swap expiring in 2030. And finally, with only 1 quarter remaining, our performance for the first 9 months gives us confidence in our ability to achieve our annual financial targets. I already provided incremental color on our fourth quarter expectations for ARR, adjusted operating income by stock-based compensation margin and free cash flow. With regards to total revenues, 2025 to date reflects a continued shift in mix from professional services revenues to subscription revenues, improving our overall quality of revenues and margin contribution. With regards to foreign exchange rates, for the third quarter, the U.S. dollar has weakened relative to the exchange rates assumed in our 2025 annual financial outlook, resulting in approximately $10 million of incremental revenues from currency and a total favorable impact for the first 9 months of approximately $18 million. Based on recent rates where the U.S. dollar has weakened relative to our outlook rates, if end of October exchange rates would prevail throughout the remainder of the year, our fourth quarter GAAP revenues would be positively impacted by approximately $8 million relative to the exchange rates assumed in our 2025 financial outlook. And with that, we are ready for Q&A. Over to Eric to moderate. Thank you. Eric Boyer: Thanks, Werner. [Operator Instructions] First question will come from Joe Vruwink from Robert W. Baird. Joseph Vruwink: Maybe can you go into a bit more detail on the opportunity for better ARR growth in 4Q? That's a big renewal period, but also asset analytics opportunities. And just on the point about renewals. So to the point, Greg, you were making at the start, how Bentley applications are called a few years from now could look a lot different than how they currently are utilized. How does that get encapsulated with an enterprise customer that is willing to engage with you over a multiyear time frame? And are you appropriately monetizing the full potential with kind of the ceiling floor structure you have been using around these consumption arrangements? Gregory Bentley: Well, I'll say, to your last question, Joe, that we only monetize the actual consumption. It just happens to be bounded by a floor and ceiling potentially. And we are not yet monetizing API consumption, for instance, even though some of it is occurring. In the course of a renewal with an enterprise account for E365, they tend to prefer to get visibility into their spending in the out years as well, and it continues to be the case that we wind up, on average, negotiating that each year of that renewal, the floor and ceiling escalate by about 10%. And I think they're aware because you see these enterprise accounts are the ones responding to the survey about spending on AI and expectations about AI. They know that their mix of consumption and modes of consumption will change over that period of time. But they are comfortable with expecting to spend a low double-digit amount more with us and no doubt with others each year, and we're satisfied to -- we likewise know there's going to be volatility in the components of the mix. But when you put it all together in an enterprise agreement, you've heard my take on that, which is to be confident that while the mix will change, the magnitude will reflect the increasing value, especially from AI. Nicholas, as to the fourth quarter, yes, indeed, it is a strong renewal quarter, and our expectations are comport with that. Nicholas Cumins: Right. Well, first of all, Q3 ARR growth was exactly what we were expecting. And what we're expecting for Q4 is ARR growth year-over-year to be stronger than Q3. Part of that is the renewals, as you mentioned. And then how much better it will be than Q3 will depend on potentially M&A or some of the big asset analytics opportunities that we're pursuing. Gregory Bentley: But it would be better than Q3 in any case because of the magnitude of renewals that occur in fourth quarter. So they're all layers that give us confidence in fourth quarter and, of course, therefore, in the outlook for the year. Eric Boyer: The next question comes from Jason Celino from KeyBanc. Jason Celino: Great. I wanted to ask about the government shutdown. I recognize that in your prepared remarks, you said it's had minimal impact. Maybe can you just elaborate on what you're seeing or not seeing and why it's been so limited? Nicholas Cumins: Yes. To date, we have seen indeed a minimal impact. First of all, our direct revenue from the U.S. federal government is less than 1%. And indirectly for the projects that were already awarded IIJA funding, while the funding continued to flow during the shutdown, and that's very much because of the way IIJA was structured. Now depending on how long this shutdown is going to go, it could be very much at the margin when we get to renewals with some accounts. And you may recall that renewals are based not just on past performance, how much they've been consumed in the past year, but also how much you're expecting to consume in the next year. It could be that at the margin, the consumption expectations going forward may be impacted, yes, but this is super early to say. And it will really depend on how the shutdown goes. Jason Celino: Yes, hopefully, it ends soon. So yes, we'll see. Gregory Bentley: Other things kind of indirectly are gummed up also and we -- hopefully, not for much longer. Things like the permitting reform we keep expecting and some other functions of the federal government that don't have to do with using software, but changing policies and so forth that are also on hold. We'd like to see the shutdown end sooner rather than later, and we think that's the general expectation now. Eric Boyer: Thanks, Jason. The next question comes from Matt Hedberg from RBC. Matthew Hedberg: A lot of the bigger frontier model builders are noting that access to power is the biggest bottleneck for compute capacity today. And I guess, Nicholas, you noted both PLS and Seequent is set to benefit from this longer term, which is sort of in line with our view. It's also nice to see -- I think although permitting reform takes time, Greg, you said it's sort of like there's -- it just takes time. It sounds like EMEA permitting reform is accelerating a bit. I guess my question is, realizing these projects take time and permitting reform takes time as well. Are you starting to see any sort of early benefit from early sort of like discussion with customers around this activity? And how should we think about sort of like medium to long term this desire for more power to positively impact ARR growth? Nicholas Cumins: Well, first, despite permitting reform still to come, both PLS and Seequent remain strong growth engines for the company, right? And both businesses are still growing faster than the company. We have seen now in the U.S., for example, some acceleration on some mining projects through -- it's called the FAST-41 process for minerals that are of strategic importance to the U.S. economy like lithium or copper. There is a similar bill that was passed in Canada. So we think this is -- I mean, this is happening basically for mining. There's already a lot of movement in order to accelerate permitting or accelerate certain projects. But for the electric grid, this is still to come, but we've seen some very encouraging signs in the past few months in the U.S. I think there's a clear realization here that we must expand the electric grid, and there's a lot of effort, a lot of activities going into strengthening the existing grid, making it more robust, but we actually need to expand it in order to cope with the higher demand that is for electricity and a lot of that coming from data centers, by the way. So you can see it as a growing tailwind for us. Eric Boyer: The next question comes from Dylan Becker from William Blair. Faith Brunner: It's Faith on for Dylan. I just wanted to double-click on to your AI innovation road map and how you're working with your customer base to build that out, maybe how that played into Cloud Connect and really what you're focusing on and how you're prioritizing the different opportunities? Nicholas Cumins: Well, first of all, what was remarkable when we looked at the submissions for this year's Going Digital Awards was seeing how much our users are investing in AI themselves. And that was a big part also of the update that Greg provided with the AEC Advisor survey, and we can see how much is invested in AI. And as always, we're using the Going Digital Awards submissions as a bit of our own survey of what's going on with the most advanced infrastructure organizations out there in leveraging digital to drive productivity. And it points to our core applications, engineering applications playing a new role going forward, not just here to empower infrastructure engineers, individual engineers, but actually to start to interact with AI agents. And we think this is a fantastic growth opportunity. Now we've seen a net acceleration of use cases where our own applications are being used in conjunction with AI that is being developed by our users if we just look at and reflect on the past couple of years. And we've announced a co-innovation initiative in order to engage with our users, to partner with them, to discuss how can we evolve our engineering applications technically. And also how can we evolve the commercial model around these applications so that we can support those workflows going forward -- better support those workflows going forward. We're hugely excited about that, right? But I think there is a lot of investments on our side for our own AI capabilities that we're delivering to our users. Here, we make sure that, first of all, all of our product organization, all of our user-facing teams have a deep empathy, a deep understanding of the needs of the users, the accounts that we serve. We understand where are potential opportunities to drive more productivity through AI, for example. And then we involve representative users along the way in helping us prioritize which use cases are we going to go after first with AI. We involve them during the development of those capabilities. We involve them with beta software, what we call early access. We involve them, of course, very limited availability to make sure that the product can scale to the broader market and so on and so forth. So we have constant touch points all the way from the very beginning of the exploration, what problems can we solve with AI, to making sure that the software can scale, we have involvement all the way with representative users. Eric Boyer: The next question comes from Kristen Owen from Oppenheimer. Kristen Owen: So I wanted to ask you about labor availability, not just here in the U.S., but globally in the construction and infrastructure trades. Obviously, AI can't actually build infrastructure. So I'm wondering if you're starting to see that meaningfully impact any of your engineering firm customers? What sort of impact these labor challenges are having maybe on project delivery times, budgets, and then add on this piece of willingness to invest in technology to help with some of those productivity challenges? Gregory Bentley: Kristen, I think the biggest picture is that everyone has long expected the engineering services firm. So that's half of our business, and they work for the other half of our business, the owner operators. Everyone has expected the way they work to change from a time and materials billing hours to paying for value and, therefore, having a platform to incent and reward, for instance, these AI investments. The biggest picture, I think, is that the ongoing engineering resource constraints are influencing that now happening in favor of AI investments and expectations and changes in the commercial model. And the opportunity for us is to be shoulder to shoulder alongside those engineering firms. We want to help be their arms merchant, providing them the, for instance, asset analytics cloud services that they will rebrand and bundle with their engineering analytics and their own data and AI models, but where they won't need to get into providing the cloud services, the things we can do together with Google, and then adding our asset analytics layer. So changing the commercial models is accelerating that because everyone has expected it to occur, and it's been slow. I think that finally is being catalyzed now, and that's the biggest impact. Eric Boyer: The next question comes from Alexei Gogolev from JPMorgan. Alexei Gogolev: I wanted to ask you to maybe give us a brief update of how the partnership with Google is going? Have there been any incremental customer conversations on the back of this partnership? And what does that mean for your asset analytics opportunity? Nicholas Cumins: One of the updates we gave at YII was how we are integrating Google geo data across our portfolio. It starts with our engineering applications. MicroStation, the new version of MicroStation, not only includes Cesium for 3D geospatial visitation, but through Cesium is actually integrating 3D photorealistic tasks from Google. And I mentioned the launch of Bentley Infrastructure Cloud Connect. The user experience of Bentley Infrastructure Cloud is also powered by Cesium and also powered by 3D photorealistic tasks of Google. So that integration is going very well, and we're expanding really across our full portfolio. We are quite excited also about the opportunity with Google when it comes to asset analytics. Google is a source of data that can be analyzed in order to better understand the current foundations of infrastructure assets and their full context. And you may recall that we've announced a couple of months ago, a deeper partnership with Google from that standpoint, where we'll be processing Google Street View imagery to understand basically the inventory of assets out there and be able to do a before and after comparison on what's going on with this infrastructure asset when we compare it with dash cam data that we're processing through our own road monitoring solution, right? And that's just one example of so many other use cases that we're discussing with Google, where we can empower deeper analytics about existing assets. Eric Boyer: Next question comes from Clarke Jeffries from Piper Sandler. Clarke Jeffries: I wanted to ask just as a little bit of a follow-up to the discussion around the appetite of AI spend with your customers. It seems like a lot of this is survey work and sort of perspective on where they'll go. But I wanted to ask today, are you seeing proactive RFPs from these customers around AI capabilities? Or is it too early? And sort of do you imagine there being a discrete sales approach around AI functionality? Or do you feel like this will be very organic within your kind of existing sales motion? Nicholas Cumins: So on the former, it is still too early for the market to ask specifically for AI capabilities for specific use cases. It's still too early. However, indirectly, we do see infrastructure organization insisting that it is as easy as possible for them to access data that is being created or managed through software coming from providers, so that they can use it for their own AI purposes. And by the way, so this is much more indirect, but they are aware that software providers are developing AI capabilities, and we see them clear and clear about we want to make sure that when you do this as a software provider, you don't use our data without our explicit permission, right? This is very top of mind right now. And it's a part of the conversation when talking about Bentley Infrastructure to Cloud Connect, for example. We reinforce our commitment to data stewardship. We make it very clear that the data of our users is their data always. We don't use it to train our own AI unless they explicitly authorize us to do so. And that is a clear differentiator versus other providers who are maybe just less clear on that topic. But in general, yes, still very early stage when it comes to requirements for AI-specific capabilities. And because it's still very early stage, we don't see a need right now to have a different go-to-market approach when it comes to positioning these AI capabilities. If you look back at what we basically announced in terms of our own AI capabilities, sometimes it's the next generation of an existing application, like OpenSite+ is the next generation of OpenSite, Substation+ is the next generation of Substation. The same way that we've gone to accounts to position the original OpenSite solution on the original Substation solution, then we're going to continue to do the same even if the new one is powered by AI. Then we're also introducing a lot of new AI capabilities or AI capabilities to existing applications. So same thing, there's no need in order to do a different go-to-market. Asset analytics is different. Here, we've been always very clear that we want to go both direct and indirect, right? So I said, we are going after owner operators and the firms that serve them in order to position those capabilities. But we definitely welcome all the organizations to take our capabilities and offer them as part of their own offering for asset monitoring, asset maintenance, asset management. Eric Boyer: Next question comes from Jay Vleeschhouwer from Griffin Securities. Jay Vleeschhouwer: Nicholas, I'd like to ask about something we talked about at the conference 3 weeks ago in Amsterdam, having to do with your product development. Specifically, how have you evolved or how do you think you might still need to evolve your product development management or operations in light of all that you mean to do across the portfolio? Do you think that you can or should, for example, compress the time between beta and GA, something we talked about a few weeks ago. And in light of what Greg talked about earlier with regard to your new consumption model, how might those new techniques of consumables possibly tie back into your product development process or product release timing? Nicholas Cumins: Right? When it comes to our own product development process, we got an earlier question here on how much are we involving users, how much are we involving accounts. And we're very keen to continue to do that and do that even more, right? When we release our software, we want to do it in a very iterative fashion. We don't have necessarily top-down target on you must go from early access beta to limited ability in that time frame, and you must go from limited to general ability in that time frame. It will really depend on the feedback we're getting from representative users, especially when it comes to very new capabilities, we're sometimes creating new -- potentially, we're creating new markets when it comes to asset analytics, et cetera. We want to make sure that we get it right before we push too hard, right? So it's important for us that we keep it as a very close feedback loop with representative users, and we trade as often as necessary in order to get the software right and then ready to scale. And now we are embracing AI as well to improve our productivity. And I would say the majority of our developers now are working with AI tools every day to be more productive, whether it's for coding assistance or even generation of some parts of the code for mundane functions, right? And we're quite pleased, right, to see the level of embrace by our developers, not necessarily top down, really coming from them to use AI capabilities. And it remains a very good analogy for how we're seeing AI playing out for infrastructure engineers, not AI replacing infrastructure engineers, but AI making infrastructure engineers more productive, AI being more of a copilot, if you will. That's the name, by the way, of our own AI assistant. Gregory Bentley: Jay, I'll say that you and I share a long background going back to when our desktop products were a platform for specialized applications developed, including by our accounts. And we had special teams that worked with the accounts, the developers within the accounts to help support their -- particularizing our existing applications for their own purposes. That's kind of gotten extinct by now. Individual organizations don't develop their own particular software for this. But what we saw in the AI surveys, and we saw in the Going Digital Awards submissions are a lot of investment by the enterprises, the AEC firms, larger ones in their own agent environment. And the APIs that we'll create, because we have to move the engines to the cloud and open them up and so forth, will be another way of working with developers. The developers will turn out to be the developers in the large enterprises, and I can see that being a different kind of go-to-market incremental orthogonal approach for the future, echoing back to what we've done in the past, where we love our role as a platform provider, especially. Eric Boyer: Next question comes from Taylor McGinnis from UBS. Taylor McGinnis: Maybe just on the financials. So if I adjust for the lapping of the acquisition, it still looks like net new ARR was down a bit year-over-year on a constant currency basis. So I know that you guys said that, that was in line with expectations, but maybe you can just unpack the drivers behind that. And as we look into 4Q, I think to get to the upper end of your guys' guidance range, it implies a big step-up in net new ARR. I know you mentioned M&A and some of these asset analytics deals potentially being needle moving there. So when you think about the size of M&A that you guys are contemplating or how big some of these asset analytics deals could be, could you just provide a little bit more color there? Gregory Bentley: Well, okay. I'll just jump in on asset analytics because you've heard me say we have such a big dependable flywheel. The only thing that's volatile in what we do is the asset analytics business, because we're looking at landing 7- and 8-figure deals. And it isn't yet at critical mass. I think you could say that. We believe it will become so soon. But on the margin, it does make these differences in which quarter those deals fall. And of course, speaking of frame of reference, our business used to be like that back when the software business was an upfront license business and so forth. But for us, it makes this difference on the margin, but the margin is significant when we're comparing one quarter to another at the level of when was 10.5%, 10.9% and so forth. It's to do with these asset analytics deals. Werner Andre: Yes. Maybe I'd add, like in -- for asset analytics, like Q2 and Q3 last year was particularly strong and the opportunities for bigger deals are more towards the end of the year in 2025. And on the M&A side, so just to say like we don't need M&A to be within the outlook range for our ARR. There are a number of transactions that we are working on. We expect that we close at least one by the end of the year. Over the last few years, our contribution to constant currency ARR growth through M&A was between 40 and 70 basis points. And we do expect for this year that we are roughly within that range again. And our Q3 year-over-year ARR growth rate that we are showing is purely organic. So there's no benefit from M&A at all. So we have 10.5% purely organic. And without China, it will be 11% purely organic. Eric Boyer: Next question comes from Siti Panigrahi from Mizuho. Sitikantha Panigrahi: I want to ask about macro. If you think about last year, there was so much uncertainty, election going on, interest rate high. How do you view the macro now in this environment right now heading to 2026? And Werner, anything that we -- any puts and takes that we should think about 2026? Nicholas Cumins: Well, I'll start on the macro. It remains robust. The backdrop is the same. The end markets are strong. There's never been more demand for better, more resilient infrastructure around the world. The only exception we've talked about for a long time now is China. And then I mentioned in my prepared remarks briefly Australia. In Australia, it's a bit of a crosswind. You have less investments in the transportation infrastructure that we've seen in the past few years. But on the other hand, you have more investments going into mining. So as we start to look into 2026, we are not expecting a change of the overall demand environment. We expect the demand environment overall to remain robust. Gregory Bentley: I'll say that a difference from a year ago in the world, if we step back, is this notion, unfortunately, that each country needs to be self-sufficient in its resources and requires infrastructure investment, if you like, even some redundant infrastructure investment to do that. And then the other factor, for instance, the COP conference this year, the theme is on adaptation, and adaptation as part of resilience is the work of civil and structural and geotechnical engineers. And it's just understood we need to get on with that ever more. Those are changes that may be resulted from politics, but they end up adding to the demand for the work of infrastructure engineers. And again, there aren't enough of them without going digital. Eric Boyer: Next question comes from Guy Hardwick from Barclays. Guy Drummond Hardwick: Just a quick one for me. So last month, there was speculation in the press of a merger between the #2 E&C firm globally and the #4 player globally. I was just wondering, consolidation amongst your larger E&C customers, what are the kind of positive and negative implications potentially for Bentley? Gregory Bentley: Well, some of that has taken place in the past and has not been to any disadvantage. In other types of, if you like, design software, it might be R&D functions that would be consolidated. The way that our software is used by the engineering and construction firms is in their throughput of production, it is the means of producing their product, it's their factory floor, if you like. And the combination makes them larger, but need no less software. And we sort of tend to be the choice for larger firms. The consolidation, I think, has ultimately benefited us because of the type of technical platform cooperation that we're salivating now to do with expanding our APIs for AI to have our analytics and simulation engines be available for the development to be used to provide the engineering precision and context in AI developments that the larger firms, as Nicholas pointed out, are more investing in. It's going back to, as I was saying with Jay, this notion of being technically shoulder to shoulder as well as commercially shoulder to shoulder. I think that benefits from consolidation. Guy Drummond Hardwick: Given time constraints, this call has gone for an hour, so I'll leave anything else for follow-ups. Eric Boyer: The next question comes from Koji Ikeda from BofA. Koji Ikeda: Listening to the call and the commentary, lots of commentary on external AI opportunities out there for Bentley. But I wanted to ask about an update on how you guys are internally using AI to drive productivity gains in sales, R&D, G&A? And longer term, what could the internal use of AI mean for margin expansion for Bentley? Nicholas Cumins: Yes. Thanks a lot for the question. I didn't touch on it when it comes to our own internal use of AI for product development. But you're right, we're actually expanding the use of AI across business functions. And we've seen some quality improvements in lead nurturing, for example, or user support. So we see AI definitely as a way of making our existing colleagues more productive. And therefore, it will help to increase both the top line and the bottom line. That's our expectation going forward. Eric Boyer: Our last question comes from Joshua Tilton from Wolfe Research. Joshua Tilton: Can you hear me? Gregory Bentley: Yes. Joshua Tilton: I've been jumping around this morning, so I apologize if it's been asked, but I think it's very important. Greg, you always stress how predictable this business is, and I think that's what people really love and enjoy about it, or at least it's one of the things I think they do. Last quarter, you had already told us that you expected this to be the low point of ARR growth for the year. And I guess my question is, was that in line with your expectations? Or did it come in even below what you guys thought? And the reason I'm asking is because should we just view this as right down the fairway with your expectations and continued confidence into Q4? Or did things maybe trend a little bit worse than you were expecting even below that low point you kind of guided us to last quarter? Gregory Bentley: Well, I think it's the former. But Werner, I think it's worth wrapping up with a summary of the factors and how that's different for Q4. Werner Andre: Can just repeat the question, sorry. Joshua Tilton: I was just asking, you told us that this was going to be the low point for the year. And I think we're just trying to understand, was that low point in line with your expectations and we're just confident in Q4 as we were 90 days ago when you told us this was going to be the low point? Or was this low point worse than you were expecting and then we should adjust your expectations for Q4? Werner Andre: Understood, sorry. So I think we are exactly where we expected to be for Q3. It's clear that Q4 is a big quarter for us, like most of the renewals are in Q4 -- or like not most of them, but a very significant amount of our annual contract renewals are in Q4. We see the pipeline is as we expected it in our outlook, and we will focus on strong execution as we did year-to-date. And then as we said, like we have the opportunities within asset analytics and programmatic acquisitions that makes us confident that Q3 will be the lowest point, and we are going up from here, if you will. So we feel the same as we felt like a quarter ago. So we are on target. Gregory Bentley: I don't know whether you caught it, Joshua, but Werner quantified the year-to-date contribution from programmatic acquisitions in our year-over-year ARR growth as 0 this year. And it's generally 40 or 70 basis points. And we actually may wind up there because we continue to strategically prioritize asset acquisition opportunities. And the asset acquisition opportunities, just to go back to that, are the lumpy deals. And back when lumpy deals were part of our business, which has been a long time ago, we remember they usually occur in Q4 and this year doesn't seem different, even though as we got started with asset analytics last year, we had some big deals in Q2 and Q3. So again, it is a big reliable flywheel, but it has on the margin these changes. And I'm grinning because I think those are the right things for us to be doing. Asset analytics is the ground floor of a huge opportunity, AI enabled. And even though it's going to be a bit of a nuisance, it's volatile nature, ultimately, we'll spread it all out as we gain critical mass and escape velocity there, as I say, and I feel that's coming closer strategically. Joshua Tilton: Makes sense. Very helpful. Maybe just one last one before you kick me off. You guys had the Year in Infrastructure conference, lots coming out of it. We also had Autodesk University like a quarter ago. So announcements across the industry. I guess if there is one announcement that you think is going to be the most needle moving for the business that investors should be paying attention to, like what would you call out from the Year in Infrastructure conference? Nicholas Cumins: I would say, short-term, Connect. Yes. Bentley Infrastructure Cloud. Joshua Tilton: Yes. Gregory Bentley: You heard that. Nicholas Cumins: It is new foundation layer for Bentley Infrastructure Cloud, bringing a lot of capabilities that used to be in the different enterprise systems that we brought together under the umbrella of Bentley Infrastructure Cloud, and basically where data is being federated in order to be used for AI purposes. Gregory Bentley: And I would just say, stepping back, a contrast among these announcements. You have other vendors out there whose products have always been separate and there's been no way to get data from one to the other. Of course, AI models enable them to say, okay, if you pay us now, we'll actually help you get data from one application to another, or from our standpoint, it's all been integrated a common schema. We're way ahead on that point. It's not a matter of monetization. It's a matter of improving the form factor to make it even easier to use and even easier to use with AI agents and API consumption. I'd say AI and put the P in the middle. That's how we want to be a platform vendor to fit that in to our existing enterprise accounts. And then, of course, a different go-to-market motion for AI for the SMB firms. But what I think Nicholas says that the Connect is important because it brings this down to the level of every user, so that it's intuitive and immersive and geospatial and new. But the back end of how things are integrated together, we're not inventing now, we're leveraging now. Eric Boyer: Thanks. That concludes our call today. We thank you for your interest and time in Bentley Systems. Please feel free to reach out to Investor Relations with further questions and follow-up, and we look forward to updating you on our performance in coming quarters. Thanks a lot. Gregory Bentley: Thank you, guys. Nicholas Cumins: Thank you.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to trivago's Q3 Earnings Call 2025. I must advise you the call is being recorded today, Wednesday, the 5th of November 2025. We are pleased to be joined on the call today by Johannes Thomas, trivago's CEO and Managing Director; and Wolf Schmuhl, trivago's CFO and Managing Director. The following discussion, including responses to your questions, reflect management's view as of Tuesday, November 4, 2025 only, unless expressly stated otherwise, in which case it reflects management's view as of today, Wednesday, November 5, 2025 only. Trivago does not undertake any obligation to update or revise this information. As always, some of the statements made on today's call are forward-looking, typically preceded by words such as we expect, we believe, we anticipate or similar statements. Please refer to the Q3 2025 operating and financial review and trivago's all other filings with the SEC for information about factors which could cause trivago's actual results to differ materially from those forward-looking statements. You will find reconciliations of non-GAAP measures to the most comparable GAAP measures discussed today in trivago's operating and financial review, which is posted on trivago's Investor Relations website at ir.trivago.com. You are encouraged to periodically visit trivago's Investor Relations website for important content. Finally, unless otherwise stated, all comparisons on this call will be against results for the comparable period of 2024. With that, let me turn the call over to Johannes. Johannes Thomas: Good morning, and thank you for joining our Q3 2025 earnings call. We delivered 13% year-over-year revenue growth, making it our third consecutive quarter of double-digit growth. Q3 exceeded expectations on both the top and bottom lines, and we are encouraged by the strength and durability of our momentum. We achieved this acceleration despite major foreign exchange headwinds while improving adjusted EBITDA by 18% year-over-year. The quality of this growth gives us confidence. It's led by our strong double-digit branded traffic revenue growth, which continues to outperform and benefit from compounding effects. Our AI-powered campaign featuring brand ambassador, Jürgen Klopp as well as our local productions made a significant impact this summer. Our product has materially improved quarter after quarter, delivering a better user experience and stronger marketing efficiency. We have observed a promising start into Q4 and expect to close the quarter and the year at mid-teens level. We see our strategy unfolding and expect this to continue to fuel our double-digit growth trajectory in the years to come. While we continue to elevate our brand investment next year, we will operate with discipline and expect compounding effects to increase our profitability gradually. In the following, I will provide an update on our strategic priorities. Our first strategic priority is branded growth. Our brand engine is accelerating and continues to compound. Our summer creators were striking. We are steadily improving marketing efficiency and have diversified our new -- into new brand marketing channels. We remain disciplined, investing where we see strong response. The club campaign, together with strong local productions lifted branded traffic and revenue across all segments with standout performance in the Americas. We aim to broaden our reach and strengthen creative testing to drive higher traveler engagement with our brand. A recent U.S. test underscores our approach. We body swapped Jürgen Klopp with another actor in the same TV ad to isolate the impact of the creative concept versus the use of a high-profile brand ambassador. For our winter campaign launching in December, we are producing new TV spots that we expect to build on the strong results. For the rest of this year and throughout 2026, we will focus on the markets we prioritized over the past 2 years, emphasizing optimization over expansion. Our second strategic priority is to enhance our core hotel search experience so travelers can book with confidence saving time and money. We maintained a high product testing velocity, delivering notable enhancements and conversion rate gains that we expect will further improve marketing efficiency and user satisfaction. Our AI Smart search feature was expanded across key languages on desktop and mobile web. It's now faster and even more relevant for complex queries. We have deployed AI review summaries at scale, providing clear insights distilled from thousands of reviews. We introduced new guest sentiment ratings that summarize review sentiment, allowing travelers to compare hotels and understand their relative strengths and weaknesses in the region. Over the past year, we significantly elevated the hotel content across our product, tangibly improving the user experience and closing a long-standing gap in our offering. We achieved this with AI powering the kind of work that once requires 100-plus people team while making the content more relevant and updating it more frequently. Personalization and smart filter recommendation have further improved and the map experience is now more intuitive across devices. Our member proposition keeps enhancing through attracted exclusive deals provided by our partners and features such as the list sharing functionality to foster collaborative trip planning. Revenue from logged-in members continued to rise, which we expect to enhance retention and conversion. Our third strategic priority is to create more value for our partners and a healthier marketplace. Our transaction-based model continues to gain share, simplifying participation for small and midsized partners and helping reduce auction volatility. Book & Go accelerated by our Holisto integration is gaining traction. Pilot partners are seeing meaningful conversion uplifts and market share gains in our platform, evidence that a streamlined trivago-branded booking funnel creates value for our users and partners. In summary, we delivered another quarter of double-digit growth and healthy returns despite foreign exchange headwinds. A stronger brand and a better hotel search experience are resonating with travelers and partners alike. Thank you to our teams for your focus, creativity and discipline. Your work powers our progress every day. I'm especially proud of how broadly our team is adopting AI in novel ways, strengthening our position and delivering more value to our users faster. With that, I'll hand over to our CFO, Wolf, for a more detailed financial review. Wolf Schmuhl: Thank you, Johannes, and good morning, everyone. We are thrilled to report that the third quarter of 2025 was yet another successful quarter with strong performance. This quarter, we achieved a 13% year-over-year increase in total revenue, which was driven by our successful brand strategy. We maintained a stable return on advertising spend even as we levered up our brand investments where elasticities are attractive, but the returns come over time. This not only reaffirms the effectiveness of our marketing strategy, it also builds the foundation to further scale branded traffic in the future. Despite economic uncertainties and foreign exchange-related headwinds, we remain confident about our outlook. We continue to expect mid-teens percentage revenue growth for the full year of 2025 and a positive adjusted EBITDA of at least EUR 10 million. Now let's review our third quarter results and our 2026 outlook. Unless otherwise indicated, all comparisons for 2025 are on a year-over-year basis. In the third quarter, our total revenue reached EUR 165.6 million, representing a 13% increase compared to the same period of 2024. We are pleased to note this marks our fourth consecutive quarter of growth. This growth was driven by yet another strong quarter of year-over-year double-digit referral revenue growth of 14% in Americas, 12% in Rest of World and 9% in Developed Europe. Our Developed Europe segment faced headwinds from strong prior year comps, especially early in the quarter, as we called out in our last earnings call. The trend normalized over the course of the third quarter in 2025. Our growth was primarily driven by increased branded channel traffic in response to our ongoing brand marketing investments as well as product improvements, enhancing our booking conversion. Unfavorable foreign exchange headwinds negatively affected our revenue development by approximately 4% globally. Due to our strong fundamentals and diversified global footprint, we have still been able to demonstrate strong growth. During the third quarter, we reported a net profit of EUR 11 million and achieved a better-than-expected adjusted EBITDA of EUR 16 million. Operational expenses decreased by EUR 12.3 million, totaling EUR 153.4 million for the third quarter. This was mainly due to the nonrecurrence of a EUR 30 million impairment charge recorded in the prior year. Excluding this impairment charge, operational expenses increased by EUR 17.7 million, mainly driven by a EUR 14.5 million increase in selling and marketing expenses resulting from higher brand marketing investments made over the course of the quarter. Advertising spend increased by EUR 7.2 million or 17% in Developed Europe, EUR 2.8 million or 11% in Rest of World and EUR 3.6 million or 9% in the Americas, driven largely by brand marketing investments. Despite the significant scaling of our marketing investments in this quarter, Global Rewards remained stable compared to prior year at 134.1%. We observed a solid ROAS improvement year-on-year during the third quarter in Americas and increasing from 126% in 2024 to 135.4% in 2025 and Rest of World increasing from 117.6% in 2024 to 119.2% in 2025, while we observed a reduction in Developed Europe from 151.2% to 141.2%. As of September 30, 2025, we held EUR 106.3 million in cash and cash equivalents and no long-term debt, continuing to maintain our strong financial position. Looking forward to 2026, we aim to achieve an increased adjusted EBITDA of around EUR 20 million while continuing our growth trajectory and maintaining double-digit percentage revenue growth. We continue to see substantial opportunities to scale our brand marketing activities, enabling us to reach a larger audience and positively impact overall revenues and profitability long term. Additionally, we consolidated Trivago Deals Limited, formerly Holisto Limited, for the first time and are moving forward with our post-merger integration. We view Trivago Deals Limited as an integral part of trivago, and it will be included in our financial guidance going forward. We already see our initiatives gaining traction in terms of conversion improvements and an increased market share on our platform, showcasing the value for our users and partners of a facilitated booking funnel. With that, let's open the line for questions. Operator, we are now ready to take the first question. Operator: [Operator Instructions] Your next question comes from the line of Tom White with D.A. Davidson & Co. Wyatt Swanson: This is Wyatt Swanson on for Tom. First one, it's great to hear that revenue from logged-in users continues to increase. Curious to hear your goals of what percentage of users could be logged in over the next 12 to 18 months and maybe some of the initiatives being put in place to retain these more loyal/logged-in users? Johannes Thomas: Yes. Thank you for the question. I think a very important one. And the number has increased, and it's important on the target. So it's not that we are dogmatically having a target, let's say, we want to bring this to 50% or so. It will rather be an outcome of diligent testing and experimenting in what moment in time do we ask users to log in, in a way that this improves conversion, doesn't cost us short-term revenue at unreasonable levels. So we now have increased it. We last time said it's north of 20%. I would say if we are reaching something like 30%, it is a number where we can say we have a core -- identified a core user segment that when they log in, they will have a different trivago experience. So maybe it is 40%. We don't know exactly, and we will find out. We know the current users that we have behind the log-in more than 20%. They convert 25% better than the others. So it's really a meaningful difference to all others. They have more engagement on our side, and we will continue to offer special deals to them. We have done the enhanced sharing functionality, collaboration functionality. We expect to have price alerts, expanded the functionality. And you can think about it when a user comes to the site and we have a closer relationship. We know there is this 2 to 4 weeks period where they are likely to book. And in this period, we need to maximize the contacts over time. So they are not just coming through trivago one time. And that's really the goal here to increase engagement during this hot period where they're likely to book. And then also if they had a better experience certainly to increase retention, which is much harder to measure and estimate and which is not kind of part of our direct planning, but increasing conversion rate with those users and the engagement, it's already attractive from what we are seeing today and that we will continue to embrace. Whether it will be 30% or 40%, it will be an outcome. It's not a fixed target. Wyatt Swanson: Got it. That's very helpful. And then one more. B2B has been a pretty notable area of growth for the large OTAs recently. Curious whether trivago could potentially play a role in that space in the coming years? And how would you see that looking exactly? Johannes Thomas: Yes, we have been discussing B2B here and then. Also with Holisto now having a white label platform, you could access B2B rates and build a special proposition for the B2B world and offer white labels for those who are seeking that. We work with affiliates and there is some attractive business. But we really are focused around leisure at this point in time. That's where our proposition is strong and the space is huge. And we -- simplicity as beauty, we are not doing flights. We are not doing package and so on because there's so much meat in this space. And that's where we see a lot of opportunity to grow. Long term, there's certainly options that we can look into, but the timing is not right for that. Operator: Your next question comes from the line of Naved Khan with B. Riley Securities. Naved Khan: A few questions from me. Maybe first of all, just a clarification on the outlook for 2026. When you say you expect revenue to grow double digits, EBITDA EUR 20 million. How should we think about growth in the core business, the lead gen business versus Holisto? Should we expect both to be growing double digits or a different pace? Just talk about that. Johannes Thomas: Naved, thanks for your question. So regarding Holisto, for the future, we will only guide on a consolidated level. But to give some clarity there, we expect both segments to grow double digit. And maybe it's helpful to add some color on 2026 and on the budget. As we have now entered around 27 core travel markets. And for the next year, we plan to optimize these existing markets. We are quite optimistic that these markets offer enough room for growth. And as well, we will also gradually optimize profitability. And this is reflected in our 2026 guidance with an adjusted EBITDA of around EUR 20 million. So what are the major reasons for giving us this confidence? So first of all, the market we are tackling is large, and our share is still below 1%, and this gives us a substantial runway. We are one of the strongest brands in the category, and we offer a very differentiated product, and this also creates a clear room to grow. Our brand investments are still below 2019 levels. And also there, we see a strong opportunity to invest at attractive returns. Recent and current brand investments are compounding, and we expect them to support our profitability in 2026. Wolf Schmuhl: Maybe let me build on this point. I think that's very important to explain more exactly what we mean with expansion versus optimization. In the past years and also when we built trivago, we have basically been growth-oriented, and we took profits from markets that have delivered substantial profitability and invested it into markets that we activated or reactivated. And for some markets, it goes fast. For some markets, it takes time to optimize those markets and compounding effects to make them profitable. But now when we stop expanding markets, we basically take some of the compounding effect to our bottom line. And it's a matter of optimizing country mix, marketing mix and improving our creative. And that's where gradually we see more profitability landing in our bottom line as well. Naved Khan: Super helpful on that. So maybe just talk about the compounding. What kind of improvement are you seeing in the marketing efficiency? Just give us a sense of that, it seems to be playing a role in this increased profitability. Johannes Thomas: Yes, it's something -- I mean, what we look at how much of our volume -- how much of our growth is coming from branded growth versus other channels. And by far, the majority of our growth is coming from branded growth. And this is only possible if you see compounding effects year-over-year or summer into off-season periods, and that's what we see clearly. And every year, we are investing the year after will benefit from that. That's something we have seen in the past. We are seeing it today in some markets more, in some markets less. And that's part of our optimization, what elasticity and how much compounding effects we are seeing over time. Naved Khan: Got it. And then last point -- last question is around this logged-in contribution to revenue. What are the incentives or benefits that you're giving to the logged-in so that they come back and again transact directly with you? Johannes Thomas: Yes. The most important one is private deals. If you go to trivago, you will find log-in triggers that show you, you would get an even cheaper deal if you log in. And these logged-in users, we see a higher engagement, and that's a strong signal that conversion is a strong signal for retention, for satisfaction and those users we expect to come back with a higher probability. And this share is increasing. We are increasing the amount of deals we are showing to our users. We are optimizing with our partners what's the right level of deals that we are providing to our users. So the higher the deals, the higher the conversion rate, the higher the satisfaction and we aim to find a good balance between having a margin out of that and still having a steep conversion rate improvement while we are doing that. Naved Khan: Congrats on the progress. Operator: Your next question comes from the line of Doug Anmuth with JPMorgan. Dae Lee: Great. This is Dae Lee on for Doug. First one on just AI overall. So we've seen consumers' search behavior increasingly shift across platforms and notably AI-driven tools such as like Google's AI, ChatGPT. So how is trivago positioned to defend or grow your share of top-of-funnel traffic in this type of environment? And do you see a strategic need for trivago to be present on these new experiences? If not, like what differentiates trivago's value proposition in capturing those consumers' intent versus the broader search and AI ecosystems? Johannes Thomas: Yes. Thank you for the question. I think an important one that we are observing very closely. I think very important, and that's true for us and other players we are talking to. The shift to the AI platforms is really small when it comes closer to the planning and booking process. So it's a tiny share of traffic we are seeing today. If you use it, you probably see there's a benefit of inspirational and so on. But as soon as it goes a bit down the planning and a bit more concrete and considering it's more clunky to use a chat experience to really nail down your selection. I'm not saying nobody is doing it, but we don't see like a flood of people doing this. So the traffic we get from these AI engines today is very small. It is growing. It's converting better than other traffic. So we are looking at how fast is this growing. If we look at the impact we have seen from the AI mode, for instance, in the U.S. when it got rolled out or in Europe recently, we have not seen a huge impact on any major Google metric. Our SEO, for instance, it's a small part of our business. We're not concerned of losing much SEO business in general because it's so small. But last quarter, it has not been a headwind for us. It was rather flattish. And overall, we have not seen what happened so far, which was not small, which had quite some scope, AI summaries and the AI mode didn't really have a substantial impact on what we are doing. One part is that we have built our brand. So we have lots of business coming direct and then the dependency is lower. And I think if you ask about the positioning for us in the future, I think brand is a very important answer to that. So people come to us to play with AI features to leverage AI. And I think we have demonstrated in the last 2 years how much AI is in the center of our strategy. I honestly believe we wouldn't be where we are today with our user experience and with our marketing and with our operations if we wouldn't have AI with a fairly small team of 600 people. I mentioned the example today a small compact team is doing the work of 100 people that we used to have on AI content. We've launched AI highlights, AI review summaries, AI search, which continues to improve a lot. So I hope people come to us, engage with our product. And I think it's a UX game that we have a good chance to be winning and to be ahead of the curve, whereas the big AI players are on -- they basically optimize and have very different priorities than optimizing down a vertical. If I would call out one player that I believe is leading in travel in the AI space, it is Google. Google has built out their travel vertical since more than a decade. Combining these features with their AI functionalities is something that we probably will see, but Google has a strong position as well. So they will probably shift inside their channel size, so move traffic from general search into AI, into vertical. I don't necessarily see that they are gaining market share through that. And we are present there. We are part of Google Hotel Ads. We are part of all kinds of ad formats in Google, and we are where we see attractive volumes and returns. So I think where it matters at this point in time, we are very present, and we know how the game works. If I think about the long term, it's very hard to predict what role will play a pure AI players, chatbots, agents, will they become mainstream in really complex search processes, decision-making processes where it's not obvious for me that one of the general ones will make it such a smooth process anytime soon. And therefore, I believe we are strong in brand. If we are strong in leveraging AI, this can make our business very attractive, our proposition stronger, and that's where we are playing. And I'm not hugely concerned about a flood of people suddenly switching the way and their behavior and how they search travel. It's chaotic. People have chaos when they book their trip, they look for dozens of sites. And whether they now use AI on top, we will be there when it's relevant. Dae Lee: Got it. And as a follow-up, I think in 2024 and this year, you guys try to operate with a breakeven mentality in terms of adjusted EBITDA prioritizing growth. So when you look at your 2026 guidance, EUR 20 million in adjusted EBITDA, does that embed a similar mentality? Or should we expect some like a beginning of margin expansion story given your comments about optimization and brand marketing versus expansionary? Johannes Thomas: Yes. Maybe let me build on what I said. I think this will mostly come out of the effect that we stop taking profits out of profitable markets and push it into new markets. So you basically just move the profits to bottom line and not move it into new markets. This doesn't mean we are not expanding our marketing investment and brand in general. On a relative scale, we likely will invest it less than in previous year on a relative scale to revenue, but we expect growth to be higher than our spend increase. And we are -- our -- what we explained at the beginning of the year, our general way of becoming more profitable is keeping our cost base flat and growing with our revenue on top. Margin expansion is not necessarily -- it's not part of our current projection. It's really about taking the compounding effects into our bottom line, improving efficiency in our markets and not increasing OpEx at unreasonable levels. Operator: Your next question comes from the line of [ Jack Hu Wong ] with Mizuho. Qijia Yuan: This is Jack on for Lloyd Walmsley of Mizuho. I just have 2 quick questions. First, are you seeing any uptick in bidding from Airbnb as they pivot to more full focus on hotel? And second one, how are you seeing customer acquisition costs trending in paid search, especially when we think about one of the write-downs for Kayak that happened last week? Johannes Thomas: Yes. Thank you for the question on Airbnb, they have been on our platform for a while. I think we can -- we hear about the efforts that they want to lean more into hotels. We work on the relevant inventory where there is a likeliness they get visibility on our platform. We are by far making most of our returns with hotels. Still, if you have periods where there is, let's say, a fair in a city or when you have small cities where there are few hotels, the alternative accommodations are a great complementary for our properties. We see Airbnb as an attractive partner to enable that. And then on the question of our -- of performance marketing, we have never been so dependent on SEO. So for us, the paid game was always part of where we are. We are very disciplined in paid. So we are -- whenever we have opportunities, we prefer investing into brand. We aim to keep a disciplined approach in performance. We have not seen any major inflation in the economics on performance marketing that are worth mentioning. Operator: Your next question comes from the line of Ron Josey with Citi. Unknown Analyst: This is Robert on for Ron. You guys have mentioned that AI is driving product improvements that previously required 100-plus person teams in the prepared remarks. Can you maybe double-click on this and expand on where we'll start to see these productivity gains across the P&L next year, either in the form of kind of double-digit revenue growth and reaccelerating revenues or potential cost efficiencies? Johannes Thomas: So maybe let me -- so in the past, an example that I outlined here was we had a content team of 100-plus people where we were basically editing, creating condensed information about a hotel. So it was a lot of people for -- with lots of different languages. They were summarizing what reviews said, what are hotels unique about and try to create a condensed view of a hotel. And I think that's where trivago differentiates to other platforms. We don't give you a whole lot of content. Now our goal is to aggregate and give you a distilled view on what's important to know about this hotel, so you can take a decision fast. We have you save time and money. And we had that before the pandemic. We still had a big content team, and we never rebuilt it. We have a compact small team that leverages AI to improve our images, to improve our content to distill it and in ways that were not possible before and also refreshing this on a constant basis. So accuracy of the information you find on trivago is even better. So that's, I think, a very good, very tangible example, and that's why I pointed it out and where this has created value. And I would rather see this as an opportunity upside because that improves engagement on the platform that improves satisfaction that improves conversion and that ultimately drives marketing efficiency and the ability to deliver profits. And then generally, what we say internally and what I strongly believe, we are a company that's very small and compact, and we need to be the speedboat of the industry, the fastest learning, fastest executing team in the space. And more like we with 600 people need to be as impactful as 6,000 people. So every person having the 10x impact in order to compete in a space that's big and competitive. We don't have this huge workforce that we need to optimize. That's also why your answer on cost efficiency. I don't think that is a big leverage. And if you would look at our cost basis, reducing a little bit of cost efficiencies there will not make a huge difference. It's really an upside game. And if we can deliver a few percentages more in conversion, that can be a dozens of millions that we move to our bottom line. If we do this month by 1 month, quarter-by-quarter, that -- that is what makes the business more attractive. And given its size and the amount of problems users have while they are searching for hotels, I think there's lots of upside opportunity. And that's how I would think about it. So we can rather deliver growth or profitability by leveraging AI and it's less about a cost efficiency game. Operator: Your next question comes from the line of Stephen Ju with UBS. Vanessa Fong: This is Vanessa on for Stephen. So I just have one question. And now that Holisto was officially part of the company, you are in a position to send more of your traffic to your supply partners. So can you talk about the extent of any potential channel conflicts that may or may not have risen with the OTAs? And if that's just something we need to think about? Johannes Thomas: So what Holisto is doing, and we have renamed Holisto into Trivago Deals. And for us, Holisto is now an innovation center in Israel that we are -- that we are focusing on non-core meta search products. They have their own OTA brands that have been competing before in the space. So there's not a huge difference there. What they are doing for us is building a white label booking engine that we actually offer to our partners and every partner is invited to join it from small to big. We believe more value is created for the smaller ones that have less resources to invest into conversion optimization. So we see small and medium-sized OTAs joining this product, potentially hotel chains are interested in joining that product that don't have a good converting booking funnel. So it actually creates value for our partners, end users, and that's a win-win situation that we aim to create. Operator: There are no further questions at this time. I will now turn the call back to Johannes Thomas for closing remarks. Johannes Thomas: Yes. Thank you for joining us. This quarter marks another milestone in our turnaround. Our strategy is working, and we will remain laser-focused on executing on our key initiatives. Thank you for joining today and for your continued trust and support. We look forward to keep you updated in the quarters ahead. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Jose Costa: Good day, everyone, welcome to Prio's Third Quarter Video Conference call. I am Jose Gustavo, IR Manager, and I will be host of this event. [Operator Instructions] The translated presentation is available on our IR website. The comments on the results will be presented by our CEO, Roberto Monteiro; our CFO, Milton; Chairman and COO, Francisco Francilmar. After the presentation, they will be available for the Q&A session. [Operator Instructions] This event is being recorded and will be available on our IR website. This presentation contains information based on future estimates and forecasts based on assumptions adopted by the company, which can change. It should not be considered fact or be used as a basis for financial projections beyond the plans expressed by the company. Now I'll give the floor to Roberto Monteiro, our CEO. Roberto Monteiro: Good afternoon, everyone. Welcome to Prio's Third Quarter 2025 Earnings Call. Well, I wanted to give you an overview of summary of our third quarter results. I believe we had some good things and some bad things. I'll start with the most difficult, the most challenging point, which was the Peregrino shutdown. That would be the bad thing. We had 2 Peregrino shutdowns during the quarter. One of them was a scheduled shutdown in July. So that was okay. That's -- that was normal operation for the field. But then still in this quarter, we had a second shutdown at Peregrino lasting 63 days. This was due to a regulatory issue and so on and that was a major negative point for us during the quarter. On the other hand, we had a lot of very, very positive points in Q3. This quarter, I think this was the company's best quarter in the other assets. So considering Frade, Albacora and TBMT field. Trading also did very well from a funding perspective, the company also did very well. So we had all of these very positive aspects with one negative point, which was the Peregrino shutdown. I'll go into that later, but -- and obviously, among these positives, we also had Wahoo, which also made great strides. I will address these points one by one. And then I'll pass it on to Francilmar and Milton to go into more detail in their specific areas. So speaking briefly, Peregrino, we already talked about it. We had a 63-day shutdown. We recovered, and we recently resumed production. The field is producing well. It is producing more than 100,000 barrels per day. It is producing around 106,000 barrels daily. So it came back well. It continues to do well. We had already reached that number before the shutdown. So it came back well in line with what we had projected. And then we'll talk a little about the next steps for Peregrino field. Moving on to our operations. The first one I would like to draw your attention to was Wahoo Field. We finally obtained an installation license at Wahoo Field. We have already contracted and pulled in the [indiscernible] of the vessel called amazon or pipeline. Everything is going according to plan, 2 wells have already been drilled. The results are in keeping with what we expected. So everything is going well on the Wahoo work front. Another front that I thought was positive this quarter was Albacora's operating efficiency. We had a record 91% for the quarter. We had a month with 97%, if I'm not mistaken, and another month of 94% within the quarter. So it's very positive. However, in the last month of the quarter, in September, we had one compressor failing, which we already knew with our Leste field at Albacora. Compression is the only system for which we still do not have adequate redundancy. So we had downtime and will recover soon. Unfortunately, these are items that we call long lead time items. Items with long delivery times, which we buy abroad. But anyway, it's addressed. They're going to solve it, we've already bought it, it's going to arrive, we're going to solve it. But I thought was positive is that we had one problem. It was totally focused on one point. So all the work we've done at Albacora over the last 12 months is starting to bear fruit. So that's why Frade was worth bringing this up as a major positive highlight. We performed a workover in TBMT 6, another well that had had problems with the pump. So the Polvo TBMT cluster returned to producing 14,000, 14,500 barrels daily and as it had been producing last year before all the problems we had there with workovers, IBAMA and so on. Moving a little more to the corporate side. We issued -- well, actually, there were 2 issuances. We issued a local debenture but close to this quarter, we issued it in the second quarter. It closed in the third quarter. And we issued $700 million in bonds, which we issued in the third quarter and the money will come in during the fourth quarter, along with the repurchase of a large portion of the bonds that would mature in 2026. So with that, the company improved, became even stronger from the point of view of cash position, long-term capital structure and so on and so forth. As for the company's results, when we look at them, our EBITDA totaled $320 million in the third quarter which was more or less in line with what we generated in the previous quarter. What happened here is that Peregrino -- the shutdown at Peregrino, of course, that obviously hurt us, but as we reduced inventory and sold oil that was in stock, we managed to maintain in Q3, a figure that was more or less similar to the previous quarter at $320 million and we had a net income of $92 million. What did worsen significantly from one quarter to the next, obviously, and moving on to the next slide was the lifting cost. The lifting cost for this quarter was 17%, actually, not 17%, $17.4 per barrel. And it did get worse because we decided to include all costs related to Peregrino as and expensed in this quarter. So we are not going to carry anything forward. The impact of the Peregrino shutdown is here in the third quarter. Actually, not all of it because Peregrino came back on, it was more or less in mid-October. So there will be those 15 days in October that will go into the next quarter, but then it is done. We could have accounted for it differently, but we didn't. We didn't do any of that. Our approach was to report everything as an expense and then our lifting cost in the third quarter rose to $17 per barrel. The fourth quarter will be impacted by those 15 days of October. But after that, we will be 100% clear. Another interesting draft to look at on the slide, Slide #4, is the one on the right which is production. We see that total production for the quarter was 88. However, the company's production, which would be those ores excluding the gray part of the bar, which would be the assets operated by Prio. We see that production posted higher numbers than in the last 3, 4, 5 quarters. So I think that here, we can see our work, the fruit of our labor in terms of our operations. As I said, our cash position is very strong. We closed the quarter with $1.7 billion. And today, our cash position is even higher than that. We have a little over $2 billion in cash. So we are fully prepared now for the closing of Peregrino and for the whole of next year. Milton will talk about this, but we will have almost no maturities next year. Another index that also worsened slightly was our debt largely due to the Peregrino problem. And we managed to sell 8 million barrels or so -- 8 million or so just in line with last quarter. So we could have done better if Peregrino had maintained production. So this is a summary of the quarter. I think we had some very positive development, especially with regard to our operations. But we had this Peregrino issue that ended up tarnishing the quarter. Peregrino has already been resolved. We will talk about it later, and we will address the next steps for Peregrino. The company as a whole, I think, is well prepared for the coming quarters, for the coming years and beyond. I'll stop here and hand over to Francilmar, who will go through the assets one by one. Milton will talk about the financials, and I'll come back to wrap things up. Thank you very much, Francilmar? Francilmar Fernandes: Hello, everyone. Thank you, Roberto. I will start on Slide 5 with the overall performance of our assets. It was a pretty busy quarter we had here. We had some positives and some negatives. Overall, we ended up producing less. We had a major impact with the shutdown at Peregrino field and Peregrino is currently the company's largest producer. Had significant developments at Albacora and TBMT. And really relatively stable quarter in terms of efficiency at Frade. But overall, we ended up having a strong negative impact on the lifting cost. It was $17. I can't even remember when we last had a number like that. But it was really impacted by the shutdown of Peregrino where we had a slight increase in costs to solve the problems and with no production. So that really had an impact, but it was a one-off. We hope that in the next quarter, we will be able to capture the improvements. We will work hard so that in the coming quarters, we can return to the number that we think is minimally comfortable for us to be at. Moving on to Slide #6. So we'll go over a few more details about Frade Field. This quarter, we had good field efficiency exceeding 97%, which we consider a good number for Frade but production was impacted by the natural decline of the field. We suffered a little bit coming out of that compression problem we had. But it has been fully resolved. We have no problems at the field. Today, we are operating at 100%. We're working very hard to adapt the unit there, making the final adjustments so that we can receive the oil from Wahoo. So few adjustments, commissioning of some materials that were already installed in the past. So nothing too out of the ordinary. Moving on to Slide 7, updating you on Polvo and TBMT. It was a quarter of deliveries of evolution at the field. We completed the workover of those 2 wells that had been idle since last year when we received the approvals. After that, we had the failure of a third well, TBMT 6. And as we had obtained approval for a good number of workovers for many wells, we quickly mobilized the rig. Within the same quarter, we sorted and repaired this well and is producing normally. And as a result, we already have operating efficiency over 90%, in fact, much better than that today and with full production. We're producing a little over 14,000 barrels, and we should still have relatively stable production, but a natural decline of this field. Just much more controlled for the coming quarters. On Slide 8, at Albacora Leste field, it was a quarter of relatively good performance. In fact, the best performance we have ever had at the field. And this is thanks to the repairs we made, all the effort that was made to repair or improve the power generation system and the water injection system. Our weakness remains the compression system. We have already repaired some things, but there were setbacks and others. We're still waiting for the compressor we purchased a brand new one. These are products and equipment with very long lead times. We are also facing a problem with the power system, the transformer which is connected to the compressor, but we are working hard to resolve this in the next quarter. So with that, we're able to deliver this level of efficiency, but still with some fragility in terms of redundancy. By delivering this in the coming quarters, we will be in a more stable state of production and operating efficiency for the field. Moving on to Slide 9. Let's talk a little bit about Peregrino in general. Peregrino had a quarter marked by downtime. By the field that was closed. So we stopped production for 63 days this quarter, which had a profound impact on production. And we made a huge effort to repair to try to have it back on as soon as possible. But there was a lot of physical work there repairing lines, replacing sections, repairing various systems that we had to handle to meet the requirements of the law. That was overcome. We joined forces with the operator, both people who are working on the transition and people who work some of our units that we redirected there and the suppliers as well. So all the focus was on that. That's what are under the bridge, and we overcame this challenge. Now we are working to finalize the transition. We hope to have news very soon. We have a team on board and the team at the office so all the final details are being finalized so that we can move forward and start operating the asset, maintaining efficiency, safety and smooth operations. Moving on to Slide #10. Updates on Wahoo Field. This period also saw significant progress. We received a license to install the subsea system, the connection or, as we call it, the subsea tieback and we mobilized the vessels both the ship for laying the rigid pipeline and the ship for laying the flexible pipelines as well as installation of the subsea equipment that was ready here. We have already begun installing some equipment and both the rigid and flexible pipeline vessels are being released for operation and undergoing loading preparation and the entire mobilization phase that is part of the schedule. The next phase now for the subsea part is to do the installation at the field itself, laying the rigid and flexible pipelines, all the various equipment that we install on the seabed, make the connections to the wells and then schedule commissioning further down the line. So everything is going according to schedule. We have already advised the market, and we will keep you updated on the next development. The next step, in fact, is the first oil. In addition to that, there is something I haven't mentioned in detail, which was the rig. We finished drilling the second well. We are completing the second well and later on, we will drill the third and fourth wells trying to apply the lessons we have already learned from these 2 wells. Overall, in terms of the reservoir between pros and cons, the result is in line with what we were expecting. We need more data. So we will still continue to study and cover the area to check for additional opportunities and have a better understanding of the reservoir. This happens in every well. So these are ongoing issues that will be present as we continue to develop the field. And with that, I turn the floor over to Milton. Milton Rangel: Thank you. Now on Slide #11, we talk about Prio's financial performance in the quarter. Our total revenue stood at USD 607 million. Brands reference in the quarter was 68.3%, with the equivalent FOB brand for sale at 64.15% and the quantity sold in the quarter was 8.8 million barrels. This helps us understand the total revenue of $607 million with FOB revenue of $566 million. What is important to highlight here for this quarter. Well, as we have already explained, Peregrino suffered a significant impact this quarter. We had 9 days of scheduled downtime in July. And since August 15, until mid-October, we had the intervention or the inspection in Peregrino and the field's production was interrupted. We had a shutdown. Therefore, the 15 days in August plus the entire month of September, in addition to the 9 days in July, brought an important impact to our financial statements. For the purposes of COGS, we recognize the COGS of the Peregrino or COGS for Peregrino for July and August and the cost for September, which would be the OpEx for September of around $20 million is included in the line of other operating expenses. This is purely accounting since we did not have associated production and revenue. Therefore, we do not recognize COGS. So this is recorded as a loss in these other operating expenses. When we show the lifting cost of $17.4, this already includes both with which is the COGS of the field reflecting this loss, just to give a complete view of the company's lifting cost performance which driven by lease losses or this lack of production coming from Peregrino for the consolidated numbers to $17.4. With that, our EBITDA was around USD 309 million with a margin of 55% adjusted EBITDA, excluding these nonrecurring items of [ $320 million ] with a margin of 57%. We also recorded an increase in financial results, which I think is worth going over quickly. We recognized USD 14.5 million in the quarter related to hedge transactions that were carried out mostly in June, July and August. Basically, the premium paid as the oil remained high, these options were not exercised. So it is the value of the premium of these options. And also, we had an impact of around USD 23.5 million related to the marking of unsettled hedges. And these are positions from September, October and November, which due to the fluctuation in the value of these hedges, we posted as a negative this quarter, although this has not been something cash or something fully realized. In addition, the company experienced an increase in gross debt which amounted to approximately USD 4.6 billion, leading to a slightly higher financial expense, something around $68 million in the quarter, which helps to explain much of this increase in financial expenses. Now moving on to the next slide, #12, we talk about funding. I'm already looking at the central charge on the amortization schedule. What is important for us to note here. Well, we have a large amount in 2026 of USD 600 million referring to our bond maturing in the middle of next year -- in the midst of 2026. Therefore, it's important to highlight that in October, we issued a new bond. We made a tender offer on top of the existing bonds, which had an acceptance rate of around 70%, meaning that we bought back this amount of $430 million, $431 million, leaving around USD 170 million still on our balance sheet for this original bond, which will mature in June. And with that, we issued USD 700 million in a new transaction this time, senior unsecured. While the previous bond was senior secured, and now we are migrating to the senior unsecured modality with a 5-year term, a rate of [ 6.75% ] I mean $1.65 per year. And that being in the next quarter is a subsequent event because it occurred in October. But we will already see a change in this amortization profile in the next presentations. Moreover, we also issued USD 539 million in debentures swapped for BRL. There is total exposure of this amount to dollar over the term of the 2 series of the debentures. And we had already done a lot of work to bring the maturities of working capital lines to the years of 2027 and '28 as we can see. Therefore, with this bond issue, our 2026 has virtually no debt. The value is very small. And we have a lot of peace of mind at a very important moment of capital allocation. When we have Peregrino coming along, the closing of 40% followed by the other 20%, we also have the under Wahoo's CapEx. Before, this is a moment of tranquility for the year of 2026 in terms of maturity. Well, duration of [ 2.78 ] in the third quarter and an average cost of debt of [ 6.35 ]. With the bond, we will be able to increase this duration a little bit more, considering this 5-year term with a duration of around 4.4 or 4.5 years. Moving on to the next slide here on net debt variation or proxy for our cash generation. We are coming out of net debt in the second quarter of USD 2.77 billion, our adjusted EBITDA ex IFRS of USD 320 million. As we said earlier, working capital expenses of $75 million, largely explained by payments to suppliers and also because we made several sales but have not yet received the cash, therefore, you still have a large amount of receivables coming along. CapEx largely relates to development of Wahoo, which is now in full swing. Well, we had the workover in TBMT, integrity expenses in Albacora Leste, and there were also issues related to the Peregrino shutdown. USD 20 million of this OpEx from Peregrino that is outside this adjusted EBITDA. So to make up the cash, it enters here in a separate column. Share buyback of USD 7 million and financial result of $80 million, largely here by $14 million of the premium paid in hedge with approximately $66 million approximately in interest or financial expenses from our debt portfolio. And with that, we arrived at a net debt of USD 2.8 billion at the end of the third quarter. We're now Slide #14 is on leverage. We basically measure here the net debt indicator to the company's adjusted EBITDA. In the third quarter, we reached 2x, which was slightly higher than the second quarter of '25, which was 1.8. Well, this slight increase I would say that is largely associated with the Peregrino shutdown generating less EBITDA, less cash generation. So it pulls this indicator up a bit. But still well below the 2.5x limit we have in our covenants. It's important to mention that we have an important event related to the closing of Peregrino that should take place probably in February or maybe even sooner, and we are in a very comfortable cash position, which currently is about USD 2 billion and with the Peregrino closing, bringing in an additional 40% of Peregrino's position. With Wahoo coming in over the next year, we expect strong cash generation and considerable financial robustness for the company in the coming quarters. With that, I'll hand over to Roberto to talk about ESG and the next steps. Thank you. Roberto Monteiro: Thank you, Milton. Well, I'm going to talk a little bit about environment and society, and then we will talk about the company's next steps. We continue to work on the sustainability front through the -- through our Prio Institute, working on programs such as the open sea initiative, which connects local fishermen to the oil and gas sector and so on. On the safety side, we conducted an emergency drill with the Navy, IBAMA and Albacora last year, which went very well. We held a second meeting on safety knowledge bills and also trained competent personnel who work at heights. We conducted SGSO, SGIP and SGSS audits. So safety is always a nonnegotiable thing for us and very important item in our culture. Within the health and well-being pillars, we achieved through our traditional programs some important things. We promoted a race, we had our first Prio owned race, which took place at a Jockey Club. It was super interesting cardiological and preventive evaluations, yoga and so on. In the third quarter, I mean, we had sponsorship events in the third quarter like racing and other events. And we also sponsored other events like Prima Facie and Rio Gastronomia. Well, now moving on to the next steps, Slide 16. Here, we have almost the same steps as shown in the last quarter. The focus on safety and health will always be present as will M&A opportunities. And in the middle, that is important within Albacora Leste's operating efficiency, we have promised in advance in this operating efficiency. I think it has happened. Today, we have a very specific issue related to gas compression. But the Albacora Leste field has been operating in a very stable, very safe, very consistent manner. So I think this is already a gain. We still have to resolve the gas compression issue. But I think we already reached a new level at Albacora Leste. At Wahoo, we have made very good progress in the 2 wells we have already drilled. The results were very much in line with what we expected. As for the pipeline, the boat is already in Brazil, and it will now undergo inspection by IBAMA, so it can go to the field to start the pipe laying. It will load the pipes up to launch line. So everything is on track and moving forward so that the first oil is expected to come in between March and April as we promised in the material fact. Costs are also very much aligned with no major setbacks. And the last point here that was pending is the closing of Peregrino. This closing of Peregrino is contractually scheduled for February of next year. However, now after this introduction and the return into -- the return back into operation, we have worked together with Equinor and ANP right after we resumed production, authorized the closing, meaning that today, there are no impediments from their regulators or any competent agency. And so today, we are ready for the closing as ANP has already approved it. And then there is a transfer of [ Elo ], but this will happen right afterwards with IBAMA. Therefore, today, we are ready for the closing of Peregrino, which is supposed to happen in February of next year. Today, we are working with Equinor to check the possibility of anticipating the closing. Nothing is settled yet but we are prepared since it makes a lot of sense to us. I mean, taking charge of the operation and start working to capture synergies in the field. In the coming months, our focus will be very operational as you can tell. Of course, M&As are always important, but it will take a back seat during the next few months. And as I said, our focus remains on the operational issues. And very soon, we will go from 115,000 barrels a day to slightly over 150,000 barrels a day with the enter of Peregrino and later with Wahoo, we will reach 190,000 barrels a day. And then with the remaining 20% from Peregrino, we will surpass 200,000 barrels a day. Therefore, the next 6 to 8 months will be crucial for us to reach these 200,000 barrels a day with great focus on the operational side. Now I'll stop here by thanking our employees and society and shareholders are always with us. And now, I will open the floor for questions. Thank you. Operator: Hello, everyone. Welcome to the Q&A session of our earnings conference call. So we are opening the floor for questions. First question from Gabriel Barra with Citi. Gabriel Coelho Barra: We'll try to focus on one question, but kind of a long one regarding the company's capital structure. I think that this was mentioned that the company's cash position, as the closing of Peregrino to happen in the short term. And in treasury, you have a high percentage of the company in the buyback that you've done recently. So the first point I would like to understand is why not cancel the shares now? Just trying to get a sense of why not canceling the shares and get to the 10%, given that you're very close to the number. Anything related to the closing because it seems to me that the cash position of the company is very comfortable. So I would like to understand the company's strategy regarding that. The second point, and perhaps it's a philosophical discussion we've had with the company for quite a while now. The company is also a very strong company in M&A deals, creating a lot of value to the shareholders, given a very successful execution of capital allocation. But when we look at the company today, as Roberto has just said, we are getting close to 200,000 barrels daily and with a very strong cash generation starting next year. And with our CapEx plan that accommodates the operating cash generation. So how should we think about dividend payout and share buyback looking forward, Roberto? Because I think that the company has slightly more leveraged now. But looking at cash generation, it seems that you are kind of comfortable as of 2026? So if you could speak about shares in treasury, how we should think about that and how we should think about dividends looking forward. These are the main 2 points of my question. Roberto Monteiro: Thank you, Gabriel. One way I'd like to look at the company is through the forecast for the next 12 to 18 months, at least the end of next year. And the forecast of cash generation and consequently, our cash position until the end of next year. So even with oil slightly stressed at $60 per barrel. Some people say it can go temporarily to $50. But just to do an exercise, considering $60 per barrel, we consider that our minimum cash for the company if we don't do anything and I mean, if we don't have any M&A deal or any other investments other than what is already in the radar investments in Wahoo, Peregrino, Albacora, Frade, everything is in the plan. So we would have a cash position, a minimum cash position which is always greater than $900 million. So clearly, we have a stronger cash position for us to think about the next 12 months. So there are 2 things that we can do. One of 2 things. We can have M&A deals, like I said, I don't think that this is going to be our focus in the coming months or quarters. This is not something we are working actively on. And we can reinvest in our own company because today, we find much superior returns to returns we've had in the past in M&A deals by buying back the shares of the company. So this issuance was very important to us because we kind of equalized all maturities. Now we have a very comfortable cash position for the next 12, 18 months. And looking forward, our cash position is very comfortable. And a lot of leeway there. And with that, as soon as we start seeing this leverage curve declining. I wouldn't like to go back to buying back the shares when the curve is upward and we don't know where it is going to stabilize. But the moment it stabilizes and the moment we understand that it's starting to drop and we'll look at that on a monthly basis, then I think it is the right moment for the company to go back to the market and start the buyback. And if we do repurchase the shares, we have to cancel them. So canceling the shares to me, is kind of a secondary move. The decision is whether the company should go back to share buyback. It should happen eventually. But due to financial discipline, it is important for us to expect that move when we see the leverage starting to invert the leverage curve.
Operator: Good day, and welcome to the One Stop Systems, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. As part of the discussion today, the representatives from OSS will be making certain forward-looking statements regarding the company's future financial and operating results, including those relating to revenue growth as well as business plans, bookings, the company's multiyear strategy, business objectives and expectations. These statements are based on the company's current beliefs and expectations and should not be regarded as a representation by OSS that any of its plans or expectations will be achieved. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and that OSS desires to avail itself of the protections of the safe harbor for these statements. Also, please be advised that the actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in the company's most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and recent press releases. Please read these reports and other future filings that OSS will make with the SEC. OSS disclaims any duty to update or revise its forward-looking statements, except as required by applicable law. It is now my pleasure to turn the conference over to OSS' President and CEO, Mr. Mike Knowles. Please go ahead, sir. Michael Knowles: Thank you, Andrew. Good morning, everyone, and thank you for joining today's call. OSS delivered a strong third quarter with significant consolidated revenue growth, higher gross margin and positive EBITDA and net income. Our third quarter and year-to-date performance underscore the solid foundation we have built as we capitalize on increasing demand from both defense and commercial customers for our rugged Enterprise Class compute solutions. Since implementing several strategic actions in 2023 and 2024 to reposition OSS for growth, we have seen continued improvements in our financial and operating results. These actions included strengthening our leadership team with proven defense industry executives, launching a multiyear strategic plan, rebuilding our go-to-market approach, expanding our sales pipeline and driving higher gross margins. As a result, we have experienced positive bookings momentum over the past 12 months, translating into increased sales and positive operating leverage. I'm extremely proud of what our teams have accomplished and believe we're well positioned for continued growth and strong profitability in the remainder of 2025 and into 2026. We continue to pursue strategic growth opportunities that leverage our high-performance edge compute solutions to meet the growing demands of AI, machine learning, autonomy and sensor fusion at the edge. Our pipeline is expanding across leading defense organizations and advanced commercial enterprises that seek trusted, proven partners like OSS. On a trailing 12-month basis, our OSS segment had a book-to-bill ratio of 1.4. After a historic level of bookings in the second quarter, third quarter trends reflected expected quarter-to-quarter variability. Our growing pipeline and customer engagement activities remain strong across both defense and commercial markets. Our second quarter performance also reflects our continued focus on fulfilling recent awards, investing in next-generation product development and advancing new program opportunities that are expected to contribute to positive bookings growth in 2026 and 2027. Overall, we are tracking ahead of our plan in product development milestones, which gives us confidence in our long-term growth trajectory. During the third quarter, we continued to support and increase our exposure on the P-8 Poseidon Reconnaissance aircraft. To date, we have recognized lifetime contracted revenue over $50 million on the P-8 platform. In addition, we had previously announced a 5-year sole-source supplier agreement and a 5-year extension support, which involves equipping the P-8 aircraft and ground base stations with high-capacity flash storage systems, spare flash storage canisters and related support services. We expect continued orders from both the U.S. Navy and our defense prime customer into 2026. Another highlight is our growing relationship with the leading medical imaging OEM, underscoring the growing relevance of our compute and storage solutions in health care. We believe there are opportunities to expand our presence with this customer beyond the current 5-year expected program value of over $25 million. Additional booking highlights include the September announcement of an initial $500,000 contract with Safran Federal System with additional orders expected totaling over $3 million. While smaller in size, this award establishes a new relationship with one of the world's leading high-technology defense contractors, and we see meaningful opportunity to expand this partnership over time. In October, we announced an initial $1.5 million order from a Canadian-based integrator of passenger cabin systems for the commercial aerospace industry. We expect this platform to contribute approximately $6 million in total revenue over the next 3 years. This award highlights the growing demand for high-performance compute in the commercial aerospace sector, an increasingly important component of our commercial market strategy. Across our pipeline, demand remains strong, supported by growing interest for our Enterprise Class compute solutions. While the ongoing government shutdown may impact the timing of near-term bookings, we view this as a timing issue, not a demand issue since OSS remains the sole source provider on affected platforms. As a result, we expect defense-related bookings to improve as conditions normalize, though timing may remain uncertain. We also continue to see signs of stabilization in our European markets that are served by our Bressner operating unit. Recent bookings and revenue within our Bressner segment have been in line with our targets, and Bressner remains on track to achieve higher sales and profitability for 2025 as compared to last year's results. Looking ahead, we believe OSS is uniquely positioned to capitalize on multiyear growth opportunities driven by accelerating adoption of artificial intelligence, machine learning, autonomy and sensor fusion at the edge. As these requirements become increasingly central to defense and commercial innovation, customers are turning to trusted partners like OSS with proven expertise in rugged Enterprise Class compute solutions. In support of this, we increased R&D investments in 2025 to capitalize on emerging opportunities we see developing within our markets. Our high-wattage, high-density expansion products such as Ponto are currently under evaluation with several potential commercial customers as we focus on delivering high-density, high-wattage GPU and AI accelerator solutions that address the growing need for performance-intensive compute in data-rich environments. We're also encouraged by recent traction in commercial aerospace, highlighted by our recent award, which underscores how OSS technology is extending into new regulated markets where reliability and compute performance are critical. Looking ahead, we expect to further broaden our commercial product lineup with the planned launch of 2 new Gen 6 systems in November, designed to bring even greater processing capability and efficiency to our customers. Together, these initiatives demonstrate how we are executing on our strategy to leverage our rugged Enterprise Class engineering heritage into fast-growing commercial segments, driven by AI and data-centric workloads. We continue to execute against a growing pipeline in both commercial and defense markets. We recently attended the Association of the U.S. Army or AUSA conference in Washington, D.C. and introduced a newly developed portfolio of products that leverage the advanced compute and low latency advantages of commercial data centers. In addition, we showcased our wide array of scalable AI/ML, sensor fusion and autonomy compute solutions, delivering leading compute and latency capability and advantage size, weight, power and cost, or SWAPC. These solutions generated strong interest and multiple new engagements across Army and OEM programs. We also recently attended the NVIDIA GTC Conference in Washington, D.C., where we highlighted OSS' expanding capabilities in high-performance GPU and AI accelerator expansion systems. Our participation at GTC reinforced OSS' growing presence within the AI compute ecosystem, where our technology complements leading platforms from NVIDIA, Broadcom and Astera Labs. The conference provided valuable engagement with commercial and government customers exploring next-generation architectures for AI, machine learning and data analytics at the edge and further validated the role OSS can play in enabling high-bandwidth, low-latency compute for commercial applications. The visibility relationships we're developing through these engagements are creating meaningful opportunities to expand our role on next-generation platforms. For example, our delivery of a rugged compute solution for combat vehicles for the U.S. Army remains under test and evaluation, which is expected to continue for the remainder of the year. We are encouraged by the growing number of multiyear platforms we now support, adding to our portfolio that includes the likes of the P-8 for the U.S. Navy, the medical imaging platform and the Autonomous Maritime program for a leading defense prime in Asia. Pursuing these types of recurring programmatic opportunities remain central to our long-term strategy. To accelerate our growth initiatives, we strengthened our balance sheet after quarter end through a registered direct offering, raising approximately $12.5 million in gross proceeds. This enhanced financial position, combined with improving fundamentals provides the flexibility to fund operations, pursue strategic opportunities and capitalize on expanding global demand. Looking ahead, our solid execution and year-to-date performance give us the confidence to raise our full year 2025 consolidated revenue guidance range from $59 million to $61 million to $63 million to $65 million, while reaffirming our expectation to achieve positive annual EBITDA. I'm pleased with how 2025 is shaping up. Our turnaround strategies are progressing faster than expected, reflecting strong demand and operational execution. As we look ahead, we remain focused on accelerating growth, expanding profitability and creating long-term value for our shareholders. Finally, I want to thank our entire team for their dedication, innovation and relentless focus on delivering results for our customers and shareholders. So, with this overview, I'd like to now turn the call over to Dan. Dan? Daniel Gabel: Thank you, Mike, and good morning to everyone on today's call. Our Q3 results reflect a number of important financial milestones. One, we achieved robust top line growth, increasing revenue year-over-year by 36.9% at a consolidated level and by 43.4% for the OSS segment. This growth reflects strong demand for our products as well as our ability to execute on that demand to meet our customers' needs. Two, we achieved positive quarterly EBITDA in both of our operating segments and positive GAAP net income at a consolidated level. These results were supported by strong gross margins, reflecting the value that customers place on our differentiated technology. After the quarter closed, we also strengthened our balance sheet by securing $12.5 million of gross proceeds through a registered direct offering of common stock. This offering strengthens our balance sheet, provides flexibility around working capital to support our growth and positions us to pursue a disciplined M&A strategy in 2026 and beyond. We believe the company is in a strong position. And with a solid backlog of orders, we are on track to achieve our increased full year guidance and to execute on our robust growth and profitability objectives. Now, for a quick overview of Q3 2025 financial performance. For the third quarter, we reported consolidated revenue of $18.8 million compared to $13.7 million last year and $14.1 million for the 2025 second quarter. The 36.9% year-over-year increase in consolidated revenue was a result of approximately $2.8 million of higher OSS segment revenue and $2.3 million of higher Bressner segment revenue. Third quarter sales were above our expectations, and we expect continued strength in both revenue and profitability in the fourth quarter of 2025. Consolidated gross margin in the third quarter was 35.7%. As a reminder, gross margin in the prior year quarter included a $6.1 million inventory charge in our OSS segment. Excluding the inventory charge, gross margin for the 2024 third quarter was 32%. On a segment basis, gross margin for the company's OSS segment improved to 45.6% compared to gross margin adjusted for the inventory charge of 43.2% for the same period a year ago. The 2.4 percentage point increase was primarily due to a more profitable mix of products shipped this year. Year-to-date, OSS segment gross margin has benefited from both operational efficiency and a favorable product mix. We continue to expect some level of variability in gross margins quarter-to-quarter based on absorption, product mix and program life cycle. On a sustaining basis, we continue to target OSS segment margin in the mid-30s to low to mid-40s. In the fourth quarter of 2025, we anticipate OSS segment margins in the upper end of that range. The company's Bressner segment had gross margin percentage of 26% in the third quarter. The 400-basis point increase from the same period last year was primarily due to a more profitable mix of products shipped in the quarter. Total third quarter operating expenses increased 22% to $6.1 million. This increase was predominantly attributable to higher R&D expenditures, reflecting targeted investment in new product development. For the third quarter, the company reported GAAP net income of $0.3 million or $0.01 per diluted share compared to a net loss of $6.8 million or $0.32 per share in the prior quarter -- prior year quarter. The company reported non-GAAP net income of $0.7 million or $0.03 per share compared to a non-GAAP net loss of $6.4 million or $0.30 per share in the prior year quarter. Adjusted EBITDA, a non-GAAP metric, was $1.2 million compared to an adjusted EBITDA loss of $6 million in the prior year third quarter. Turning to the balance sheet. As of September 30, 2025, OSS had total cash and short-term investments of $6.5 million, $1 million of borrowings outstanding on our $2 million revolving line of credit and a consolidated balance outstanding on our term loans of $1.2 million. After the third quarter ended on October 1, 2025, OSS completed a registered direct offering with participation from certain new and existing institutional investors, resulting in gross proceeds of approximately $12.5 million before deducting placement agent commissions and other operating expenses. For the 9 months ended September 30, 2025, OSS used $4.9 million in cash from operating activities compared to operating cash flow of $2.1 million for the 9 months ended September 30, 2024. The change from prior year period was primarily due to the timing of working capital, particularly receivables associated with our revenue ramp, partially offset by higher net income. As Mike mentioned, the company has increased its 2025 full year financial guidance due to stronger-than-expected bookings over the trailing 12 months. We now anticipate consolidated revenue of $63 million to $65 million for the full year 2025 compared to prior guidance of $59 million to $61 million. We expect OSS segment revenue in the range of $30 million to $32 million, representing a 22% to 30% increase in annual OSS segment revenue. and we expect the company to achieve positive EBITDA at a consolidated level. As we move through the final quarter of the year, we remain focused on disciplined execution, including managing our supply chain and achieving our planned production ramp. We also remain focused on continuing to drive growth by investing in our technology and securing new platform opportunities that can provide sustained multiyear revenue stream. I look forward to updating you on our success. This completes our prepared remarks. Operator, please open the call for questions. Operator: [Operator Instructions] Your first question is from Brian Kinstlinger from Alliance Global Partners. Brian Kinstlinger: Solid results. As we think about the uptick of revenue in the second half of the year, how should investors think about the seasonality going forward for Core OSS in light of the strong bookings' execution, but also as we think about the government shutdown? Daniel Gabel: Yes. I'll start with the seasonality and then Mike can talk a little bit more about the government shutdown. So, in general, we've seen this consistent pattern where we tend to see higher revenues in the second half of the year just based on timing of bookings. As the government goes into the holiday period, you tend to see a bit of a slowdown in bookings, and so, just the timing of that tends to drive second quarter revenue or second half revenue higher than first half. We'd expect that to continue as we go into 2026, probably a somewhat moderated ramp compared to what we saw in 2025, but still somewhat of a ramp as we go through the year. Michael Knowles: Yes, Brian, and we're -- with the kind of the strong bookings we've had this year and as we close out the year, we'll expect to be starting next year with a little bit more backlog. So, we think while we had a fairly decent sized ramp this year, as Brian mentioned -- or as Dan mentioned, hopefully that, that backlog and the way we'll prosecute will soften that. A bunch of that will be dependent on the government shutdown here. As we may have noted prior, we have everything in backlog we need to achieve our guidance for 2025. And the bookings that we are making now are -- will further support that and/or build into backlog for next year. And the main bookings that are affected for us by the government shutdown are anticipated sole source awards. So, we won't be losing opportunity. We'll just -- we'll be affected by time. Brian Kinstlinger: Got it. And then, maybe you can update us on the data center market opportunity and the advancements you're making. I mean that market has seen unprecedented demand in the last few months. And then, maybe also at a high level, touch on the situational awareness technology procurement evaluation by the Army. I don't know if that's been able to progress, given the government shutdown, but that was something obviously of importance to the company. Michael Knowles: Yes. Great, Brian. Yes, on the data center side, as we had noted prior and in the remarks here, we launched Ponto, which is a bigger version of our standard 4U GPU expansion solution. And so that product is under evaluation by a couple of customers, specifically in these kind of data center markets where they're looking for this opportunity for big GPU and compute expansion. So we're -- we've got product in that market. We've got outreach. We've got interest. We have people testing. So, we'll look through the end of this year and into the first half of next year to likely and hopefully see that transition into awards and in backlog. And then as we noted in this call, we'll be augmenting that with bringing forward some of the new PCIe Gen 6 and some of the other new technologies that will be launching into those data center architectures. So, we'll be well positioned with multiple products across that to leverage into that market. On the Army situation awareness side, that testing continues on. As you noted, yes, anything that had been going on now has stalled as a result of the government shutdown. So we'll be losing time on their evaluation as they went through. Things are being progressing and tracking well. The Army has also seen how they could use our distributed compute system for that solution in multiple other ways. So it's created other opportunities that we will look to prosecute coming into 2026 and beyond to leverage our position in the technology across those. So we'll look for hopefully more news on that in the coming year and where that could progress to. Operator: Your next question is from Eric Martinuzzi from Lake Street. Eric Martinuzzi: Yes. It was good to see the OSS segment come back so strong there. That was a terrific recovery. Obviously, that was something that you guys have been -- or investors have been patiently waiting for. But actually, I wanted to ask about Bressner. That was outperformance at least versus what I was estimating for the third quarter. Can you tell us what was behind that? And then if -- were there any pull forwards out of Q4 or maybe point us in a direction for where we expect the final quarter of the year for Bressner? Daniel Gabel: Yes. Bressner has been performing strong. We've seen some nice recovery in their industrial end markets and expect continued strength as we go through the year. FX has been a tailwind to Bressner's segment revenue. In the third quarter, they grew by about $2.3 million, about $600,000 of that was due to FX. The other $1.7 million was growth on a constant currency basis, just really based on strength in their end markets and some of the larger products or projects that they've been executing on. And so, we continue to see Bressner performing well and see strength as we close out the year and go into '26. Michael Knowles: Yes, Eric, I'd just add, right, the economy hasn't fully recovered across the EU and Germany to the growth expectations they had at the start of the year. But Bressner has been able to find some strength in its markets to keep them on our targets and on our plans for the year. And they've seen some pockets of people generating some bigger orders, which has helped keep them on plan through the year. Eric Martinuzzi: Okay. Well, just sequentially then, is it your expectation that we're in line to better with the final quarter of the year? Or what... Daniel Gabel: Yes, I would model -- so there's a few shipments in Bressner that are going to be right on the cusp between this year and next year. So where those fall will kind of impact Q4. But I would model Q4 as being basically flat to Q3 for Bressner. Eric Martinuzzi: Got you. Okay. And then you talked about the registered direct offering that closed on October 1 and the $12.5 million of gross cash raised. Just curious to know how are we -- at least here in the near term, how are we deploying the cash? Are you sitting on it? Are you investing in inventory, sales channel investments? What can you tell us? Daniel Gabel: Yes, absolutely. So, the cash raise did a couple of things for us. One, it supported our working capital ramp as we're going through this growth phase. So you can see that in our results this quarter, particularly in AR. So we have, I think, good visibility towards collecting that AR this year. I expect that as we go into Q4, we'll see positive cash flow. We'll have a number of shipments that will be going out between the end of November and the beginning of December. So where those shipments fall within that range will somewhat impact where we -- where our cash flow is for Q4, but I do expect that it will be positive. And then in terms of the cash rate, so as we support the working capital ramp, we're using it for that. But then companies generating positive EBITDA will be generating positive cash flow. So then we look to redeploy that cash rate towards a disciplined M&A strategy as we go into 2026. Operator: The next question is from Scott Searle from ROTH Capital. Scott Searle: Congrats on the quarter, guys. Mike, maybe just to get some clarifications on the government shutdown. I want to understand a little bit better about what's still operating and what isn't. It sounds like some larger sole-source opportunities might just be delayed from a timing standpoint. But I'm just kind of wondering what you're able to do in concert with government entities at the current time. And I think given the backlog you've talked about in the past, you felt pretty good for the next 6 months or so. I'm wondering if that still holds and when the shutdown becomes a little bit more concerning for me as you start to look into '26? Michael Knowles: Yes. Thanks, Scott, for your question. So, what we're seeing today generally is major organizations are shut down and really not responding. So, any contract awards or deliveries we need to make, if the government is using a third-party services independent company, we're still able to operate with them. And so we still have some of that ongoing. We still can make deliveries to the customers, and the government is set up to pay for delivery on stuff that's under contract. So deliveries we have planned for this quarter through defense primes and/or directly to the end services, we will be able to ship and deliver those, and we should be able to get payment for those understanding standard payment timings. As we -- so the biggest effect for us really at the end of this year is just planned awards we were intended to get -- so we'll have some backlog to start in the first half of next year. So that number will be fairly higher if we can get the government bookings in when the government reopens. And -- but as long as -- realistically, as long as those bookings get in here before the end of Q2 next year, we still have plenty of time and runway to convert that to revenue. So we've got some runway to watch and plan where that goes. Scott Searle: Great. That great clarification really helps to see that we got visibility then through the first half. Looking to the fourth quarter and the guidance, it really implies that the core OSS is either flat to up $2 million. So, you're starting to get to new highs in terms of the business, which I guess brings sustained EBITDA profitability with it. So, I guess as we're looking into 2026 now. Is that sustainable? And are you thinking about the core OSS business now being EBITDA positive for the year, which is, I think, well ahead of prior expectations. Just some clarification on the early thoughts there. Michael Knowles: Yes. I'll let Dan follow up on it, too. But yes, in general, as we've kind of highlighted, we believe based on our pipeline and everything we've been looking at that the core OSS segment has this opportunity to grow at 20% to 30% a year. And so the bookings this year, the pipeline for next year, how we've been performing still gives us confidence that we should see growth into 2026 for the OSS segment in that range. Clearly, that opportunity would give us opportunity to get OSS into the positive EBITDA range next year that actually would be accelerating our plans a little bit. But given where we are and how we're performing the opportunity, I think it would be our intent that if bookings can play through and the timing can work out correctly would be to try to accelerate that plan and work into that because we are now kind of at that -- we are kind of at that nexus point where the revenue inside of OSS segment would support that kind of outcome. Dan, anything? Daniel Gabel: Yes. No, the only thing I'd add, just kind of reiterating that high-level parameters for '26 revenue growth, that 20% to 30% that we've been targeting. Gross margins for the OSS segment, we continue to see it in that mid-30s to low to mid-40s range for the segment. OpEx, we would see as being roughly flattish, but we did make some onetime investments to accelerate our R&D in '25. So, I think you'll see some moderation or normalization of R&D expenditures as we go into 2026. And then Bressner segment, we model growth in the range of 5% a year and stable gross margin. Scott Searle: Got you. And lastly, if I could, Mike, just kind of looking at the opportunity pipeline, certainly have been a lot of government and military opportunities. But commercial as well now kind of given the slowdown with the current government infrastructure. Are some more of those commercial opportunities kind of accelerating to the forefront? I think you referenced some in-flight entertainment opportunities in commercial aviation. But are there some bigger things that we should be thinking about in the 2026 timeframe on the commercial side? Michael Knowles: Yes. I think consistent with what we said in the earnings call here was we're seeing that movement. We've got some product placement, right? That was all about trying to continue to advance the commercial side of the strategy. We're probably a little bit slow to where we thought some commercial opportunity would have showed up. And so, we're thinking that hopefully, that we'll start to see that come to fruition in 2026, where we thought we might have seen it closer to the back end of 2025. But we're positioned well, I think, now with the products. We've got contacts, engagements across a number of fronts, as we mentioned, not only around data centers, but around medical imaging and some of the work we were doing with commercial aerospace. So, we're starting to see some of that expansion. And as long as the economy and the investments in those markets continue to go, I think we'll start -- we'll continue to see us being able to operate in those markets. Operator: [Operator Instructions] There are no further questions at this time. Please proceed with closing remarks. Michael Knowles: Andrew, that completes our remarks for today. We appreciate everybody's support of the company and the questions. You can end the conference call. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is [ Krista ], and I will be your conference operator today. At this time, I would like to welcome you to the Air Canada's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] l would now like to turn the conference over to Valerie Durand, Investor Relations. Valerie, please go ahead. Valerie Durand: Thank you, Krista. Hello, [Foreign Language]. Welcome, and thank you for attending our third quarter 2025 earnings call. Joining us this morning are Michael Rousseau, our President and CEO; Mark Galardo, our Executive Vice President and Chief Commercial Officer and President of Cargo; and John Di Bert, our Executive Vice President and CFO. Other Executive Vice Presidents are with us as well, Arielle Meloul-Wechsler, our Chief Human Resources Officer and Public Affairs; Craig Landry, our Chief Innovation Officer and President of Aeroplan; Marc Barbeau, our Chief Legal Officer and Corporate Secretary; as well as Mark Nasr, our Chief Operations Officer. After our prepared remarks, we will take questions from equity analysts. I remind you that today's comments and discussion may contain forward-looking information about Air Canada's outlook, objectives and strategies that are based on assumptions and subject to risks and uncertainties. Our actual results could differ materially from any stated expectations. Please refer to our forward-looking caution in Air Canada's third quarter 2025 news release available on aircanada.com and on SEDAR+. And now I'd like to turn the call over to Mike. Michael Rousseau: Well, thank you, Valerie. Hello, [Foreign Language]. Thank you for joining us today for our third quarter results call. We delivered a solid third quarter financial and operating performance after adjusting for the impact of the labor disruption, which, of course, occurred at the peak of the summer season. During the bargaining period with CUPE, we developed comprehensive plans to ensure the safe, orderly wind down and restart of the operations in the event of a labor disruption. These are acted on, and the entire company worked extremely hard to assist those whose travel was disruptive and to quickly return our operations to normal. I thank all our employees for their tireless efforts and unwavering commitment to supporting our customers during this challenging time. We also voluntarily introduced our special goodwill policies. We have received more than 150,000 claims to date, which we have been addressing diligently. Processing these claims is complex and requires a coordinated effort. We do expect to finish in the coming weeks. We reported third quarter operating revenues of $5.8 billion, down 5% from a year ago on a 2% capacity decline. Both declines were the result of the strike-related flight cancellations. Adjusted EBITDA of $961 million declined $562 million from the same quarter in 2024. Excluding the labor disruption, third quarter adjusted EBITDA would have aligned with our full year guidance shared last July and come close to pre-strike market expectations. Operational metrics such as our on-time performance and Net Promoter Score exceeded both internal targets and last year's levels for the quarter and year-to-date. I am very pleased with the progress we're making. Booking trends for Q4 are very strong. We expect year-over-year growth in adjusted EBITDA in the last quarter of the year. This morning, we updated our full year guide, which John will further detail for you. But first, let me turn it over to Mark. Mark Galardo: Thanks, Mike, and good morning, everyone. [Foreign Language] I thank our employees for their unwavering commitment to our customers and to operational excellence. I also extend my gratitude to our customers, the travel trade and our airline partners for their patience and support. Third quarter passenger revenues of $5.2 billion declined 6% from the same period last year on 2% less capacity. Starting August, our year-over-year third quarter unit revenues were trending in the right direction but were impacted by the labor disruption. We estimate it was a drag of about 3 points to Q3 unit revenues. Absent this, Q3 would have amounted to one of the best relative PRASM performances amongst major North American carriers. This is driven by our revenue diversity, hub geography and customer loyalty. Our global network gives us flexibility to quickly pivot to areas of strength. This quarter and throughout the year, we mitigated the exposure to reduce demand between Canada and the U.S. In Q3, we quickly responded to Canadian's growing interest to travel domestically. The transborder sector remains stable, albeit at lower levels once adjusting for the strike. International markets continue to drive significant value. In the spring, we added capacity across the European continent, seeing a stronger Atlantic environment. Moving to cargo. Despite a revenue decline of 6%, mostly from reduced belly capacity in August, Air Canada Cargo was adaptable, and the freighter operation continued to demonstrate its value, playing a key role in capturing the opportunity from evolving global trade flows. This was evident this quarter as our flexibility in capacity from freighters allowed us to carry more of the growing and lucrative cargo demand from Asia to Latin America, fully offsetting other declining flows. Additionally, other revenues rose 15% from the third quarter of 2024 with higher Aeroplan non-air revenues, prices for ground packages at Air Canada Vacations and onboard sales. Next, our well-positioned hubs provided strong local demand from Canada's largest cities and facilitate sixth freedom connections. This year, we've doubled down on connectivity, which has been beneficial for our sixth freedom strategy. Demand has been strong despite the disruptions' impact. Year-to-date, at the end of Q3 2025, sixth freedom revenues grew a solid 9%. Our strong brand ecosystem builds customer loyalty and is a unique and strategic attribute for Air Canada. Booking patterns rebounded soon after the disruption ended, underscoring brand strength and consistency in customer behavior. Let's focus on premium. Front cabin revenues outperformed the economy cabin by 6 percentage points. Corporate improved further with roughly 11% year-over-year revenue growth from our corporate customers in September. What our Q3 results demonstrate is that looking beyond August events, Air Canada's commercial foundations are solid, adaptable and core enablers of strong results. Now let's focus on what's ahead. With our proven commercial playbook, we're uniquely positioned to see favorable industry trends and are highly encouraged by what we're seeing this fall. Fundamentally, our solid booking outlook reflects step change progress against the theme we've long discussed, addressing Air Canada's traditional seasonality and improving revenue diversification. This enables more balanced capacity deployment, revenue generation and profitability throughout the year, and the results are tangible. Currently, our relative capacity in the fourth quarter exceeds pre-pandemic levels. And as of today, we are on track for a record fourth quarter load factor and total revenue performance. We are leveraging the strength of our global network and scale of our hubs to increase our reach and access to new traffic flows. We refined our schedule, improving the connecting ways at our hubs to increase our competitiveness for connecting flows. And finally, we've deliberately built a stronger base of bookings going into the winter, filling seats that historically would have been empty. We expect our significant progress on seasonality to drive revenues and support diversification while improving our ability to take advantage of promising industry trends. Now let's dive into network and within that, international. With one of North America's leading global networks at hand, we see promising signs across the next 6 months. We see demand strength carrying all the way through U.S. Thanksgiving, particularly across the Atlantic. Beyond that, sun and Latin American markets remain solidly ahead of last year for winter with a robust advanced booking position from Air Canada Vacations and uplift from our expansion into Latin America, which also taps into rising Canadian travel demand and boost sixth freedom revenues on our transatlantic flights. Our presence in international markets remains a clear advantage. Next, we see a continued shift in consumer preference towards premium products. Once thought of as mainly a corporate segment, we see an opportunity for leisure travelers seeking our signature front cabin experience. Our booking posture in premium cabins is strong going to Q4 and Q1. As Canada's premium airline, we are uniquely positioned to attract, capture and retain this growing segment of high-value customers. Lastly, we continue to see strong corporate momentum. This is a segment that looks closer in, and then the latest data confirms the strength of September carries into October and is progressing throughout Q4. While North America remains the bulk of our corporate revenue, we are noticing signs of increased international corporate strength. Our comprehensive schedules, well-established and long-standing partnerships, premier loyalty program and superior experience reinforce our position as the airline of choice for corporate travelers. In all, we are encouraged by the trends in the fourth quarter and what we're seeing for early 2026. Although we anticipate a slight decline in unit revenue in the fourth quarter, adjusting for the disruption in Q3, this is a sequential improvement throughout the year -- through the year. Looking further into 2026, there's also a lot to be excited as we implement numerous strategic initiatives. Firstly, fleet additions. Recall, we retired over 75 aircraft during the pandemic and have been anxiously awaiting for incoming aircraft to support planned growth. We will take the long-awaited delivery of 2 new aircraft types, the A321XLR and the 787-10. Our XLRs will initially be based in Montreal and fly to exciting destinations like Palma de Mallorca, Edinburgh and Toulouse. Meanwhile, our first premium focused 787-10 will be based in Toronto, reinforcing our leadership position in Canada's largest market. And speaking of possibilities, our international network will continue to expand next summer as Catania and Budapest are added to our network, and we restore nonstop capacity to China from Toronto. We're also thrilled to be making Bangkok year-round from Vancouver, the only nonstop service to the Thai capital from North America. Second, our transition of the 737 MAX aircraft to Rouge will get into full swing. Longer term, this will enable a more cost-competitive platform, harmonized experience in a new Rouge base in Vancouver to expand our offering from Canada's West Coast. And third, we're looking forward to our recently announced expansion out of Billy Bishop Airport, adding transborder flights to New York LaGuardia, Boston, Chicago and Washington Dulles and more frequencies to Montreal and Ottawa. These routes long requested by our customers, strengthen our position in the Toronto market. In closing, we're making and executing the right commercial moves. We are leveraging our revenue diversity, our well-positioned hubs and customer loyalty to cement Air Canada as one of North America's leading carriers and deliver solid results. Thank you. [Foreign Language] John, and over to you. John Di Bert: Thanks, Mark. Good morning, everyone. [Foreign Language]. First, allow me to take a moment to recognize the resilience of our incredible employees. We know that managing the airlines through the shutdown and restart was very challenging. Yet our colleagues rose to the occasion and maintained their commitment of care and class to our customers. [Foreign Language] In the third quarter, we reported operating income of $284 million and adjusted EBITDA of $961 million, with an adjusted EBITDA margin of 16.6%, including the $375 million impact from the labor disruption. The impact consists of the following: a $430 million impact to revenues, including [ some book away ] for travel in August and early September, $145 million in avoided costs due to reduced flying, partially offset by $90 million of cost reimbursements to customers for out-of-pocket expenses and labor-related operating costs driven by the shutdown and restart activities. This is consistent with the estimates we announced in late September. Operating expenses increased 8% year-over-year, mostly due to a $173 million onetime charge. Of this, $149 million was a noncash onetime pension past service costs from plan amendments that are related to the agreements reached with CUPE. The remaining is due to costs associated with streamlining our management structure. Fuel expense was 12% lower year-over-year for Q3. Jet fuel prices fell by 10% compared to last year, which included a $29 million hedging gain for the quarter, totaling $48 million in the first 9 months of the year. Additionally, fuel consumption was 3% lower than in Q3 2024 due to the flight cancellations. Third quarter adjusted CASM was $0.1399, up 15% from last year. About 1/3 of the increase was due to cost escalation mainly in labor, maintenance and depreciation. Roughly another 1/3 was the effect of certain favorable contract-related adjustments we recorded in the third quarter of 2024, which made for a less meaningful year-over-year comparable in Q3 '25. Excluding the impact from the disruption, nonfuel unit costs were aligned with our full year CASM expectation at our Q2 call. In all, we estimated the disruption had a drag on adjusted CASM of about 6 percentage points, reflecting incremental costs and lower capacity. Turning to cash flow. In the quarter, we generated $813 million in cash from operations and free cash flow of $211 million. We have accrued for strike-related customer compensation to be processed and paid in Q4. Additionally, in the third quarter of 2025, we implemented a new enterprise resource planning system and experienced a delay in timing of payables processing in September, equivalent to 15 days of payables. The cumulative free cash flow of $1.2 billion year-to-date reflects approximately $600 million of favorability due to the timing of certain payments in Q3. On to our balance sheet. In July, we fully repaid our convertible bonds for a total amount of $382 million, reducing the number of potentially issuable shares by $18 million. In September, we drew $231 million from our EDC loan commitment for 5 A220s that had been previously delivered. We ended the quarter at $8.3 billion in total liquidity, including $1.4 billion in an undrawn revolver. Leverage ratio ended the quarter at 1.6 turns, reflecting lower EBITDA due to the impact of the disruption. We expect this ratio to increase slightly in Q4 as we process the outstanding payables from Q3. When thinking about leverage and long-term decision-making, we will look through the onetime impact on EBITDA when assessing our leverage objective of 2x or less. Moving along, we updated our full year guide this morning. We now expect capacity to increase around 0.75% versus 2024. We project 2025 adjusted CASM in the $0.146 to $0.147 range. We reached an agreement with CUPE, except for wage terms that will be finalized through binding arbitration. Our guidance reflects the agreement and our best assumptions on the outcome of arbitration. In 2026, we will see the full effects of the new agreement flow through our labor costs, including the enhancements to ground pay and benefits. For adjusted EBITDA, we now expect $2.95 billion to $3.05 billion in 2025 and a strong fourth quarter, which should outperform Q4 2024. To close on guidance, we anticipate free cash flow between breakeven and $200 million for the full year. We expect the free cash flow use in the fourth quarter as delayed payments are brought current, including customer reimbursement amounts accrued for but not yet paid. Q4 CapEx is anticipated to be approximately $900 million, just under $3 billion for full year 2025. With the recent volatility in jet fuel prices, we continue to monitor global trends. Relying on visibility we have into Q4, we have hedged 34% of the expected fuel purchases for November and December at an average price of USD 0.52 per liter, approximately CAD 0.73 per liter before taxes, fees and shipping costs. Finally, we continue to progress on our $150 million cost reduction program announced earlier this year, which includes the preplanned management headcount reductions. We are on target for year-to-date savings and expect to deliver the full $150 million in 2025. Key components include operational efficiencies and -- operational efficiency initiatives, streamlining our management structure, process improvements and third-party spend management. We expect the cost reductions to be reoccurring in 2026. In 2026, we anticipate a step change in unionized labor costs due to recent labor agreements and as we continue to work through our 10-year agreements to shorter-term collective agreements. We also see some cost pressures from airport infrastructure and user fees as airports undergo capital investments to better serve airlines and passengers. Over time, we will aim to partially offset these headwinds with ongoing productivity gains, constant cost discipline and driving cost reduction initiatives across our business. Now let's turn to the fleet. We expect to add 3 additional A220s and 1 737 MAX by the end of 2025. Further, we expect to begin retiring old Airbus A320 family aircraft, including [ 8 319s ] and 2 320s. In 2026, we expect to receive 18 A220s, 11 A321XLRs, 4 737 MAX aircraft and 2 787-10s. While we are particularly excited about receiving our first A321XLRs and 787-10s, the delivery schedule for 2026 is considerably delayed compared to our original expectations as outlined at our last Investor Day. On average, we'll have approximately 6 fewer A220, 737s and 6 fewer A321XLR or 787-10s on any given month of 2026, which will impact our ASM production for next year. In addition to welcoming the new aircraft to our fleet, as Mark noted, we are moving ahead with plans to transfer all 737 MAX aircraft to Rouge next year. We're working toward an all-737 MAX Rouge fleet by the end of 2026. Some A320 family aircraft are expected to move to mainline, and the rest will be retired. More details will be provided when we give 2026 guidance. Looking beyond 2026, our 787-10 order for 18 firm aircraft has been modified to 14 firm aircraft with the first 10 scheduled for delivery by 2028 and the remaining 4 by 2030. While this moderates the growth pace in the near term, we remain firmly confident in the mid- and long-term opportunities ahead. In addition, the changes smooth out CapEx profile, support disciplined financial planning and preserve flexibility to scale capacity in line with demand. These modifications are reflected in our capital commitments table included in our Q3 MD&A. Our fleet strategy remains focused on profitable growth in our right to win end markets. We will continue evolving the fleet for greater efficiency and flexibility to meet customer demand. Our fleet investments support long-term sustainable value to shareholders and customers alike. Reflecting our commitment to returning value to shareholders, today, we announced our renewed NCIB. Since the inception of our November 2024 NCIB, we repurchased about 62 million shares for cancellation. Further, we retired 18 million potentially issuable shares. In aggregate, we have deployed close to $1.7 billion to anti-dilutive actions. In summary, we remain confident in our trajectory toward 2028 and our ability to manage through growth and margin expansion cycle. The strategic network expansion, premium product investment and disciplined cost management are core priorities, and our executive-led road maps drive execution across our portfolio. Despite a challenging Q3 environment, we delivered solid financial results, demonstrated the underlying strength of our franchise and continue to hit important milestones for our new frontiers plan. We'll provide a fulsome update on progress towards our long-term goals at our next Investor Day, which will be planned for some time in 2026. Thank you, and I look forward to your questions. Mike, back to you. Michael Rousseau: Great. Thank you, John. We have a very strong business model that can recover quickly from unexpected setbacks and certainly take advantage of opportunities and execute extremely well. Operationally, we shut down and restart the airline in record time. We are encouraged by the speed at which booking patterns recovered and the strength that has followed. Negotiations supporting our staff at the airports, contact centers and maintenance facilities will begin soon. Over decades, we have consistently reached agreements that value our employees and support the airline's future. And we look forward to productive discussions with our unions. Our commitment to our plan includes making very tough decisions. In July, we announced to our management colleagues that we would be streamlining our organization. After a comprehensive evaluation, we made a difficult decision to reduce certain management positions, representing approximately 1% of our total headcount. Next year, we expect to take delivery of 35 new aircraft, the most we have ever received in a single year, supporting our global growth initiatives. We will receive the first game-changing Airbus 321XLR, which will not only enable us to launch new routes, but it will help us offer some services year-round and even out our network seasonality. As Mark noted, the travel market remains robust, and demand is strong. In particular, business travel continues to recover. Our recent announcement to add routes from Toronto Island next spring underscores our commitment to offer more options to our loyal travelers, including our Aeroplan members. We are pleased that we have more than doubled our Aeroplan membership since the program is relaunched, now proudly counting more than 10 million members. Our focus on customer service resonates throughout the network. I was pleased that our Net Promoter Score rose by 10 points in the quarter and that Air Canada once again won a 5-Star rating from APEX is excellence in customer experience recognized. And finally, today, we announced the renewal of our normal course issuer bid. Our capital allocation priorities remain unchanged: invest in growth, protect our strong balance sheet and deploy excess liquidity strategically. As our track record shows, including in this quarter, we are executing on our plan, seizing the right opportunities. Strong operational growth and disciplined execution are driving effective cost management and reinforcing our diversified commercial foundation, which are the key components of our right to win. With prudent steps to smooth out capital expenditure profile and a renewed NCIB in place, we've established a clear framework to return value to shareholders. And we have exciting times ahead of us with growth plans fueled by our key strategic initiatives like our revitalized Rouge offering and new state-of-the-art efficient aircraft. As you heard today, we will also continue to improve our cost structure through productivity gains, operational efficiencies and constant cost discipline to mitigate near-term pressures. We continue to focus on free cash flow generation in order to return value to shareholders. The hard work ahead in 2026 will position us very well for the second half of our strategic plan. With a solid foundation, an excellent balance sheet and a very talented and dedicated team focused on execution in our customers, we are confident in our ability to deliver significant long-term value to all of our stakeholders. Thank you. [Foreign Language] Valerie? Valerie Durand: Thank you, Mike, and thank you all for joining us this morning. We are now ready for your questions and ask that you limit yourself to one question and one follow-up, please. Over to you, Krista. Operator: [Operator Instructions] Your first question comes from the line of Konark Gupta with Scotiabank. Konark Gupta: Maybe this is for Mark. I think you mentioned that RASM trends are expected to be slightly down in Q4. I'm just kind of wondering what are you seeing in different markets here. I think in corporate, obviously, you're saying it's growing nicely, and I think Atlantic demand continues into -- well into October and some parts of November. Is much of this RASM weakness coming still from the Pacific normalization and maybe transborder? Mark Galardo: Konark, so on this particular item, when we look at Q4, we are expecting somewhere between flat RASM to maybe slightly down RASM. But overall, the way you should look at this is the transatlantic is looking at overperformance. We're looking at a very strong transatlantic network all the way through Q4. We see a lot of resilience in the sun market as well as we've seen a little bit of shift away from transborder into the sun. We're having a very strong November, December into the sun. And then you've got those other supporting pillars like premium demand strength and corporate demand strength that are kind of sustaining some fairly decent yields that we're going to have on the transborder despite the demand drop. So that's kind of the color in terms of what you can expect for Q4. Konark Gupta: And then on the CASM side, John, I think the implied guidance for Q4 suggests a flattish CASM from last year. I mean given the inflationary environment you guys are in and obviously, the labor contracts and all that, what is contributing to the flattish CASM here? I mean what are the offsets? I mean some of the cost savings, I'm sure like are coming through, but is there anything else like in sort of one-timing -- one-timer in nature in Q4? John Di Bert: No, I would say it's largely -- and you've seen we've been active, including keeping headcount in check. And so I would say, generally speaking, it's cost focus. We get some ASM growth, so that helps as well. Fourth quarter actually carries the entire ASM growth for the full year. And -- so that's obviously helpful. Nothing really to highlight in terms of kind of big positives in the fourth quarter. Konark Gupta: Right. And I think the maintenance contract adjustments, you already lapped those in Q3, right? I mean there's nothing in terms of noise from last year and Q4. Okay. Perfect. John Di Bert: Right. Q3 was [ noise and ] I covered that in the commentary, but I think Q4 should be a bit more of a reasonable compare. Operator: Your next question comes from the line of Savi Syth with Raymond James. Savanthi Syth: I was just wondering on the commentary about the fleet kind of delays in 2026 versus kind of expectations last year. I think the visibility here. So I was kind of curious how you're thinking about 2026 capacity? And if you're kind of hiring correctly to that versus kind of in the past where maybe some of the fleet delays were somewhat surprising and therefore, kind of hard to manage on the cost side. John Di Bert: Yes. I'd say, first, I'd separate that into 2 answers. One, I think we've been disciplined with hiring after we kind of stabilized the operations through '24. And I think this year has been a fairly disciplined approach. And we've always said we're going to be driving productivity as the airline continues to grow. So I think in and of itself, we're going to continue to work that way. With respect to the capacity growth, for sure, I mean, we try to be as proactive as we can with respect to balancing everything we need to bring on those aircraft properly. And I think we have a pretty good read of what 2026 looks like. And we're going to obviously operate in accordance. But yes, for us, we're well into the planning cycle and have a pretty good read on what we expect for capacity growth next year. Savanthi Syth: That's too early to share? John Di Bert: Yes, in precision, yes. But I think we're adding 35 aircraft in total. We're going to be retiring a significant amount of aircraft as well. So we'll have a net balance of somewhere in the mid-teens, I think, or maybe just less than that, probably in the low double digits. We'll hold that for the guide in February. Savanthi Syth: Got it. I appreciate it. And then just a follow-up on that. Just CapEx came down. I'm wondering what the drivers were. Was it just that related to the fleet order changes or anything different going on with the CapEx for you? John Di Bert: No, it's totally correlated to the adjustment in the -10 order. Operator: Your next question comes from the line of Daryl Young with Stifel. Daryl Young: Just wanted to get a sense of how you're thinking about the peak Q3 in 2026? And any thoughts on just smoothing of seasonality and I guess, some of the strength you're seeing to start this year. Is that sort of a pull forward of Q3? Or how should we think about that? Mark Galardo: Thanks. It's an excellent question. It's something that we're actually debating here internally. Obviously, what you can see in 2025 is that there is more relative strength in spring and fall than there actually is in the summer peak. I think that's a trend that we see consistently across the North American landscape. So we're working with our operations colleagues to see how we can better allocate aircraft and maintenance activities to maybe take a little bit of the pressure off Q3 and load up a little bit more in Q2, Q4. But with -- as it relates to 2026 specifically, just the timing of aircraft deliveries is such that there's going to be some decent ASM growth in Q3 relative to Q2 in 2026. Daryl Young: Got it. And then a follow-up just around the NCIB and your free cash flow now that the CapEx has been deferred. Is that something that we should think you're going to be active on starting in November here? John Di Bert: I won't give any position to timing, but we've put it in place and we intend to use it. And I'll just give some color around our buyback program. We did announce in aggregate about $2 billion over the next couple of years as we set that out in December of '24, and we said that was going to be part of the midterm plan, 3 to 5 years. So right now, we stand at about $1.3 billion of shares bought back. We also did the convertible debt extinguishment, which is anti-dilutive. So there's still room for us to continue to go. Our plan is continuing to execute as we expected. I think the 2025 positive cash is a good checkpoint here. And obviously, a little bit of an improved profile in CapEx helps as well. We'll pick the right spots, but we do intend to be active on this NCIB, and we'll do that as appropriate. Operator: Your next question comes from the line of Tom Fitzgerald with TD Cowen. Thomas Fitzgerald: I'm just curious like how you're thinking about kind of managing the transition of Canada point of sale and transborder in the March quarter and whether you think just -- how Latin markets are shaping up so far and just how you're thinking of managing that risk? Mark Galardo: Tom, just to be precise on your question, you're speaking about the upcoming spring break in March? Thomas Fitzgerald: Yes, yes. Just the broader -- I know the sun markets are a big demand driver in the March just in the transborder, that's a heavier portion of it. I'm just kind of curious how that's -- I know you kind of have -- you got a lot of growth in the Latin markets coming up. Kind of curious how that's shaping up and what we should be watching for? Mark Galardo: Yes. Okay. Good question. So for Q1, the sun market is developing quite nicely with positive load factor and flat yields all the way through. So as we think about March, one of the items that we're looking at very closely is obviously our transborder spring break capacity. And because we're noticing a better kind of equilibrium between supply and demand, I mean, obviously, you've seen a lot of competitors withdraw capacity into U.S. leader markets, it's actually a much more favorable revenue environment going into Q1 and into March break. And if there are further opportunities for us to move capacity around, we'll make those calls later on. But we are seeing -- we're definitely -- I'd say we called the bottom a little bit on the transborder leisure kind of demand erosion. Thomas Fitzgerald: Okay. That's really helpful. And then just as a follow-up, I was wondering if you have any more color on sixth freedom between Pacific and Atlantic and just some of the deceleration in that growth. I don't know if it's just noise from the industrial action or anything of note that we should be thinking about? Mark Galardo: Yes. Thanks. So the demand growth so far for sixth freedom revenue growth has mostly been on the transatlantic. There's been a little bit of Pacific growth, but it's been relatively muted this year. And as we think about Q4, it's mostly the transatlantic that's driving it. A portion of it being U.S. to obviously the transatlantic, but a big growth on Latin America to Europe via Canada, which is going to sustain our sixth freedom performance throughout the year. Operator: Your next question comes from the line of Chris Murray with ATB Capital. Chris Murray: Just very quickly, thinking about the fleet changes next year. As you said, there's a lot going on. But I guess I want to focus a little bit on Rouge. So can we just think -- maybe go through what the process is going to look like moving all of the 737s into Rouge. And I'm assuming you'll end up rebranding those aircraft, but if you can give us some more color on that, that would be great. And how we should think about the transition over the year would be helpful. Mark Nasr: For sure. It's Mark Nasr. So we're going to begin with our first 737 MAX that's currently operating at mainline. It's going to go in for reconfiguration in about 6 weeks here. The reconfiguration of those aircraft is a very efficient program. It will take about a week to do each one, and we'll move through the entire fleet of the 40 aircraft that we currently have in the standard mainline configuration over the course of the year as well as the 5 additional new deliveries that we're going to take. And so we expect, as we get towards the end of next year, the very beginning of the first quarter, that transition to be complete. Of course, we're going to be bringing over several of the Rouge aircraft into mainline. That's a little bit more of an involved process with regards to reconfiguring those aircraft to match our mainline standard, and that should be completed in the early part of next year. And the 2 activities are going to happen to be able to balance capacity between the 2 operating certificates. Of course, we'll also be bringing Rouge to the West Coast by basing several aircraft out in Vancouver. With regards to the configuration, we haven't announced the details yet. We'll do so in the coming weeks. But we will be densifying from the current LOPAs that we have at mainline for the 737 MAX, and we'll be removing some of the J cabin and adding more into the economy cabin. Those details will be announced shortly, but it will be -- it will ensure that we have the cost -- the unit cost performance at Rouge that we need to be successful in the leisure market. Chris Murray: Okay. That's helpful. My last question, maybe for John on the NCIB. One of the questions I've been getting from a lot of folks is just when you did the last NCIB, I guess it went out pretty fast and burned through the allocation, which left you kind of without the tool to use as the stock came off. Is there a bit more thought to being maybe more formulaic or balanced across the whole time period? Or is it still going to be kind of an opportunistic thing? I know you put in a purchase plan for it. But just thoughts on kind of the bigger picture strategy around how to use it would be helpful. John Di Bert: Sure. Well, I think there's different circumstances. And don't forget, we put out an SIB in the middle of the year last year, right? So we were not without tools, and we did take advantage of that. So I would argue that, that wasn't actually what happened. So the first [ 800 ] did go out more quickly, and we had telegraphed that. We said we were going to be fairly rapid on once we had come out of 2024 with respect to restabilizing the airline and frankly, working down the debt, we would be anti-dilutively focused, and that's what we did. I think we'll -- I won't telegraph exactly here when and how. I think we'll use it appropriately. We have plenty of capacity at 10% of the total float. So we're running the business, and it's not just one dimensionally. We're bringing up the fleet. We're obviously focused on cost containment and cost management. We're geared towards free cash flow generation as we kind of build out the airline on a structural basis. And so we're going to keep a strong balance sheet, at the same time, complete the program that we had started when we announced the $2 billion over the next couple of years. So no precision on the exact use, but we'll do it right through the time of the NCIB. Operator: Your next question comes from the line of James McGarragle with RBC Capital Markets. James McGarragle: So I had a question on the capacity in the Canadian market. You've kind of flagged, obviously, your lower CapEx. So can you just kind of talk about the capacity trends through the remainder of 2025 and into '26? And any notable yield trends that are kind of emerging as a result of some of these capacity shifts? Mark Galardo: James, so on the capacity side, we continue to see that the domestic market is obviously very competitive. Generally speaking, I think demand -- sorry, supply is up about 4%, 5% going into Q4 just on the domestic alone. There's a better balance of supply and demand on the transborder, which we think will help sustain yield and revenue recovery on the transborder sector. The transatlantic is fairly stable with low single-digit capacity growth, which is going to obviously provide some stability on the yield and load factor side on the Atlantic. Of course, as you know, and we discussed on the Pacific, there's been a sizable growth in demand from China -- sorry, in supply from China, Hong Kong, Korea. There is yield pressure on Asia and especially as we've added more capacity to China and we absorbed that capacity, we should anticipate that the yield and RASM will continue to be negative all the way until probably Q1 or Q2 next year. And then the sun market, the capacity growth is up double digits, but our revenue load factor and yield performance are all in the green. So overall, a pretty balanced market, and we've got, of course, the ability to move capacity around as market conditions evolve. James McGarragle: And just for my follow-up on the lower CapEx. So how should we be thinking about the trade-off here longer term? Obviously, positive for free cash flow, but does this kind of pose any risk to your longer-term plans that you highlighted at the Investor Day? And kind of how should we be thinking this in the context of cost and margins as the newer fleet was expected to be a driver of increased efficiency? And I'll turn the line over after that. John Di Bert: Thank you. Thanks for the question. I think all those things stay intact. I mean the -- when you look at the overall addition of aircraft, you're talking about 90 aircraft or so over the period of whatever it is, 3, 4 years. We -- this adjustment affects -- for sure, I mean, if you look at 2025 in terms of ASM growth, it was a bit of a stall. So I think just we pace accordingly here. The 787s did have quite a bit of delays from the original purchase date versus coming in 2026. I think this is just managing that delay scenario. So yes, 2028, you'll have 4 less aircraft in there. We'll work through that, see what it means. But ultimately, we're bringing in 14 787s and 30 321s, and there'll be plenty of good aircraft and plenty of good capacity. And we think that we're in good shape to deliver on our longer-term objectives. Operator: Your next question comes from the line of Alexander Augimeri with CIBC. Alexander Augimeri: So, yes, just looking at your strong results within premium and in corporate, I was just wondering if you can provide any additional color on this as we look forward into the end of the year in 2026. Mark Galardo: A little bit early to talk about 2026 because it's such a low base of bookings. But as we kind of dive into Q4, I think what you should anticipate is continued double-digit increase in overall corporate revenue and basically across all geographies, in particular, a nice growth on the transatlantic. And on the premium side, we continue to see a lot of strength in the business and premium economy cabins with both positive load factor and yields. As we all know, there's a little bit of pressure in the economy cabin in terms of yields. Operator: Your next question comes from the line of Sheila Kahyaoglu with Jefferies. Kyle Wenclawiak: This is Kyle Wenclawiak on for Sheila. I was hoping, I know it's early, but if we could talk a little bit about the puts and takes in terms of the profitability walk for 2026. You have the 17-plus percent margins out in 2028, but it sounds like a lot of the fleet benefit is now kind of moving right again. And you mentioned a bit about the labor contracts and the work rules kind of run rating next year. So can you kind of help us frame what 2026 profitability is? And what are sort of the moving pieces to keep in mind? John Di Bert: I think you covered some of it, right? So in terms of absolute ASM production, I think we'll still have solid year-over-year growth from '25 to '26, but '25 isn't where '25 was originally intended to be. So in absolute, you'll get a little bit of pressure there. Again, we also had -- I mentioned in my comments, what amounts to, call it, 6 long-range aircraft and 6 kind of continental range or shorter-range aircraft less than we anticipated when we had the original long-term plan at Investor Day in '24. So that's a pressure point. I think when it's all said and done, we'll still see very nice growth, but we will not see all of the benefits of the modern aircraft and some of that long-range flying that we would have liked to see in '26. That doesn't go away. It just gets pushed out a little bit. So I think '27 and certainly in '28, we'll have a lot of that fleet in place and a lot of the margin benefits that we're expecting. With respect to puts and takes, I think we've been very focused on cost reduction and driving productivity. And I think those will continue to deliver value. We do have a step change in labor. We've started that cycle in '24 with the pilot agreement, '25 with flight attendants. And we do expect a couple of other labor agreements in 2026 to be completed. I mentioned in the comments as well, we have some pressure from those step changes. We're planned for them, but they will come through and kind of be most acute as we go through 2026. So I think for all intents and purposes, looking out probably past '26, '27, '28, we talked about a 17% plus margin. I think that's still well in play. We'll continue to work through and see where we end up as we complete our planning cycle, both the '26 and the longer term. But we're still very focused on those high-teen margins and just navigating through some movements overall from an airline and business model point of view, still feel very good about generating positive cash structurally and finding accretive growth. Kyle Wenclawiak: If I could just follow up quickly on the 787-10s. I know you mentioned it's just related to delays and maybe it's just kind of normal case negotiations. But is that a signal of what you think the network is going to shape up to be in a few years' time because those are your long-haul, most premium type aircraft. And I assume there's a bit more underpinning why you guys made that decision. John Di Bert: Yes. I mean, it's not. So frankly, those were 18 aircraft to come in, in 2026 and a couple in '27. So that order would have been filled fairly rapidly. There's been delays. We've just managed with Boeing to adjust because of the impact of those delays in how we take those aircraft. Longer term, no changes in our expectations. And when you look at it, right, I mean, all in, you can do the math on an envelope, but you're talking about maybe 2% of total capacity by the time we get to 2028. Michael Rousseau: And just -- it's Mike Rousseau, just to follow on that. We think our timing is very, very positive. As you know, Canada is diversifying trade around the world, and we think we play a big part in that diversification. So strategically, bringing in widebodies will allow us to work with Canada on diversifying trade. Operator: Your next question comes from the line of Andrew Didora with Bank of America. Andrew Didora: A question for John. I guess with the strike and the way it kind of has influenced near-term EBITDA and cash flow, net leverage is probably a little bit different than you were initially planning for 2025. But I guess when you think about executing on the NCIB, I guess, how do you think about executing on the NCIB in the construct of kind of where your leverage has gone? And how do you think about that keeping that leverage in your range going forward with this plan in place? John Di Bert: Yes. I mentioned it in the commentary, right, that we would look through that onetime hit in Q3 when we thought about long-term decision-making and capital deployment. So we -- I mean, that's a nonrecurring onetime. It won't affect how we view the strength of our balance sheet or the capital deployment decisions and strategy we have to make. I think it will fall off the calculation in 3 quarters and 4 quarters. So -- and still feel very good about our balance sheet. We feel good about how we're allocating capital. No changes. Andrew Didora: Okay. Fair enough. And kind of more of a kind of focused question here. Just in terms of free cash flow, right, I think year-to-date, a little bit over $1 billion. You're guiding to flat to up a little bit for the year. I know 4Q is typically seasonally weaker. Just curious what brings that -- it seems like 4Q will be much worse than normal seasonally from a free cash flow perspective. Is that because of the strike -- the cash payouts from the strike? Anything unique there? John Di Bert: Yes. Thanks for asking the question. So we highlighted in the commentary that we have about $600 million, including some of the comp that is accrued and will be paid, but mostly from a delay in vendor payments in the third quarter. We went to an SAP implementation. We had planning for transition. In there, you have about 15 days' worth of payables that would have otherwise been paid in Q3 that will be paid in Q4. So when you take that $600 million out and you adjust for what I mentioned was roughly $900 million of CapEx, you get a pretty normal free cash flow when you consolidate Q3 and Q4 together. So really, at the end of the day, it's working capital restoration of the payables that were not out the door in Q3 that will catch up in Q4 in that $600 million. Operator: Your next question comes from the line of Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: A question maybe for John. I want to dig into the CASM picture a little bit. So you've kind of averaged about 4% adjusted CASM inflation in the last 3 years, including '25. Going into '26, you've got a bunch of narrow-body, which is potentially pressure on CASM, and you've got some inflationary pressure in labor, but you also have growth and productivity. I'm just trying to think, do we start to go kind of sub-4% as we go to '26? Any kind of framework how to think about the adjusted CASM as we go into next year? John Di Bert: Fadi, fairly, I think we'll address that a little bit more when we get to our guide in February. We're working through that now. I think that '26 will have a bit of pressure, right? I mentioned it before. You're not -- you're getting the ASMs, you're not getting the ASMs that come from a longer-range flying in quite the mix that we would have liked. So that typically is a little bit helpful. The impact of modern fleet as well that we had kind of originally anticipated for '26 is going to be a little bit stalled. So I'm not concerned about our ability to generate those cost savings and cost reductions. They will just come a little bit later than we had planned for. So I think in 2026, probably not the year where you have the kind of flattening out of cost on a unit basis, but still very confident that will come probably near the end of the year and into '27, '28. Fadi Chamoun: Okay. And just a follow-up on the CapEx and the plan for 2026. Any idea of what kind of the split is for sale leaseback maybe versus straightforward financing? John Di Bert: Yes. So we mentioned, right, in our long-term planning in our Investor Day kind of 3- and 5-year look that we would be active with sale leasebacks. We had earmarked roughly $3 billion on, call it, I don't know, maybe whatever it is, $8 billion of aircraft acquisitions over the same period. And we talked about bringing our owned-to-leased ratio down from 80% owned, 20% leased to something like 60%, 65% owned and, call it, 35% leased. We will continue to do that. We want to do that in the years where we're peaking in terms of CapEx because kind of this logjam of delays and we haven't had a lot in the last couple of years and now finally coming into the peak of our growth cycle. So we will be deploying sale leasebacks in '26, '27, and we'll work through all of that and probably give you a little bit more color as we set those things up for 2026 when we guide. But yes, there will be components of sale leasebacks there for sure. Fadi Chamoun: Okay. Any fuel hedges actually for '26 or it's just Q4 that you're hedged for? John Di Bert: Yes. No, none for '26. That's something to consider. We typically look at the booking curve and what fares we've already sold. And then I mean it's been -- notwithstanding, there has been some volatility. It's been a relatively range-bound fuel price, specifically, I would say, after the spring of '25 through the rest of the year. And we've participated through the year on a couple of occasions, probably around 20% total year fuel hedged when you aggregate all of it. And we did so mostly within the 90-day booking curve once we had fares sold and we saw some breakdown in pricing. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Valerie Durand for closing comments. Valerie Durand: Once again, thank you very much for joining us on our call this morning. Should you have any additional questions, don't hesitate to contact us at Investor Relations. [Foreign Language] Have a good day. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to The Brink's Third Quarter 2025 Earnings Presentation. [Operator Instructions] Please note, this event is being recorded. This call and the Q&A session will contain forward-looking statements. Actual results could differ materially from projected or estimated results. Information regarding factors that could cause such differences are available in today's press release and presentation and in the company's SEC filings. The information presented and discussed on this call is representative of today only. Brink's assumes no obligation to update any forward-looking statements. The call is copyrighted and may not be used without written permission from Brink's. I will now turn it over to your host, Jesse Jenkins, Vice President of Investor Relations. Mr. Jenkins, you may begin. Jesse Jenkins: Thanks, and good morning. Here with me today are CEO, Mark Eubanks; and CFO, Kurt McMaken. This morning, Brink's reported third quarter 2025 results on a GAAP, non-GAAP, and constant currency basis. Most of our comments today will be focused on our non-GAAP results. These non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. We believe these measures allow investors to better compare performance over time and to evaluate our performance using the same metrics as management. Reconciliations of non-GAAP results to their most comparable GAAP results are provided in the press release, the appendix of the presentation, and our 8-K filings, all of which can be found on our website. I will now turn the call over to Brink's CEO, Mark Eubanks. Richard Eubanks: Thanks, Jesse, and good morning, everyone. Starting on Slide 3. Brink delivered another solid quarter of mid-single-digit organic revenue growth. The 5% total company organic growth included an acceleration from Q2 to 19% for ATM Managed Services and Digital Retail Solutions or AMS/DRS as we continue to make progress expanding into large and growing markets. For the second consecutive quarter, we delivered record Q3 EBITDA and operating profit margins, driven by strong productivity, the benefits of AMS/DRS revenue mix, and continued pricing discipline. Third quarter EBITDA margins were 19%, up 180 basis points from the prior year. The improvement was highlighted by 320 basis points of expansion in North America as we make progress driving a balanced agenda around growth in AMS/DRS and cost productivity with the Brink's Business System. With AMS/DRS now accounting for 28% of total revenue in the quarter and more productivity initiatives underway, we are expecting continued margin progress going forward. Cash generation also continues to improve. In Q3, we delivered $175 million of free cash flow, a year-over-year increase of 30%. We continue to shorten our cash cycle and deliver capital efficiency across our asset base with vehicle counts down again this quarter and DSOs improved by 5 days. Looking at the quarter in total, we delivered on our guidance commitments with performance exceeding the midpoint of our communicated ranges for the quarter. Organic growth remains healthy in the mid-single digits with AMS/DRS accelerating quarter-over-quarter. We continue to make steady progress improving profitability as we drive lasting structural changes to the way we operate on both the front lines and in the back office. Supported by this strong momentum, we are passing through our Q3 midpoint outperformance to the full year and affirming our previously increased full year framework. Kurt will have more details on the guidance at the end of the presentation. Turning to Slide 4. You can see how our year-to-date performance supports our value creation strategy. First, we're focused on delivering organic growth primarily from our higher-margin subscription-based services of AMS and DRS. We are tracking in line with our full year framework with organic growth of 5% for the total company and 18% AMS/DRS year-to-date. The revenue growth and the execution of productivity enhancements have driven EBITDA margin expansion of 40 basis points year-to-date with acceleration in the second half. For the second consecutive quarter, we've achieved record EBITDA margins in both North America and Europe. Free cash flow conversion is also improving. Year-to-date free cash flow has increased to 78% and trailing 12-month conversion has improved to 50% of adjusted EBITDA. Supported by growth in AMS/DRS acceptance in the marketplace, we are making structural changes in the business that we believe will continue to pay dividends for years to come. Our cash cycle continues to shorten with year-to-date DSO improvement of 5 days. We are also improving capital efficiency as we reduce our CapEx needs and leverage our network more efficiently. And finally, we are focused on maximizing value for our shareholders through disciplined capital allocation. This year, capital has primarily been allocated to our share repurchase program, where we've utilized $154 million year-to-date to repurchase approximately 1.7 million shares at roughly $89 per share. Even with the share repurchases, we have moved our net debt-to-EBITDA leverage ratio to 2.9x in the third quarter, within our targeted range of 2x to 3x. We expect to stay within the range through year-end and remain on track to allocate at least 50% of our total free cash flow towards shareholder returns in the full year. So far, we have made meaningful progress against these value creation drivers this year. Turning to Slide 5. You can see the progression of our revenue mix towards AMS and DRS over the last several years. As a reminder, we split our business into 2 main customer offerings, cash and valuables management or CVM and AMS/DRS. Our CVM business includes the traditional parts of the business like point-to-point cash logistics, money processing, and our international shipping business, we call Global Services, while AMS includes revenue from our ATM managed services business as well as digital retail solutions. With full year organic growth in AMS and DRS trending towards the high end of our mid to high teens growth framework, we are increasing our mix expectations to between 27% and 28% of total revenue by year-end. While AMS/DRS is now 27% of our total revenue on a trailing 12-month basis, we are still in the early stages of penetrating this large and growing total addressable market. As we've previously discussed, unvended retail locations and ATM outsourcing opportunities represent a 2x to 3x market expansion opportunity. Looking closer at each of the customer offerings, organic growth in CVM remain consistent with our expectations. Growth was driven by good pricing discipline and Global Services performing similarly to the second quarter. As a reminder, CVM organic growth includes the conversion of existing customers over to AMS/DRS. AMS/DRS accelerated from 16% organic growth in Q2 to 19% this quarter. Acceleration occurred in both AMS and DRS individually and was balanced across geographic segments. In DRS, our pipelines remain robust, and we see consistent strength in verticals like pharmacies, gas stations, C-stores, quick-serve restaurants as well as fashion and jewelry verticals. In AMS, we have completed the onboarding of several key accounts and are at full revenue run rates with QT and RaceTrac here in North America and Sainsbury's in Europe with several additional customers set to be onboarded in the fourth quarter in LATAM and the Middle East. Turning to Slide 6. I thought it would be helpful to show a map of our current AMS footprint. The highlighted 51 countries represent Brink's presence across the globe with those in light blue representing countries with existing AMS agreements. We've also added a select few customer logos to illustrate our presence in these markets. This map had almost no AMS presence less than 4 years ago. Leveraging our existing customer relationships with banks and retailers as well as our acquired and organically built capabilities in AMS, we've been able to expand this market to what it is today. As we've previously said, this is just the beginning. While there are some impressive customers already in our portfolio, we are still in the early stages of this opportunity. As we consistently deliver reliable service with a total lower cost of ownership for customers, we see penetration opportunities both in the countries we already serve as well as the other geographies where we still have a presence. The current penetration rate for ATM outsourcing is still low. As we've previously discussed, there is an opportunity for the current addressable market to expand by 2x to 3x as more financial institutions make the shift to this win-win value proposition. This growing opportunity, coupled with an equally compelling retail backdrop in DRS provides confidence in our strategy for years to come. On Slide 7, I'll provide a quick update on our margin improvement journey in the key North America segment. The margin progression begins on the top line, where we've improved the revenue quality by shifting to higher-margin AMS/DRS. On a trailing 12-month basis, AMS/DRS now represents 31% of revenue in this segment. Since 2022, this business line has grown by 33% with strong conversion rates and steady new customer growth driving continued market penetration. Other areas of margin enhancement include our pricing discipline and the deployment of waste elimination initiatives through the Brink's Business System. These improvements are coming through the P&L with less direct labor expenses and lower fuel consumption. Even with the healthy top line growth, we are seeing consistent vehicle and employee count reductions and our safety performance continues to improve to record levels. In fact, since 2023, our total recordable incident rate or TRIR is down 33%. There are many studies that indicate positive correlation between higher safety records and improved shareholder returns. These returns happen because a safer work environment enables higher employee engagement, resulting in higher labor productivity, better service quality, resulting in higher customer satisfaction, which all ultimately leads to higher growth and profits. As we continue to shift to AMS/DRS and increase productivity, we are targeting to be at least 20% EBITDA margin in this segment over the midterm. Before I hand it over to Kurt to go through the details of the quarter, I want to thank our team for executing against our strategy. We delivered another solid quarter while meeting our commitments and advancing our strategy. Growth in the AMS/DRS business lines accelerated. Our profit margins expanded to record highs and our cash generation continues to improve. Supported by large and growing markets, ample productivity opportunities and consistent execution, I remain confident we have the right team and strategy in place. I'm excited for the future and encouraged about how far we've come. And with that, I'll hand it to Kurt to discuss the financials, and I'll come back for Q&A. Kurt? Kurt McMaken: Thanks, Mark. I'll begin on Slide 9 with a look at the quarter. Revenue of over $1.3 billion, increased 6% with 5% organic growth and a 1% tailwind from foreign currency. Adjusted EBITDA was up 17% to $253 million, and operating profit was up 24%. Record profit margins slightly ahead of our expectations were driven by productivity, AMS/DRS mix benefits, and pricing discipline. Earnings per share of $2.08 was up 28%, driven by strong profit growth and the benefits of our share repurchase program. As Mark mentioned earlier, free cash flow was strong this quarter with improvement in the cash cycle on accounts receivable, accounts payable, and improved capital efficiency as we continue to shift our business to less capital-intensive AMS/DRS offerings. Trailing 12 months free cash flow is up over $200 million with conversion of 50%. We've been more balanced in our pacing of cash generation compared to the prior year and are still expecting to deliver our full year framework target of between 40% and 45% conversion. On Slide 10, organic revenue growth was $59 million, with most of the growth coming from higher-margin subscription-based AMS and DRS. It's important to note that CVM growth was and will continue to reflect AMS and DRS customer conversions. In Q3, we estimate this to be roughly 2 to 3 points of growth in CVM. Moving to the right side of the page, organic revenue growth of $59 million became EBITDA growth of $34 million for an incremental margin of 58%. Currency changes increased revenue by 1% or $13 million, with favorability in the lower-margin euro and British pound, partially offset by currency devaluation from the Argentine peso. The FX flow-through to EBITDA was approximately 7.5% due to the geographic mix of currency. Despite this, we are pleased with our performance in the quarter with our total incremental profit conversion of 47%. Moving to Slide 11, starting on the left. Operating profit was up $37 million to $188 million with a record margin of 14.1% on strong productivity in line of business revenue mix. Interest expense was flat year-over-year at $63 million, which is also roughly in line with our expectation for Q4. Tax expense was $35 million in the quarter, representing an effective tax rate of just under 28%, slightly lower than the Q2 rate. Income from continuing operations was $88 million. Walking back up to adjusted EBITDA, depreciation and amortization was $62 million, primarily reflecting increased depreciation from growth in AMS and DRS equipment. Stock comp and other was $6 million in the quarter, and we still expect a slight decrease to stock-based compensation over the full year to below $30 million. In total, third quarter adjusted EBITDA of $253 million and margin of 19% was above the midpoint of our guidance for the quarter with strong execution on AMS/DRS growth and productivity. Let's move to Slide 12 to discuss our capital allocation framework. We have a healthy menu of organic OpEx investments that we are making to drive AMS and DRS growth. These high-return investments remain our first call for capital. Next, we reduced leverage at quarter end to 2.9x net debt-to-EBITDA within our targeted range of 2x to 3x and slightly ahead of our expectations for the quarter. Our main use of capital this year continues to be shareholder returns, primarily through our share repurchase program. We have repurchased approximately 1.7 million shares year-to-date at an average price of just over $89 per share. We plan to remain active through the end of the year, and we remain on track to return at least 50% of our full year free cash flow to shareholders. We have been pleased with the results of our share repurchase program, which delivered EPS accretion of $0.08 in the quarter and $0.33 year-to-date. And finally, on M&A, our posture on deals is consistent. We have a full pipeline and continue to explore accretive opportunities that have a strong strategic fit, attractive returns, and align with our broader capital allocation framework. Potential deals would most likely help us further penetrate the large and growing addressable AMS and DRS markets. An example of this was the KAL deal we discussed last quarter. By following this framework, we are committed to allocating capital in ways that will compound cash flow in the future and ultimately enhance long-term shareholder value. Moving to the guidance on Slide 13. In the fourth quarter, we expect revenue of $1.355 billion at the midpoint of our range, reflecting organic growth in the mid-single digits. Using current spot rates, FX is expected to be a year-on-year tailwind of 1 to 2 points. The organic revenue guidance assumes AMS/DRS growth at the high end of our framework. Adjusted EBITDA is expected to be between $267 million and $287 million, and EPS is expected to be between $2.28 and $2.68. Next to this Q4 guidance, you can see what this implies for the full year relative to our full year framework. On the right side of the slide, our organic growth framework remains consistent from the beginning of the year. We are still expecting to deliver mid-single-digit total organic growth, supported by mid to high teens organic growth for AMS/DRS. EBITDA margins are expected to expand between 30 and 50 basis points with conversion of EBITDA to free cash flow of between 40% and 45%. We remain on track to return more than half of that free cash flow to our shareholders through our share repurchase plan and dividend. Supported by the growth and margin expansion we have already seen year-to-date, we are confident in our outlook for the balance of the year. And with that, we're happy to now take your questions. Operator, please open the line. Operator: [Operator Instructions] Our first question today comes from George Tong of Goldman Sachs. Keen Fai Tong: You increased your full year growth outlook for AMS/DRS to be in the high teens. Can you elaborate on the client traction you're seeing in both AMS and DRS that drove you to increase your outlook? Richard Eubanks: Sure. George, this is Mark. Yes, we had a good quarter this year -- this quarter, not just on sales, as you can see, the progression continue, but also in the pipeline. And that gives us good visibility into Q4 and really into first half of next year. We're seeing it both in AMS and DRS. Both are growing equally on their own right, and we'll continue to penetrate across all regions. I think you can see in the deck this quarter, we showed just sort of a brief overview of our AMS footprint. And we're certainly not fully penetrated in those markets. But as you can see, we've got green shoots all over the globe across almost all of our footprint today with more opportunities to go. On the DRS side, that pipeline continues to be very healthy. And one of the things that we talked about last quarter was the amount of conversions from CIT and retail to DRS. Last quarter, we were about 1/4 of our signings were and growth were coming from conversions of our CIT customers. That has actually accelerated into Q3. About 1/3 of our global DRS signings are coming from traditional customers. So we like the progress that not only we're seeing with our existing customer base, but also we continue to tap the unvended markets. As we think about sort of going around the globe though, this -- I'd say this growth is becoming more even as we're seeing good progress both in North America as well as the other three regions. And you can see our -- even though our penetration in Europe is relatively high compared to the other regions, we continue to see good growth there. We'll see Latin America and rest of world continue to pick up pace as well, particularly when you look in Latin America, both Brazil and Mexico continue to really perform for us. That's something that, as you can see, it's one of our least penetrated regions, but has some of the biggest opportunities, very cash-intensive economies, large ATM networks, large bank footprints, but also a very, very large small retail distribution as well for the unvended market. This is where we see this 2x to 3x TAM continuing to be an opportunity into the future. Keen Fai Tong: And then turning to your CVM business. The revenue performance relatively flat organically in the quarter, and it slowed a bit from about 1% growth in the prior quarter. Can you talk more about trends you're seeing here and factors that can either drive a reacceleration in CVM growth or perhaps further moderation in organic performance? Richard Eubanks: Certainly, the big thing there as we continue to convert, as I mentioned, to AMS/DRS, accelerating from 25% to basically 33%. That probably accounted for 2 to 3 points of organic headwind on the CVM business. And the only other piece of the CVM business really is our Global Services business, which really continued to perform in line with Q2 globally, which is sort of mid-single digits. Operator: Our next question comes from Tim Mulrooney of William Blair. Timothy Mulrooney: Just first of all, on AMS/DRS, I'm wondering if you could talk about some of the things that you're doing internally to drive continued growth in that business, which is growing faster than what we were expecting this year. And I know you're winning new programs, but any details you could provide, I guess, without getting into competitive issues around maybe like… Richard Eubanks: Sure. Timothy Mulrooney: Are you adding additional channels, Mark? Any like adjustments to incentives, either in the field or the corporate side? Like what's really helping drive this next leg of growth, I guess, is what I'm asking? Richard Eubanks: Yes. That's a good question, Tim. We've talked briefly around this historically about how we changed our incentive comp plan. And we did that really 2 years ago, we changed our incentive comp plan for our maybe top, let's say, 100 people in the company that had a big part of their annual incentive plan were tied to DRS/AMS revenue growth. We've actually expanded that now to more than 1,000 people in the company. Basically, anyone who's got a management incentive bonus is tied to AMS/DRS growth rates. Actually, we have it weighted higher than total revenue growth to make sure that everyone understands the focus. I think that's sort of at the top level. And I think that's what's helping us and our leadership team across the globe really execute the strategy that we want, which is, again, more AMS/DRS, more flexible network, leveraging kind of the full capacity using technology to be able to do that. On the ground, though, it's also important that our sales teams have similar incentives. And so if you think about an incentive comp plan for local salespeople, that has been, let's say, traditionally, for Brink's, a very local decision and something that local management was sort of left to do. We've started to globally align those sales incentive plans across the globe to focus predominantly on AMS/DRS and helping our customers through this journey from traditional CIT, whether it's the banking or retail segments to move to this more managed services environment. So that's been helping us make progress. This year, we're going to take another step there and further align more specificity across all of our incentive comp plans for our sales teams globally to focus on those two things. In fact, we have some leadership -- local leadership that has taken this even to a higher level. We have some regions where our leadership team has made the decision to either discount commission plans or not even provide commission plans for salespeople that aren't selling DRS/AMS that might be selling traditional services. And again, not being punitive, but more leading our teams to help lead our customers to this value-accretive value proposition for both customers and for Brink's. I think the last thing you asked about was channels. This is an area that is a big change for Brink's. Historically, we've sold direct with all of our salespeople by being direct Brink's employees selling directly to financial institutions and retailers and so forth. We've actually begun to evolve that to work with channel partners. And this is evolving in all regions. And whether this is a commission sales force or it's a value-added reseller or another channel partner, we have white label agreements with some banks to sell DRS to their retail customers. So we really are trying to evolve this process to, again, help everyone in the channel make the cash ecosystem more efficient and feel a lot more inclusive in the rest of the payments ecosystem, whether that's at DRS or in the cash distribution and deposit networks. Timothy Mulrooney: That's good detail. Thanks for outlining the incentives and the channels helping drive that good growth. The other thing I wanted to ask you about was the North America margins. I mean, just incredible this quarter. You're up 300-plus bps. I wonder how to think about that, I guess, from a longer-term perspective, like what the margin potential is in that business? Because I see some of your other segments and where they are, but I don't actually know if that's comparable because Latin America has some pretty different dynamics and so does the rest of the world with the BGS business. So how would you have investors -- how would you frame for investors the margin potential of that business in North America? I would ask incremental margins because that's always an easy way for analysts to kind of level set, but you're decapitalizing the business. So I don't even know if that's like the right way to think about it incremental. So I'll just -- I'll leave it there, but curious how to frame the margin either from a medium-term or longer-term perspective in North America, given the momentum that you're seeing right now? Richard Eubanks: Sure. That's a good question, Tim. I would say, if you look at the margin progression, let's just say Q3, first of all, yes, it prints 370 bps. If you remember, we had 330 bps. If you remember, we had a loss last year during this time frame that makes it a little bit of an easier comp, but still great performance from a margin expansion perspective, particularly when you look across the years. So if you look at this chart, you can see sort of steady upward progression in the business. And this is driven by really 3 big things. The first and foremost has been our AMS/DRS mix improvement across the business. That's certainly been helpful. Those are accretive margins and certainly allow us, as you mentioned, to decapitalize the business and make the business more dynamic. The second has been a more disciplined pricing posture that we've taken that maybe historically we had not. And we've been very disciplined since coming out of the pandemic, frankly to, just to make sure that we're not only covering our costs, but also improving our margins and getting the right value with customers on both sides. And then lastly, really has been our operational execution. And I have to applaud our North America team that really has been working hard and showing real improvements operationally, both in service quality, service timeliness and then, of course, I mentioned safety. And any time you see safety improvements, that's an indicative measure of how well we're running the business or how well the business is being run, let's say. And we think that that's a good one for investors to understand that we've got a good foundation to continue to go forward. Our incremental margins are going to be anywhere from 20% to 30%, Tim. That's kind of how we think about it going forward. But there's not really a -- we don't think it's really an artificial ceiling here in front of us. And we think there's still more room to go. I mentioned the 20% EBITDA margins in the midterm. To me, that's just an interim checkpoint of where we want to take the business because if you know this, and it's not without -- it's in the public domain, we actually have a gap in North America with one of our other traditional competitors, which gives me lots of confidence that we still got room to go and still run the business better, much less with this new business model on top that is decapitalized, that's more flexible, more dynamic and more value accretive for customers. Operator: Our next question comes from Tobey Sommer of Truist. Tobey Sommer: I wanted to ask about the cash conversion. What are your current thoughts on midterm goals for free cash conversion from EBITDA? And as part of your answer, could you describe the DSO improvement drivers, maybe mix shift versus other more discrete actions that you've undertaken? Kurt McMaken: Yes. Tobey, it's Kurt. Why don't I take this one, just kind of walk through it a little bit. First of all, we feel good about our framework in terms of conversion, 40% to 45%, not only in the near-term, but going forward, we think that's a good thing to look towards. The reality is we've been working hard on making sure that we're creating cash throughout the year and focusing on all aspects of that generation throughout the year. And so specifically to your DSO question, there's a couple of things to really I think focus in on. One is the mix of the business, where if you look at AMS/DRS, those are both subscription-based business models, and they absolutely have a very favorable DSO profile for us. So as we continue to grow that, that is a real positive for our DSO improvement. We were better by 5 days, as we mentioned. I mean the other is, again, we -- this gets back to a comment Mark made on incentives. We really have a broad-based incentive now across our leadership base focusing on free cash flow delivery. And so therefore, that delivery really, really is spread out around the world and people focused on it. So that's number 2. The third I'd say is just maybe really working collections harder than traditionally has been done, just getting in and grinding through it, I think is also a factor. The other thing I'd mention too you didn't mention on accounts payable DPOs, but that has also been a real focus for us. We were better, improved by 4 days at the end of the third quarter as well. So that's the second piece. And then finally, I'd say on the CapEx and the capital intensity side of things, the AMS and DRS is a less capital-intensive business. We've been decapitalizing, taking trucks out, for example, Mark has mentioned that in the past. So all of these levers are really working towards the free cash flow generation conversion factor supporting it. Tobey Sommer: Geographic growth was pretty well balanced organically in the quarter on a year-over-year basis. What geos may have higher or lower trajectories going forward? And maybe if you could provide a driver for why there could be a more wider dispersion going forward, if you think that's the case? Richard Eubanks: Yes, sure. In fact, I don't think that's the case, Tobey. I think we've got opportunities to continue at this pace in all regions. Of course, there's going to be opportunities up and down. You think about the Rest of the World segment, particularly given the fact that half of it is BGS. Volatility, obviously, in that part of the world makes a big difference. And so that's why you saw 9% in Q1 and sort of mid-single digits moderating here in 2 and 3. So maybe that's one area. But to be honest, we still feel like we've got good runway with all of the regions, particularly when you consider the unvended retail markets in one vein. And the second is the installed base of the banks. And so as our outlook -- as we think about outlook for AMS and we think about bank outsourcing, there's no region that is over penetrated or has already matured in that way. And we think our ability to capture that when those markets are turned over the next few years, we think there's good opportunity, again, in a big TAM over the next -- well, for good organic growth across all 4 regions. I think we think about sort of looking forward in the next year, maybe in the shorter term, there's nothing we've seen from a customer and market perspective that would change our mind on the organic outlook. We think this framework, obviously, we'll put our guidance out in -- after Q4. But there's nothing that says we wouldn't be able to continue this same framework of mid-single-digit organic growth is mid to high teens AMS/DRS, 30 to 50 bps of EBITDA margin. And just thinking about what's happened this year and relative to the FX in H1, we had a big headwind and slight tailwind in H2, probably going to see something similar if you look forward into '21, a little more of a benefit early in the year in H1 and then, obviously, not much benefit if you snap today's -- snap the line on today's FX rates in H2. So we feel like we've got a pretty good setup for next year. And again, healthy pipelines, as I mentioned, both in AMS/DRS that continue to accelerate as we shift our incentives, as we improve our execution, as we build out more product offerings for our customers and then ultimately, how we execute in the field that continues to improve and get better and just expanding with more channel partners and more at bats with more customers is just going to fuel this opportunity. So nothing that I would say would slow down the organic opportunity. Kurt, anything maybe about '26 or anything else you? Kurt McMaken: Yes. Just to be clear on the FX, Tobey, I think Mark's comment there, I mean if you snap the line today using rates today, you would expect to see a slight tailwind in '26 and for the year and then more weighted towards the first half is what Mark was -- just to be clear on that. But the other thing I'd say is that as we look at -- and Mark was talking about opportunities, if we think about how we're really trying to run the business, we definitely continue to see -- we see opportunities in the area of getting a lot more efficient in our SG&A area. So we're continuing to work at this, and we'll continue to make progress. But as Mark has described, how we're running the business differently than how we have in the past, we expect that we're going to continue to really find efficiencies to support our margin expansion. Richard Eubanks: Yes. I think this is part of just globalizing the business, Tobey. And as you think about our strategy, it's multipronged. And certainly, it's around growth and customer loyalty. It's around innovation around technology and customer offerings, operational excellence and people. But part and parcel to all of that is sort of how we run the business day-to-day in the back-office as well, whether that's across the big functions in finance, IT, HR, sourcing, procurement, real estate, those are all things that historically for 165 years, the company has run sort of independently and disparate around the world. We've been evolving that. We certainly have a strategy around doing more things similar. And we think there's still more back-office sort of fixed cost productivity left in the business that we plan to start getting after and more so in '26 and beyond. So there's -- yes, there's good organic growth. Yes, there's good product mix, but we think we've still got some good productivity left in sort of the fixed base of the business that we can wring out. Tobey Sommer: I'd like to sneak one more in and just because I'm not asking about AMS deals, doesn't mean I don't like the growth. The bank consolidation, what's your view on it here on a net basis? I'm sure there are puts and takes on either side and -- but approvals from regulators are the fastest they've been since 1990 at 4 months and some deals have started to be announced. So if this ends up being something that lasts for a few years, how should investors think about that and its implications for your business? Richard Eubanks: Yes. Good question, Tobey. It's something we obviously are watching very closely. And these most recent announcements have certainly been in our customer base. And so trying to see where those things land. We think with our AMS solutions, this likely becomes an opportunity just given the fact that we have the ability to, first and foremost, provide an offering that is unique, we think in the marketplace. It's not commoditized, and we have a unique offering and a unique value proposition to do that. The second is for those consolidators, we provide them an opportunity to create real cost synergy as well as they think about streamlining their network, their branch footprint, their infrastructure to, again, help through that synergy to sort of wring out the cost and productivity that exists. And we talked about this previously about AMS in general, we've seen earlier in early years, the last few years, we've seen more opportunities outside of North America around AMS, just given the fact that the banking footprints were already consolidated and that this an ATM network productivity opportunity really was pretty high on the list of improving profit margins, whereas in the U.S., more bank consolidation and sort of redundant public company costs were -- or infrastructure and compliance costs were more of the productivity lever. We actually are starting to see the AMS discussions more frequently in North America. I don't know if the 2 things are tied to this consolidation or not, but we certainly think there's going to be opportunities for us there. I think in the short-term, there is certainly footprint consolidations that would happen to our traditional business potentially, where if a bank buys another bank, they've got 2 branches on the same corner, maybe we lose a location there. That certainly could happen. But as we think of -- we -- well, back up, we are thinking about this strategically and making sure that we're also partnered with the right consolidators and making sure that we're serving those being consolidated also in a healthy way that allows us to maintain those customer relationships in the event there is a merger. So I'd say net-net, Tobey, we think this probably is good just based on the AMS opportunity for long-term. Sure. Great. Well, listen, thanks for joining us, everyone. We appreciate your continued interest in Brink's, and we look forward to speaking with you all soon, whether on the phone or on the road. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.