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Operator: Good day, and thank you for standing by. Welcome to the C3is Third Quarter 2025 Financial and Operating Results Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Diamantis Andriotis. Please go ahead, sir. Diamantis Andriotis: Good morning, everyone, and welcome to our C3is Third Quarter of 2025 Earnings Conference Call and Webcast. This is Dr. Diamantis Andriotis, CEO of the company. Joining me on the call today is our CFO, Nina Pyndiah. Before we commence our presentation, I would like to remind you that we will be discussing forward-looking statements, which reflect current views with respect to future events and financial performance and are based on current expectations and assumptions which by nature are inherently uncertain and outside of company's control. At this stage, if you could all take a moment to read our disclaimer on Slide 2 of this presentation. I would also like to point out that all amounts quoted, unless otherwise clarified, are implicitly stated in U.S. dollars. We have today released our earnings results for third quarter of 2025, so let's proceed to discuss these results and update you on the company's strategy and the market in general. Please turn to Slide 3, where we summarize and highlight the company's performances, starting with our financial highlights. For the first 9 months of 2025, we achieved a net income of $5.26 million compared to a net loss of $3 million for the same period in 2024, an increase of 281%. Our voyage revenues decreased by 24% compared to the same period in 2024 due to the drydocking of our Aframax tanker, resulting in a loss of revenue from our highest earning vessel over a period of 74 days. Our TCE rate was also impacted with a drop of 40%. In April 2025, we settled the final outstanding balance of $14.6 million due on our latest addition, the Eco Spitfire. We reported an EBITDA of $10 million compared to $3 million for 2024, an increase of 245%. Slide 4 shows the dry bulk trade for the first 9 months of 2025, the recent U.S.-China trade truce, while Fragile should support Q4 rates via more U.S. exports. The iron ore and markets remained resilient and 2026 could see faster expansion than 2025, driven by South and omni iron box volumes. The market was also supported by strong iron ore volumes to China. Dwindling Chinese iron ore and bauxite mine output will create scope for imports, departures from Guinea to China showed the usual Q3 rainy season weakness. Much of the relatively strong demand has been driven by inventory building and dwindling Chinese mining output rather than rapid growth in demand. Chinese demand is not growing rapidly, but its inventory is hard. Q3 was a much stronger period for seaborne coal trades than the first half of 2025, overall levels remained slightly down against '24 levels. Come 2026, a moderate rebound in coal trade is expected as trade tensions in La Nina remain key risks. The grain train boomed in Q3. This was primarily driven by bumper grain volumes in the. China, but enormous volumes to Brazilian soybeans far later in the year than usual, as it avoided by U.S. soybeans as part of the wider trade dispute between the 2 nations resulting in U.S. exports falling 35% by the end of Q3. There was also strong grain and soy meal volumes from Argentina, thanks to government cuts in export levies and strong harvests. Camp26, firmer EU production, moderate black seat growth and strong ECS volumes support a modest rebound in grain flows, a much more vigorous rebound will be from Chinese return to the market in Q4 with demand expanding well. Minor demand remains resilient as steady manufacturing and construction underpin minor bulk imports. Slide 5 shows the Handysize market fundamentals and the fleet ages and growth. the market outlook shows that in January, September 2025, global exports of all dry bulk commodities loaded on handy super tonnage reached 1.3 to 8 million tons into excess marine vessel tracking data, exports loaded were coal. This was largely due to a slowdown in coal mine output in China. Indian appetite for coal imports was down significantly in Q3, in line with typical seasonal trends. India, demand was also hampered by strong domestic mining. Moving on to the handy fleeted in growth. The global Handysize fleet now stands at 3,202 vessels. Of these 569 vessels are over 20 years of age, accounting for 17.8% of the total number of vessels. With the starting tally of 3,117 vessels, the current fleet represented change of 2.73% invested numbers over the year so far. The global Handysize order book now stands at 226 vessels. Of these 37 vessels are scheduled for delivery within 2025. Currently, the order book to fleet ratio stands at 7.2%, while in comparison, 10.5% of the fleet is over 25 years of age an average 7.3% is between 20 and 24 years of age. The average age of the C3Is and fleet was 15.2 years by the end of 2025. Slide 6 shows the Aframax LR2 fleet size and. As at the end of Q3 2025, the Aframax in service comprised 1,191 vessels with a total deadweight capacity of 131.35 million deadweight, reflecting a year-to-date growth of 3.3%. Deliveries in 2025 reached 47 vessels, demolitions totaled 9 vessels with 2 vessels removed during Q3. The current order book stands at 197 vessels fleet as 20 years totals 252 vessels, representing 21% of the total fleet. The highest number of vessels is in the 15, 20 years category. The age of our Aframax tanker was 15.2 years by the end of Q3 2025. Slide 7 summarizes the current tanker market fundamentals. Global oil consumption rose only modestly in Q3 and speculations are now growing over a oil supply surplus next year. Chinese crude oil imports were down 0.4% on Q2, but up 5% year-on-year. Chinese oil demand sludges, increasing purchases are cost opportunistic and testing to build up inventories as domestic demand is flatlined. There is only another 2% of total growth in oil demand expected until 2030. War and global uncertainty will keep causing market disruptions typically boosting earnings, refinery attacks in Russia are just the latest example. Parson Trade Global growth has proven stronger than anticipated in the face of trade tariffs patch. However, part of this resilience was masked by front-loaded exports. China remains on track to meet this 5% growth target and outcome you expected earlier this year. The real test will come next year even if Chinese exports remain strong, next exports are unlikely to grow as much as in 2025. China-U.S. relations have with a 1-year agreed, but some tariffs remain without a comprehensive long-term deal, uncertainty will persist. The recent U.S. tariff reduction on Chinese goods is marginal now 47%, down from 57% and China U.S. trade is expected to keep declining. Geopolitical uncertainty continues to dominate, especially the U.S.-China trade and gravelly. Late October and 1-year truce agreed with U.S. tariffs on China reduced to 47% and other measures delayed. Early Q4 showed the Israel Hamas which is holding for now. Ships still avoid the red sea despite the gas and is fire. This continues to mask oversupply. It will take time for the route to be being safe. There was little land inside to crane work, but the U.S. is now talking tougher on sanctions with implications for oil and tanker markets. Q3 was all about waiting for the IMO vote on net 0 measures in October. The vote was eventually delayed until next year after U.S. lobbying against the rules. Bar stock change of U.S. policy, any global carbon measures are unlikely to pass next year or a 10-point in Trump's term. The rules if passed, would have effectively introduced a carbon tax on burning fuel oil. Slide 8 shows the current fleet of CIS. CIS owns and operates a fleet of 300 drybulk carriers and 1 on Aframax oil tanker. In May 2024, the company took delivery of the 33,000 deadweight dry bulk carrier Veeco Speed fire bringing the total fleet capacity to 213,000 deadweight, with an average age of 14.8 years at the end of Q3. All vessels have had their ballast wall systems already installed. The successfully completed heat dry dock in August 2025. And the next one, you will be in August 28. All the vessels are unencumbered and currently employed on short- to medium-term period charters and spot voyages. None of the vessels were built in Chinese not affected by the newly postponed tariffs. Slide 9 shows the example of the international charters with whom management company has developed strategic relationships and has experienced repeat business. Repeat business highlights the confidence our customers have for our operations and the satisfaction of the services we provide. The key to maintaining all relationships with these companies are high standards of safety and reliability of service. I will now turn over the call to Nina Pyndiah for our financial performance. Nina Pyndiah: Thank you, Diamantis, and good morning to everyone. Please turn to Slide 10, and I will go through our financial performance for the first 9 months of 2025. We reported voyage revenues of $24.2 million for the first 9 months of '25 compared to $32.9 million in '24, a reduction of 26% and primarily due to the dry docking of our Aframax tanker, which resulted in 74 nonrevenue days. The time charter equivalent rates of our vessels were also impacted with a decrease of 40% compared to the same period of 24%. Voyage costs for the first 9 months of '25 were $9.4 million compared to $10.4 million in '24, this decrease was attributed to the decrease in voyage days due to the dry docking of the Aframax tanker. Voyage costs for the 9 months ended September 30, 2025, mainly included bunker costs of $4.7 million, corresponding to 49% of total voyage expenses and port expenses of $3.8 million, corresponding to 40% of total voyage expenses. Operating expenses for the 9 months ended September 30, '25 was $7 million and mainly included crew expenses of $3.5 million, corresponding to 50% of total operating expenses, spares and consumables costs of $1.6 million and maintenance expenses of $1 million representing works and repairs on the vessels. The dry docking cost were $1.7 million. General and administrative costs for the 9 months ended September 30, '25 and '24 were $2 million and $2.5 million, respectively. The $0.5 million decrease mainly related to expenses incurred in the 9 months ended September '24 relating to the 2 public offerings, September 30, '25 was $4.9 million, a $300,000 increase from $4.6 million for the same period of last year due to the increase in the average number of our vessels. Interest and finance cost for the 9 months ended September 30, '25 and '24 were $400,000 and $2.1 million, respectively. The $1.7 million decrease is related to the accrued interest expense related party in connection with $53.3 million, part of the acquisition prices of our tanker a 2, which was completely repaid in July '24 and our bulk carrier, which was completely paid in April '25. Gain of warrants for the 9 months ended September 30, '25 was $6.7 million as compared with a loss on warrants of $10.4 million for the 9 months ended September 30, 25 and mainly related to the net fair value changes on our Class B1 and Class B2 warrants and C1 and C2 as. And as these were classified as liabilities. For the first 9 months of '25, the company reported a net income of $5.3 million and related EPS of 3.34%. Turning to Slide 11 for the balance sheet. We had a cash balance of $6.6 million compared to $12.6 million at the end of '24, a decrease of 48% due to the full settlement of the 90% of the purchase price of the Echo Spitfire in Q2 '25. Other current assets mainly include charges receivable of $3.5 million compared to $2.8 million in December '24, as well as inventories of $600,000 compared to $900,000 at December '24. The vessels net value of $79 million were for the 4 vessels less depreciation. Trade accounts payable of $1.8 million are balances due to suppliers and brokers. Payable to related party of $4.3 million represents the balance due to the management company race maritime. Warrant liability of $3.9 million was recorded, a drop of 63% from the year-end balance of '24 when it was $10.4 million. Concluding the presentation on Slide 12, we outline the key variables that will assist us progress with our company's growth. Earning a high-quality fleet reduces operating cost. -- improve safety and provides a competitive advantage in securing favorable charters. We maintain the quality of the vessels by carrying out regular inspections, both while import and at sea, and adopting a comprehensive maintenance program for each vessel. None of our vessels were built from Chinese shipyards, Hence, the ongoing tariff spreads by the U.S. to China will be of no consequence to our fleet. The company's strategy is to follow a disciplined growth within depth technical and conditional assessment review. Equity issuances will continue as management is continuously seeking a timely and selective acquisition of quality non-Chinese built vessels with current focus on short- to medium-term charters and spot voyages. We always charter to high-quality charters, such as commodity traders, industrial companies and oil producers and refineries. Despite having increased our fleet by 234% since inception, the company has no bank debt. New interests were charged by the affiliated sellers on the purchase prices and the EcoSpidfire. From July 23 to date, we have repaid all of our CapEx obligations totaling $59.2 million without resorting to bank loans. At this stage, our CEO, Dr. Diamantis Andriotis, will summarize the concluding remarks for the period examined. Diamantis Andriotis: For the first 9 months of 2025, we reported voyage revenues of $24.2 million and EBITDA of $10.3 million, an increase of 245% and net income of $5.3 million, an increase of 281% and EPS of 3.5%. In April '25, we paid off the remaining balance of $14.6 million due on our bulk carrier, the Eco Speed fire. In August 2025, we successfully completed the dry docking of our Aframax tanker, we are fully delevered, thus significantly enhancing our financial flexibility. As the world goes through an uncertain volatile later, turbulences in the shipping market are unavailable. The market remains as uncertain as they have ever been due to this geopolitical environment. But despite all this uncertainty, major economies are still growing and trade volumes are still rising across sectors. In the midst of the dynamics, CTIs performance remained solid, and we have proved that we have built a resilient and organic foundations adaptable to this changing environment. We will, therefore, continue with our strategy with our debt-free balance sheet of enhancing our fundamental ability to both further develop existing core businesses as well as explore potential new growth businesses. We would like to thank you for joining us today and look forward to having you with us again at our next call for the results of the fourth quarter of 2025. Operator: This concludes today's call. Thank you for participating. You may now all disconnect. Have a nice day.
Operator: Welcome, and thank you for joining Oaktree Specialty Lending Corporation's Fourth Fiscal Quarter and Full Year 2025 Conference Call. Today's conference call is being recorded. I'll now turn the call to Clark Koury, OCSL's Head of Investor Relations. Clark Koury: Thank you, operator. Our fourth quarter and full year 2025 earnings release, which we issued this morning, along with the accompanying slide presentation, can be accessed on the Investors section of our oaktreespecialtylending.com. Before we begin, I want to remind you that the comments on today's call are forward-looking statements reflecting current views with respect to, among other things, future operating results and financial performance. Actual results could differ materially from those implied or expressed in the forward-looking statements. Please refer to the relevant SEC filings for a discussion of these factors in further detail. Oaktree undertakes no duty to update or revise any forward-looking statements. I'd also like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any interest in any fund. Investors and others should note that OCSL uses the investor section of its corporate website to announce material information. The company encourages investors, the media, and others to review information that it shares on its website. Now I will turn the call over to Matt Pendo, president of OCSL. Matt Pendo: Thank you, Clark, and thank you all for joining our call today. I'll begin the call with an overview of our results for the fiscal year and fourth quarter. Armen Panossian, our CEO and co-CIO, will then share commentary on the current market environment. And Raghav Khanna, our co-CIO, will provide details on our portfolio and investment activity. Christopher McKown, our CFO and treasurer, will then review our financial results before we open the call for questions. The 2025 reflected steady improvement for OCSL, even as the macro environment remained choppy. As we will discuss in more detail, our team worked hard to turn around non-income producing positions, find interesting investment opportunities, and reduce our cost of capital. In the fourth quarter, we achieved adjusted net investment income of $0.40 per share, up from $0.37 the prior quarter. This sequential improvement reflects the return to more normalized prepayment fees, higher dividend income, and lower interest expense from our refinancings earlier this year, and lower base rates. Additionally, we continue to make progress reducing our nonaccruals, a key strategic focus. At year-end, nonaccruals were 2.8% of the portfolio measured at fair value, down 20 basis points from the third quarter and down 100 basis points from last year. Last week, the board approved a dividend of $0.40 per share for the quarter, consistent with our dividend policy, and fourth quarter earnings. While the Federal Reserve September rate cut did not affect fourth quarter earnings, lower base rates will impact net investment income in December. As we've said before, we have several levers at both the corporate and JV levels to help offset lower base rates and support net investment income. First, we can prudently increase balance sheet leverage to enhance earnings power and deploy capital into interesting investment opportunities. Our balance sheet is conservatively levered at 0.97 times and provides us with ample financial flexibility. Second, we can continue to optimize our JV. Finally, reducing nonaccruals and equity positions will improve our earnings power. We have line of sight into, one, putting a portion of our previously nonaccruing loans onto accrual status, two, monetizing a portion of our nonaccruals, and three, monetizing equity positions. Any proceeds we receive from realizations of nonaccruals and equity will be reinvested into income-generating assets. On an ongoing basis, we will continue to evaluate these levers and their potential contributions to earnings and our dividend. Now I will pass the call over to Armen for an update on the market environment. Armen Panossian: Thanks, Matt. Turning to the current market environment, we see many conflicting themes. Private credit deal flow showed modest improvement during the quarter, although the overall quality of deals was mixed. We continue to see a steady supply of high-quality opportunities, alongside an increasing number of lower-quality deals coming to market. Sponsors are pursuing dividend recapitalizations more often as exit activity remains subdued compared to historical levels. Momentum in Europe slowed relative to what we observed in our third quarter given ongoing political and economic uncertainty. But we still see some interesting deal flow from that region. Ample liquidity in the broadly syndicated loan and private debt markets has driven sponsors to dual track financings. We have seen an increasing share of $1 billion plus LBOs opting for the broadly syndicated market and the tightening of the illiquidity premium. However, since the Fed rate cut in September, we have witnessed slightly more price discipline and are cautiously optimistic that private credit spreads have bottomed out at SOFR plus $4.50. PIK and looser covenants remain popular tools for private debt managers to win mandates and allocations, but we remain extremely disciplined in our credit documentation and acceptance of PIK. As a percentage of total investment income, PIK was 6.4% at quarter end. We prefer to use PIK judiciously and in situations such as financing a high ROE project or carve-out acquisition that requires the PIK option only for a defined period, after which a project or acquisition generates the necessary cash flow to cover the debt's full cash interest payment. Despite a mixed environment, our long-term outlook on private credit remains bullish. Issuers continue to value the speed and assurance of deal execution with a sophisticated partner. For investors, we think private debt will continue to deliver a premium spread relative to other floating rate asset classes and with lower volatility. To talk more about our portfolio and new investments, I will turn it over to Raghav. Raghav Khanna: Thanks, Armen. I'll start with a review of our investment activity in the fourth quarter. Our pipeline improved during the quarter, yet given heightened competition and tighter spreads, as Armen mentioned, we are taking a highly selective approach to new investments. We continue to prioritize senior secured loans to market-leading businesses with durable fundamentals, reliable cash flow, and strong downside protection. At the same time, we are focused on diversifying the portfolio, avoiding industry concentration risk, and limiting exposure to more cyclical sectors. Turning to origination and repayment activity for the quarter, new funded investment commitments, including drawdowns from existing commitments, amounted to $120 million, up 54% from the prior quarter. Prepayments from exits, other paydowns, and sales were $177 million. And the weighted average spread on deployments during the quarter was approximately SOFR plus 570. First lien loans represented 88% of our new originations. One notable investment during the quarter was Walgreens Boots Alliance, an integrated healthcare pharmacy, and retailer with a 170-year heritage. The company was taken private by Sycamore Partners for over $20 billion, and the sponsor subsequently split the conglomerate into four operating businesses. Each segment required its own bespoke lending solution, and the sponsor got lenders who could move quickly to underwrite the distinct challenges and transformation opportunities of the retail and pharmaceutical businesses. Oaktree strategies worked collaboratively to consider various capital structures. Ultimately, Oaktree funds acted as joint lead arranger for the $2.5 billion first in, last out, first lien term loan to support the US retail business. The FILO was priced at SOFR Plus 700 with 2.5 points of OID, which is attractive for the industry risk and complexity of the deal. Oaktree's deep expertise in inventory appraisal and long track record of investing in FILOs made us comfortable with the collateral coverage of the loan. This transaction is a great example of how Oaktree is positioned to capitalize on complicated yet compelling investment opportunities. Turning to our portfolio, over 40% of our portfolio companies were marked up during the quarter, by about 70 basis points on a weighted average basis, reflecting improving fundamentals in several portfolio companies. As of September 30, 83% of our portfolio was comprised of first lien senior secured debt, and the weighted average yield on debt investments was 9.8%. The median EBITDA of our portfolio companies was approximately $150 million, an $11 million decrease from the prior quarter. Portfolio company weighted average leverage increased slightly to 5.2 times from 5.1 times, and weighted average interest coverage remained unchanged at 2.2 times. As Matt mentioned, we have made tangible progress reducing nonaccruals and resolving challenged investments, which contributed to a decline in nonaccruals this quarter. I'll cover those now starting with an update on Mosaic companies. We have been working closely with Mosaic to realize value for the separation of its three business segments. Two of these segments were sold, and the third is in a liquidation process. As you may recall, these efforts resulted in a significant cash paydown during June, and we received additional cash paydowns in September and after quarter end. Inception to date, the paydowns we received amount to a little over 70% of our original invested cost, and when combined with coupon payments, have resulted in generating positive IRR over the life of this loan. We believe the proactive actions we took following Mosaic's tariff-related headwinds earlier this year helped maximize our recovery in a challenging situation. We also made progress in monetizing our Inopen Therapeutics, whose loan is secured by certain royalty rights and public shares of ADC Therapeutics. Following an increase in ADC's share price, we sold a portion of our ADC shares and used the proceeds to reduce the outstanding loan amount. Our remaining position in Inopen Therapeutics continues to be marked at 99.5, reflecting our view that we will continue monetizing the collateral supporting this loan and recover substantially all of the remaining loan balance. While the issuer is not new to our nonaccrual list, we added Baymark's first lien loan to nonaccrual status. The company's second lien loan was put on nonaccrual in the third quarter. We are working closely with other lenders and the company to maximize value. I'll now turn the call over to Chris to review our financial results. Christopher McKown: Thank you, Raghav. In our fourth fiscal quarter ending September 30, 2025, we delivered adjusted net investment income of $35.4 million or $0.40 per share as compared to $32.5 million or $0.37 per share in the prior quarter. The increase for the quarter reflects the return to normalized levels of fee income and interest expense following the one-time items that impacted the results in the third quarter. NAV per share was $16.64, down from $16.76 in the third quarter due to unrealized depreciation on certain debt and equity investments. Adjusted total investment income increased to $76.9 million compared to $74.3 million in the third quarter, primarily driven by higher prepayment fees and dividend income. Net expenses declined modestly compared to the third quarter. Interest expense decreased due to the refinancing of our syndicated credit facility completed earlier this year and lower reference rates. Additionally, as you may recall, our June results were impacted by noncash and nonrecurring interest expense related to the acceleration of deferred financing costs primarily in connection with the termination of the Citibank SPV facility. The weighted average cost of borrowings was 6.5% at September 30, down from 6.6% in the third quarter. Further, we waived approximately $1.9 million in incentive fees as a result of our total return hurdle. Our leverage ratio at quarter end was 0.97 times, up slightly from 0.93 times last quarter, and total debt outstanding was $1.5 billion. Our target leverage range of 0.9 times to 1.25 remains unchanged. Driven by our disciplined pace of capital deployment, we remain at the low end of the range. Unsecured debt represented 64% of total debt at quarter end, down slightly from the prior quarter. We have ample dry powder to fund commitments with liquidity of approximately $695 million, including $80 million of cash and $615 million of undrawn capacity on our credit facility. Unfunded commitments, excluding those related to the joint ventures, were $258.9 million, approximately $246.9 million of which can be drawn immediately as the remaining amount is subject to portfolio companies meeting certain milestones before the funds can be drawn. Turning to our two joint ventures, together, the JVs currently hold $513 million of investment primarily in broadly syndicated loans spread across 73 portfolio companies. During the fourth fiscal quarter, the JVs generated ROEs of 12.4% in aggregate. Leverage at the JVs was 1.7 times, compared to 1.3 times last quarter. In addition, we received a $525,000 dividend from the Kemper JV. With that, I'll turn the call back to the operator to open the call for questions. Operator: Thank you. We will now begin the question and answer session. At this time, I would like to remind everyone in order to ask a question, press 1 on your telephone keypad. And your first question comes from the line of Melissa Wedel with JPMorgan. Melissa Wedel: Good morning. Thanks for taking my questions today. Definitely noted the turnaround in the level of new net funding activity this quarter. I know that typically December is a seasonally busy quarter, but I'm just curious if you have any early insight into sort of expectations around investment activity in the December quarter this year? And any outsized repayments that should be thinking about? Armen Panossian: Thanks, Melissa. It's Armen. In terms of outsized repayments, we don't expect any at this time for the quarter, December. As far as deployment, nothing really stands out either direction, either on the heavy side or the light side relative to past December quarters. You know, we certainly have seen some tightening in the spreads, and so we're judicious about how we're deploying. But I don't see us materially deviating from past quarters in terms of deployment or leverage levels for the quarter. Melissa Wedel: Okay. I appreciate that. One of the other things related to your comment about spreads tightening, I did notice that the yield on new investments this quarter was a step higher, about 60 bps higher, compared to last quarter. I'm assuming that relates to sort of the complexity of the Walgreens deal, the complexity and size of the Walgreens deal. I guess, one, is that right? And then two, what's your view on sort of a pipeline for transactions like that where there might be more complexity and pricing involved? Thanks very much. Christopher McKown: Hey, Melissa. It's Chris. Thanks for the question. I'll start and maybe Armen can add a little bit in terms of pipeline. In terms of the quarter-on-quarter change, I mean, you're right in noting Walgreens. I think the other thing I would just note about June is that on balance, we had a little bit higher originations into your LIBOR indexed loans. So when you're looking at the absolute coupons, you know, June was a little bit lower as a result of that. You know, we do hedge all of that back to US dollars. There is a little bit of a pickup when you take into account that hedging impact, but that does create a little bit of noise, you know, kind of quarter to quarter. Armen, do you have anything? Armen Panossian: Yeah. You know, we do have a very active origination function in non-sponsored direct lending. I think Walgreens stands out as a pretty high spread loan. I don't see anything that we would be originating in the December quarter that's quite that high in spread. But we do have a few things that we're working on that might be sort of higher than the 450 to 500 spread that's typical sponsor lending, but I think it's too early at this point to provide forward guidance. I just don't think that the Walgreens deal is not repeatable, I don't think, in the fourth quarter. Oh, sorry. The fourth calendar quarter. Melissa Wedel: Yep. Understood. Thanks. Our next question comes from the line of Sean Paul Adams with B. Riley Securities. Sean Paul Adams: Hey, guys. Good morning. On the nonaccruals still on the books, it seems like there's still a heavy skew towards healthcare and pharma. Can you just share a little bit more color about what's going on in those particular segments? Armen Panossian: Sure. This is Armen. You know, we have or we had a couple of sort of chunky positions in the life sciences space. It's not many in number, but there were unfortunately some larger positions that continue to be the subject of workouts. FIO2 being the, I would say, the most material of them, which is a name that we've talked about on past calls. But that's really what it is. We continue to sort of work out situations that at this point have been in the portfolio for several years. They're all sort of stable to maybe slightly improving, but still not at the position where we're either going to exit or move them into accrual status, unfortunately. We're not adding. We haven't added other kind of life sciences or healthcare names that have created problems in the recent quarters. But again, these handfuls, a small handful of positions that were put on a few years ago continue to sort of weigh on the nonaccrual bucket. Sean Paul Adams: Got it. And as a quick follow-up, is there any workout strategies going on with those long-standing nonaccruals? Armen Panossian: They were operational workouts. They have already been, from a capital structure perspective, restructured. But operational improvements are being made. We're working closely with management teams to drive that performance. And when possible, we are working with the management to sell assets and either fund cash burn or repay, or make distributions to our position. But there's nothing significant or monumental that would be happening in the near term with respect to those positions. It's just kind of blocking and tackling with an operational turnaround. Sean Paul Adams: Appreciate the color. Thank you. Operator: Again, if you would like to ask a question, press 1 on your telephone keypad. Thank you. I'm not showing any further questions in the queue. I would now like to turn it back to Clark Koury for closing remarks. Clark Koury: Great. Thank you, operator, and thanks to everybody for joining. Please reach out with any questions. We're happy to jump on the phone. Have a great day. Operator: And that concludes our today's conference call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Mizrahi Tefahot Bank Third Quarter 2025 Business Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 18, 2025. With us on the line today are Mr. Adi Shachaf, CFO; and Mr. Menahem Aviv, Chief Accountant. We would like to draw your attention to Slide #1 of the financial statement for the third quarter 2025 presentation, which includes general comments regarding legal responsibility, including that the information contained in the presentation constitutes information from the bank's 2025 quarterly reports and/or immediate reports as well as the periodic quarterly and annual reports and/or immediate reports published by the bank in previous years. Accordingly, the information contained in the presentation is only partial, is not exhausted and does not include the full details regarding the bank and its operations or regarding the risk factors involved in its activity and certainly does not replace the information included in the periodic annual and/or quarterly or immediate reports published by the bank. In order to receive the full picture regarding the bank's 2025 quarterly and annual reports, the aforesaid reports should be pursued fully as published to the public. The bank's results in practice may be significantly different from those included in the forecasting information as a result of a large number of factors, including inter alia, changes in the domestic and global equity markets, macroeconomic changes, geopolitical changes, legislation and regulation changes and other changes that are not under the bank's control, which may lead to the estimations not realizing and/or to changes in the business plan. The forecasting information may change subject to risks and uncertainty due to being based on the management's estimations regarding future events, which include inter alia, global and local economic development forecast, particularly regarding the economic situation in the market, including the effect of macroeconomic and geopolitical conditions, expectations for changes and developments in the currency and equity markets; forecasts related to other various factors affecting exposure to financial risks, forecasts with respect to changes to borrowers' financial strength, public preferences, changes in legislation and provisions of regulators, competitors' behavior, the status of the bank's perception, technology developments and human resources developments. Mr. Shachaf, would you like to begin? Adi Shachaf: Thank you all, and welcome to the Mizrahi Tefahot Q3 2025 Analyst Call. As you all know, the last 2 years were very unusual for Israel. From the first day of the war, the bank has taken a pro-client approach trying to offer immediate relief to its clients beyond the mandatory relief plan of the Bank of Israel, and we're adapting the COVID experience and best practice to the current situation. As for the bank, it is much more boring, as you can see from the report on the results and without any material one-off. I think the most conspicuous item in this report is the very strong credit growth. This growth is across the board along most of the asset classes, including mortgages, corporate and middle market and is part of our strategic plan. Since life is not always linear. Many of the deals we are working on materialized in Q3. So it would be reasonable to assume that the work on [ toward ] closing and growth rate in Q4 would be lower. This growth should help us to create a nice starting point for 2026. We think that our credit metrics reflect a balanced credit portfolio with adequate risk management. You can see provisioning was relatively standard for this period. And then for the other items, please let me use this call to further highlight a couple of points. CPI contribution to financing revenues is traditionally high in Q3, and that was also the case this time. CPI contribution in Q4 is, of course, expected to be lower. The net profit and the return on equity reflects the strong balance sheet and the good efficiency ratio. Our cost-income ratio for the quarter is below 35% and in line with our strategic plan. On the expense side, you can see the continuation of 2024 being a notch down compared to 2023 levels. And as always, salaries are also affected from variable remuneration related to the bank's results. It is also very noticeable that the results have been reached despite the relative extra tax Israeli banks are paying in 2025 and despite the extensive Bank of Israel client relief outline. Our implementation of the outline is targeting more financing, interest paying or saving benefits to clients and less operational benefits, and one can easily estimate the impact of these 2 items on the results. Liquidity is very robust with high share of core deposits and capital ratios are in tandem with the profitability and growth. Demand for mortgages is healthy and we continue to follow our strategy to retain our market share in the market. We think that it is reasonable to assume that today's balance sheet growth will materialize in the coming quarters, and we do expect to see further responsible credit growth in the coming quarters. We will distribute 50% of Q3 profit to dividends. All in all, since we are following our boring yet effective path and accommodating to the new environment. Thank you very much for your attention. And with that, I leave you with the hands of Mr. Menahem Aviv, our Chief Accountant. Menahem Aviv: Thank you, Mr. Shachaf. Let's overview the main figures in the financial statements. The net profit in Q3 2025 reached ILS 1.483 billion. The net profit in the first 9 months of 2025 reached ILS 4.26 billion. The return on equity in Q3 reached 17.6% and in the first month of 2025 reached 17.2%. The equity amounted ILS 34 billion. The cost income ratio reached in Q3 2025, 34.2%. The financing revenues from current operations in Q3 reached ILS 2.822 billion. The total revenues in Q3 reached ILS 3.830 billion. Operating and other expenses totaled to ILS 1.310 billion. The ratio of provisions to loans in Q3 reached 0.04%, and the ratio of Tier 1 reached 10.14% and the total ratio reached 13.03% (sic) [ 13.04% ]. Adi Shachaf: I think we can go now to Q&A. Thank you, Mr. Aviv. Operator: [Operator Instructions] The first question is from Tavy Rosner of Barclays. Tavy Rosner: Just a couple of short questions, if I may. I saw the announcement from Bank of Israel earlier this week, allowing banks to distribute higher capital as long as it meets the capital requirements. What's your take about the announcement? Do you feel that there is room to distribute more? Or are you comfortable with the current level for the time being? Adi Shachaf: Thanks, Tavy. We're comfortable with the current level. As you can see, we use this capital for our growth and credit growth. And we think that, for example, in this quarter, a 50% dividend alongside a return on equity of 17.6% reflects the good mix and balance between these 2. And we think that we would keep on with our strategic plan and grow our credit, and we need this capital. Tavy Rosner: Got it. And then on the business side, on the mortgage aspect, do you feel any change in the competitive dynamics? Any other banks or institutions competing actively on prices? Or how should we think about mortgages in the near term? Adi Shachaf: We're not allowed to refer to prices, but we see a very competitive market on the mortgage arena for many, many quarters. Our strategy is to retain our market share, and we were able to do it despite the heavy competition. Tavy Rosner: Okay. Got that. And then just a housekeeping one. How should we think of expenses growth the next couple of quarters? Is it still like mid-single-digit type of growth? Or are you expecting to kind of lower it at some point? Adi Shachaf: So can you please repeat it, Tavy, I couldn't hear you. Tavy Rosner: Yes. Just about the expenses in general, salaries and so on. Should we expect mid-single-digit growth through the cycle as like a normal run rate? Adi Shachaf: Yes. Operator: There are no further questions at this time. This concludes the Mizrahi Tefahot Bank Ltd. Third Quarter 2025 Business Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Dalton Philips: Good morning, everybody, and thank you for joining Catherine and I for our FY '25 results presentation. It's great to be sharing a very set -- very strong set of results with you this morning. Our core business is in a great place with our commercial and operational excellence programs, combined with our cost efficiency efforts, providing the platform for us to reach a record level of profitability. I'll start with some key messages, then we'll cover our financials and an operating review, and we'll close out on our acquisition of Bakkavor. So let's start with some key headlines on Page 5. Firstly, we're really proud of what we feel is an exceptional year of delivery. Catherine will share more; however, I do want to highlight the strong performance that we've had against every one of our financial medium-term targets. In particular, we achieved a 15% ROIC, which is an increase of 350 basis points on FY '24. Secondly, we continue to deliver for our customers on 2 things that are incredibly important to them, service and innovation. And these are 2 of the key elements that give us a competitive advantage in the market. Thirdly, against a subdued backdrop, we've had strong manufactured volume growth of 2.5%, which is well ahead of the overall grocery market. And we continue to take advantage of a number of structural tailwinds, which we expect to continue through FY '26 and beyond. Fourthly, we're driving this positive momentum into FY '26 as we know there is a lot more opportunity to go after in our core business. Trading has started well, and we anticipate another year of profitable growth ahead. Finally, regarding the acquisition of Bakkavor, things are progressing to plan, both in terms of the external support for the deal with the positive Phase 1 decision from the CMA and our internal progress on planning for integration and synergy delivery. We crossed another key milestone this morning with the agreement to sell our Soup & Sauce business to the Compleat Food Group, a business we have a high amount of respect for and one where our Bristol colleagues will really thrive. This now paves the way for us to complete the Bakkavor transaction in early 2026, in line with our original time line. Turning to the next page, and I wanted to highlight the 5 areas that we see as key to sustaining our enduring competitive advantage in the market. We've really doubled down on these to create what we call a moat around our business, something that is highly valued by customers and extremely difficult to replicate. Firstly, our innovation engine. We launched 534 new products this year in partnership with our customers. That's over 10 products every single week. What makes us unique here is that our innovation teams are increasingly embedded within our customers, and we've built capabilities to support every stage of the innovation journey far beyond just recipe development. Secondly, our technical leadership. We believe we have best-in-class capabilities in the technical and food safety space where you can never compromise on quality. These high standards were recognized in our BRCGS audit performance this year. To give another example, we reduced product withdrawals by 60% year-on-year from an already very low base in FY '24. And this level of reliability is incredibly important to our customers. A third part of that moat is around complexity management. Our business is complex, manufacturing over 1,500 SKUs using more than 2,000 unique ingredients produced in 16 factories up and down the country, operating chilled, ambient and frozen supply chains, delivering it all directly to our customers' doors or through our direct-to-store distribution system. There's a lot of moving parts, and we take great pride in the fact that we do all this without missing a beat with over 99% service levels in FY '25. Fourthly, our infrastructure. This is a really well invested and fully integrated manufacturing network, which we continue to ensure remains world-class, fit for the future of next-gen automation and technology. And the final area in our approach is to efficiency. We really lean in on our cost base at every level of the business, driving a culture focused on delivering the best possible value for our customers. This is in part executed through our Greencore Operational Excellence program, which last year delivered a 4% increase in units per labor hour. Bringing these 5 elements together creates a business that is highly resilient, extremely hard to replicate and provides a strong platform for future growth, hence, why we call it our moat. As I now hand you over to Catherine, I'm confident in saying that our business is in a good place and with plenty more opportunities to go after. Catherine Gubbins: Thanks, Dalton. Good morning, everyone. I just want to echo Dalton's thanks to you all for joining us in person and on the call today. It has been an exceptional year for the group with strong performance across every financial metric. I'm very proud of our performance and the progress that we've made. And starting on Slide 8, I'm going to give you an overview of some of those key financial metrics for 2025. Starting with revenue, you can see that we delivered a strong revenue number of just under GBP 2 billion for the year, representing growth year-on-year of 7.7%, the components of which I will cover in more detail shortly. Adjusted operating profit is a key KPI for us. We said 2 years ago that we would return to pre-pandemic levels of profitability by 2026, and we're delighted to have exceeded that one year early. We delivered GBP 125.7 million, an increase of 28.9% year-on-year. And again, I'll speak to some of the individual elements of that improvement in a moment. On adjusted operating margin, we have grown margin by 110 basis points to 6.5%. This is still short of our medium-term target of being at 7% or above, but it's clearly really strong progress in the right direction. And we will look at some of the key drivers of that growth as we move through the deck. You can also see that we delivered strong cash flow for the year, and our leverage closed the year at 0.4x net debt to EBITDA. Most importantly, though, we're delighted to have delivered a return on invested capital of 15% in 2025, representing a 350 basis point increase versus the prior year. This was primarily driven by an increase in net operating profit after tax and also a slightly lower average invested capital base. Return on invested capital is our North Star metric and is the key lens through which we manage the business. If we move over to Slide 9, we have set out in a little bit more detail the breakdown of our revenue performance for the year. As mentioned, total revenue increased by 7.7%, 2.9% of which was driven by new business wins. Underlying volume and mix growth represented 2.8% and inflation and pricing impacts then drove the remaining 2%. The most significant contributor to the new business win-related growth was the ready meals contract that was onboarded in our Kiveton site in September 2024. There were also several other wins across our other categories in the first half of 2025, and these are being delivered in the network throughout Q3 and Q4. Our underlying volume and mix growth was supported by continuing strong demand for convenience food, continued product innovation and some favorable weather during the summer. We saw good growth in sandwich and sushi in particular, while performance in parts of the salad portfolio and ambient sauces was a bit more challenging. When analyzed by segment, our food to go category revenue increased to GBP 1.3 billion, representing a 7.5% increase on the previous year, while revenue associated with our other convenience category grew to GBP 609 million, an increase of 8.3% on the previous year. Some further detail on the composition of those categories has been included in the appendix. Just moving on then to Slide 10. You can see our adjusted operating margin increased to 6.5%, and I'll take you through some of the main drivers of that improvement. Volume growth and mix drove a positive impact of 0.4 percentage points, driven by some of the factors I've just taken you through. There was a negative inflationary impact of 2.5 percentage points. That represents about GBP 45 million worth of inflation in the year. And to give you a sense of the components of that, about 75% of that was related to labor inflation, with the remainder coming from materials and packaging inflation, which really started to increase from Q3, Q4 onwards. Pricing and inflation recovery drove a 1.7 percentage point impact. This was delivered through our pricing pass-through mechanisms and positive discussions with customers around labor pricing, in particular, during the year. Our ongoing operational excellence initiatives drove a positive impact of 1.1 percentage points, which partially offset inflation, as you can see, but also contributed to the operating profit growth. This encompasses our continued focus on driving efficiency across our manufacturing business, including direct labor optimization and waste reduction. Finally, a focus on managing our overheads and indirect costs drove an incremental saving of 0.4 percentage points. I have been very focused on our overhead cost base since joining, so it's good to see the contribution being driven by this work. In the current year, this was predominantly driven by indirect labor standardization, functional headcount challenges and other overhead savings. Just moving on then to Slide 11 and cash. For this financial year, we recorded a free cash inflow of GBP 120.5 million, a significant improvement on the prior year with a number of factors contributing to this outturn. There was a net working capital inflow of GBP 27.6 million, which was a significant improvement on the prior year. Again, at our Capital Markets Day, I would have referenced the increased focus we are putting on proactive working capital management across all the components. The impact here is driven by a broad focus on stock management, managing our debtors, creditors and other payables to optimize inflows and outflows. Maintenance CapEx for the period was GBP 29.6 million, which was an increase of GBP 3.4 million when compared with 2024. While not included in the definition of free cash flow, we also meaningfully increased our strategic capital expenditure, which I'll speak to you about in a little bit more detail shortly. Cash exceptional charges for the year were GBP 17.4 million and were comprised of spend on the Making Business Easier transformation program and also on the Bakkavor transaction. Just going quickly through some of the other items here. Interest and tax charges, GBP 25.7 million, down GBP 600,000 compared to last year as a result of lower interest cost and borrowing, offset by a slight increase in tax paid. I have previously referenced that our U.K. defined benefit scheme would achieve a fully funded position by the end of September 2025, meaning nearly GBP 10 million of annual pension contributions from the group would no longer be required. We do, however, now anticipate an increase in tax-related cash flows in 2026, which is likely to offset this. Finally, lease payments of GBP 15.5 million were broadly in line with last year and other movements here of GBP 11.2 million related to share-based payments and other noncash-related charges. Our free cash flow conversion was 66.5% for the last 12 months. We are happy to have delivered this in the context of our overall medium-term target of being at 55% and above, and we'll continue to focus on cash conversion going forward. Just moving on then to Slide 12 and touching on our capital allocation framework. I have previously noted that I will update on our capital allocation plans at our half year and full year results announcements. Our priority, as you can see here, continues to be ensuring funds are available to invest in organic growth through maintenance and strategic CapEx, an area, as I said, I'll expand on further in a moment. But just moving on to dividends. Last year, the group reinstated the payment of a dividend for the first time in 5 years and indicated that going forward, it will be a progressive dividend growing in line with earnings. Given the strong financial performance of the group for the year, the Board is recommending the payment of a dividend of 2.6p per share, an increase of 30% year-on-year. We have closed out the financial year with our leverage in a very strong position with net debt to EBITDA at 0.4x. And as I think about points 3 and 4 here, this puts us in a really strong position as we contemplate closing out on the Bakkavor transaction and focusing on deleveraging post completion. As a result of this transaction, we are not proposing any further return of capital to shareholders at this time. At this point, it will be premature to talk about the capital allocation framework for the combined group with any specificity. What I will say is the group's philosophy is to deploy capital to balance long-term growth and shareholder returns. We will do this through investing in driving operating profit growth, generating strong free cash flow and following a disciplined investment and capital allocation approach that ultimately drives returns for shareholders. Moving on then to Slide 13. I wanted to just take you through a little bit more detail on how we think about investment into the core business. As you can see here, our adjusted operating profit growth feeds strong cash flow generation, which we then prioritize for investment into the core business. This ultimately then enables delivery of above-target returns. Year-on-year, we have increased that capital investment by 34% with strategic investments increasing from GBP 6.2 million to GBP 13.8 million. And I just wanted to call out some of the areas that we have invested in. We've invested GBP 4 million to automate certain manual tasks. In this financial year, this included projects like packaging automation, automated sushi rolling and some vegetable slicing. We invested GBP 5 million capacity and capability expansion across the network with many of these projects now operational and some carrying into full year '26. We also invested GBP 4 million in sustainability investment to help drive our sustainability objectives while also driving benefit to the P&L. As we've indicated in the guidance in the appendix, we'd expect to step this investment up again in 2026, and we are guiding on investing GBP 50 million in that financial year. Alongside this spend, we're continuing to invest in our making business easier program, investing GBP 12 million over the past year through exceptional items and increasing this investment into 2026. Dalton is going to speak about progress in this area shortly. Just to finish off, you will remember that we set out our 5 medium-term financial targets at our Capital Markets Day. I'm really pleased that we have made strong progress against all of these targets in 2025. We have effectively met our returns on invested capital target, and we've continued to drive the business to further deliver on this metric. On revenue, we obviously outperformed versus this metric in the financial year with a key driver of that being a significant new business win. On margin, again, we made excellent progress versus our target of being at 7% or above, and we are confident that we have a pathway to get to that target. On cash conversion for the full year, we outperformed our target for the reasons I've highlighted, and our leverage is clearly below the indicated range, but this is a welcome positive as we look to complete on the back of our transaction. So in summary, we have had a very strong year. I will refer you to some further guidance we've set out in the appendix. I just want to thank you all for your attention this morning. And now I will hand you back to Dalton. Thank you. Dalton Philips: Thanks, Catherine. And let me now turn to the strategic and operating review. And on Page 16, you can see our strategic framework, which we launched at our CMD earlier this year. And there are 2 key pillars here: strengthen the core and grow and expand, underpinned by 5 enablers, which make up our Greencore way of winning. And following some years of stabilization and rebuilding, last year was about progressing both pillars in parallel, realizing opportunities within our core business while simultaneously building the platform for future growth. And you can see on Page 17 that a key element of our strong core is our performance versus the wider market. It's been a tough year in the U.K. grocery market with subdued volume growing at 0.7% against a backdrop of persistent high inflation and muted consumer confidence; however, our core categories where we typically hold the #1 or #2 position continue to perform well. For example, the market -- the sandwich market grew at 4% year-on-year. For example, us, we grew at 4% year-on-year. In absolute terms, we outperformed the market by 180 basis points, achieving 2.5% manufactured volume growth. And despite that difficult backdrop, there are some key tailwinds to support continued growth. Firstly, consumers' desire for convenience continues to rise with the large multiples opening 175 new convenience stores this year, and the number of convenience stores is forecast to rise by 2% next year. Secondly, premiumization remains an important growth driver in our key categories. For example, own label premium sandwiches grew 23% year-on-year. Finally, we're seeing a sustained trend of growth in eating in, which was up 1% versus last year against eating out, which was down 3%. As eating out becomes increasingly expensive and dine-in options improve in quality and variety, more and more consumers are seeing better value by staying at home. This is particularly important for us as we look to our combination with Bakkavor who have real depth in the food for later market. Turning to Page 18 and another key factor of our performance has been in our portfolio management. We're committed to driving returns in every part of our business with the goal that each category will, in time, cover its cost of capital. And we can point to some really good progress here. You know about our 15% ROIC figure, but I thought it worth sharing the building blocks which sit underneath it. Our focus in portfolio management zeroed in initially on our larger categories, so sandwiches, ready meals, ambient sauces and salads, which make up 85% of our revenue. We've made really good progress here, increasing ROIC across these categories by 400 basis points, therefore, keeping returns well above WACC. A good example is in our sandwich business, where we drove returns in 3 areas: Firstly, new business wins in the retail and coffee channels; secondly, margin accretive new product launches; and thirdly, operational excellence initiatives. And we've also driven ROIC in our smaller categories by circa 100 basis points, whilst this is in the right direction, we still have more to do so that every category covers its cost of capital. A good example here would be our sushi business with improvements again driven by, firstly, new business wins; secondly, diversifying our offering into poke bowls; and thirdly, execution of our automation road map. Moving to Page 19, and let me share the key enablers of our strategic framework, starting with great food. We launched 534 new products in partnership with our customers last year. That's over 100 more than in FY '24. This includes NPD, so entirely new-to-market concepts as well as what we call EPD, so existing product development to improve quality and taste profiles. We're now able to deliver this scale of innovation at speed faster than ever before, reacting quickly to trends and working with our customers to get new products on shelf fast. You can see a great example of exactly that on the top left of this page. Last week at the CMD, M&S talked about their partnership with us and the work we did together on the strawberry sando, which went viral, quickly becoming M&S' top-selling sandwich and selling over 1.2 million units within weeks of launching. This is a great example of the incremental impact that innovation can have. The other products that we've highlighted here on this page, Greggs, Mac & Cheese, Sainsbury's, Taste the Difference, Chicken and Nduja Wrap and Cox, marry Me Chicken Sandwich are other examples of the many products that had hugely positive consumer feedback. And on the right, you can see some of the benefits that innovation delivers, driving incremental growth, margin accretion through premiumization and improved quality. Moving to Page 20, and we wouldn't be able to deliver any of this without our strong partnerships with customers and suppliers. And here, you can see a few examples of the value that we've delivered through these partnerships. For example, we supported the launch of a first-to-market food on the move store with co-op. We created a bespoke offering of hot and cold products, testing out new concepts such as serve over counters, super premium ranges and time of day offers. We've also -- we're also servicing these stores via our direct-to-store distribution arm. This is a great opportunity to trial new concepts, which can then be rolled out into their main estate. Secondly, we used our category management and insights capabilities to support a customer with a full store transformation, advising them on space, product locations, flow and range. 30 weeks after the reset, volume in the store was up 22% with the number of shoppers up 18%. Thirdly, through an Innovation Day with one of our customers, we identified an opportunity to expand their premium sauce range into a new cuisine. The products went live 4 months later, growing the tier by 163% for that customer and allowing them to grow 1 percentage point of share in that sauce cuisine. Fourthly, an incredibly important part of our partnership model is the relationship that we have with our suppliers. We often speak about our customers wanting to do more with fewer strategic partnerships. Well, the same is true for us with our supplier community. We've reduced our total supplier base by 15% since FY '22 and strengthened our relationships with our key suppliers. This is an important driver in helping us manage complexity whilst in parallel ensuring that we have the best quality products in the supply chain with the right cost structure. There are -- these are just 4 of the hundreds of examples where every day, our teams are going above and beyond to build truly lasting partnerships. Moving on to delivery excellence on Page 21, and our Greencore operational excellence model continues to deliver strongly. We've spoken before about units per labor hour as a measure of productivity in our sites. And this has continued to build, up 4% from FY '24 and up a material 10% since FY '23. This progress has been underpinned by the delivery of over 700 -- or 701 individual operational excellence projects in the year with an average value delivered per project increasing by 37%. An example would be a line balancing exercise we ran in 7 of our sites, reducing bottlenecks and increasing units per labor hour by 10% in those sites. This project delivered GBP 750,000 of in-year savings. And we still have more to go after in the core business. So we've set up 2 new centers of excellence to target the next set of opportunities. Firstly, on next-gen automation, we've continued to progress select concepts. You can see in the photo an automated packing line, which we installed in our Spalding salad site, and we're now kicking off the first of a 5-year automation road map with 12 prioritized concepts in order to deliver at least 10% direct labor savings over time, a number you might remember we shared with you at the CMD. Our current focus is on recruiting the team with a head of automation now in place in order to move at pace to deliver the first prioritized concepts. Secondly, on group logistics, we've kicked off a project to optimize and standardize the way we do internal logistics across our sites. This includes inbound, outbound and warehousing costs. Like many areas of our operational excellence agenda, we can drive real benefits here from moving to one standardized way of doing things across the group. On Page 22, a key part of delivery excellence is our Making Business Easier technology transformation, a multiyear program driving consistency and simplicity into the business. The program is now in its second year and is making good progress. We've included some examples on this page of the kind of initiatives that we are driving across 2 dimensions: the quick wins, which are delivering early value and the multiyear transformational projects. To highlight a couple. Firstly, a quick win for us this year was the rollout of an automated invoice processing across all sites. This has reduced time to process, improved payment controls and reduced errors. In FY '26, we expect to process over 100,000 invoices automatically, which at that scale has significant benefits. We've also made good progress on our larger multiyear initiatives. You can see some examples of the types we're working on, on this page. None of them are rocket science. It's more about standardizing and modernizing some of our basic business processes after years of underinvestment. An example of this would be supply chain planning, where we've now selected a tech platform for a solution to streamline demand forecasting and production planning and scheduling and are rapidly moving into the delivery phase. Whilst we're still early on our journey, we're making good headway. Total program costs are still estimated to be up to GBP 80 million over 5 years, whilst investment in FY '26 will be circa GBP 20 million to GBP 25 million, which is reflective of the upfront phasing of the program spend. Moving to sustainable choices on Page 23, and we're pleased to hit our Scope 1 and Scope 2 carbon emissions and food waste reduction targets in FY '25, which is a particularly strong result in a year when we increased manufacture volumes by 2.5%. And looking further out, we've also begun development of our 2040 net zero transitional plans for 4 pilot lighthouse sites, which will form the basis for future group level climate transition plans. And whilst we've got good results in some sustainability areas, we did not meet our in-year target on water reduction. This is because of a couple of particularly high water using sites as the other sites have substantially decreased our water usage in year. However, we know there is more work to be done, and this remains a key focus for us. In the people space, one achievement I wanted to highlight is the reduction in our attrition rate down by 600 basis points from 24% to 19%. We need to keep great people and have them grow their careers with us. So this is a really strong result. We also made progress on our employee engagement score, hitting 84% in our last survey. And we were also proud to donate nearly 1 million meals with our charity partners during the year. Let's now switch gears on Page 24 to the second part of our strategic framework, grow and expand. And let me briefly set out why we're so excited by the combination with Bakkavor. From a strategic perspective, the deal will create a U.K. convenience food champion with strong relevance, reach and resilience. It will also unlock at least GBP 80 million in cost synergies and creates significant optionality on capital allocation. From a financial perspective, the deal will create material value for shareholders with an attractive returns and earnings profile, which you can see on the right-hand side of this page. Since May, we've made really good progress on the planning for integration and synergy delivery with a cross-functional team and a central integration management office now up and running with colleagues from both businesses. On Page 25, you can see an updated time line for the deal. Let me orientate you on where we are today and what comes next. We announced the recommended acquisition back in May, receiving strong support from both sets of shareholders at our respective AGMs. Following this, the CMA began a Phase I investigation into the deal, which they concluded at the end of last month. And we were really happy that they raised no competition concerns with regards to 99% of the revenues of the combined group, and this is in line with the strategic rationale of bringing together 2 complementary but not overlapping businesses. Competition concerns were identified in only one area, supply of own label chilled sauces, less than 1% revenue of the combined group. These sources are manufactured exclusively in our Bristol site. And over the past weeks, we have been working with [indiscernible] to come to a quick resolution, and we were delighted to announce this morning that we have a binding agreement to sell our Bristol site to the Compleat Food Group, and that's just 3 weeks after the CMA announced their Phase I decision. In terms of next steps from here, we've already secured agreement in principle for our proposed remedy from the CMA. So the final step is to secure formal CMA approval, which is expected to come before the end of the year. As such, we remain on track to close the deal in early 2026. On a personal note, whilst, of course, we're very sad that we have to sell our chilled sauces business, I know that the Compleat Food Group will be a great home for the Bristol team. And looking ahead, we're really excited to be welcoming back our colleagues to the combined group and for what we can deliver together for our customers, for our consumers, for our colleagues and of course, for shareholders. I'll wrap now with some closing thoughts on Page 26. And firstly, we're thrilled by the group's exceptional delivery and our progress against our medium-term financial targets. Secondly, we remain encouraged by the potential in our core business. We know there are so many more opportunities to go after that will drive returns. Thirdly, trading has started well, and we look forward to another year of profitable growth. And finally, we remain excited about the potential from our acquisition of Bakkavor and are delighted that the pathway is now cleared to completion in early 2026, which will allow us to get going on synergy delivery. So thank you again, as Catherine said, for coming here this morning. We really appreciate it. And now we'd both be delighted to take any questions or clarifications you might have. Mike, are you going to do the honours? We will start up front here. Patrick? Patrick Higgins: Patrick Higgins from Goodbody. Two questions, if that's okay. Maybe the first one for you, Dalton. Just in terms of, I guess, the wider kind of consumer backdrop, your slide on Page 17 outlines several key drivers around the food to go or your convenience business that should underpin that category's continued outperformance, whether it's convenience or premiumization. I guess my question is just more around the general U.K. consumer backdrop. Are you seeing any shifts in kind of consumer behavior or any kind of green shoots in terms of an improving or improving underlying or kind of broader consumer demand? Then my second question is possibly for you, Catherine, just around the cost outlook. What kind of inflation are you guys budgeting for the year ahead? And maybe just talk us through the various buckets with labor, raw materials. And then against that, how should we think about the various levers you guys have at your disposal to kind of offset and continue your kind of margin delivery, whether it's in terms of price pass-through or your kind of ongoing cost savings initiatives? Dalton Philips: Okay. Thanks, Patrick. Look, I'll take that first one then. Look, there's definitely a sense of uncertainty out there. Consumer confidence is still pretty negative. You saw the latest GFK -- it hasn't really improved at all. In fact, it's not in a great place. Having said that, if you think about our business, look, volumes have remained really strong. Q3, Q4 were terrific for us and growing very strongly ahead of the market. So look, we enter into this financial year with a real level of confidence. I thought Simon Roberts did a super job last week talking about a trend that we've seen for a number of years, but this is in the same basket, people trading up and down in the same basket. And I think that bodes well for the portfolio and the categories that we operate in. If you think about our categories, we're own brand. So that by default has huge value credentials. We typically tier our ranges, even think about the meal deal, there's 3 tiers now. There's even an ultra-premium meal deal, and they're offering fantastic value. And I think, look, there's a strong underpinning of tailwinds out there, the move on premiumization, very important for us, the move on convenience stores, very supportive to our underlying business. And then this what I highlighted in there, this dine-in versus dine out and the value that's been offered there. So I think those 3 sort of structural tailwinds and then obviously, you've got the population growth underpin gives us a level of confidence as we go into what is a fragile market. I mean we can't get away from that. So I think we're confident that despite the consumer backdrop, those tailwinds, Patrick will continue to drive the business forward. Catherine Gubbins: Thanks, Patrick. Yes, look, when we think about inflation, I know I referenced it when I was speaking earlier, for 2025, the inflation we experienced is about 2% to 3%, and that was broadly throughout the year caused by labor inflation, as you know, by about 6% in the year. And obviously, we had the national insurance increase on top of that. Q3, Q4, we saw significant price increases in the protein space. So that obviously fed through quite significantly. When we were thinking about 2026 then, I think we were anticipating inflation of about 3% to 4%, to be honest. And again, seeing that protein inflation continuing into this financial year. There's a little bit of uncertainty as to how long that will continue. Obviously, we have expectations around labor inflation, but we await, I suppose, any announcements in next week's budget to see where that lands. But I suppose 3% to 4%, but I suppose a little bit of uncertainty as to how that would play out. Obviously, it's still pretty early in the financial year. And I suppose I would just reiterate, as we called out in the presentation, we've been pretty good at offsetting that inflation, whether it's through engaging with our customers are deploying our cost initiatives. And I know that was your other question. When we think about managing our margin, we think about it in 3 areas. And I think we've spoken at length about those areas today, I suppose is how we engage with customers. Dalton spoke about that at length, our innovation, premiumization, delivering for customers and really using that to drive volume and accrete margin. Then obviously, there's how we approach the manufacturing network. Again, we give you a fair bit of detail around how our operational excellence initiatives have kind of evolved. So we're really now starting to look at next-gen automation to really tackle that kind of manual element of our business that still is ripe for automation. So I suppose that's kind of where we see ourselves pivoting in that space. And look, I referenced the focus we have really deployed last year and will do into the future around pretty significant cost base under gross profit and above operating profit. There is lot of indirect labor there and other overheads to just be kind of laser-focused on. Again, they're the kind of key areas that we see ourselves kind of continuing to leverage to drive margin going forward. Dalton Philips: Just keep moving down the... Gary Martin: Gary Martin here from Davy. Just a couple of questions from me. Just a follow-on to Patrick's question there just around the cost side of things. Just around conversations with retailers at the minute, I mean, how challenging is that after a year of reasonably high inflation, particularly with NIC charges, national living wage? Is it becoming trickier from your side? Or are there levers to pull from your perspective? And then maybe just a second question just around -- or even just a follow-on to my first question actually, just around the level of, we'll say, low-hanging fruit that are left from a self-help perspective. Is there still a lot that you can do from that side to offset any additional costs and then just a further question just around cash conversion this year, very strong, well above the 55% set the CMD. I'm just wondering how sticky that is. I know that there were some puts and takes with regards to pension coming down and cash tax coming up and all the rest of it, but it would be good to get a long-term view on that. Dalton Philips: Yes. Thanks, Gary. Look, maybe I'll start on the first 2, Catherine, and then you can sweep over anything I missed and pick up the cash conversion. Look, the retailers have been fighting hard for their consumers to ensure that they're as competitive as possible, and it's a challenging market out there. I don't think the level of conversations have changed. We're very transparent. I mean, typically, about 75% of our volume goes through some sort of transparent model. So that's really helped the conversations because it's very transparent to -- as the proteins move up or down, they're getting it in that month or the next month depending on the contract. So the conversations, I think, are at a similar level to before. The real focus is on innovation. It's not really on cost because you've got the transparency there. That's sort of table stakes. It's all around innovation. And there's a huge push on it. Everybody is trying to just get an edge. And I think we've been very successful with these Chinese walls that we put through our business that allows dedicated teams for specific customers to develop those ranges that I put out. I mean, actually, there's a mince pie wrap that went out yesterday for one of our large customers. We're always trying to do something slightly different. And I think if the innovation is there, Gary, the conversations are much more positive. Typically, where I would have more tense conversations is where there'll be a challenge, well, somebody else launched that, why haven't I got that? That's where the conversations are. It's not really in cost. That's not to minimize it. It's just to say that if you're not there on cost, you don't have a business. And that leads, I think, into your second point around is the much more low-hanging fruit. We think you've got to continually be driving this. And leaving to aside the Bakkavor opportunities that will come from that, there is still opportunities in OE. So capacity management, line balancing, overhead balancing, like there's a lot of work we've done there. We were doing something the other day in terms of indirect procurement. You would be shocked in the variety of pricing around Wellington boots. It would blow your mind, there are Wellington boots that have been purchased that are extremely expensive in our network. Now it's not people doing anything wrong, but they're needing to react to a situation. And you go -- when you standardize all of that, and I think when you're talking about Wellington Boots, you're kind of going, yes, there's still a lot of opportunity out there. It's a well-run business, but we are going to keep going after it. And then maybe we'll talk later about next-gen automation, like there is just such an opportunity there. Like if you think about the dexterity of the hand, what it can do today in assembly, you think about next-gen automation that we think is probably 24 to 36 months away where you're able to mimic the dexterity of the hand and be able to pick up because you can pick up anything with a robot, but to pick up a tomato, a slice tomato without bruising it or a piece of avocado is a whole different kettle of fish. And that sort of dexterity is coming through. You think of that next-gen automation into our food to go operation real opportunity. But Catherine, do you want to pick up on that... Catherine Gubbins: And look, just to pick up on that point as well. I think we're really starting to see this year the benefit of that operational excellence mindset across our manufacturing business. It's a real muscle that's just strengthened over the last period and it's kind of just an ongoing assessment of the manufacturing business just to see where the opportunities lie. So yes, look, just around cash conversion, absolutely, we had a strong performance this year. As I said, it was just really from proactive management across the cash portfolio, I suppose specifically focusing on working capital, obviously, impacted by improved revenues. and increased costs as well give us a little bit more opportunity around the year-end. Absolutely, you've called out the point around the pension contribution. And I suppose our improved profitability over the last few years means we've been consuming some of those tax losses, and we're now in a position where we potentially are looking at higher cash tax this year. But I suppose broadly speaking, we're still confident with the range we indicated at the Capital Markets Day that we will be ahead of that on a go-forward basis. Charles Hall: Charles Hall from Peel Hunt. First of all, well done, terrific year. Could I just ask about the other convenience sector that you had volume -- underlying volumes were down slightly. Can you just talk about the moving parts of the different businesses within that, how you compare against the market and what you see as the outlook for that segment of the business? Dalton Philips: Yes. Look, I think there are some areas where we've just had some deliberate business losses that we've seeded. I mean I can talk about salads, for example, there's been a number of contracts there that we've just said, not for us. In fact, they were more on the commodity side of prep veg that we just didn't want to go into and we wanted to move up the value chain. But overall, I think if you think about other convenience like that ready meals has been absolutely like a train. We're trying to, Charles, continue with this focus that we was very successful for us 3 years ago, which was resigning volume that wasn't profitable, and it worked very well. You'll remember, we gave up 10% of our volume. You've got to be careful that you don't slip into that, business is good, so we'll take this on the side. So we've tried to keep our shape there. And -- but in general, our share, I mean, I think I would say salads would be -- that would be the one area where it just didn't really quite work to the level we had hoped. The rest, I think we're confident from a share point of view. I don't know if you add on that... Charles Hall: And are you now through that business resignation process? Or is there still more to do? Dalton Philips: No, we're absolutely through it. But these contracts are often on 3- to 5-year cycles. So actually, we're now coming up to many of those contracts that 3 years ago, we were -- we took a strong stance those are starting to be recycled into the market. And we're just trying to be firm on this and not get ahead of ourselves. So there's nothing more now. You've seen the portfolio, the ROIC that we've been making huge progress and even sushi, which I know we talked about a couple of years ago, like it's absolutely flying at the moment. I mean there's more to do, obviously. So I think we're in a pretty good place on our portfolio. Charles Hall: And anything to say on new business wins? Dalton Philips: Had some good wins over the summer, which will carry through. It's about 100 basis points of volume that will annualize into this year. So I think that's a good underpin and you put that on top of what's going on with those structural tailwinds of premiumization, convenience stores, you wouldn't want to get ahead of yourself, but we're feeling confident. And I think as we look to Bakkavor, when we think about that ability to manage those portfolios, there'll be learnings that we can bring to them, and I'm sure they'll have learnings for us as well. Andrew Wade: Andy Wade from Jefferies. First one, just sort of looking at your 7% operating margin target. So on the one hand, we've got that where you're at 6.5% this year. But just sort of looking through how you're talking about the opportunity still. There's still fundamental stuff like line balancing and overhead balancing and procurement and so on. But then you've got the big projects to come as well, the automation, logistics, the tech side of things, which is going to be another 5 years. I'm just sort of trying to square up where we're nearly at 7% already and you've got so much in the pipeline. Am I overestimating how much is still to go? Or is that 7% looking very conservative? That's my first question. Dalton Philips: Look, I'm sure Catherine will have some views on -- Well, actually, do you want to go on that? Catherine Gubbins: Look, we have plenty, plenty to go after, plenty levers to pull, right? They're not all going to magically appear next year. We're obviously planning to deliver these initiatives over the next number of years, right? I think what we would say is 7% over the medium term, 7% or above is a target that we're happy. We are happy to stand behind at this point in time. Obviously, that's Greencore on a stand-alone basis. We're really looking forward to combining with Bakkavor and then seeing what that looks like. And obviously, we'll be back out to talk to you about how we feel from a margin perspective in the context of the enlarged group. But I think, Andy, the point you made is valid. We have -- I suppose we have plenty of things that we're going to go after to drive the margin. But as I said, it's just -- we need to knock it down, deliver them and wait for them to show up in the P&L. So I think we're happy with the 7% and above. Andrew Wade: Okay. Second one, sort of touching back on question Charles asked on the contract side of things. Can you just remind us, you had the big ready meal win in September '24, which is annualized through now. You had some wins in the first half, a bit of salad loss in the second half and a couple more that you've just recently won. Is that broadly the shape of it? Or is there any big ones I'm missing there? Dalton Philips: No, that's broadly the shape of it. Some -- a number of sandwich contracts that have come our way that were either expansion or new customers, but... Andrew Wade: That's the sort of 100 basis point-ish number you were talking about with Charles' question. Great. And then a little bit churlish given how good the results are, but the making business easier, we're talking about GBP 80 million over 5 years. Are we going to be taking all of that as exceptional? And I guess if it's going to be going on for quite a long time, why do we think that -- I mean, obviously, you run it by the accountants and stuff, but how does that qualify as exceptional given it over quite a long period? Catherine Gubbins: Yes. Look, I mean, it's a transformational spend. We've obviously given that a lot of consideration. We're into year 3 of that program now, and we're happy that it qualifies as an exceptional spend. Clive Black: Yes, Clive Black from Shore Capital. Three relatively general ones. Firstly, what's the plant utilization then in September '25, what spare capacity you've got? Secondly, maybe say a word on your coffee shop opportunity because that's been a mixed blessing for Greencore in the past. And then lastly, what sort of -- how would you classify your relationships with the movers and shakers in process engineering? Dalton Philips: In process engineering. Clive Black: Manufacturing engineering. Dalton Philips: So I'll rattle through that and Catherine, please, come in if you want. So plant utilization, we're about 85% at the moment. So we've got that 15%. We had it before. We sold some of that capacity, which is part of the 2.5% volume growth, and we've been squeezing more out. And I think the challenge into the ops team is I will always be at around 15%. Now at some point, the guys will say, you need to put down more bricks and mortar. But I think our challenge back in is we shouldn't need to put more bricks and mortar down. I'm talking as a stand-alone site, forget the Bakkavor opportunity because obviously, one is to get to 3 shifts. Okay? And at the moment, for example, wrap rolling, we haven't got any technology that can go faster than a human. So we wrap roll ourselves. But we don't think we're far away, I mean, far sort of 18 months away from being able to speed the wrap lineup and bang, you pick up more capacity. So what we say to the team is, let's keep it at 15 and keep eking it out. In terms of the coffee channel, good question given ISG. But I think like if you take something like Costa or Nero, I mean, Nero is a fantastic business as is Costa, very professionally run. In the Nero case, they give us the keys. We deliver at night. We deliver through our DTS operation. We deliver other products for them as well. In some cases, we're quasi-merchandising the shop for them. So I think it's a good channel. It's professionally run. And I think if we're disciplined in holding our shape, I see the opportunity there. And then the third in terms of process manufacturing, this is a really good question. So we've been typically dealing with the Militex of this world, so European, and we want to go out to China. In fact, the plan is to go out in Q1 to go out to China to start speaking to other OEMs, think with the Bakkavor behind us and we can say, look, we've got 40 plants here. I think we believe there could be a different conversation. But we're trying to pull kind of current leading-edge technology from the Militex, but we want to see as something next gen from other sectors Clive because we're not the only other people out there who are dealing with the hand dexterity issue, and we believe there must be technology out there. And like I can't tell you how many thousands of people we have on our lines that -- and we've talked about 10% of that could be a medium-term target and some might say that's not ambitious enough in terms of taking labor out. Catherine Gubbins: Nothing further for me, to be honest. Operator: [Operator Instructions] The next question comes from Karel Zoete from Kepler. Karel Zoete: I have 2 clarification questions. The first one is in relation to the transition costs in 2026 plus the integration cost. What would be a reasonable expectation for both aspects combined in '26? And the other thing is on operating margins. Did I understand correctly you expect them to expand into 2026? Catherine Gubbins: Yes. So look, I suppose if you think about cost of the transaction into next year, we have an estimate of our costs being about GBP 40 million. for the transaction. And obviously, we recognized GBP 11 million in exceptionals in full year '25 in respect of the transaction. I suppose moving on to margin, absolutely, Karel, I suppose our expectation, our plan, our aspiration is that we will improve the operating margin in 2026. I'm not sure if you want me to build on it anymore. I think we've spoken a bit today around how we're planning to approach that, obviously, within the confines of that overall operating margin target of 7% and above that we've set out over the medium term, I suppose we are on the journey to delivering that, yes. Dalton Philips: Okay. Well, we'll wrap it there. We really appreciate you coming in today, and thank you for your questions and support.
Operator: Good morning, and welcome to the Gladstone Capital Corporation Fourth Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Gladstone, Chairman of Gladstone Capital Corporation. Please go ahead, sir. David Gladstone: Thank you, Melissa. This is David Gladstone, Chairman, and this is our earnings conference call for Gladstone Capital Corporation for the quarter and fiscal year ending September 30, 2025. Thank you all for calling in. We are always happy to talk to you, our shareholders and analysts, and we welcome the opportunity to provide updates on our company. And now we will hear from Catherine Gerkis. She is Director of Investor Relations and ESG, to provide a brief disclosure regarding certain regulatory matters. Melissa? Operator: Good morning. Today's call includes forward-looking statements, which are based on estimates, assumptions, and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstonecapital.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Ks and earnings press release for more detailed information. You can also sign up for our email notification service and find information on how to contact our Investor Relations department. Now, I will turn the call over to Gladstone Capital's President, Bob Marcotte. Bob Marcotte: Good morning and thank you all for dialing in. I'll cover the highlights for the quarter and the fiscal year-end and conclude with some comments on our near-term outlook for the company. Beginning with our last quarter results, fundings last quarter totaled $126.6 million and included five new private equity-sponsored investments in a variety of industry sectors, much of which we previewed in our last call. Exits and prepayments declined relative to the past couple of quarters to $23.5 million, so net originations were a healthy $103.1 million. Interest income for the period rose 14% to $23.8 million with a 16.2% increase in average earning assets and a 30 basis point decline in the weighted average portfolio yield to 12.5% for the quarter. Interest and financing costs increased $1.4 million on higher average bank borrowings, and net management fees increased $0.5 million as incentive fee credits declined. So net investment income for the period came in at $11.4 million. Net realized losses were $6.3 million for the quarter, which relates to the exit of FES Resources, a legacy oil and gas services investment. However, on balance, the portfolio appreciation offset the depreciation for the quarter, and for the TTM period, our ROE came in at 11.9%. With respect to the portfolio, the portfolio turnover for the period did not have a material impact on our investment mix as the new originations were predominantly first lien debt, which rose to 72% of the fair value of the portfolio, and total debt holdings came in at 90% of the portfolio at fair value. As of the end of the quarter, we had three non-earning debt investments with a cost basis of $28.8 million or $13 million at fair value, which is 1.7% of our debt investments. In addition, PIK income increased for the quarter to $2 million or 8.4% of interest income as much of the increase was generated by two recent investments which included supplemental PIK above the underlying 10% cash interest yield on those assets. Since the end of the quarter, originations have largely paced with repayments, and we continue to work through a healthy pipeline of deals going into our traditionally strong fourth quarter. In reflecting on our recently concluded fiscal 2025 and the outlook for the next quarter or two, I'd like to leave you with the following. Fiscal 2025 was a huge challenge for us. As we overcame the spike in repayments and liquidity events, which totaled $352 million, we were able to source and close 15 new investments representing $397 million of originations, which contributed to the $63 million increase in fair value of our investment portfolio for the year. The combination of the depth of the deal origination opportunities in the lower middle market, the experience of our origination team, and the utility of our BDC private credit model to deliver attractive financing solutions to the private equity market all contributed to these record results. In addition to recycling the wave of investment exits, we significantly expanded our private equity sponsor relationships, and as the lead lender in most of our deals, we are well-positioned to increase our investments as these new PE platforms look to drive growth in equity appreciation through acquisition or expansion. At present, we are continuing to see a healthy flow of attractive investment opportunities and remain cautiously optimistic that the lower middle market will remain relatively insulated from spread erosion, leverage escalation, and financing terms erosion experienced in the larger middle market. As we ended the quarter with a conservative leverage position with net debt at a modest 2.5% of NAV, having refunded our 2026 debt maturity shortly after the end of the quarter with the $149 million convertible issue. As part of the debt recapitalization, we also called our $57 million 7.5% 2028 notes and increased our floating rate bank borrowings to capitalize on the projected decline in short-term rates, which will also serve to reduce our unused facility costs going forward. Pro forma for these refinancing activities, our line of credit borrowings availability is approximately $130 million, more than enough to support our near-term investment activities. Now I'd like to turn the call over to Nicole Schaltenbrand, Gladstone Capital's CFO, to provide some details on the Fund's financial results for the quarter and year-end. Nicole Schaltenbrand: Thanks, Bob. Good morning. During September, total interest income rose $2.9 million or 14% to $23.8 million as the average earning assets rose $104.8 million or 16.2% while the weighted average yield on our interest-bearing portfolio declined 30 basis points to 12.5% for the period. Total investment income was $23.9 million on the higher interest-earning assets as fee income declined $600,000 from last quarter. Total expenses rose $2.1 million or 20.5% versus the prior quarter as interest expenses rose $1.4 million with increased bank borrowings and net management fees rose on the reduction of incentive fee credit. Net investment income for the quarter rose to $11.4 million or $0.52 per share. The net increase in net assets resulting from operations was $14 million or $0.63 per share for the quarter ended September 30, as impacted by the realized and unrealized valuation depreciation covered by Bob earlier. Moving over to the balance sheet. As of September 30, total assets rose to $908 million consisting of $859 million in investments at fair value, and $49 million in cash and other assets. Liabilities rose $100 million quarter over quarter to $406 million as of September 30 with the completion of the $149.5 million 5.5% convertible note issue in September, which was used to pay down our LOC borrowings and increased temporary cash investments which were subsequently used to call and repay our $150 million of 5.2 notes due January 2026 and our $57 million of 7.75 notes due in 2028. The remaining balance of our liabilities consists primarily of $50 million 3.75 notes due May 2027 and $19.4 million of preferred stock. As of September 30, net assets rose $7.6 million to $482 million from the prior quarter end with the sale of approximately 263,000 shares under our ATM program, netting approximately $7 million for the quarter. NAV per share rose from $21.25 to $21.34 as of September 30. Our gross leverage as of September 30 rose to 84.3% of net assets. After the end of the quarter, we have funded the $272.7 million note retirements with cash on hand and approximately $157 million of closing rate bank borrowings to better match our floating rate assets. With respect to distributions, monthly distributions for November and December will be $0.15 per common share, which is an annual run rate of $1.8 per share. The Board will meet in January to determine the monthly distribution to common stockholders for the following quarter. At the current distribution run rate for our common stock and with the common stock price at about $18.77 per share yesterday, the distribution run rate is now producing a yield of about 9.6%. And now I'll turn it back to David to conclude. David Gladstone: Well, thank you, Bob, Nicole, Catherine, you all did a great job in updating our stockholders and the analysts who follow us. And the recent performance is really strong. In summary, the team maintained their underwriting leverage and also the investment totals of $396 million for the year, almost $400 million. So the company has a very strong balance sheet today. We've refinanced any debt that's coming due in the future, and so we're in good shape today. We've maintained ample bank lines of credit and capacity to support the healthy pipeline of new deals that we have to continue to support the asset growth and shareholders' dividends. And for anyone keeping score, the Glad team delivered a stellar 16.75% return on equity for the last five years. That puts them right near the top and certainly ahead of the top peer group in developing returns for their shareholders. In summary, Gladstone continues to stick with the strategy of investing in growth-oriented lower middle market businesses with good management. Many of these investments are in support of mid-sized private equity funds that are looking for experienced partners to support the acquisition and growth companies they invest in. This gives us an opportunity to make attractive interest by paying loans and small equity investments and pay strong distributions to our stockholders. Now operator, would you please come on and tell people how they can call in and ask questions? Operator: Thank you. Our first question comes from the line of Eric Zwick with Lucid Capital Markets. Please proceed with your question. Eric Zwick: Thank you. Good morning, everyone. Good morning. Wanted to start with a question on the pipeline. You obviously had a very nice quarter of originations in the most recently reported quarter. And I know you mentioned 2025, you've significantly expanded the number of PE sponsor relationships. Just curious if you could give us an update on where the pipeline stands today in terms of size and maybe also the mix of new versus add-on opportunities? Bob Marcotte: Sure. Fourth quarter is always pretty strong. I will say that we've definitely seen some of the newer assets that we put on with follow-on acquisition opportunities, some of which have already closed and some of which are pending. So we're definitely seeing that effect through the portfolio. On the potential deals, at any given time, we're probably tracking an order of magnitude, $100 million of potential volume. Obviously, those are going to fall out in a variety of different ways. But we feel like somewhere in the range of 10 deals, $100 million of near-term volume that's going to be more than ample to clear any repayments that we might see and continue to grow. I think if you go back to our traditional history, we've been able to grow the assets somewhere in the range of 25 to 50 over the course of a year. I think we increased a little more than that last year. I think we would expect it to be a little bit more than that this year because we've had such a turn. We turned 42% of the portfolio from last September. So you would expect the rollover rate in 2026 to be lower, which I think positions us well to have a net add of assets because of the maturity of the existing assets. I would say one more point. We tend to see a barbell of transactions coming through. One, the transactions that are add-ons for existing deals, those are companies that are getting larger. They might be in the $10 million, $15 million, $20 million EBITDA range. Those deals will be bigger. The new deals where we're starting new originations, those tend to be smaller deals. They're first-time transitions from family or privately held businesses to private equity. They tend to start smaller and then grow. So a $10 million to $20 million deal on the initial side will then become a $20 million to $30 million deal on the second bite at the growth profile for that business. So that's a little bit more than you probably asked for, but that's what's going on right now. Eric Zwick: No, that's great color. Thank you. And then switching gears to the decline quarter over quarter and the portfolio yield. Curious how much of that was reflective of lower base rates working through the portfolio versus potentially maybe new originations coming on at lower yields, although I think you mentioned that you're not seeing maybe a whole lot of spread compression at this point on newer deals, maybe I misheard that. Bob Marcotte: Most of that was the base rate, which I think came down from in the four-thirty range and probably ended the quarter closer to 3.9. So most of the move was underlying base rates. If you just isolate what we closed on the quarter, the metrics on the margin were well north of seven, and the leverage was pretty attractive, but even if we were at 7.5% using round numbers on four, that increase would probably put you at an 11.5% yield, which compares to the 12.8% that we were at the end of last quarter. So while our spreads are very attractive, the overall impact on our combined portfolio yield, the new definitely brought it down a bit as well. Eric Zwick: Thank you. And one last one if I could. Just looking through the SOI notice WBXL, which is on non-accrual, had a slight improvement in the valuation. So just curious kind of what you're seeing there, some improved operational performance, and if that expectation might continue to trend in a positive direction. Bob Marcotte: I think they're up to eighteen straight months of sales increases and profitability increases. They are currently EBITDA positive and continuing to grow. We've been through both sales and operating cost restructurings. They are not to a point where we are ready to turn it on and make it an earning asset. But we're feeling very strong about where the business has gone and the consistency and sustainability of the underlying brand in that business. Eric Zwick: Good news. Thanks for taking my questions this morning. Bob Marcotte: Sure. Next question. Operator: Thank you. Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your question. Christopher Nolan: Given where the stock price is and your low leverage, any consideration of doing material share repurchases? Bob Marcotte: Relative to where we're performing, I'm certainly tempted. I think the last time we brought that up, we were probably trading at a thirty-ish percent discount. It was a number of years ago. We're definitely getting in the range where that's going to be a discussion. And then, given following up on the comments earlier talking about new private equity partnerships, should we expect accelerating portfolio growth in fiscal 2026? Bob Marcotte: I guess if you extend the comments I made earlier, I think the answer is probably yes. If we have lower turnover in the underlying portfolio, we broaden the relationships, our origination bucket originations went from $178 million to $400 million. I think we could probably outrun a modest repayment stream. So I think we are in that position. I think the question following on your last one, at some point, another equity is going to become an issue for us. So buying an equity when we have the opportunity to continue to expand profitably will be the crux of the discussion around that until the stock recognizes that we have that earnings power and the opportunity it's going to be a challenge to chew up the equity through buying back the shares. Christopher Nolan: Final question. For the fiscal first quarter, the quarterly dividend has been reduced to $0.45. The dividend is not yielding that high on NAV. It's like nine and change as a percentage. I was thinking beyond that. Yes, 9.6% as I think Nicole outlined. Yes. And I get it, lower base rates, but you're maintaining investment spreads and leverage is low and so forth like that. What's sort of thinking behind the reduction of the dividend? Didn't look like it was imperative, but I may be missing something. Bob Marcotte: Well, I think we were trying to be responsible. And I think as you look out over the course of the next year, I think we have about $650 million at year-end of floating rate assets. About $150 million of floating rate debt. I think any further compressions in rates are going to become a challenge for us as well as everyone else. We did very well to substitute and work through our refinancing activities to essentially a neutral cost of capital and maintaining our financial flexibility and maturity profile. I think the challenge is a 100 basis point decline is going to pressure us as well as everyone else. And how do we absorb that? Well, we'll absorb it through if you would note in our financials, we paid an awful lot of commitment fees on our line of credit that we didn't use. So we probably are going to reduce that by virtue of what we've done. We also had a very light quarter from a fee load perspective, I expect those fees to increase. And the combination of those as well as some of the dividend reduction, I think, puts us in a much more healthy position to maintain the current dividend. I don't feel that we're under any particular pressure at this point. It was just really more of setting expectations going into 2026. Given the rates are already beginning to decline. Christopher Nolan: Great. And final question on the dividend. Is it sort of switching to more of a base dividend plus a supplement type of structure going forward? Or is you're just thinking just pay $0.45 going forward? Bob Marcotte: I think we could certainly see a supplemental on a go-forward basis. We've provided two supplementals in the last year for some of our capital gains. And the other thing to your earlier point about the yield, I think while the current cash yield is at that range, I think we've also on an ROE basis cleared that by a wide margin on some of our equity gains. And I would expect that to be a material part of those supplementals on a go-forward basis. So while the current cash yield may be sub-ten, the overall yield on equity with NAV growth has been almost, I think as David outlined, 16.7% over the last five years. So we wanted to be in a position to invest in the right deals and achieve the overall return for our shareholders. That's why we made the change in the dividend. Christopher Nolan: Got it. Thank you. Bob Marcotte: Okay. Next question. Operator: Thank you. Before we take the next question, our next question comes from the line of Robert James Dodd with Raymond James. Please proceed with your question. Robert James Dodd: Hi, guys. On the outlook for next year, Bob, I mean, congratulations, you did grow over a very high level of portfolio churn over the last twelve months. But still, 60% of the portfolio didn't turn over. So I mean, the lower middle market does seem to be healthy. There's a lot of activity going on, which obviously is what drove that turnover. What do you think the risks are that elevated repayment activity continues going into 2026? Because to your point, I mean, the 42% that you already turned over, that's probably not going to turn over again. But there is still more than half the portfolio that didn't. I mean, could you still see extremely high levels in the following twelve months? Bob Marcotte: Robert, that's a question I would say that the maturity of the investments and where the private equity are in achieving their appreciation plan and maturity is a big one. As I described earlier, most of the smaller deals will take several years to professionalize and scale. So a number of the ones that we would have recently funded are in that situation. I would say that we were somewhat opportunistic and were able in the course of the last couple of quarters to land some very attractive deals as the market was a bit dislocated post-Liberation Day. So we could see some of those larger exposures turnover. But net-net, I think we're in a position where we will continue to grow even if those larger transactions in the other 60% do turn. But I do think the question really boils down to are the private equities selling their companies as rapidly as they have in the past? And I think the generic answer is no. I think that the hold periods are extended. The maturity and appreciation plans have not necessarily been fully achieved. So we still see some stickiness to the underlying portfolio, but I'm not terribly worried about our ability to outpace it having survived 2025. Robert James Dodd: Okay. Fair enough. Then one more if I can. On credit, I mean, obviously, no new non-accruals this quarter. WBXL seems to be improving. I mean, are there any cracks developing anywhere in the portfolio or themes that you're seeing that you're incrementally concerned about? Because it certainly doesn't seem to be showing up anywhere from a credit perspective. Bob Marcotte: Well, Robert, I think as you understand our strategy, we sit on the boards and observe what's going on in these businesses. And I can't tell you that there aren't issues inside those businesses. But when you go in under relatively low leverage and you see it at the vantage point that we see at the Board level, it becomes a lot more manageable. Right? It doesn't ripen into the situation where the report sixty or ninety days post quarter end and liquidities are getting tight. So we are in a position to take action sooner. Now there are certainly some assets that we are focused on, and there's likely to be equity infusions on the part of the sponsors, or they may be in the market to be sold. But I think we are still in a very safe position. So even if we end up waiving a covenant or so, to give them the breathing room to go to market and sell the business, our leverage position is still well covered by the enterprise value. So I guess there's two questions there. Do we believe there are businesses that are having challenges? Yes, there are a couple. But do we believe that there's an exposure on an LTV basis? No, there isn't. I don't feel that we are exposed on any of our positions that aren't otherwise in those non-earning assets. Robert James Dodd: Got it. Thank you and congratulations on the performance over the last year. Bob Marcotte: Thanks for calling in. Operator: Thank you. Ladies and gentlemen, there are no other questions at this time. I'll turn the floor back to Mr. Gladstone for any final comments. David Gladstone: Well, thank you all for being with us for another quarter and ending another year so successfully. And we hope we can even do that in the next quarter. But thank you all for calling in. That's the end of this call. Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Daniel Yuan: Hello, ladies and gentlemen. Welcome to Futu Holdings Limited Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host for today's conference call, Daniel Yuan, Chief of Staff to CEO, Head of Strategy and IR at Futu Holdings Limited. Please go ahead, sir. Daniel Yuan: Thanks, operator. And thank you for joining us today to discuss our third quarter 2025 earnings results. Joining me on the call today are Mr. Leaf Li, Chairman and Chief Executive Officer, Arthur Chen, Chief Financial Officer, and Robin Xu, Senior Vice President. As a reminder, today's call may include forward-looking statements, which represent the company's belief regarding future events, which by their nature are not certain and are outside of the company's control. Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. For more information about the potential risks and uncertainties, please refer to the company's filings with the SEC, including its annual report. With that, I will now turn the call over to Leaf. Leaf will make his comments in Chinese, and I will translate. Thank you all for joining our earnings call today. We concluded the third quarter with 3,130,000 funded accounts, marking a 43% year-over-year and 9% quarter-over-quarter increase. During the quarter, we acquired 254,000 net new funded accounts, up 65% from a year ago and 25% sequentially. We are encouraged to see accelerated client acquisition in all markets. In the third quarter, Hong Kong posted the highest quarterly net client app since 2021 and remained the largest contributor to new funded accounts among all markets for four straight quarters. We effectively sparked and captured clients' trading interests amid a quarter of strong equity market performance and busy IPO schedules. With a new IPO framework, retail investors in Hong Kong increasingly consolidate their brokerage accounts to increase their chances of getting out CEO allocation. And they tend to pick a trusted platform with the best overall user experience as their main brokerage account. In Singapore, new funded accounts again posted steady sequential growth. We led our peers in DAUs by an even wider margin, further solidifying our position as the number one retail broker in Singapore. Following seven quarters of rapid expansion in Malaysia since launch, we still see a huge runway for future client growth as equity ownership continues to go up. In the third quarter, we further strengthened product localization by launching Versa Derivative and SGX Futures. An upgraded AI tool to support Malay language and local stock analysis. Our annual flagship offline investor event, MoveFest, was held in Singapore in July and in Malaysia in October, altogether attracting over 28,000 investors to sign up and further elevating our brand image in the region. Thanks to our growing brand recognition and product experience, our US business delivered another quarter of high-quality growth. We achieved a high double-digit sequential increase in new funded accounts. We also observed another quarter of more active derivatives trading activity, as both the number of option traders and option contracts traded recorded double-digit sequential growth. As of quarter-end, total client assets reached HKD 1.24 trillion, up 79% year-over-year and 27% quarter-over-quarter. The growth was driven by another quarter of robust net asset inflow, while the appreciation in client stock holdings also contributed meaningfully to the overall asset expansion this quarter. Average client assets logged double-digit sequential increases and hit new highs in every market. Bullish sentiment on Hong Kong and US equities prompted more leveraged positions. The buoyant Hong Kong IPO market also boosted financing demand. As a result, margin financing and securities lending balance climbed 23% quarter-over-quarter to HKD 63.1 billion. Total trading volume rose 105% year-over-year and 9% quarter-over-quarter to HKD 3.9 trillion on the back of favorable market dynamics and upbeat investor sentiment. Elevated trading velocity and technology names lifted overall Hong Kong stock trading volume by 43% sequentially to HKD 1.19 trillion, which accounted for 31% of total trading volume, the highest percentage since 2023. US stock trading volume remained elevated at HKD 2.6 trillion, as many technology and crypto names posted new highs. Trading volume surged 161% sequentially, driven by a 90% quarter-over-quarter increase in crypto asset balance and accelerated trading velocity. Ethereum trading volume quadrupled during the quarter, overtaking Bitcoin as the most popular coin on our platform. In Hong Kong, the launch of Solana for retail investors was well received. Solana contributed meaningfully to the growth of crypto turnover this quarter. We believe that as we continue to broaden coin selection, strengthen product capabilities, and deepen investor education, there is significant potential to further drive crypto trading penetration among our client base. For the period-end, wealth management assets rose 8% sequentially to HKD 175.6 billion. During the quarter, clients increasingly allocated to fixed income funds, alongside the sustained inflow into money market funds. To better serve the bespoke needs of professional investors, we introduced a self-service request for quote function to structure products, whereby clients can customize products based on their desired parameters, access and compare quotes from a number of issuers, and execute trades seamlessly without human intervention. We leverage technology to remove friction in the client experience while driving operating efficiency. We ended the quarter with 561 IPO distribution and IR clients, up 22% year-over-year. We continue to play a leading role in facilitating retail participation in the heated Hong Kong IPO market. In the third quarter, 12 IPOs each attracted over HKD 100 billion in subscription amount on our platform. We served as joint book runners for multiple well-known listings, including those of Cherry Automobile Group and Lens Technology. Notably, in the Putong Group IPO, we assumed the role of overall coordinators for the first time, underscoring the advancement of our enterprise service capabilities. Next, I would like to invite our CFO, Arthur, to discuss our financial performance. Thank you, Leaf and Daniel. Arthur Chen: Please allow me to walk you through our financial performance in the third quarter. All the numbers are in Hong Kong dollars unless otherwise noted. Total revenue was HKD 6.4 billion, up 86% from HKD 3.4 billion in 2024. Brokerage commission and handling charge income was HKD 2.9 billion, up 91% year-over-year and 13% quarter-over-quarter, both primarily driven by higher trading volume. The change in planned commission rate was mostly technical in nature. The blended commission rate declined year-over-year as clients traded higher-priced US options compared to a year-ago quarter, while the quarter-over-quarter increase implied the commission rate was due to sequentially stronger trading activities in low-priced US stock and options. Interest income was HKD 3 billion, up 79% year-over-year and 33% quarter-over-quarter. The year-over-year increase was driven by higher interest income from security borrowing in the lending business, margin financing, and bank deposits. The quarter-over-quarter increase was driven by higher interest income from security borrowing and the lending business as well as higher margin financing interest income. Other income was HKD 441 million, up 111% year-over-year and flat quarter-over-quarter. The year-over-year increase was primarily attributable to higher currency exchange service income, fund distribution service income, and IPO subscription service charge income. Our total cost was HKD 780 million, an increase of 25% from HKD 625 million in 2024. Brokerage commission and handling charter expenses were HKD 161 million, up 97% year-over-year and flat quarter-over-quarter. Both the year-over-year and the quarter-over-year increase was roughly in line with the change of our brokerage commission and handling charging income. Interest expenses were HKD 474 million, up 17% year-over-year and 25% quarter-over-quarter. Both the year-over-year and the quarter-over-quarter increase was mainly due to higher interest expenses associated with our security borrowing and lending business, as well as high margin financing interest expenses. Processing and servicing costs were HKD 146 million, up 12% year-over-year and 10% quarter-over-quarter. The year-over-year increase was largely due to higher market information and data fees. The quarter-over-quarter increase was mainly driven by higher marketing information and data fees, as well as higher product service fees. As a result, our total gross profit was HKD 5.6 billion, an increase of 100% from HKD 2.8 billion in 2024. Gross margin was 87.8% as compared to 81.8% in 2024. Operating expenses were up 57% year-over-year and 31% quarter-over-quarter to HKD 1.7 billion. R&D expenses were HKD 574 million, a 49% year-over-year and 30% quarter-over-quarter. The year-over-year and the quarter-over-quarter increase was mainly driven by our greater investment in crypto and AI capabilities. Selling and marketing expenses were HKD 586 million, up 86% year-over-year and 36% quarter-over-quarter. Both the year-over-year and the quarter-over-quarter increase was mainly attributable to higher new fund accounts. G&A expenses were HKD 535 million, up 40% year-over-year and 26% quarter-over-quarter. Both the year-over-year and the quarter-over-quarter increase was primarily due to an increase in general and administrative headcount. As a result, income from operations increased 127% year-over-year and 17% quarter-over-quarter to HKD 3.9 billion. Operating margin increased to 61.3% from 50.4% in 2024, mostly due to strong top-line growth and operating leverage. Our net income increased by 143% year-over-year and 25% quarter-over-quarter to HKD 3.2 billion. Net income margin expanded to 50.1% in the third quarter as compared to 38.4% in the same quarter last year. Our effective tax rate for the quarter was 16.7%. That concludes our prepared remarks. We now would like to open the call to questions. Operator, please go ahead. Operator: Once again, we will take our first question. The question comes from the line of Cindy Wang from China Renaissance. Please go ahead. Your line is open. Cindy Wang: Thanks for taking my call, and congrats on the very great result in Q3. I have two questions here. First, client assets performed very strong in Q3. Could you break down by mark-to-market gains and net asset inflows? And what is the current run rate for net asset inflows and client assets in Q4? Second, customer acquisition cost in Q3 was higher than Q2, but still lower than your early full-year guidance. So given the stock market pullback order today, what's the recent customer acquisition trend, and what do you expect the customer acquisition cost in Q4? Thank you. Arthur Chen: For the first question, regarding the asset movement, around one-third comes from the net client's asset inflow, and the remaining two-thirds come from the mark-to-market fluctuations. In the fourth quarter to date, actually, the mark-to-market implication was negative. But on the flip side, the asset inflows we see the momentum remains very robust. There is no slowdown compared with the second quarter or the third quarters. In the third quarter, regarding the client acquisition, the average cap in the third quarter is around HKD 2,300, slightly up on a quarter-over-quarter basis. But on the absolute levels, it still remains below our full-year target range of HKD 2,500 to HKD 3,000. In the fourth quarter to date, what I witnessed is that both the client acquisition momentum and also client acquisition cost remain quite healthy. So overall speaking, I feel more optimistic regarding our over-year client acquisition cost versus our objective at the beginning of this year. Thank you. Operator: We will take our next question. Your next question comes from the line of Peter Zhang from JPMorgan. Please go ahead. Your line is open. Peter Zhang: Thank you for giving me the opportunity to ask a question. This is Peter Zhang from JPMorgan. We have two questions. The first question is related to interest income. We saw the third quarter interest income record very strong sequential growth. We would like to understand what's the driving forces behind the strong momentum. Can you help us to break down the interest income into the key items, such as the interest income from the client idle cash, from margin financing business, and from the security lending? We also noticed that the security borrowings' contribution to interest income has been very strong in the second and third quarters. We want to understand, is this purely due to the market, or is there something Futu Holdings Limited has been doing at the content level to lead to the strong growth? Our second question is related to the crypto business. We wish to understand what's the latest crypto business contribution to your revenue in the third quarter. And looking ahead, what will be the driving forces for the crypto business to expand? For example, is this mostly due to the expansion of the token offering on your platform, or are there other potential business opportunities like derivatives that may have some upside to your crypto business? Thank you. Arthur Chen: Regarding the breakdown of the interest income in the third quarter, we have two different results arising from the interest income. Number one is from the client's idle cash. The second is from the margin financing, and the third is the security borrowing and lending. Actually, in the third quarter, the percentage for these resources is quite even. Regarding the security borrowing and lending business, we see a very strong momentum in the second quarter and the third quarter. But mainly, the driving force was from the market itself. In particular, there will be more utilization for certain hard-to-borrow stocks in the third quarter. Thank you. Daniel Yuan: Peter, this is Daniel. I'll take your second question on our crypto business. First of all, I'm going to give you a breakdown of the exponential growth we saw in the third quarter, and then I'll discuss the outlook for this business. The strong crypto growth was quite broad-based across the three markets that we currently offer crypto trading. In Hong Kong, for example, our client's crypto AUM and crypto trading volume both reported triple-digit sequential growth. As we mentioned in our opening remarks, Solana was very popular among our retail clients, which is the new coin launched in the third quarter. In Singapore, we also saw triple-digit growth in trading volume and continuously growing penetration among our funded accounts. In the US, we launched a number of new functions, including market orders and added 10 new coins, which really helped drive crypto AUM and volume. So far, as we've seen in the third quarter, there's a lot of volatility in the crypto market, but we've seen that a lot of our clients really took advantage of that volatility. In October, for example, we've seen the crypto volume continue to grow high double-digit month-over-month and hit a new high for monthly volume and the continuous uptake in crypto penetration. These are all very encouraging signs. But still, crypto contributed a very small percentage to Futu Holdings Limited's current revenue. But we think there is a long runway for growth in terms of driving crypto penetration on our client base and driving crypto revenue. In terms of some of the factors and catalysts that are going to help with that revenue growth, I agree with a lot of the things you mentioned just now, like a broadening of token offering will be quite helpful and will be a direct beneficiary of that. Of course, derivatives with higher take rates are going to help with monetization. But a lot of these developments will be contingent on regulatory approvals. In the long term, we're quite optimistic about the growth of this business. We understand that a lot of these new businesses don't really grow in a linear fashion. Peter Zhang: Thank you. I have a follow-up on the interest income part of the question. We wish to understand what's the fourth-quarter trend on interest income, particularly for your security borrowing business. Do you see the momentum continue in the fourth quarter? Thank you. Arthur Chen: Regarding your question about the interest income trend, we do not have the high-frequency data set for the interest income, particularly regarding the security borrowing business. But I'm very happy to give you an update during our fourth-quarter result. Thank you. Operator: We will take our next question. Your next question comes from the line of Emma Xu from Bank of America Securities. Please go ahead. Your line is open. Emma Xu: I have two questions. The first one is about the sensitivity analysis to the Fed rate cut, and the second one is about your R&D and G&A costs. They increased notably quarter-over-quarter and year-over-year. You mentioned earlier for the R&D expense it's mainly related to crypto and AI capacity investment. And for G&A, for G&A staff increase, could you tell us what's your target or your plan for investment in these areas? Arthur Chen: Regarding the interest income sensitivities from the Fed, as we give the market some estimation for every 25 basis point cut by the Fed rate, our monthly pretax profit will be negatively impacted by around HKD 37 million. But having said that, the rate definitely will have a lot of positive factors such as trading velocity increase and also more clients' asset inflows, which will partially offset, if not fully offset, this potential negative implication from the rate cut. Regarding the second question, for the quarter-over-quarter increase on the R&D and G&A expenses, for the G&A expenses, we do have some front-loading costs in the preparation of certain new markets we may open in the next two years. Secondly, we have invested a lot on the crypto side, especially on the system, in the preparation of certain license applications, not only including Hong Kong but also in other markets. Regarding the AIs, we will further optimize our AI capabilities, especially for the external part. There will be further optimization for our AI agent for our clients. Internally, we will further utilize our AI capabilities to streamline our business process and enhance our operating efficiency. Thank you. Operator: We will take our next question. Your next question comes from the line of Yu Fan from CICC. Please go ahead. Your line is open. Yu Fan: Thanks for taking my question. Congratulations on the outstanding results achieved this quarter. This is from CICC. I have two questions here. The first question, we see the strong customer growth this quarter. So with the regional breakdown of the existing and also the net new paying client? And the second question is regarding the US market. Would you please share more color on the market strategy, and what's our competitive advantage compared to other peers in this market? Thank you. Arthur Chen: For the breakdown of the new fund accounts in the third quarter, Hong Kong and Malaysia collectively contribute around 50% of total new fund accounts. In the third quarter, except for certain new markets or small markets we entered recently, such as Canada and New Zealand, the remaining markets' contributions are in the range of 5% to 15% for the third quarter. As of the end of the third quarter, the Greater China clients contribute around 46% of the group's account fund accounts, and the remaining overseas markets contribute 54% of total accounts. Thank you. Daniel Yuan: Hi, Yu Fan. This is Daniel. I'll take your second question on our US business. As you mentioned, we saw very strong momentum in terms of new client accounts and also in terms of engagement of our existing clients, with the number of options traders and options contracts traded both logging double-digit sequential growth. I think that really thanks to our increasing brand influence. If you've been to New York recently, you'll see that we've launched another large-scale branding campaign in New York City in the heart of New York City. Another important factor is, obviously, we have a very superior product experience for our target clients. The US is probably the most competitive market in the world, but also unequivocally the largest brokerage market out there, which means that there's going to be diversified client needs to be satisfied by different players. We think that our product is built for the active traders, and those are the clients we want to serve, and we'll continue to optimize our product experience for that client focus. Operator: Thank you. We will take our next question. Your next question comes from the line of Charles Zhou from UBS. Please go ahead. Your line is open. Charles Zhou: Good morning. This is Charles Zhou from UBS. First of all, congratulations on your very good results. It's also a strong beat to the market consensus. I have two questions. My first question is about the Air Star Bank. Could you please share what investment have you made since Futu Holdings Limited acquired a 44% equity stake in Air Star Bank, I think, last June? And also, how do you see the Air Star Bank's strategic role within Futu Holdings Limited's business in terms of short-term, medium-term, and long-term perspectives? My second question is regarding the regional mix of the client AUM net inflow. Can you maybe just give us a little bit more color about the breakdown of the regional mix? Say, for example, does Hong Kong still account for over 70%? And also, are we seeing a rising share from high net worth clients in the third quarter? Thank you. Arthur Chen: Regarding the breakdown of the net asset inflow by regions, actually, we see the percentage contributed by Hong Kong slightly decrease on a quarter-over-quarter basis, mainly due to certain overseas markets such as Singapore and Malaysia also recording very strong asset inflows. So proportion-wise, Hong Kong's percentage contribution was down a little bit. Regarding the client's cohort, we do see more and more high net worth clients' contributions in Hong Kong. We think this kind of trend will remain in the next coming quarters. We think we have very meaningful potential in terms of further upgrading our client's quality in Hong Kong through wealth management, etc. Thank you. Daniel Yuan: Hi, Charles. This is Daniel. I'll take your first question on Air Star Bank. First of all, to give you an update on our investment, during the third quarter, upon regulatory approval and the discussion between the shareholders, we have increased our stake in Air Star Bank to 68.4%, thereby becoming the controlling shareholder of Air Star Bank. In the short term, we'll continue to focus on improving the customer experience, enriching products and capabilities. We believe that there are a lot of integration opportunities between the banking business and the brokerage. In the long term, we believe that the banking business can help Futu Holdings Limited increase client stickiness and improve client's wallet share. It will enable clients to complete fund deposits, investments, lending, and consumption. We can satisfy all these various financial needs within Futu Holdings Limited's ecosystem, and we can continue to enhance our clients' perception of Futu Holdings Limited as a one-stop financial services platform. So far, Futu Holdings Limited is the only online brokerage platform in Hong Kong that has integrated digital banking capabilities, and we believe that the scarcity of that license and the diversity of products and services we can offer under this license will continue to widen our competitive moat. After this round of capital injection, Air Star Bank will be consolidated into Futu Holdings Limited's financial statements. In the next two to three years, we'll still be in investment mode for Air Star Bank, but we believe that as Futu Holdings Limited's client quality improves across various markets, and as more markets become profitable and play out that operating leverage, the drag from Air Star Bank's loss to Futu Holdings Limited's overall P&L will be limited. After the capital injection, Futu Holdings Limited and Xiaomi Group will continue to work very closely and take advantage of each other's resources in their respective ecosystems to operate this bank together. Thank you. Operator: We will take our next question. Your next question comes from the line of Chiyao Huang from Morgan Stanley. Please go ahead. Your line is open. Chiyao Huang: I have two questions. One is about the product pipeline from crypto and tokenization in the next one or two quarters. And then maybe a bit longer term, what kind of value proposition do we try to achieve on tokenization for our clients? The second question is about whether management has any plan on M&A in the space to accelerate capability building? What kind of capability in crypto are we looking to build in the near term? Thank you. Arthur Chen: Regarding your two questions about crypto, number one for the new product pipelines and also tokenization, we do have a lot of preparations and internal discussions, even some layout of certain product connections. But as you can understand, tokenization is a very new concept to the market nowadays and subject to different regulatory regimes and examinations. So it is very difficult for us to lay out a very clear roadmap for the product launch given that a lot of factors will be regulatory dependent. Regarding M&A in the crypto side, definitely, we are very open in these directions given that crypto is a very strategic and important consideration in our business direction down the road. So definitely, we will keep these options open. Thank you. Operator: We will take our next question. Your next question comes from the line of Leon Key from CLSA. Please go ahead. Your line is open. Leon Key: This is Leon Key from CLSA. I have two questions today. Firstly, we are very glad to see that Hong Kong for the fourth consecutive quarter has led new client additions. I'm just interested in the client profile of our newly acquired clients in Hong Kong for the past quarter and actually for the past four quarters in general, given Hong Kong's equity market started to become quite active since around four quarters ago. If there are any meaningful differences in terms of these new customers in Hong Kong in terms of per average AUM, ages, trading velocity, the products they are buying, if there are any notable differences for these new clients compared to our existing Hong Kong customers, most of which were acquired during probably the bull market a few years ago. So that's the first question on Hong Kong new customer profile. The second question, I'm interested in the gross margin trend in markets outside Hong Kong. We're very pleasantly surprised to see gross margin disclosed in the third quarter was very strong. Given we also have very good AUM growth in markets like Singapore and a lot of new clients in Malaysia, I presume the economy of scale is kicking in very rapidly. If possible, if management can share with us some gross margin trends in Singapore and Malaysia, where are the margins in these markets standing now? Daniel Yuan: Leon, thank you for these two questions. This is Daniel. I'll take these two questions. First of all, regarding our Hong Kong business, in fact, in the third quarter, we have seen a continued upward trajectory in average client assets of our new clients. That coupled with the continuous net asset inflow, very robust net inflow from our existing clients led to a double-digit sequential growth in average client assets in Hong Kong. I think that is representative of what happened in the past couple of quarters as we continue to enhance our brand image. I think we can continue to attract more and more high-quality clients, and there will be more clients that are inclined to do one-stop asset allocation within Futu Holdings Limited's platform. In terms of these clients' behavior, trading behavior specifically, I think that's very much market-driven. As you know, in terms of our total trading volume in the past year or so, it's mostly US stocks. But in Q3 this year, as the Hong Kong equities market outperformed, a lot of our clients quickly flocked to Hong Kong equities and engaged quite actively. So I think this is very much driven by the performance and the relative outperformance of different equity markets. We think this is more cyclical than structural in terms of clients' trading behavior. To your second question, yes, we think that the online brokerage business inherently has huge operating leverage. But on the gross margin level, it's been very healthy across all of our markets because it mostly relates to trading and margin products, all of which have very high margins. The operating leverage mostly kicks in from the operating expenses. As we continue to scale in a lot of these international markets, we have seen a very rapid expansion in operating leverage. Maybe to give you some numbers on our Singapore business, for a couple of consecutive months, we have seen the operating margin in our Singapore business consistently top 60%, and it's still expanding. I think that really speaks to the strong operating leverage in our business model. Leon Key: Thanks a lot, Daniel. Very helpful. Operator: Thank you. This concludes today's question and answer session. I'll now hand the call back to Daniel Yuan for closing remarks. Daniel Yuan: That concludes our call today. On behalf of the Futu Holdings Limited management team, I'd like to thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our investor relations representatives. Thank you, and goodbye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by and welcome to the iQIYI Third Quarter 2025 Earnings Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number. I would now like to hand the conference over to Ms. Chang Yu. Please go ahead. Chang Yu: Hello, everyone, and thank you for joining iQIYI's Third Quarter 2025 Earnings Conference Call. The company's results were released earlier today and are available on the company's Investor Relations website at ir.iQIYI.com. The call today includes Mr. Lu Gong, founder, director, and CEO; Mr. Jun Wang, our CFO; Mr. Xiaobui Wang, our CCO, Chief Content Officer; Mr. Youqiao Duan, Senior Vice President of our membership business; Mr. Xianghua Yang, Senior Vice President of movies and overseas business; and Mr. Gang Wu, Senior Vice President of print advertising business. Mr. Gong will give a brief overview of the company's business operations and highlights, followed by Jun, who will go through the financials. After the prepared remarks, the management team will participate in the Q&A session. Before we proceed, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. iQIYI does not undertake any obligation to update any forward-looking statement, except as required under applicable law. I will now pass on to Mr. Gong. Please go ahead. Lu Gong: Hello, everyone. Thank you for joining us today. This summer, we captured the hearts of audiences with our original blockbuster drama, The Thriving Land. As we begin today's earnings call, I would like to share the journey of bringing this compelling story to life. The Thriving Land became a highlight of iQIYI, a highly acclaimed masterpiece theater collection renowned for its expertly crafted adaptation of famous novels. The Thriving Land tells a compelling tale of three families across two generations in rural China in the 1920s. When production began in Chengdu last September, there were questions and concerns. Can today's audience be drawn to a story set 100 years ago? However, we built this project with strong confidence backed by our years of experience in adapting literature to hit dramas like A Lifelong Journey to the Wonder and The Northward. It is our belief that great stories resonate universally. They transcend time, culture, and age, forging deep connections with viewers across regions and demographics. This ability to tell timeless stories is what sets long-form content apart from faster-paced, bite-sized entertainment. As we all now know, The Thriving Land became a major hit, exceeding the 10,000 mark on iQIYI's popularity index score and topping this year's Enlightened Data chart for PIV Daily market share. Its influence expanded far beyond our platform, making a meaningful impact on traditional TV and offline as well. It achieved the highest average rating per episode on CCTV's drama channel and boosted tourism in its filming location, acquiring the offline effect of The Northward and The Wonder. The success of The Thriving Land is no mere incident. It's built on a proven content methodology to create and amplify IP value through high-quality storytelling and advanced production technology. To connect with broad and diverse audiences and to develop our business model with IP as the core, from online to offline, from domestic markets to global audiences, our business model continues to evolve and scale. Today, our online operations are well-established, global expansion is accelerating, and our experience business is advancing our company. On top of that, we are embracing exciting opportunities enabled by a supportive regulatory environment and advancements in AI. These new regulatory policies lay a solid foundation for innovation and growth in the long-form video industry. At the same time, we are leveraging AI to transform how content is created and consumed. In July, we partnered with Google and ByteDance and launched a global AI short film competition aimed at discovering and nurturing talents who create short videos using AI technologies. We also collaborated with Academy Award-winning cinematographer Mr. Peter Pau on the program at AI Center, featuring AI-driven content. We aim to leverage iQIYI's professional production expertise to cultivate the next generation of operators pioneering innovative AI-driven content production methods and deliver compelling AI-powered storytelling that resonates with audiences. Now let's dive into the details of our business performance in Q3. Starting with content, which is a cornerstone of our business. Our goal is to engage audiences with diverse, beloved content that drives commercial success. For long-form dramas, we focus on top-notch stories with high commercial value. In the third quarter, we once again secured the top position in total viewership market share according to Enlightened Data. Our high-quality lineup included the nationwide hit, The Thriving Land, and our in-house custom detective serials, Coroner's Dilemma, which emerged as summer's dark horse with an active minority index score exceeding 10,000. Additionally, the science fiction series, Movies, earned strong acclaim for its innovative storytelling, reaching a peak popularity score of over 8,800. Moving to movies, we achieved major performance in original theatrical releases. The Shadow Edge grossed over RMB 1.2 billion, leading the box office and making a historic achievement for us. On our online movie platform, we retained the top viewership market share for fifteen consecutive quarters, driven by a diverse slate of 12 key titles. We launched an innovative revenue-sharing model in Q2 to maximize returns for films with limited box office opportunities. With new titles like A Cool Fish 2, this strategy is gaining traction in Q3, generating over RMB 17 million in revenue sharing model in two months. For variety shows, our focus on top-tier titles delivered strong results in both popularity and revenue. The King of Stand-Up Comedy Season 2, a flagship IP, generated impressive membership and advertising revenues. It achieved a high-tier popularity index of over 8,000 and dominated the channels with a leading market share according to Enlightened Data. Additionally, our newly launched observation show, Her Prime, sparked widespread discussions. To deepen audience engagement and elevate our variety show IP value, we introduced consumer products like collectible cards and co-branded merchandise collections, resulting in stronger audience loyalty. Turning to microdramas, they continue to enhance our content ecosystem, achieving double-digit sequential growth in average daily viewing time and daily subscription revenue in the third quarter. Microdramas also have attracted sponsorship from brand advertisers, with more partnerships anticipated in the future. This growth has been driven by our focus on premium content, enhanced original production capabilities, and an expanded library of free titles. Our microdrama content library now includes over 20,000 titles, with over half available for free. We have also established strong capabilities for consistently releasing original microdramas. Hits such as Feet of Three Lives, Nurturing the Night, and Immoral Paradigm resonate strongly with audiences. Additionally, we introduced a dedicated micro animation channel, Manju, and kicked off original production. Microanimation is an innovative format of short-form animation that has experienced rapid growth in the past year, following the success of microdrama and heavily leveraging AI technology. For animations, we continue to improve our original production capability. In the third quarter, over-the-top titles continue to enjoy strong viewership. Additionally, our highly regarded original production, Now Between Salary and the How Much You Re, returned with a second season, captivating loyal audiences and driving high engagement. Next, let me share our exciting slate of content for the first quarter. The diverse content pipeline includes Fitted Cars, In Short, It Go Up Four, and A Bit Low, Can Be Tension, Favorite Honor, Strange Tale of Tang Dynasty Three to Chang'an, Tang Talk, Road to Chang'an, Legend of the Magnet, Dash Meter, Speed, and the Strong and Silent Pipes from Utah. The movie pipeline includes all original theatrical films, theatrical releases, and original theatrical hits for online streaming. The first batch of original films under the Emerging Film Projects, under the licensed films such as Died to Rise 1921, The Legend of He Too, The Volunteers, Peace and Trust, and Nobody. Original variety shows include flagship IP, Blooming Journey 2, Yellow Sunhua, High Young Farmers, and a brand new IP, Wonder Together. The microdrama pipeline includes the first microdrama based on the highly popular IP, A Strange Tale of Tang Dynasty, titled Tang Dynasty Mysterious Python Conspiracy, Tom with Q Time, Q Time, Qi and Pi, as well as For Xingyu, In My Final Days, Samuel, You, Jenny, and The Saint Mark's Destiny. Children's content includes new animation, Ascendant of the Ninth Sun, Returning Dao Squad Season Four, and a new IP, Payment and a First Food Truck. Moving on to membership services, we aim to build a household name membership brand with broad market appeal, rectifying a vibrant content ecosystem and exceptional services. Membership service revenue recorded sequential growth in Q3, driven mainly by original hit dramas like The Thriving Land and The Coroner's Dilemma, as well as theatrical micro hit, NoJa Two. Beyond content, we are increasing our efforts to enhance membership services and deliver unmatched value. Our family-oriented membership plan stands out with inclusive products like the express package offering early access to shows, a valuable driver of new subscriptions and upgrades to this premium tier. The currency experience program in motor continues to boost engagement with meaningful revenue growth year over year. We have created stronger synergy between membership and advertising revenues by introducing branded rooms within the program. We are also integrating membership experiences with top IPs. This quarter, we launched IP-themed membership cards for Neutrol Two and Learning of Journey of Legend for Shanghai, giving fans a deeper connection to their favorite stories and characters. Connecting with our audience is at the heart of what we do. Our flagship July 17 iQIYI Membership Festival has become a signature fan appreciation event loaded with exclusive perks and irresistible subscription offers. We also strengthened membership value and loyalty through over 10 VIP-only gatherings, ranging from fan meetups to advanced screenings. We have elevated membership performance by focusing on operational optimization, aiming to boost membership value and encourage subscribers to stay with our service longer. This includes initiatives to promote longer-term plans and targeted promotions for specific audiences. Additionally, we expanded our bundled membership partnerships to 16 brands while broadening our sales channels across e-commerce and telecom platforms. Moving on to the advertising business, in the third quarter, brand ads recorded double-digit annual growth, mainly driven by premium variety shows like The King of Stand-Up Comedy Season 2 and hit dramas like The Journey of Legend and The Thriving Land. Our content-related ad solutions continue to gain traction, contributing over 60% of brand ad revenue. Key verticals such as food and beverage, internet services, e-commerce, beauty, and personal health all showed robust annual growth. We use AI to drive production innovation and advertising efficiency with features like creative bulleted charts and AI-generated materials, including animation-style visuals for innovative marketing solutions. As we enter Q4, we aim to capitalize on major advertising opportunities such as the Double Eleven Shopping Festival, Christmas, and the New Year campaign, and the new smartphone launch. Our focus will be on maximizing ad sales from premium variety shows, dramas, and drama-centered brands while further enhancing monetization on smart TVs. We will continue leveraging AI to improve brand advertising efficiency. For performance ads, we now have a healthier and more balanced advertiser portfolio with revenue dependent on community individual clients. By industry, internet services and education and training were standout contributors this quarter. Looking ahead, we will focus on capturing new budgets in the internet services sector, including tools, social platforms, and mini-games, while scaling up revenue in education and training, wellness management, and e-commerce. Additionally, we plan to expand our plan of performance and inventory and utilize AI to further enhance monetization efficiency. Moving on to technology and products, we continue to harness cutting-edge technologies to transform the entertainment experience, improve content production efficiency, and boost content value across our platform. On the content creation front, we are leveraging AI to transform storytelling. A notable example is our partnership with Academy Award-winning Mr. Peter Pau. Together, we will launch the Peter Pau iQIYI AI Center to pioneer the next generation of AI-driven talent development. The first titles are set to premiere soon, which we are very excited for. Additionally, we are using AI to produce high-quality original microanimation at much lower costs. Another unique example is the AI-powered iQuickReal connection, which now covers all major content categories. This feature utilizes a smart editing agent to automatically convert long-form videos into vertical short shots, which are then included in iQuickReal collections. iQuickReal collections offer users a real-time experience akin to that of microdramas. We are transforming user engagement with Touhou AI-powered personal assistant that provides personalized support, including video search recommendations and cloud insights. The latest update improved recommendations for microdramas and short-form videos alongside long-form content while also enhancing plot Q&A capabilities. Additionally, we introduced the binge-watching rankings, allowing users to track time spent on their favorite series and view their rankings. This feature has received highly positive feedback. In addition to enhancing AI applications, we are driving the industrialization of video production with cutting-edge workflow production. Our virtual production capability is now used for both in-house and external projects. This quarter, we launched an omnidirectional motion-simulating vehicle rig filming platform powered by our in-house developed iQIYI Stage virtual production system. The platform naturally enhances the efficiency of high-frequency VCOFIN shots. It delivers a streamlined, repeatable workflow and has already been utilized for virtual production in major theatrical productions. Moving on to business performance in regions outside of Mainland China, we maintained strong growth momentum in Q3, with membership revenue increasing by over 40% annually. Markets like Brazil, Spanish-speaking regions, Mexico, and Indonesia saw membership revenue more than double year over year. In this quarter, the average daily subscribers also reached an all-time high. The strong performance is supported by an exceptional content lineup. C-dramas, Chinese dramas, continue to gain popularity globally, with revenues growing double-digit both annually and sequentially. The Thai-dubbed version of Coroner's Diary set platform records for both viewing time and peak revenue within its language segment. It also topped iQIYI's popularity charts in 13 overseas markets. Meanwhile, our local content slate also exceeded expectations. King Jaro, the series, Yunhun Chongqing emerged as a phenomenon in Thai language content this year, generating the highest membership revenue among all Thai dramas on our platform and topping related rankings on Google and Twitter. Beyond long-form content, microdramas continue to build strong momentum overseas. Membership revenue from microdramas grew 114% sequentially by September. Microdramas ranked second only to long-form dramas across several core metrics, including membership revenue and viewing time. Moreover, multiple iQIYI original microdramas gained solid traction abroad. For example, How Dare You Young People has shown a strong long-tail effect three months post-launch. We are also expanding into locally produced microdramas. Multiple projects in English, Thai, Greek, and Indonesian are in production and targeted for launch this year. Looking ahead, we will continue to deliver high-quality content to international audiences, deepen partnerships with telecom operators and local partners, and leverage AI to drive user appreciation. Moving on to the experience business, we are focusing on two key areas: IP-based consumer products and offline experiences. We are leveraging our extensive and unique IP resources to build a more robust entertainment ecosystem. For IP-based consumer products, we have upgraded our business model from a licensing-only approach to a dual-track strategy, combining self-operated merchandise with licensing. Our self-operated portfolio has expanded beyond collectible cards into additional categories, supported by the establishment of in-house teams. IP licensing for the hit drama, The Journey of Legend, has partnered with over 30 licensees, setting a new record while expanding into multiple sectors, including e-commerce, FMCG, and beauty. In our offline entertainment experience business, we are pioneers in this emerging field. At the heart of this initiative are iQIYI Labs, which are designed to operate under an asset-light model. Two locations, Yangzhou and Kaifeng, are under development, with Yangzhou iQIYI Lab scheduled to open early next year. A third plant in Beijing has also been announced. By integrating technologies like AI and XR with our content IP, iQIYI Lab will provide interactive and scalable experiences that are faster to iterate and more efficient than traditional theme parks. This approach reduces space and capital requirements, with revenue expected to come mainly from ticket sales and other on-site spending. As 2025 draws to a close, we reflect on a year of rapid transformation driven by technological innovation and evolving business models. We are not merely adapting; we are advancing, fueled by our thriving overseas expansion, growing experience business, and ongoing AI investments. Breakthroughs in any of these areas could elevate us to new heights. Amid this change, our core remains the same: creating premium content IP supported by a proven commercial model. This foundation earns us the loyalty of hundreds of millions of users and the trust of industry partners. Moving forward, we will continue delivering quality content, fostering creativity with partners, and driving long-term value for shareholders. Now let me hand it over to Jun for the financials. Jun Wang: Thank you, Mr. Gong, and hello, everyone. Now let me walk you through the key numbers for the third quarter. The total revenue for the third quarter was RMB 6.7 billion, up 1% sequentially. The membership services revenue reached RMB 4.2 billion, up 3% sequentially, driven mainly by original blockbuster dramas and theatrical mega hits like Nezha 2 during the summer season. The online advertising revenue was RMB 1.2 billion, decreased by 2% sequentially as the performance in the second quarter benefited from a major advertising campaign. The company's distribution revenue reached RMB 644.5 million, up 48% sequentially. The increase was mainly driven by the strong distribution performance of the original theatrical movie invested by iQIYI, along with the growing transactions for drama. Other revenues were RMB 585 million, down 29% sequentially. Moving on to costs and expenses, the content cost was RMB 4 billion, up 7% sequentially, as we launched a more diverse selection of premium content during the peak summer season. The total operating expenses were RMB 1.3 billion, down 3% sequentially, benefiting from our disciplined expense management. Now turning to profits and cash balances, the non-GAAP operating loss was RMB 21.9 million. Non-GAAP operating loss margin was 0.3%. As of the end of the third quarter, we had cash, cash equivalents, restricted cash, short-term investments, and long-term restricted cash included in the prepayment and other assets totaling RMB 4.9 billion. At the quarter end, the company had a loan of USD 582.5 million to PAG, recorded under amounts due from related parties. For more detailed financial data, please refer to our press release on our IR website. Now we will open the floor for Q&A. Operator: If you wish to cancel your request, please press 2. If you are on a speakerphone, please pick up the handset to ask your question. For the benefit of all on the call, if you wish to ask your question to management in Chinese, please then translate your question into English. The first question comes from Zhiking Zhang from CICC. Please go ahead. Zhiking Zhang: Thank you, management, for taking my question. It has been three months since the new regulations were issued. Can management provide an update on the progress? Thank you. Xiaobui Wang: Thank you, Zhiking. We will invite our Content Officer, Mr. Xiaobui Wang, to answer this question. The core objective of the new policies is to promote the healthy development of the long-form video industry. The past two months since its implementation have observed positive progress in several areas, including the concurrent review of key dramas at a national and provisional administration, as well as the exploration of concurrent review of broadcasting for new content formats, such as download anthology drama, multi-season drama, multi-art drama, and pickup, as well as the optimization of co-review. Under the new policy environment, we are actively innovating in content production and broadcasting models. For example, we are exploring a brand new content format called online feature series and integrating it into our existing emerging film project collaboration framework. Through a revenue-sharing model with our partners, we aim to attract more creative talent and high-quality content, driving innovation and growth in the industry. Based on the current progress of implementation, it is clear that the new policies have sent positive signals to the industry. Some of our projects have already benefited from the policy support, allowing them to reach a ready-to-broadcast status more quickly. As productions proceed smoothly in the future, we will gradually see the broad benefits of the policy uptake. In the long term, the policies will drive the industry into a new growth phase, benefiting professionals across the board. Thank you. Operator: Thank you. Your next question comes from Vicky Wei from Citi. Please go ahead. Vicky Wei: Will management share some color about your outlook on the membership business? Youqiao Duan: Thank you, Vicky. We will invite our Senior Vice President of Membership Business, Mr. Youqiao Duan, to take this question. Since September, our membership business has shown nice growth momentum, driven by three main factors. First, the continual release of high-quality content. Second, the ongoing enhancement of member services and benefits. And third, the optimization of marketing and sales strategy, such as expanding bundled memberships and offering targeted discounts for teachers and students. The Silent Honor, which was released in September, broke demographic boundaries and captured the hearts of young audiences. Our female-oriented content, such as Faded Hearts and Sword and Beloved, along with the suspense theater titles like The Hunt and The Dead End, also gained wide popularity. The recently released Strange Tale of the Tang Dynasty Three to Chang'an, which is the third drama of the Strange Tales of the Tang Dynasty IP series, received widespread acclaim shortly after its premiere. With its popularity index on iQIYI surpassing 10,000, it became the second drama in the series to hit this milestone, making the Strange Tale of the Tang Dynasty iQIYI's first IP series to have two seasons exceeding the 10,000 popularity mark. The latest release in the series, building on the classic elements, introduced more innovative content, showcasing the strength of high-quality IP series development and successfully attracting and retaining a loyal audience base. At the same time, we have enhanced membership value and the perception of benefits through more refined operations. For example, offering more diverse subscription options, offering member-only IP merchandise, and also offline events tailored for premium members. We are confident in achieving sustainable growth in our membership business with the support of high-quality content and enhanced member benefits and services. Thank you. Operator: Thank you. Your next question comes from Felix Liu from UBS. Please go ahead. Felix Liu: Thank you, management, for taking my question. We noticed that Chinese culture industries have made good progress in the overseas markets lately. Can management share more progress on your overseas expansion and strategy? Thank you. Xianghua Yang: Thank you, Felix. We will invite our Senior Vice President of Overseas Business, Mr. Xianghua Yang, to take this question. Our overseas business has shown strong performance this year, with Q3 total revenue and membership revenue achieving the highest annual sequential growth in the past two years. We see that Chinese content serves as the cornerstone of our overseas content portfolio, and iQIYI has become the top choice for an increasing number of overseas users to watch Chinese language content. We continue to promote Chinese language content across various markets and have seen a significant increase in its influence in major overseas markets, effectively driving the growth in user base and membership numbers. In terms of local content, we have engaged in both licensing and original productions in Thailand, Malaysia, Indonesia, and Taiwan. Among these, Thailand has been our most successful market. This year, we launched several hit titles, such as the Thai drama King Jaro, the series, which set new records on our overseas platform in terms of both viewing hours and revenue for Thai content. With subtitles added, our original Thai dramas have been distributed in other markets, and revenue from our original Thai dramas in the US and other overseas markets has already surpassed that of Thailand's domestic market. We are pleased to see that Thai dramas have become the second globally recognized content category after C-dramas. Looking ahead, we plan to increase the perception of original Thai, Malaysian, and Indonesian dramas. At the beginning of the year, we mentioned that some of the newly developed markets, such as the Middle East, Spanish-speaking regions in Latin America, and Brazil, have maintained rapid growth throughout the year, with significant increases in membership revenue and subscriber numbers. In the future, we will continue to deliver high-quality content while leveraging AI technology to enhance content production and promotional efficiency. Currently, over 70% of promotional material for our overseas content is generated using AI, significantly boosting our market efficiency. Thank you. Operator: Thank you. Once again, if you wish to ask a question, please press 1 on your telephone. Your next question comes from Gigi Zhao from Guangdong Securities. Please go ahead. Gigi Zhao: Thank you. I will translate the question myself. The application of AI in the global film and television industry has been advancing in increasing depth. Can management share strategy insights and future plans pertaining to AI adoption in content production and business layout? Thank you. Lu Gong: Thank you, Gigi. We will have our CEO, Mr. Lu Gong, take this question. For AI technology, it provides a very promising outlook for iQIYI. To take an analogy, in the past two decades, the internet provided the video industry an opportunity and advantage to surpass traditional linear TV. We think currently, with the large language models for AI, it provides a similar opportunity for iQIYI. In the past few years, AI technology has deeply integrated into our operations, helping us achieve goals in three key areas. The first is to increase our operational efficiency. We use AI for marketing materials, for example, automatically generating posters and promotional marketing materials. We also use it for overseas content translation, which is much cheaper and faster compared to human labor. The second point is AI boosts monetization capabilities as it can efficiently produce advertising creative materials, and we can use it to optimize our placement algorithms, improving targeting accuracy and conversion rates. The third point is AI empowers us for content production. We use AI to support our internal production capabilities. For example, we have a screenplay workshop in iQIYI, which significantly enhances evaluation and creation capabilities for novels and scripts. We also have an image workshop feature, which effectively supports early-stage creative development by providing concept posters, storyboard generations, and character design. The fourth point is we use AI to build out basic user features. Based on AI, we built out the Toutdoor World, Toutdoor, and iJump features, all of which improve the viewing experience. The above-mentioned four points are already used in our operations, and we will keep refining and upgrading them, hoping to bring more benefits. Going forward, we will focus on three major areas. The first is iQIYI's intelligent production system, which was previously reserved for internal use. We will gradually open up core functions for our close partners, helping them leverage AI to enhance their production capabilities. The second point is we will continue promoting the use of AI in the market and industry. For example, we launched initiatives such as the AI short film creation competition, as mentioned earlier in the opening remarks, and partnered with Academy Award winner Peter Pau to roll out the AI theater. The main purpose of these initiatives is to discover and nurture AIGC creative talent through collaborations and market promotions, fostering an innovation-driven content ecosystem. Last but not least, our focus will be on collaborating with our partners and utilizing our current AI technologies to explore large-scale applications of AIGC in areas like microanimations, animations, educational content, documentaries, etc. Hopefully, AI will become a core engine of content creation. This is the first stage, and going forward, the bigger picture will be to utilize AIGC in our long-form video content, such as dramas and films. We estimate that in the next one to two years, or maybe three years, but no more than five years, AI will bring dramatic change to our industry and the video content creation industry. Currently, we have been investing heavily in AIGC and AI technology applications, and this is one of the core areas of investment for the company right now. Hopefully, going forward, we can utilize AI to create more creative content and change the content landscape. Thank you. Operator: Thank you. That concludes our question and answer session. I will now hand back to management for closing remarks. Chang Yu: Thank you, everyone, for participating in the call today. If you have further questions, do not hesitate to contact us. See you next quarter. Thank you. Bye-bye. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Will Lopes: Good morning, and welcome to Catapult's investor conference call for our first half FY '26 results. I have with me Bob Cruickshank, Catapult's Chief Financial Officer. This morning, Bob and I will present our results, our strategy and outlook and then take questions from participants on the call. It has been a momentous 6 months for Catapult. Just half a year ago, we reported outstanding FY '25 results, meeting the high bar we had set for ourselves and building on the clear inflection point we had achieved in FY '24. Since then, we've continued to accelerate this trajectory. 5 months ago, we announced the acquisition of Perch, the global leader in velocity-based training, shaping the future of athlete monitoring in the weight room. And just last month, we welcomed Impect, the world's foremost innovator in soccer scouting and tactical analytics, whose end-to-end intelligence platform delivers insights unmatched in the game. It's been an extraordinary stretch, one defined by progress, purpose and performance. And today, with another strong set of financial results, we reaffirm that same commitment to innovation and to the promise of what's still ahead. As you can see on Slide 3, the first half brought another milestone. Our customer base has now grown to more than 5,000 teams worldwide, an increase of 400 teams in just 6 months. While our focus, as many of you know, remains squarely on our professional teams, it's encouraging to see this broader growth. It's a reflection of how Catapult continues to define the global standard for performance technology trusted by athletes and organizations across every level of support. Now turning to our results. And before I begin, I'd like to outline that all figures I reference today are reported in U.S. dollars unless otherwise indicated. And to provide a clearer picture of our underlying performance, year-over-year growth rates are presented in constant currency, to remove the noise of foreign exchange and reflect the true trajectory of the business. The first half of FY '25 was another period of strong performance for Catapult, building on the momentum we have created and progress we made in FY '25. As you can see on Slide 6, we continue to advance against our North Star, The Rule of 40, reaching a new high of 33% at the end of the half, up from 31% a year ago and a full 12 percentage point improvement compared to where we stood just 2 years ago. This metric is powered by two core drivers: the pace at which our subscription base is expanding, reflected in the growth of our annual contract values; and the amount of operating profit we retained measured through management EBITDA. Our top line continues to perform exceptionally well, with ACV now up 19% year-on-year at the end of the half. But what's even more encouraging is the leverage we are generating as we scale. Our ability to keep more of every dollar of revenue is growing faster than revenue itself. Management EBITDA reached $10 million for the half. That is a 50% year-over-year increase, delivering an operating profit margin of 14%. That result would have been even stronger were not for an unexpected payroll tax expense of roughly $2 million, which is tied to the strong performance of our share price, something Bob will speak to shortly. Turning to the next slide. Our 19% ACV growth has lifted contracted subscriptions to a new record of USD 116 million. Our total revenue, which includes some nonrecurring items, grew 16% year-over-year to USD 68 million. For those of you who think more naturally in Australian dollars, this marks an important milestone for us. It is a first half in which Catapult has generated more than AUD 100 million in revenue. To put this into perspective, when Catapult first listed on the ASX, our full year revenue was AUD 5 million. The distance between these two numbers says a great deal about just how far we've come. Catapult's SaaS engine remains in excellent health, as shown on Slide 8. Our ACV retention rate once again exceeded 95%, placing Catapult firmly among the most successful enterprise software companies in the world against this measure. It's a testament to the quality of our product, the stickiness of our platform and the value we are delivering to our customers season after season. ACV per Pro team, our core ARPU metric, grew 8% year-over-year. And as in prior periods, the primary driver of this increase is the continued expansion of customers adopting more than one solution, most often adding a video product from our T&C vertical to wearables product in our performance and health verticals. The number of these multi-vertical customers rose 26% year-over-year, underscoring both the differentiated breadth of our product ecosystem, and the value customers unlock when they integrate wearables with videos, a combination that remains unique to catapult in the market. Turning to Slide 9. You can see the depth of operating leverage in our subscription model and the strength of our unit economics. When excluding the unexpected payroll tax expense in the first half, our incremental profit margin is 56%, meaning we kept $0.56 of every additional dollar of revenue as profit from an operating sense. Bob will discuss further how the payroll tax is primarily a first half expense and our treatment of it going forward. But before I hand it over to Bob, I also want to touch on some of the innovations we have delivered to our customers in the first half as we outlined on Slide 10. The rollout of Vector 8 has been a primary focus in the first half of FY '26. While we are still in the early stages of the process, we are already improving the technology and introducing new features as we go, a pace made possible by the new hardware platform that we introduced. Enhancements that once took months on our previous system are now being delivered in just a matter of weeks. In addition to getting devices and docs into the hands of our North American football customers, we are now extending the rollout into more sports and geographies. And we're also delivering major upgrades to our web experience, including faster editing, more streamlined report creation and time-saving performance analysis. The feedback has been excellent, and the rollout will continue through the second half of FY '26 and well into FY '27. Similar to Vector 8, not only did we launch Hub Pro in the first half, but we have also started to expand its features with a new remote workflow that syncs in real time seamlessly with in-office teams, unifying communication, analysis and a feedback loop across the entire coaching staff, no matter where they are in the world. In the first half, as I mentioned, we acquired Perch, and while we've been very focused on the early stages of integration, integrating their velocity-based training technology into our ecosystem, I am pleased to also say that in a very short period of time, the team has introduced Perch Assist, new performance scores and a new enhanced gym analytics, deepening the sophistication of the technology and strengthening our leadership position in gym technology. We also continue to invest in our game day and sideline solutions to better support teams and leagues in real time. During the half, we expanded Focus Live beyond game day and into practice, giving teams the same real-time analysis capabilities during training that they rely on during competition. And in recent weeks, we acquired key IP assets from IsoLynx, a local positioning system provider whose patents were licensed for the use in NFL game day tracking and whose technology has been white labeled by another wearable company as their own LPS solution. When combined with our existing solutions and IP, we believe that this acquisition not only strengthens the backbone of our live operations but also effectively gives Catapult control of the global patent portfolio required to operate an LPS system for tracking athletes and balls in live competition. And across our product suite, we're beginning to see the real benefits of artificial intelligence. AI-driven tagging, data cleaning and content generation are already saving coach's time and helping teams reach insights faster. And while we're only scratching the surface, our uniquely rich first-party data, spanning performance, tactics and now global recruitment gives us the raw material that makes AI truly effective. This foundation will allow us to usher in entirely new solutions and unlock new value for customers, something I will touch on a bit more later. In summary, we've entered FY '26 in excellent shape. We are delivering strong top line growth, demonstrating meaningful operating leverage and giving our customers the best tools and solutions to help them perform at their very best. With that, I'm going to hand it over to Bob to walk you through the financials in more detail. Bob? Robert Cruickshank: Thank you, Will, and good morning, afternoon and evening to those of you joining today. I'm very pleased to present what are another great set of results today. I'll begin with an overview of our key SaaS metrics before taking you through our financial performance in more detail, and then I'll hand it back to Will to comment on our strategy and outlook. I'd like to reiterate that unless I state otherwise, the numbers I'm about to talk to are actual reported numbers in U.S. dollars and that our growth rates, which compare our performance year-on-year, are in constant currency, removing the impact of fluctuations in foreign exchange rates. Starting with the drivers of some of those great numbers Will presented earlier, I will begin by focusing on our primary metric on Slide 12, our annualized contract value, or ACV. In the first half of FY '26, we delivered 19% constant currency growth, finishing the half at $115.8 million. We're normalizing for the onetime impact of closing our Russian business in the second half of FY '25 and the ACV that we acquired with Perch, this was an 18% growth rate. Our strong growth has again been driven by the performance of both core SaaS verticals, which can be seen on Slide 13. I'll start with our P&H vertical, which includes both our wearables and Perch solutions. This vertical continues to be a reliable and predictable growth engine that yet again delivered an excellent growth rate, growing by 21%, driven particularly by success signing more soccer teams in every region and American football in the United States. P&H was again where we felt the impact of exiting Russia as our business in that region was almost entirely in this vertical. Going forward, that impact will drop out of the FY '25 comparative period when we report our FY '26 results. We remain very pleased with our P&H growth and the continued global expansion we are seeing from our P&H vertical. Our T&C vertical, which includes our video solutions, generated 16% ACV growth. This was underpinned by continued growth from new and existing customers in soccer in Europe and supported by Catapult's expanded product suite of video solutions launched in early FY '26 in American football. Going forward, T&C will also include the ACV from Impect, which we're obviously very excited about, not only because as a stand-alone product, it has the potential for strong growth, but because it will also help us unlock more growth from our own Pro video suite. As you can see on Slide 14, our ACV per Pro team continues to expand, primarily driven by our success in cross-selling. Average ACV per Pro team increased by 8% year-over-year, meaning that our average ACV is now exceeding $28,000 per Pro team. This is very encouraging to see and entirely consistent with our strategy, whereby we have a midterm target of growing this number to $40,000 per Pro team, but you'll learn more about from Will in a moment. The chart on the right of this slide expands on our cross-selling success. In the first half of FY '26, we experienced a 26% year-over-year increase in the number of Pro teams using products from two or more of our verticals, which up until now consisted almost entirely of wearables and video. One of the pillars of our strategy is to maintain ACV retention rates above 95%. As you can see on Slide 15, we delivered an ACV retention rate of 95.1% in the first half, the inverse of which being a churn rate of 4.9%. It is important to note that this includes the onetime impact of our exit from Russia, which represented around 1% -- point impact to this number. This continues to be on par with the best retention rates seen among the world's most successful enterprise software companies. We're incredibly proud of this performance and expect to continue delivering retention rates better than our 95% target. And Slide 16 now provides a good overview of the SaaS metrics we have spoken about today. These are the leading indicators of our future growth, and they present a very positive picture of the health of our business. There are two additional numbers to also call out on this slide. First is lifetime duration, which has increased from 7.6 years to 8.1 years, a 7% increase during a period in which we added approximately 600 new teams year-over-year. It's a great sign that even though we are signing new teams, we're building longer and longer tenure into our customer base. And second is our Pro team count, which increased 12% year-on-year, an acceleration from the 8% growth we experienced in the first half of FY '25. We now have more than 3,800 Pro teams as customers, a significant global footprint. And as a reminder, the Pro team count is different from the 5,000-plus total teams mentioned earlier by Will, which includes non-Pro customers. Let's now move on to our financial results. And you can see on Slide 17, the impact that our strong top line growth has had in our P&L. SaaS revenue derived from our ACV balance grew 16% year-over-year. Recurring revenue, which is comprised of both SaaS revenue and revenue from our media business grew by 19%. As it implies, our media business has had another very strong half of growth with 41% growth year-on-year. And finally, on that slide, recurring revenue as a percentage of revenue has been consistently above 90% for some time, finishing at 94% in the first half of FY '26. Now moving to our cost base. And as you may know, we split our cost buckets into variable costs and fixed costs. Let's start with variable costs on Slide 18. You can see the trend of our variable costs compared to the steady growth of our revenue over the last 2 years, and how these costs are declining as a percentage of revenue. Variable costs are the cost of growth, which are made up of COGS, delivery and sales and marketing expenses. These are the costs that will continue to grow in absolute dollar terms as our revenue grows, while also declining as a percentage of revenue as we gain efficiencies and our business scales. As you can see, we continue to make progress on this metric. While our variable costs increased by $2.6 million year-over-year, they declined as a percentage of revenue from 52% to 49%, corresponding to an improvement in the contribution margin from 48% to 51%. The increase in variable costs was almost entirely COGS related, which increased by 16% and was closely correlated to the growth from our media business. Outside of COGS, our sales and marketing and delivery costs increased by just 4%. This is a tremendous achievement from our team. It means that we are now only 4 percentage points away from reaching our target of 45% of revenue. Now moving on to fixed costs on Slide 19. Fixed costs, which reflect our G&A and R&D teams, both expensed and capitalized, increased by 18% year-over-year and were flat as a percentage of revenue at 37%. Our fixed costs were impacted by the larger-than-anticipated payroll tax expense from the vesting of share-based payments, driven by the Catapult share price, which has risen significantly over the last 2 years. Fixed cost growth was also impacted by the addition of R&D operational costs that came with the acquisition of Perch. Both of these items occurred in the first half of FY '26. Excluding the payroll tax and the Perch impact, fixed costs otherwise rose by 7% year-over-year, which is in line with our expectations. And if we exclude the tax impact only, a nonrecurring cost, our fixed costs would have been 35% of revenue, showing that our core trend of seeing fixed cost leverage with revenue growth is on track. We expect this trend to continue as fixed costs rise modestly in absolute dollar terms, while declining as a percentage of revenue as we continue to make progress towards our 25% target. And these concepts all come together on Slide 20, which highlights how our operating leverage is accelerating the growth in our profit margins. You can see the gap that is now opening up between our revenue and our OpEx as a percentage of revenue and the impact that is having on our profit margin at the bottom of the chart. We have now delivered $28 million (sic) [ $29 million ] of positive operating profit margin, management EBITDA in the last 2 years and we are making great strides towards getting to our targeted 30% profit margin, delivering a 14% margin in the first half of this financial year. As revenue grows and our variable and fixed costs continue to approach their targets, our operating profit margin is expected to increase. And on Slide 21, you can see the ongoing improvement in our free cash flow position that has come about because of these increased efficiencies we're delivering in our cost base and are leading to our expanding operating profit margin. Free cash flow increased $3.4 million year-over-year to $8.2 million in the first half when excluding transaction costs, which consists primarily of the $3 million cash component of the purchase price related to the acquisition of Perch, along with related advisory fees. Including this, our cash flow was still a very healthy $4.3 million and meant that at the end of the first half, Catapult had a net cash position of more than $11 million in the balance sheet and with a fully repaid debt facility. Finally, moving to our profit and loss summary on Slide 22. We have already touched on many of these numbers, so I will make a few observations on those we have not. The increase in share-based payments is primarily due to the year-over-year increase in our share price which has an impact on the expense recognized due to changes in the accounting valuation methodology as outlined in the FY '24 results. This increase is not reflective of an increase in dilution. Incremental depreciation and amortization or D&A includes around $2 million of accelerated expense of S7 devices and Thunder as they approach end of life, along with $1 million of intangible asset amortization related to the Perch acquisition. And finally, the change in interest, taxes and other is primarily due to a tax benefit, lower interest costs due to lower utilization of our line of credit and reduced foreign exchange losses year-over-year. I want to call out that going forward, we will be separating out the payroll tax related to share-based payments from our management EBITDA. This expense relates to our employee share plan and is unrelated to our operating profit. We fully expect to continue delivering for shareholders. And if our share price keeps rising, payroll tax will continue to create timing noise in management EBITDA that has nothing to do with the underlying performance of the business. For that reason, we'll be making this adjustment going forward. In closing, we have started FY '26 in excellent shape. Our key metrics and targets are world-class and our financial performance continues to go from strength to strength. We are consistently delivering strong profitable growth, progressing even further on the Rule of 40. With that, I will hand it back to Will to discuss our strategy and outlook further. Will Lopes: Thanks, Bob. Before we wrap up, I'd like to take a moment to reaffirm the scale of the opportunity in front of us, the strategy guiding us and why we remain so energized about Catapult's role in sport for many years to come. Slide 24 highlights the global market opportunity. The professional sports technology market is expected to exceed USD 71 billion by 2030, effectively doubling over the next 5 years. Live sports remains one of the last true pillars of real-time entertainment. And that enduring demand is driving unprecedented levels of investment across leagues, teams and performance infrastructure. Slide 25 illustrates how our platform strategy is delivering true differentiated value. Our unified SaaS platform is designed to help teams make faster and smarter decisions. It saves time, adds context to the data they rely on and fits naturally into the rhythms and workflows of high-performance environments, turning information into an advantage and an advantage into a competitive edge. On Slide 26, you'll see the breadth of the solutions we now offer, including Perch and Impect. With each addition, we are becoming an even more integrated partner across the full spectrum of performance and coaching workflows. And across this platform, the deeper impact of artificial intelligence is just beginning to come into focus. Our greatest strategic advantage lies in the quality and the scale of the data we create. Catapult generates and manages a uniquely comprehensive body of athlete information, over 5 petabytes from gym and on-field performance metrics to the custom tactical tagging done by our customers and now the most extensive global data set in soccer recruitment. Because this data originates in our hardware, flows through our software and is enriched inside our analysis tool, we hold something rare in professional sport, a vertically integrated foundation of first-party data that AI can uniquely refine and learn from. This foundation is already creating meaningful value. As I've mentioned, AI-driven tagging, data cleaning and content generation are saving coaches time and accelerating insights across our products. In Formula 1, our computer vision technology delivers real-time track limit detection. In the weight room, Perch is redefining velocity-based training with a computer vision system unmatched in the market. And across our broader ecosystem, machine learning has long-powered player and sport-specific algorithms built on top of data, no one else can access. These capabilities help elite teams uncover patterns and insights that previously required hours of manual analysis. And they increasingly make high-quality performance intelligence now accessible to new types of customers who lack the resources to uncover those insights today. AI is also reshaping how we build. A meaningful share of our production level code today is now generated through AI, expanding our engineering capacity and allowing teams to focus on the inventive high-impact work that pushes our platform forward. In short, our unified vertically integrated system, one that creates and owns the data, enriches it through AI and transforms it into actionable insights, continue to strengthen as AI's role in sport only grows from here. The value of AI ultimately depends on the richness of the data beneath it, and that foundation is uniquely Catapult's. This integrated system and our ability to generate differentiated data are also what fuels our excitement around our recent acquisition. Perch strengthens our leadership in athlete monitoring by bringing weight room intelligence into our performance and health portfolio. Shred training is the foundation to athletic development, and Perch bridges a long-standing divide, enabling us to build a unified view of athlete performance. While we are early in the integration, we are already seeing the impact. Perch has already moved beyond its American football roots, helping us win competitive renewals in Europe, break into new verticals like elite volleyball in Asia, along with also helping us sign new customers here in Australia. It's a clear evidence of its broad appeal and immediate commercial traction. Impect, even just weeks post transaction, is also expanding our platform advantage. It adds a scalable, data-rich scouting solution powered by a proprietary Packing metric that meaningfully elevate decision-making for teams. Impect strengthens our cross-sell engine at soccer, deepens our share of wallet and unlocks new growth opportunities for our video products. And like Perch, the acquisition is immediately accretive to our progress in the Rule of 40. Now turning to Slide 27. You can see how the pieces of the strategy come together. Catapult has built a competitive moat that is wide, deep and genuinely defensible. Our one-stop platform, our proprietary data stack, our global scale and our multisport intelligence are unmatched in the industry. And as the first half demonstrates, through the strength of our platform, the sophistication of our technology and the growth of our customer base, the moat is only winding. We are expanding our advantage at the very moment the market itself is accelerating, which is exactly where we want to be. Slide 28 outlines our focused go-to-market approach. We land on Performance & Health, we expand with video and now scouting analysis through Tactics & Coaching. We retain more than 95% of our customers annually, and we drive cost efficiencies as we move towards a target of 30% profit margin. Slide 29 details the economics that supports this journey. We've built an enviable global SaaS business designed for profitable growth at scale. The ability to drive our contribution margin through cross-sell and product innovation allows us to improve unit economics while leveraging a stable fixed cost base, yielding higher profitability as we scale. Slide 30 brings us back to where I started today, and that's with the Rule of 40. It is how we measure our success both internally and for you, our shareholders. At the heart of this framework are five key drivers, each critical input powering our ACV growth and management EBITDA. Together, they shape not just our financial outcomes, but the discipline behind our scale. First, Pro team count. With more than 3,800 Pro teams today, we continue to see greenfield opportunities across leagues, regions and sports. Second, ACV per Pro team. We are increasing ARPU through upsell, cross-sell, pricing and product expansion, especially as we convert single vertical teams into multi-vertical customers. And this is where new solutions like Perch and Impect will play an increasingly important role as we unlock their potential through our global scaled sales organization. Third is ACV retention. We're maintaining retention above 95% by consistently delivering value, service and innovation. And as we add new solutions, we deepen the role we play in helping customers make better decisions, strengthening the stickiness of our platform and the trust they placed in us. Fourth is the variable cost efficiencies. We are scaling smart, supporting growth while driving productivity and lowering marginal delivery costs. Fifth and lastly, it's fixed cost discipline. With our foundation now in place, we are positioned to grow without layering in equivalent fixed overhead. Turning to our outlook on Slide 31. Our objective remains to deliver on our strategic priorities with a continued focus on profitable growth. As we communicated last month, in FY '26, we continue to expect ACV growth to remain strong with low churn, continued improvement in cost margins towards our targets and higher free cash flow, excluding transaction costs as our business continues to scale. In closing, we've had a great start to FY '26. We continue to deliver strong profitable growth with a SaaS engine that is driving us forward, with a team that is hitting on high expectations that we set for ourselves. With our all-in-one SaaS platform built exclusively for sport, now strengthened by Perch and Impect, we stand alone in our ability to help teams, athletes optimize their performance. I remain confident in the path we're in and in the vital role we play in unleashing the potential that lives inside every athlete and team on earth. Thank you all for listening, and I will now turn back to the operator for questions. Operator: [Operator Instructions] Your first question comes from Owen Humphries with Canaccord. Owen Humphries: Well done, team. Another set of strong numbers. A couple of questions from me. First one is just on the Pro team count, added 276 my numbers here in the half, but that would have included Perch, which was around 125, my understanding around the time of the acquisition, but that's largely high schools. Can you just maybe talk through what the, I guess, organic Pro team growth was for the first half? Will Lopes: Yes. Thanks for the question, Owen. Yes, I think the amount of teams that came -- Pro teams that came through Perch were quite minimal. I think the overlap that we had during the acquisition between our Pro team and their Pro teams was very high. I don't have the exact number on the top of my head, but I would have assumed the additions that came with Perch were definitely less than 10% of the additions that we've added in Pro, but probably even less than that on it. So most of that addition is organic. Owen Humphries: Right, So strong teams addition, well done. And then just to understand the multi-vertical team growth of, call it, 95%. Now we didn't get a discussion point around the new video solutions, which was around $13 million of ACV in the last result. Can you maybe just talk through how that tracked up? Is it fair to say that 95 teams was largely taking up the new video solutions? Will Lopes: Yes. The primary growth continues to be in multi-verticals is our Performance & Health or wearables customers taking on video solutions. So yes, the primary version of that came in. I would say that the first half of this year, we were really pleased that we saw, as you asked in your first question, really strong growth in new additions of new teams. So I think the sales team was primarily focused on new logos, but also as we started to integrate Perch, upsell within that logo -- within that vertical also took a lot of attention, which would not show up in the multi-vertical numbers. Owen Humphries: Well, actually, can we dive deeper on that because if it's the strongest first half addition in teams, like what has changed in the sales team to go after new logos because you can't really see it in the variable cost of sales and marketing, so like you're adding 50 more people in that team. Could you just talk through some of the drivers, some of the regions, how you're incentivizing what's -- just the drivers of that strong team growth, logo growth? Will Lopes: Yes. Nothing, I think, in particular unique, I think, from the past. I think it's just where the pipeline fell at the first half of the year. We saw good growth in wearables, particularly around all soccer regions. We saw strength, I think, as Bob mentioned, in American football across all the collegiate areas. And then an upsell as we started to introduce Perch into that vertical customer as well. We should -- they just -- that number doesn't show up in the multi-vertical count. Owen Humphries: And just on the fixed OpEx growth here. So the like-to-like growth was, call it, 8-odd percent. Now that you have a bigger balance sheet, can you just talk through any ideas? I know you talk about modest growth going forward. Is that kind of 5%, 10% growth? You guys are not planning a reinvestment strategy given you guys have a more capitalized balance sheet? Will Lopes: No, I think as Bob mentioned, I think we anticipate modest growth from a fixed cost perspective as we have in the past. I think we have -- we feel like we have a good scale foundation. Like-for-like, I think when you remove the addition of Impect -- sorry, when you remove the addition of Perch R&D in the first half, and the tax, the payroll stuff, our growth was actually just 7%, and our anticipation always has been that, that's around the amount you should estimate on R&D expenditures going forward in terms of growth. Owen Humphries: Well done, guys. Good result. Will Lopes: Thank you. Operator: Your next question comes from Evan Karatzas with UBS. Evan Karatzas: One for me. Just keen to -- well, just keen to parse out how you're thinking about the top line growth over the next 12 to 24 months just with the inclusion of Perch, Impect, which are faster growing businesses and I guess, the existing Catapult and you also got the Vector 8 global rollout, just around, I guess, the potential to accelerate that top line growth from here relative to the last couple of years? Will Lopes: Yes. I appreciate the question. Yes, look, I think as we mentioned in our outlook, we anticipate ACV growth from hereon out to remain strong and for us to continue to see churn. I think the Impect -- sorry, the addition of Impect and Perch will, in their own rights, I think, help each of the verticals accelerate to some degree from where we stand today. It's a bit early to say, particularly on Impect. It's been a couple of weeks since I think we closed the deal. A big part of that acquisition was to ensure that we start to play in the scouting area of the vertical as well as help us have some more innovative bundling strategy with our existing Pro video suite. How it impacts growth rate at this stage, I think it's too hard to kind of give you a guidance on a number. But I think as we've said in the past, I think the addition of all of these products as well as the expansion of our hardware on Vector 8 just continues to add more fuel rods to maintain our growth rate and keep it going strong from here on out. Evan Karatzas: Okay. Good one. And then just sort of a quick follow-up there. Just remind us of the Vector 8 rollout and the progress there for the next 18 to 24 months as well? Will Lopes: Yes. I think we continue to be incredibly excited for it. I think -- so we typically start these rollouts a bit slower than you -- sort of to make sure that we're not impacting our customers in any significant way before we kind of really get our entire customer count converted. Our first focus was really around American football in North America. We passed pretty much the Northern Hemisphere summer time introducing the new technology. We are now in the second phase where we're expanding that technology now into other sports and geography. And I think what was really exciting for us is how fast we could bring new features to market. What used to be really months, what would typically takes between seasons, right, new features that we would design from a software perspective, we can now bring to market in a matter of weeks. And I think to your question, we see that really as sort of the underlying opportunity in the Vector 8 platform, which is not only are we collecting these first-party data sets, but the ability to invent and create new software and add value to it that potentially could lead to expansion of share of wallet means that we can move much faster than we have in the past. So we may not have to wait season to season to see some of that impact growth. But I think the caution I think we've always done to the market here is we're a subscription business. And so while we are excited by the platform and what Vector 8 will allow us to do in the future, we don't see the rollout of the hardware as an ACV moment for us. I think later on, as the software starts to improve, that's really where we start to see the AC benefit long term. Operator: The next question comes from Damen Kloeckner with CLSA. Damen Kloeckner: I just wanted to build on a couple of questions that have already been asked. So if the 408 new Pro teams, should we think of that as basically being exclusively driven by soccer across multiple regions and North American football, like if you could [Audio Gap] of 400? And then also just with the multiple verticals, where has the MV penetration been highest? Which teams are you having the most with now over the last few months as you're integrating these new businesses and rolling that out? Will Lopes: Yes. So I think from a -- if I understood your question on the first part, the primary growth driver on sort of new Pro teams, yes, continues to be in global soccer, primarily in sort of Northern Europe, Eastern Europe and Southern Europe, where are still greenfields for us. We also had incredible success in Latin America. The team -- the sales team continues to do a really great job in that region. And we're now finding particularly in the sort of Middle East, Southeast Asia, some really great results there as well. Similarly, I think the North American market continues to be very strong for us. American football has always been an area where we continue to see consistent growth. And I think we're very pleased to see that continue along the way on the Performance & Health growth logos in particular. I think to your second part of your question on the multi-vertical, yes, the primary area where we're finding, I think, the sort of the, I would say, the lowest hanging fruit in converting a wearable client into a multi-vertical client, continues to be in global soccer. That's really been the primary focus, which is why the addition of Impect was to us so exciting is that not only does it allow us to continue to add on the Pro video suite that we've always -- we've been building and feel we have probably the best one out in the market, but now it allows us to combine that with the most sophisticated scouting analysis tool. And if you understand sort of the Pro global soccer industry, what you quickly realize is that actually outside of maybe the top 30, 50 teams in Europe, 95% of the revenue that teams generate globally is through their scouting system. It's basically through building a great athlete and selling that great athlete to some of the big teams in Europe. So the fact that we now have this platform within our ecosystem, coupled with our Pro video stuff, we're very excited that it's going to give us the opportunity to continue to keep our multi-vertical solution growth stronger than it's been this past half. Damen Kloeckner: Okay. And just one more. Can you give us a little bit more color on what is driving the strength in media business? And should we still be thinking of this as exclusively a North American opportunity, is like contained to the U.S.? Or are you seeing opportunities for media services elsewhere? Will Lopes: Yes. I think it continues to be a positive surprise for us. It's not -- it's never been an area where I think it's been a core driver of our business, but it's an area of the business that has always benefited from the platform, the underlying platform we built primarily for video analysis. So it utilizes a lot of the tools and the technology on it. The drivers have been really, I think, what I mentioned, which is the sort of unprecedented demand around sports, and basically, sport being really the last bastion of live entertainment means that the value of the ecosystem and the amount of investment going in continues to be pretty high. So what that's translated for us on that licensing media part of the business is really two things. I think, one, we're seeing a higher demand for content, particularly collegiate content out of the U.S. for highlights, for advertising purpose, and we're also seeing the streamers, the likes of Netflix, Disney, Amazon want to create content around sports and us sort of playing the rights holder role for our clients in that case is benefiting from that demand. Again, we are cautious. We're very excited, having 40-plus percent growth on anything is always incredibly exciting. I think we're always cautious that it's been a part of the organization that has been historically growing in the single digits, 5%, 7% annually. We treat it typically in our minds as something that we anticipate to stay flat. But if this demand continues, I think we'll probably have to rethink how we think about this part of the business for ourselves. Operator: Our next question comes from Lindsay Bettiol with Goldman Sachs. Lindsay Bettiol: Hopefully, you can hear me okay. Will Lopes: Very good. Lindsay Bettiol: Yes, good. Okay. Question, if I have a look at, say, the full year ACV results versus the first half ACV result, like the mix of Pro teams growth and ACV per team is kind of inverted. With the first half, it was ACV per team driven; second half, more Pro teams driven obviously because of Perch. As we go forward, like you've acquired Perch now, Impect comes in, I would think that would kind of, one, accelerate the conversion of video, but also it's just a higher ACV per team anyway. Like how should we think about the mix of your ACV growth going forward? Would you expect that to be more ACV per team driven versus, say, what we've just seen in the first half? Will Lopes: It's hard to give you a real good answer on that at this stage because I think it's still pretty sort of bringing -- we haven't been historically an M&A machine, where we add solutions into the mix. So Perch has only been with us for 5 months Impect for a couple of weeks. Historically, I think the way we tend to think of our ACV growth or at least not to think about it, but historically, how it's come, it's been around 50% driven by new and about a quarter on upsell and a quarter in cross sell -- sorry, a quarter in price increase. My expectation is that at least for the next 12 months or so, I don't see any reason why that ratio changes. I would anticipate that upsell and cross-selling would still primarily drive about a quarter of our ACV growth and new about half of it. But that ratio could become a bit more close to equal if the integration with Impect and the integration with Perch continues to do as well as we imagine, but it's a little bit too early for me to give you any guidance on that at this stage. Lindsay Bettiol: No, brilliant. That's fine. And then just a couple of clarity questions. If I look at your staff numbers, it looks like they ticked up by 20 half-on-half. Could you just remind us how many heads came across as part of the Perch acquisition, please? Will Lopes: How many heads, how much headcount... Lindsay Bettiol: Yes, how many employees? Will Lopes: Yes. So I think Perch was somewhere in the neighborhood of like a team of 10. And I think in Impect, which is not yet reflected in the number, it was probably -- it's probably about a team of 30 to 40 on their corporate side. It's a bit higher on the operations side that sits behind it in the Philippines. I think the number is around 400. So you'll see a tick on head count growth. But again, those are mainly operational headcount. So think of it as like a support center on it. Excluding those, I think our head count is probably minimal from a growth perspective net, right, so probably around 10 to 15. Lindsay Bettiol: And then just final kind of clarity question. I think Bob did call this out, but just to be sure, the Russia impact, that's done now, right? Will Lopes: Yes. So by the end of the year, if that's what your question is, the Russian impact will be excluded -- or not excluded, it's no longer impacted in the numbers. This will be the last time that, that impact on ACV will be there, particularly in churn. So if you exclude that impact now, I think our retention rate was around 96%. I think we had a churn rate of like 3.9%, which would have been compared to last year this time around 3.8%. So virtually flat and an amazing level at all counts. But yes, you shouldn't anticipate that impact going forward. Operator: [Operator Instructions] We have a follow-up question from Owen Humphries with Canaccord. Owen Humphries: I think you just answered it before. But just around that media business, I think you said that you expect that business or way you model it is kind of flat in terms of the run rate revenue to date going forward? Will Lopes: Yes. I actually think -- I would say that we think it's probably running a little high given where historically we've seen. I think the -- I would say that it's somewhere between $10 million to $12 million in annual revenue. It's kind of where we've seen that business run with, let's call it, CPI level increase. I think this year, it's running -- I don't have the number, but it's probably closer to $14 million right now. So while we're delighted to see it there, I think I'm just a bit cautious on that metric because I don't know how long this demand that we're seeing, particularly from the streamers, right, will stay on. We had -- I'll give you an example, Netflix created a show last year around collegiate sports, particularly around American football. We weren't sure if it was going to get renewed. This year, it did get renewed. And so -- but it's still unclear whether the following season it will get renewed. So it's -- I think those are -- they're harder to predict than the other parts of our business. That's why I think we're fairly cautious about it. Owen Humphries: Got you. And if you're an analyst doing some modeling, and obviously, run rating at 16.6%, you kind of said run rate should be around 10% to 12%, but maybe how would we forecast that into future years and also for the game play, but I think that's where the market is focusing on, what it means for growth trajectory next year? Will Lopes: Yes. I think 10% to 12% with some CPI level growth is probably appropriate. But I don't know what else to add to that.
Andre Parize: Good evening, everyone. I'm Andre Parize. Investor Relations Officer at XP. And it's a pleasure to be here with you today. On behalf of the company, I would like to thank you all for your interest and welcome you to our third quarter 2025 earnings call. Today's presentation will be led by our CEO, Thiago Maffra, and our CFO, Victor Mansur, who will both be available for the Q&A session right after the presentation. If you would like to ask a question, please use the raise hand feature on Zoom, and we will address them in the order we received. [Operator Instructions]. Before we begin, please refer to our legal disclaimers on Page 2, where we provide additional information regarding forward-looking statements. You can also find more information in the SEC filings section on our IR website. Now I'll turn it over to Thiago Maffra. Good evening, Maffra. Thiago Maffra: Thank you, Andre. Good evening, everyone. I appreciate you all joining us today for the third quarter 2025 earnings call. 2025 has been a very important year for XP as we have achieved significant progress on our agenda of excellence from the launch of the new way to attend and serve clients, implementing a culture to better understand clients' financial cycles as part of the main KPIs, new and more intelligent segmentation through a brand-new app with much more features and easier data access and new credit card offering. These few examples demonstrate our focus to become the leader in investments in the country while it brings a completely new approach on how Brazilians invest. Despite this advance we have made in different areas, the year has still proven to be challenging. But even with this challenge, our team is fully committed to keep evolving our business to deliver growth and profitability under different circumstances. Now going to the main KPIs. The first one is client assets, AUM and AUA for which we posted BRL 1.9 trillion, a 16% growth year-over-year. Total advisers accounted for 18,200, representing a small decrease year-over-year on the back of many of them becoming employees and our more restrictive policy, which requests higher standards of commercial behavior and productivity. And on activity clients, we posted 4.8 million clients with a 2% growth year-over-year. It's important to mention that we have been growing on core client segments, high income and private banking. For some quarters, we were not investing to capture and maintain low retail clients since it was too expensive to serve them in our old model. But now after some tests, we are almost ready to resume growth in this segment. We already see early stage of development on how to better serve the segment with profitability. Let's wait some quarters to be sure about the way we design to attend retail clients and maybe we'll see the overall number of clients growing again as this dynamic evolves. In the quarter, gross revenues marked BRL 4.9 billion, representing 9% growth year-over-year. EBT is 10% higher year-over-year, making BRL 1.3 billion. These results were positively impacted by the more constructive dynamics in Corporate & Issuer Services segments. Following this positive trend, our bottom line also posted an impressive growth year-over-year, reaching BRL 1.330 billion and representing a 12% growth when compared to the same period last year, which represents a new record. On profitability, we achieved 23% ROE during the quarter, a flat performance year-over-year. This represents our commitment to deliver profitability even in more challenging market scenarios. On capital ratio, we maintain a very comfortable level of 21.2%, which represented an increase of 180 bps quarter-over-quarter. Regarding diluted EPS, we posted 13% growth year-over-year, another quarter in which it grew faster than net income, driven by our share buyback program execution. Now let's see more details on the next slides. Our total client assets combined with the assets under management from our asset management business and with the AUA from our fund administration business totaled over BRL 1.9 trillion, which represented a 16% growth year-over-year. On the right hand of the slide, we show how net new money related to client assets developed in the period. This quarter, we achieved BRL 20 billion in retail net new money and BRL 9 billion in corporate and institutional, which combined represented BRL 5 billion lower than last year, but 3x higher than last quarter. On the retail side, we started to see the early signs of progress on our agenda of excellence we mentioned before, lower noise of some events we had during the first half of the year and better GCM activity towards the end of the quarter. All this combined positively impacted the inflows coming from individuals. Additionally, despite the maintenance of the same market dynamics during the third quarter of the year, we saw better net new money figures, both from SMEs, which are incorporated in retail figures and large corporates. Recent developments in our product range offering and more positive capital markets activities translated into higher net new money for both segments. We are constantly improving our investment platform. And as we mentioned before, enhancing clients' experience through adviser initiatives. This combination reinforced our confidence to achieve our target of around BRL 20 billion in retail net new money per quarter. On the next slide, we will explore our retail strategy. As I mentioned earlier, 2025 has been a year of significant progress in our agenda of excellence. We are constantly enhancing our way of serving clients with the aim of once again disrupt the market with our value proposition focused on service level. Going back to our foundation, XP disrupted the investment industry in Brazil by democratizing access to investments through an open and comprehensive platform of products and service. In a second stage, we scaled this innovative business model by building the largest and most qualified base of financial advisers in the market. We have come this far by offering best-in-class investment products built by top market specialists. Now we are once again disrupting how Brazilians invest by democratizing access to high-quality wealth planning, a service that until now has been reserved for high net worth clients of multifamily offices. We delivered personalized and premium planning for clients with more than BRL 3 million, scaling financial planning for those with over BRL 1 million and offering goal-based investment planning for clients with less than BRL 1 million. Our approach is holistic, encompassing the complete financial lives of our clients, assets, liabilities, expense and savings. Tax and estate planning solutions are also considered. In the end, we are serving our clients with top-tier solutions for both their personal and business finance. We are doing this at scale, powered by proprietary technology we have developed over the past years. This technology enables process standardization, scalability and consistent quality in our servicing model. Examples include our CRM system, proprietary allocation platform and sales activity management, among others, all of them powered by AI. Some of these process KPIs are shown here. Proving that this journey towards excellence is gaining traction day by day. Additionally, combined with all this progress I have just mentioned, we are leading another change in the industry by having an agnostic business model. We are able to serve clients in the way that best fits their needs and preferences. The fee-based model already accounts for 21% of total retail AUC. It started in the wealth service segment, which still has more representativeness in the model, but we are accelerating in the other segments from this year on. We will still capture considerable growth coming from this new way to serve. It will happen in the medium term as we are transforming our business model and our value proposition. Nevertheless, we strongly believe that will give us a sustained competitive advantage in the long run. Finally, XP once again is a pioneer. We are not only leading this redefinition on how clients are served, but we are also uniquely positioned to capture future growth coming from this change in client behavior and new market trends. Retail cross-sell has been one of our focuses to diversify revenue streams during the last years. During Q3, we achieved important milestones in this business segment. Starting with credit card, TPV grew 9% year-over-year, marking BRL 13.1 billion during Q3. As we anticipated last quarter, at the end of Q2, we launched new products targeting affluent and private banking clients. We estimate that with this new segmentation, each one of them with a unique value proposition, we should grow faster in the coming quarters. Life insurance written premium posted 25% growth year-over-year in Q3. As we have mentioned in the past, our insurance business is still in its early stage. Given its significant expansion potential, we expect it to continue growing. On retirement plans, our client assets posted 15% growth year-over-year in Q3 and reached BRL 90 billion. We keep expanding our sales force and our product offering to increase our relevance in this industry. As mentioned before, we see a lot of potential in life insurance business segment with a significant addressable market to penetrate in the coming years. Credit posted 11% growth year-over-year in Q3, achieving BRL 83 million in NII. In new products, we consider FX, global investments, digital accounts and consortium. Altogether, they presented 24% growth year-over-year with revenues reaching BRL 250 million this quarter. Beyond consortium, we also saw FX and digital account posting relevant growth this quarter. Moving to the next slide, we will address our wholesale bank evolution. Taking GCM into consideration, this quarter, we saw a sequential increase in industry volumes when compared to the previous quarter. This growth was pretty much concentrated in the last half of the period, backed by the progress in the tax discussion regarding tax exempt and incentivized instruments. In the third quarter of 2025, we had 10% market share in debt capital markets distribution. We still have a robust pipeline of fixed income offerings and depending on market conditions, we might see these mandates materializing into real deals still in 2025. Regarding XP broker-dealer, it was another positive quarter, and we kept leadership in the local industry with 17% market share. On corporate securities, this quarter, we kept about the same size of our corporate securities book with BRL 33 billion. The quarter started with possible change in taxation of tax-exempt fixed income instruments and finished with many companies taking advantage of low credit spreads to issue new debt. Next year, we can possibly see an increasing volatility and therefore, a reduction in corporate clients' appetite for new offerings. So our strategy, that being the case, is to increase this warehouse book in the last quarter of 2025 to sell it to our retail clients during the next year. As a final message, I would like to once again emphasize our ability to disrupt the market. We are the pioneers of this transformation trend, bringing clients unique value proposition or innovative offering combined with an agnostic business model and strong capital discipline position us as a distinctive player that successfully combines growth potential, profitability and risk management. I would also like to reinforce that our ecosystem today is far more complete than it was just a few years ago and there are multiple opportunities to be explored across all our businesses. We are confident that by executing this strategy, we will achieve our goals of market leadership in investments and deliver sustainable long-term growth. Now I will hand it over to Victor who will provide a deeper look into our financial performance this quarter, and I will be back for the Q&A session. Victor Mansur: Thanks, Maffra. Thank you all for being here today. Now we'll discuss our financial performance for the third quarter. Starting with gross revenues, we posted gross revenue of BRL 4.9 billion, a 9% growth year-over-year and 6% growth quarter-over-quarter. In retail, revenues reached BRL 3.7 billion, representing 6% growth year-over-year and 4% growth quarter-over-quarter. Institutional revenues were stable at BRL 304 million, flat year-over-year and slightly decreased quarter-over-quarter. Corporate & Issuer Services delivering outstanding performance, reaching a historic record of BRL 729 million, a 32% growth year-over-year and 33% growth quarter-over-quarter. This was driven by strong capital markets activity, followed by our leading position in corporate client solutions, which we will discuss in more detail in the next slides. Now starting in retail revenue. The performance was mainly driven by floating from both check and investment accounts, which benefited from higher average volumes and higher interest rates during the period. And second, new verticals included in other retail, such as international investments and global accounts, which delivered strong results. Lastly, it's important to mention that this quarter also includes the revenue of the expert event. If that, the other retail category totaling BRL 757 million, marking 24% growth year-over-year, 19% growth quarter-over-quarter, offsetting a weaker performance from other product lines due to lower ADTV and shorter duration. Now let's move to the next slide in Corporate & Issuer Services. This was the best quarter in our history. The outstanding performance was driven by a pickup in DCM activity compared to the previous quarter, and the continued development of our corporate client franchise. Issuer Services posted BRL 323 million, stable year-over-year and 21% growth quarter-over-quarter. Corporate revenues reached BRL 406 million, representing 77% growth year-over-year and 46% growth quarter-over-quarter. The strong growth reflects our increasing capability to deliver solutions to large corporate clients, particularly in hedging solutions. Moving on to the next slide, we explore SG&A and efficiency ratios. SG&A expenses totaling BRL 1.7 billion in the quarter, representing 10% growth year-over-year and 7% growth quarter-over-quarter. We remain committed to invest in the areas we consider critical for long-term growth including sales force expansion, marketing and technology, as highlighted by Maffra earlier. These initiatives are designed to enhance the client journey and elevate our overall service level. While this strategy may lead to stable or slight softer efficiency ratio in the short term, we see these investments as fundamental to sustain our competitive edge over time. Our last 12 months efficiency ratio was 34.7%. Compared to the last year, the ratio improved by 79 basis points. As usual, in the third quarter, results also reflect the impact of the expert event which once again proved to be outstanding opportunity to connect to our stakeholders. From another angle, the impact of it in the current efficiency ratio was approximately 70 basis points. Moving on to the next slide, let's see our EBT. As a result, our EBT was BRL 1.3 billion, representing 10% growth year-over-year and remaining sequentially stable. The EBT margin expanded 47 basis points on the annual comparison, while compressing 103 basis points quarter-over-quarter. Now looking at the net income, we reached BRL 1.3 billion, a 12% growth year-over-year and 1% increase quarter-over-quarter. The net margin expanded 106 basis points on annual comparison and compressed 112 basis points sequentially, closing the third quarter of 2025 at 28.5%. Now let's focus on capital management. This year, we have been highly active in returning capital to our shareholders. In 2025, we repurchased BRL 2 billion of which BRL 850 million occurred after the end of the third quarter, and therefore, are not reflected in the accounting metrics we are presenting today, such as ROE and EPS. Today, we are announcing the retirement of our outstanding treasury shares bought back during the year and the new 1 billion share buyback program to be executed over the next 12 months. On top of that, we are also announcing a dividend of BRL 500 million to be paid in 2025. This represents BRL 2.4 billion in capital return to shareholders in 2025 approximately 50% payout if you analyze our net income. If you consider the new buyback program, the payout ratio would be around 7% for the year. So let's focus on earnings per share and ROAE detail over the next slides. In the third quarter, our diluted EPS once again outpaced net income growth, reaching BRL 2.47 per share, supported by our activity capital distribution strategy through share buybacks. In this quarter, EPS grew 13% year-over-year and remained stable quarter-over-quarter. On the right-hand side of the slide, ROTE stands at 28% and ROAE at 23%, slightly lower than last quarter, since we had the capital generation without the corresponding distribution, assuming the execution of the new BRL 1 billion buyback program and BRL 500 million dividend payment and ROTE an ROAE would have been 30% and 24%, respectively. Now moving to the next slide. To conclude my presentation, our capital ratio ended the third quarter at 21.2%, and the CET1 at 18.5% well above peers average and the regulatory requirements. This comfortable capital position gives us a strong edge to navigate different scenarios and be ready for the upcoming volatility. Also, during 2026, we expect to have the opportunity to deploy capital in a more efficient manner. It's important to remember that we maintain our guidance for a BIS ratio between 16% and 19% for the end of 2026. Now talking about risk on the right-hand side of the slide, you can see that our RWA totaled BRL 108 billion, representing a 13% growth year-over-year and a 6% increase quarter-over-quarter. Finally, our VaR stood at BRL 29 million or 12 basis points of equity. Even in a quarter of outstanding performance from our wholesale business, we maintain a very conservative risk profile. In this quarter, it's worth to mention that our balance sheet grew 6%, but adjusting for retirement plans and secured funding, it growth would have been lower than the CDI for the period. This increase in retirement plans is associated if a one-off bulk migration we did from other insurance companies to our own, and we don't expect to see it in other quarters. Besides that, as you can see, we kept our market RWA stable and decrease our VaR sequentially, reinforcing our position as a robust ecosystem with strong risk recycling capabilities. And now we can go on to the Q&A. Andre Parize: [Operator Instructions]. The first question is from Eduardo. Eduardo Rosman: I have a couple of questions here on the wholesale business, results were really strong this quarter. Should we expect a similar performance in the fourth quarter? Or do think a slowdown should be expected, right? And my second question is on what Maffra mentioned, right, during the call, right? The strategy to increase the warehousing book in the fourth quarter. If you can give us a little bit more detail -- because you also mentioned that corporate spreads are very low. So wouldn't that be a risky strategy in an election year. Thanks. Thiago Maffra: Hello, Rosman. Thanks for your question, and good evening, everyone. So we are seeing the wholesale banking with a good performance for Q4. So as we mentioned earlier in the last call, we have seen the second half of the year is stronger than the first half of the year, especially for the wholesale bank. Victor Mansur: Rosman, this is Victor. Talking about credit spread first. We think that the credit spreads are really tightened. And if they -- the probability is that they can go a bit more wider over the end of the year and next year. But also, there is a lot of net inflow in fixed income funds that keep putting pressure in the spreads. And it's important to remember that our strategy is to hold high-quality assets and the velocity of turnover of our portfolio is higher than the average of the industry. And we are not as susceptible as credit spread volatility as the rest of the competition. And also in terms of RWA, we expect to sell a bit of what we bought over the third quarter. And depending on the performance of the same, warehouse a bit more to go through the first quarter of 2026. As we all know, the first quarter usually is a quarter with lack of activity in DCM. So it's important to us to have assets to sell in the beginning of the year. Andre Parize: Okay. Next question is from Yuri Fernandes, JPMorgan. Yuri Fernandes: Just to follow up Rosman on corporate. Can you remind what was the 46? I think you mentioned hedging strategy, but I'm not sure what was it? So just trying to understand a little bit again the corporate, inside Corporate & Issuers, the 46% quarter-over-quarter increase. And on bonus, this line was a little bit heavier this quarter, but coming from, I would say, a softer base, right, when we go to the 9 months. I think total bonus is up 80%, 90% year-over-year, so not a big increase. But if you can comment a little bit on what to expect on people, expenses, like salaries, like just to get some idea on SG&A. I would appreciate. And if you want to comment on bonuses also, I think it's also a good point, given it was a little bit higher this quarter. Victor Mansur: Thank you for your question. This is Victor. First, talking about the corporate performance. It's important to remember the corporate business is tied to the DCM activity. So one of the main drivers of P&L in corporate is hedge solutions to company issuing debt. So for example, the company issue a debt tax-exempt corporate bond, inflation-linked bond and it doesn't want the exposure inflation. it hedges against us in CDI plus. That's one of the business, and it's highly correlated with the same activity. Also, another business that is really important is the originator of credit operations that will be securitized and sold to clients in the next quarters. If you go to our credit portfolio, you see that it's flattish. Basically, we sold quasi-sovereign bank notes, and we originated corporate operations, but those operations will be securitized and then sold to clients the same as we did in other quarters. And now moving to bonus. It's normal to see the bonus going higher after the performance of investment banking going higher the way it did over the quarter. So part of that is explained by performance in Wholesale Banking. Another part is explained by the new hires over the year. We hired almost 500 new employees, mostly on sales force expansion over the year. And this is one part of the drivers of salary growth and bonus provisions. Yuri Fernandes: Super clear, Victor and congrats on the net new money improvement for the quarter. Andre Parize: Next question is from Mario Pierry, Bank of America. Mario Pierry: Let me ask 2 questions as well. First one, when we look at your retail revenues growing 6% year-over-year. But if we double-click on that, we see that our fixed income revenues actually contracted year-over-year. They have been contracting 2% even as the AUC grew 22%. So it means there was like significant pressure on take rate. Can you explain why that happens, right? Because when we look at fixed income, revenues were growing like 40%, I think, on average for the past like 6 quarters. So just trying to understand if there was a one-off event that impacted fixed income revenue? And then my second question is related a little bit to what Yuri asked, but when we look at your EBT margin, it had been expanding for past like 3 quarters, I think. In this quarter, it contracted because of the pickup in expenses and you're running below your guidance, right, your medium-term guidance of about, I think, it's 30% to -- 29% to 32%. So just trying to get a sense here also, like should we expect the trend to start to improve in the next quarters? Or do you think that the EBT guidance it's something for more like for the end of 2026. Thank you. Thiago Maffra: This is Thiago. I will take the first question. I can answer the second one and Victor complement myself here. About the fixed income revenue, the main problem here is if you look the take rate for investments, if you compare Q4 last year to Q3 this year, it's down 10 bps overall, okay? So it's a huge draw here, drawdown. And when you look only fixed income, 20 bps, okay? So it's a big decrease in take rate. And it's mainly explained because first one, mix, okay? So if you look CGs with daily liquidity, they used to represent 25% of the new allocations, okay? So 25%, today is 45%. Because of the high SELIC rate, we are selling almost half of everything that we sell for fixed income, it's CGs with daily liquidity. When you compare the revenue we make here, it's basically a daily spread on CGs with daily liquidity against duration times spread, okay? So it's a completely different revenue stream, okay? And the second one is shorter duration, okay? So right now, everyone is only buying like a very short-term durations, okay? So when you combine the mix of more CGs with daily liquidity and shortened duration, we are selling a lot more volume in fixed income, but with a lower take rate. About your second question, we are investing in sales force expansion. We are investing in SMB. We are investing in technology. So we are doing a lot of investments this year, and we are planning to do more investments next year. So I would say that is still possible to get to the -- at the end of the next year to the guidance we gave, but you see because in the past, I would say, 2 years or even more, we have been gaining a lot of efficiency quarter after quarter. I would say that right now, we should be more flattish when you look at the next quarters because we are investing more, okay? So -- but still doable to get to the guidance by the end of the next year. Andre Parize: Okay. Next question is from Gustavo Schroden from Citi. Gustavo Schroden: Hello, guys. Thanks for the opportunity. I have 2 questions as well. The first one is -- sorry to insist in this sales force that you guys mentioned. But because if I'm not wrong, you mentioned something around 500 new employees, and most of them related to sales force. But when we analyze the total number of advisers that you have, it is decreasing, right? So year-on-year and stable quarter-on-quarter at 18,200 advisers, including IFAs and XP's employees. So I'd like to understand what kind of sales force are you hiring? And if it is possible to reconcile with this total number of advisers? And my second question is related to financial expenses. We saw decent decrease quarter-on-quarter and year-on-year, so 28% below quarter-on-quarter, 45% decrease year-on-year despite higher SELIC rate we could see that there was a reduction of BRL 1.5 billion in borrowings. So my question is this reduction is related to these lower borrowings or are there different reasons behind this decrease in financial expenses. Thiago Maffra: Okay. I'll take the first one. About the total number of IFAs, as Victor mentioned, that we are hiring more internal advisers, okay, here, it's because when you look at the IFA, the B2B network, they have been converting some of the IFAs into employees because of the change in regulation that has been happening, I would say, for over a year now. And the second part is because we have been part of the third wave that we mentioned a lot here on quality, the way we serve clients we have been focused a lot more on quality. So more skewed IFAs, okay? So we have been I would say, even forcing some of the low-quality IFAs like to leave the network. So we have been increasing on what we call AAA advisers and we have been decreasing on what we call C and D curve of IFAs, okay? So those are the main reasons why you don't see the number of IFAs growing. But as we don't open the number of what we call AAA IFAs here, but this number has been increasing. So we have been focusing more on more qualified advisers. Victor Mansur: This is Victor taking the second part about the financial expenses. Just remembering here, we went through a reorganization of our conglomerate over the last year, changing the bank to the top of the business. And that has an important effect in financial expenses and also other revenues. So when debt that was a corporate debt inside the holding matures and it is rollover for a debt inside of the bank, it gets out of the financial expense lines and goes inside of net interest margin. So it's just a geographic effect. It goes from the debt to the -- to be a reductor of revenues. And that's also why other revenues is lower quarter-over-quarter. You're going to see that the change between lines, they are closer to each other. That's the -- may affect just a geographic movement between lines. And also, it's important to note that the bank debt is much cheaper than corporate debt. So you do have this geographic movement, but also the overall cost of debt of the company is considerably lower when you compare 2024 to 2025. Andre Parize: Next question is from Daniel Vaz from Safra. Daniel Vaz: I wanted to follow up on Mario's question on fixed income. Instead of looking on the 2% drop, I wanted to talk about the 7% drop quarter-over-quarter. I mean DCM activity improved, right? So we saw that on your insurance services, net new money improved, warehouse of securities did increase, and we had higher business days, right? So it's probably -- it's probable that you distribute a higher volume to the clients. So I heard you on the mix change, but this -- I mean, was this a quarter-over-quarter change? I mean the CGs with daily liquidity, went up from 25% to 45% in 1 quarter. Just wanted to touch base on that again, if you could explore a little more of what the change quarter-over-quarter means? And if I may follow up on the guidance, I wanted to check on your comment, Maffra. If you're able to get on the fourth quarter of next year on your EBT margin instead of the full year. Is that correct? Did I understand well? Victor Mansur: Daniel, this is Victor. Taking the first part here in fixed income. If you remember a few questions ago, I told that we sold quasi-sovereign banking notes from our warehouse book, and we warehoused corporate bonds. So basically, that is what happened in real life when Maffra say that client is buying short-term floating rates, that is what's happening. So the products originated by the DCM markets over the quarter are still in our books, and we are going to sell them over the fourth quarter and first quarter of next year and what we saw their short-duration banking notes. That's why we see this behavior in the revenue quarter-over-quarter. Daniel Vaz: And -- sorry, in the guidance, if you can comment on the fourth quarter or full year of EBT margin? Thiago Maffra: Yes. Sorry for that. Yes, we feel that it's possible to target that next year. We don't give guidance quarter-over-quarter. So it's hard to say what's going to be Q1 or Q2 or Q4 next year, but we feel that the 30% is still doable. Andre Parize: Next question is from Thiago Batista, UBS. Thiago Bovolenta Batista: So I have 2 questions. The first one on the buyback. The intention of the BRL 1 billion buyback is to be concluded this year. I know that depends on the price of the shares, et cetera, but the initial intention is to conclude these this year? And the second one, about the IOC in the equity business. We saw that this quarter or the third Q, the IOC was basically flattish Q-over-Q. And we have the BOVESPA in the all-time high now. I've already seen not exactly in the third Q, but more recently, clients trying to move the money towards more risk investments like equities or not yet? Or maybe we need to see SELIC rate, let's say, single digits or something like this. So my question is, are you already seeing this migration from fixed income to high-risk investment? Victor Mansur: Thiago, this is Victor, first on the share buyback. The buyback program is open, and we are going to be buying over the next 12 months. And the same as before. We are going to wait for the best opportunity to deploy the capital and maximize the return to our shareholders. So we cannot give you an idea when it will be complete or if it will be the beginning of the next year or the end of this year. What I can guarantee you that we are going to be buying everything the same as we did in all the other programs we're opening. Thiago Maffra: Yes. And just to complement, Victor, on the payout strategy here. If you guys see -- we still have very high BIS ratio, and we mentioned that we would like to bring it down to something between 16 and 19 by the end of next year. And that's still the case, but why we are not like giving more money like back to the market right now because we believe we will have good opportunities next year. It's going to be a volatile year. And for sure, we will have opportunity to do more buyback next year. So that's why we are not deploying or paying out more capital right now, okay? About the second part of your question is we don't see a big change in mix yet, okay? Because remember that the retail clients is -- they are a little -- of course, it's our job here to help them not to have this behavior, but they are a little bit lagging, okay? So once we start to see rate cuts and other things, price moving up and so on, people start to move money from one asset class to other, okay? But we are seeing a stronger funds platform right now, especially primary offering for closed or open end funds, REITs and so on. So the demand has been increasing for that type of products, but not yet for equities or for some other products, okay? So I would say that we are not in a point that we could say that we are seeing a lot of like a change in the portfolio. As we mentioned for fixed income, it's still the opposite. People are moving even more money to daily liquidity broad CGs because they are seeing 15%, okay? So I would say that we are not there yet. Andre Parize: Okay. Next question is from Tito Labarta, Goldman Sachs. Daer Labarta: A couple of questions also. First, a follow-up on the corporate revenues, right? You mentioned it's related to hedging solutions for companies issuing the tax exempt bonds. Is this a function of, I guess, companies just anticipating tax reform so that remains strong in the second half of the year, but potentially subsides next year? Or do you think that there's more sustainability to that? And then the second question, you saw a jump in retail inflows, right? I mean BRL 20 billion, which is more or less what you've been saying, but it was up significantly from last quarter. So was there anything significant, should we read in this, is just normal volatility? Or should that begin to accelerate from here? Just any color you can give on how that continues to evolve. Victor Mansur: Tito, the first one about corporate revenues. Hedging is related to issuance, but I think the issuance they are a function of the risk of the new tax regulation, but also the level of credit spreads. It's really cheap to raise debt here right now. Next year, we'll be extremely volatile. So I think components are moving around and doing whatever they need to do in terms of ION this year. Also, there is not only hedging solutions. We have power trading, cash management, FX operations, and the credit originate-to-sell as we commented before, I think what the hedging solution was one that gave a bit of highlights for the quarter, but there is still a lot of revenue lines inside of the [ corporate ] franchise. Thiago Maffra: I will take the second one about net new money. Of course, we have been doing a lot of things here, especially on what we call the third wave on increasing the level of service, the value proposition that we delivered to our clients. We mentioned a lot today on the presentation about that. So we have been democratizing the wealth service business to all our retail clients here for the past, I would say, a year or 1.5 years. So we have been developing a lot of technology CRM AI capabilities. So I would say that the level of service that we are delivering to our clients right now, it's much better than it was a year or 2 years ago and much better than most of our competitors. Talking about, of course, here, retail clients, okay? So we are delivering a level of service that nobody provides in the industry in Brazil. That's why we are calling it the third wave. But it's early to say that, that is moving a lot the needle here, okay? So I would say that's more like a medium-term impact, so we are around 20 billion. We have been saying that the level for the past quarters. I don't see any reason right now to change that for up or down here. So we are seeing BRL 20 billion as the level for the next quarters. But again, 16, 18, 22 or 23 for us is the same as BRL 20 billion, okay? So you could see 1 quarter higher than that and 1 quarter lower than that. Daer Labarta: Okay. That's helpful, Maffra. If I can, just one follow-up on that, right? Because just on the revenue guidance, right, you had said 10% for this year. I mean, expectations are that you'll probably be below that, but then also thinking on your 2026 guidance. The bottom end BRL 22.8 billion would be like a 20% jump. I mean is that still -- like what would need to happen for that to be realized? Or is that likely some downside risk just given the tougher macro that we've seen since you initially gave the guidance? Thiago Maffra: Yes. Yes. As we mentioned in the last earnings call, the second half of this year is going to be stronger than the first half in terms of growth, top line growth, but as the first half was soft, it's going to be hard for us to get to the 10%, but we can get close to that. For 2026, I would say it's almost the same rationale here because as 2025 was a little bit soft. Next year, we are going through -- we have to grow, not to give like a number here, but 17% to 20%, okay, still doable, but we might be a little bit short, like to the guidance next year, but if we are short, it's for a bit, not for much. Andre Parize: Okay. Next question is from Marcelo Mizrahi, Bradesco BBI. Marcelo, you may proceed. Marcelo Mizrahi: So my question is -- the first one is regarding the work days. I wanted to understand how the work days impacted the revenues in terms of the other retail revenues, in terms of revenues. So what's the mean back here? And if looking forward, if we will see a reduction of these lines. And the other question is regarding the investments. So you guys are talking about investment in technologies. We were seeing a lot of platforms investing in AI tools, digital tools and also the channel totally -- a robo digital channel. So it's -- are you guys already working on that, using AI to adviser -- to give advisers to the clients, especially to the kinds that the lower income are the lower tickets to bring them a better service and to increase engagement and the revenues. Victor Mansur: This is Victor. Thank you for your question. First year on business days. As expected, business days gave us a positive impact in terms of floating and trading days. But this was compensating the negative way in terms of lower ADTV for [ axis ] and the shortening duration that Maffra explained in the fixed income platform. So those effects goes in positive directions. And the mix overcomes the -- in terms of business days, that's basically what happens. But that's why we see [ axis ] on fixed income, EBITDA and other retail, which have the floating component a bit up over the quarter. Thiago Maffra: On the second question, Mizrahi, yes, we have been working a lot with AI on different verticals here. I will mention some of them. The first one is internal productivity. It can be for engineers. It can be for management people. So we have been working on operations, on customer experience. So we have a lot of use case live right now more on the productivity side. The second one, we have been trying -- I would say, the idea here is not like to replace advisers, but how we enhance our advisers using different agents. It can be a relationship agent, AI agents. Of course, it can be transactional agents. So we have been creating a lot of this type of agents to give more productivity and to increase the level of service that we deliver to our customers. And I would say a third one, we haven't been investing a lot on portfolio allocation of our customers. So we have been creating more rules. We have been creating a centralized portfolio allocation, and we are using a lot of technology to make it happen. So there are many use case here, some already at scale, some at very early stage. Another one that -- it's already at scale. Today, we listen, read, hear everything that our advisers, especially internal advisers today, 100% of them. And we can classify all the conversations, all the interactions with our customers. It's a product offering, if it's only a relationship activity. So the level of information and sales management that we have today, it's very, very high and we will continue to invest on that. But again, not to replace advisers, okay, but to enhance them. Of course, when you go to very small clients, more like a digital or what we call here self-direct clients, then you can have like a fully deployed AI solution, but that's a very small part of our business today. It could grow in the future. But again, the focus here is how we enhance the advisers and how we free them like to focus 100% of their time on relationship, not like on operations or allocation or other activities that don't generate value for our customers. Andre Parize: Okay. We're up the hour. So I would like to thank you once again for participating on our earnings call. And the IR team will be more than happy to attend any further questions you may have. Have a good night, and we're going to keep in touch. Thank you.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Kanzhun Limited third quarter 2025 financial results conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. At this time, I would like to turn the conference over to Ms. Wenbei Wang, Head of Investor Relations. Please go ahead, ma'am. Wenbei Wang: Thank you, Operator. Good evening, and good morning, everyone. Welcome to our third quarter 2025 earnings conference call. Joining me today are our founder, chairman, and CEO, Mr. Jonathan Zhang, and our director and CFO, Mr. Fu Zhang. Before we start, we would like to remind you that today's discussion may contain forward-looking statements which are based on management's current expectations and observations that involve known and unknown risks, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be materially different. The company cautions you not to place undue reliance on forward-looking statements and does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For the definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.jipin.com. Now I will turn the call to Jonathan, our founder, chairman, and CEO. Jonathan Zhang: Hello, everyone. Thank you for joining our company's third quarter 2025 earnings conference call. On behalf of the company's employees, management team, and board of directors, I would like to extend our sincere gratitude to our users, investors, and friends who have continuously believed in and supported us. I will briefly walk through our key operational results and business progress this quarter, focusing on three areas. First, recovery in demand through a priority growth in our third quarter performance. Second, the evolving characteristics of recruitment demands across different dimensions. Third, progress in integrating AI into our products, technology, and overall business operations. Let's start with the financial performance. In the third quarter, we generated a total revenue of RMB 2,160,000,000, up 13.2% year on year, with growth accelerating from the previous quarter. Excluding share-based compensation expenses and other income, such as investment gains, our adjusted operating profit grew 949.3% year on year. Our GAAP net profit was RMB 2,718,000,000, up 67.2% year on year, with a net profit margin of 35.8%. Part of this improvement was attributable to a decrease in share-based compensation expenses, which was only RMB 220,000,000 this quarter, marking the third consecutive quarter of sequential declines and a year-on-year drop of 21%. The growth in the third quarter was driven by two key factors. The first and most important driver was continued user growth, supported by our increasing penetration and expanding market share. From January to October, we acquired over 40,000,000 newly verified users. In the third quarter, the average verified monthly active users, which is amazing on the bus ticketing app, reached 63.82 million. User activity is also strong. According to such data, our DAU to MAU ratio has been maintained at a high industry-leading level. The second driver was the rebound in enterprise-side demand, which also helped improve data on the monetization side. In the third quarter, the newly posted job positions increased 25% year on year, while both the number of recruiters posting new jobs and the average number of posts per recruiter grew steadily compared to the previous quarter and the same period last year. From July to September, the average number of daily active enterprise users grew at a faster pace sequentially than job seekers, marking the first time this has happened in three years. The supply-demand balance on our platform, meaning the ratio of enterprise users to job seekers, continued to improve. By September 30, the number of paid enterprise customers in the twelve months grew 13.3% year on year to 8.68 million. Throughout the quarter, the paying ratio among quarterly active users increased both year on year and quarter on quarter. The second agenda item focuses on a service entry point for current demand this quarter from multiple perspectives. From an industry perspective, blue-collar revenue growth continued to lead, with its revenue contribution reaching a record high in the third quarter. Manufacturing industries remain the most robust sector, topping the industry's revenue growth for five consecutive quarters. Taking this opportunity, I would like to do a brief review. Three years ago, the company's strategy for serving manufacturing job seekers and recruiters divided into three stages in terms of priority. The first stage is to improve the online job search environment for blue-collar workers. Between the passage of a solution for the same managed ticket or managed first and profit board second, we chose the second path. The second stage is to develop a user scale for that user base on the platform. And the third stage is to pursue commercial benefits on a reasonable scale. In 2022, we launched the Cont project to purify the job search environment for blue-collar workers, pursuing the authenticity of recruiters, job positions, and compensation, combating false information, and increasing their trust. Over the past three years, the process has been extremely challenging, and the results have gradually emerged. Meanwhile, transportation, logistics, warehousing, and the service industries also delivered solid overall performance. Among the white-collar sectors, industries such as artificial intelligence, Internet service, lifestyle service, new retail, and gaming are experiencing leading growth. One thing worth mentioning among the white-collar segment is that we have noticed a notable increase in participation from small and medium-sized enterprises in the white-collar industry, with paying user numbers growing quickly, while the average spending per customer remains stable, which is an offset to the trend of previous patterns. This, to a certain level, reflects the arrival of the white-collar entrepreneur ecosystem. From the perspective of compute-side demand, in Tier 1 cities is rebounding, Tier 2 cities remain stable, and the revenue contribution from Tier 3 and below cities continues to rise. Among enterprises of different sizes, medium-large enterprises, which means employers with between 500 to 999 employees, are growing the fastest, followed by small and micro enterprises, and then very large enterprises. The third agenda item reviews the progress we made since AI was integrated into the company's business from a product and technology perspective. On the Dosynchron service side, there are two things worth mentioning. First, after a period of continuous iteration, an AI job search assistant has been fully launched for all job seekers. Currently, it can recommend positions for users, answer questions, and also provide suggestions on how to optimize their resumes. In the third quarter, not only was the full rollout of this product achieved, but the number of interactions per user with this AI job search assistant also showed a significant quarter-on-quarter increase. We have also been continuously optimizing the AI interview coaching feature. In the third quarter, the number of job seekers who completed the mock interviews showed further improvement, and their activity level and conversion rate continued to improve compared to the previous quarter. On the recruiter service side, multiple AI products have been gradually launched to provide services. There are four aspects to mention. The AI communication assistance feature is being gradually integrated into existing commercial value-added products. As a result, the average mutual achievement conversion ratio of these products has increased by 7%. A product called AI Quick Hiring, after continuous optimization, is currently under phased rollout. Experiments show that this product not only helps the platform better understand recruiters' intentions but also allows for comparison among all job seekers on the platform, thereby improving matching accuracy. Currently, the reading rate among recruiters participating in the phased rollout campaign is steadily increasing. Third, we have extended the AI interview feature to a number of well-known customers from the contract recruitment side. For example, the AI interview can support multiple rounds of questions and customize interviewer profiles. This product has very strong appeal to students, leading to a high volume of applications in the short term, which is increasing significant pressure for recruiters during campus recruiting activities. The development of AI services has alleviated this pressure. Fourth, we are cautiously exploring AI-hosted recruitment services and AI-powered bulk placement solutions in diverse recruitment scenarios such as high-end white-collar and gold-collar positions, and blue-collar roles in the patroning and manufacturing industry. These initiatives are gradually generating benefits. Among all those enterprise-side AI services, we have been quite cautious to ensure we allow the job seekers to know whenever they are communicating with an AI service. They have the option to close the service. They have the button, and sometimes, someone might choose to close, but someone chooses to continue the communication, and we are continuously collecting related examples. We provide the option for job seekers whether they can communicate with AI or not to guarantee their interest. But, also, we are continuously observing with the intervention of AI what kind of impact it will have on mutual matching, not only on individual topics on a cultural perspective but also from a scalable double-side situation. We are continuing to update and track data. In the third quarter, we delivered high-quality growth with solid progress across user growth, commercialization, and AI technology implementation. In October, the company completed an annual dividend payment of approximately $18,000,000. Looking ahead, we will continue to focus on strengthening our core business ability. We will actively fulfill our commitment to shareholders. That concludes my part of the call. I will now turn it over to our CFO, Phil, for the review of our financials. Thank you. Phil Yu Zhang: Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results for 2025. In this quarter, we delivered high-quality and sustainable top-line and bottom-line growth. Our revenue reached RMB 2,200,000,000 this quarter, with growth accelerating to 13% year on year. The faster revenue growth this quarter was primarily driven by higher enterprise user growth as well as improved monetization levels due to the recovering hiring demand. Our commercialization strategy, grounded in ecological balance, enabled us to effectively and sustainably improve user payment ratios within a relatively better hiring environment. The growth in paid enterprise customers, which grew by 13% to 6,800,000 for the twelve months ended September 30, demonstrates our capability and potential to enhance monetization. Revenue from middle-sized and small-sized accounts showed continued growth momentum, with revenue contribution in this quarter up by 2.2 percentage points, while key accounts growth remained stable. As a result of the structural mix shifting, the overall ARPPU maintained stability. Moving to the cost side, total operating costs and expenses decreased by 7% year on year to RMB 1,500,000,000 in this quarter. Share-based compensation expenses dropped by 21% year on year and 6% quarter on quarter to RMB 216,000,000, shrinking for the third consecutive quarters in both absolute amount and percentage of revenue. Excluding share-based compensation expenses, adjusted income from operations grew by 49% to RMB 9,004,000,000, and our adjusted operating margin reached 41.8%, up by 10.1 percentage points year on year and relatively flat quarter on quarter. Cost of revenues decreased by 2% year on year to RMB 308,000,000 in this quarter, mainly due to the decrease in operational employee-related expenses as a result of improved operational efficiency as we continue to engage AI in our daily operations. Gross margin went up by 2.2 percentage points year on year and 0.4 percentage points quarter on quarter to 85.8%. Sales and marketing expenses decreased by 25% year on year to RMB 394,000,000 during this quarter. As we do not have sports events or marketing campaigns this year, even if we exclude the sports sponsorship costs, our adjusted sales and marketing expenses in this quarter decreased 15% year on year, while we still maintain robust user growth. This double confirms our sustainable increase in marketing efficiency due to our strong brand recognition and network effect. Our R&D expenses decreased by 12% year on year to RMB 408,000,000 in this quarter. Excluding share-based compensation expenses, our adjusted R&D expenses decreased by 8% year on year to RMB 331,000,000 in this quarter and have stayed relatively flat sequentially. Our G&A expenses increased by 28% to RMB 367,000,000 in this quarter, primarily due to a one-off impairment of intangible assets partially offset by a decrease in employee-related expenses. Excluding the impairment, our G&A expenses decreased both year on year and sequentially. Our interest and investment income in the quarter increased by 43% year on year to RMB 228,000,000, primarily due to partial disposal of an equity investment and the increased income from the Hong Kong dollar 2,200,000,000 Hong Kong share offering processed in early July. Our net income increased by 67% to RMB 775,000,000 in this quarter, with adjusted net income increased by 34% to RMB 992,000,000. Net margin improved by 11.6 percentage points year on year to 35.8%, while adjusted net margin reached 45.8%, up 77.2 percentage points year on year. Both of them have maintained sustainable improvement over the past six consecutive quarters. Net cash provided by operating activities reached RMB 1,200,000,000 in this quarter, up 45% year on year. As of September 30, 2025, we continue to maintain a strong cash position of RMB 19,200,000,000. Now for our business follow-up, for 2025, we expect our total revenue to continue the growth momentum and reach between RMB 2,050,000,000 and RMB 2,070,000,000, with a year-on-year increase of 12.4% to 13.5%. With that, concludes our prepared remarks. And now we would like to answer questions. Operator, please go ahead with the call. Operator: Thank you. We will now begin the question and answer session. Please press 11 on your telephone keypad to ask a question. Please wait for your name to be announced. To withdraw your question, please press 11 again. We will now take our first question from the line of Eddy Wong from Morgan Stanley. Please go ahead, Eddy. Eddy Wong: Thank you, management, for taking my question. I have two questions. First, what is the overall recruitment demand recently? We noticed that the unemployment rate in September and October is improving. Do you think this is mainly due to seasonal factors, or is the improving trend a leading indicator of macro recovery? What are the driving factors behind the accelerating growth in the third quarter? My second question is that as we are approaching the end of the year, what is your perception of the key account renewal willingness right now? Are there any noticeable trends in customer renewal rates or the renewal amount? Thank you. Jonathan Zhang: From our data perspective, the recruitment activities from enterprises indeed recovered in the third quarter. The growth rate of monthly active users on the enterprise side is faster compared to the job seeker side. Pressure from the job seeker side has been alleviated. If we recall back in 2021 and 2022, it was a little bit difficult for fresh graduates to find a job. In the opening, whichever was affecting or not happening as we expected, young people, especially young people, found it really difficult to find a job. This year, take July, for example, the fresh graduates' expression for job-seeking demand compared to the same period of last year declined by double digits. Meanwhile, from the enterprise side, the companies that have posted job openings for fresh graduates increased by double digits. From the situation on both ends, especially from the fresh graduate as an example, we quite clearly felt that the pressure which has been accumulating for several years was released a lot in the third quarter. In the third quarter, the ratio between job seekers and recruiters among active users improved compared to last year. The newly added user ratio also improved, and the third quarter is better than the third quarter of the previous year, which gives us continued confidence. So it is quite easy to understand that based on the improving change of supply and demand balance, we treat the recovery of the enterprise side and the improvement of the pay ratio as helping our overall business operation. The first quarter last year was a relatively low base, so from a cautious perspective, we also compared it to 2023 in the same period. It is worth mentioning that the recovery of the white-collar sector, for example, the newly added number of job postings for the white-collar profession in the first quarter, increased significantly compared to the second quarter and the previous three quarters. Based on all these observations and comparisons, I have the confidence to conclude in my prepared remarks that the improved hiring demand drove our third-quarter revenue growth. That is where my confidence comes from regarding the retention situation that you are concerned about. Phil Yu Zhang: So, Eddy, you know, companies renew their contracts individually at different points in time, not only at the year-end. Starting from the year, we have witnessed improving contract renewal rates, improving continuously. Particularly in the third quarter, for the first time in the past two years, the company-level net dollar retention rate started to bottom up. This signals a potential turning point from a previous downward trajectory. We believe this is driven primarily by improved company retention rates and higher renewal spending. We observed that this situation is not only at the key account customers but also at the small and medium-sized enterprises. Typically speaking, the company's renewal contract renewal situation improved sequentially and annually. This once again proved that the higher demand in the economy has been recovering healthily. And that is our answer to your question, Eddy. Operator, please move on to the next. Operator: Thank you. Our next question comes from Wei Xiong from UBS. Please go ahead. Wei Xiong: Thank you, management, for taking my question. Firstly, we observed that our company has continued outgrowing peers for the past few years. So if we look at the enterprise recruiting budget allocation, how much more share can we continue to gain over peers, and how do we sustain that above-peers growth going forward? Looking at next year, if the macro situation improves, will we continue to solidify our leadership, or is it possible to see higher competition pressure because the peers may step up investments? And secondly, on the margin side, given the high base this year, how do we think about the trend for our margin next year? What are the major investment areas, for example, in terms of sales marketing, do we think about the spending plan there? And previously, given the macro uncertainty, we said we want to prioritize profitability. So looking at next year, are we going to continue prioritizing that profitability or leaning towards investing a little bit for growth? Thank you for taking my question. Jonathan Zhang: I would like to start with our number of paid enterprise customers, which grew by 13.3% to 6,800,000 by the trailing twelve months. In fact, the majority, or maybe over 80% of these paid enterprise customers, are small and micro enterprises, which we use our own business model and go-to-market strategy developed over the years. By mentioning this, I would like to clarify two concepts. First, the majority of our main pay-based customers are developed on our own rather than gaining shares from our peers. The second concept is that there is data about China having over 40,000,000 small and medium-sized enterprises, and our entire enterprise cap number of paid enterprise customers is still a small percentage of that. That is why even in a relatively tight macro situation, we still have ample room to grow in terms of our market share. The logical conclusion is that when the market recovers and demand improves, we can achieve better revenue and business growth rates. But on a competitive landscape perspective, we need to admit that for the customers both we and our peers are serving, especially under economic pressure situations, clients normally tend to choose service providers who have better ROI and higher service ability, and we do have some advantages over that. Regarding profitability, which you are concerned about, the current profit margin you observed is actually a strategic selection from our company level. Last year, we decided that facing all of these uncertainties, we want to make sure that the only certainty is to guarantee profit, and this year, you have seen our very strong implementation capability and realized profit numbers. Essentially, this very strong margin profile actually reflects our effective double-sided network effect, further penetration into user mindset, and very efficient and smooth internal management and operation, all of which result in this high margin profile. As a result, I cannot predict if the profit margin for next year will continue to improve. Actually, we will not sacrifice our branding growth to achieve this profitability. So for next year, we still want to guarantee us to be with the 35,000,000 newly verified users. Our pursuit in better serving users and achieving higher revenue growth actually has higher priority compared to our pursuit of profitability. Our strategic level view on our profitability, and we hope you and our investors can better understand what profitability means to us. For your reference, and that is our answer to your question. Operator, please move on to the next. Operator: Thank you. Our next question comes from Timothy Zhao from Goldman Sachs. Please go ahead. Timothy Zhao: Thank you, management, for taking my question, and congrats on the solid results. Two questions from my side. First, as Jonathan just mentioned, we are going to explore more in the different verticals within the recruitment industry. Could management share more progress and updates on this? And what are the potential impacts on our services and monetization in the longer term? Secondly, on the AI-related question, we noticed that OpenAI recently announced its entry into the recruitment industry. Some other AI startups like Merkur have also been evolving their business models. Could management share your view on the competitive landscape between the traditional recruitment platforms and the general AI companies in the recruitment industry? Thank you. Jonathan Zhang: When we are trying to combine AI and human activities, we have some very interesting findings under our conjugate experiments. For example, when a customer is quite angry and cannot contain their temper while facing a customer service representative, they could be quite aggressive. But when the customer knows that the counterpart is AI, they normally take some very harsh words. So the beta complaint from the customer trained AI is, "You are very stupid AI." The second example is for our AI interview coaches product. A lot of job seekers who have used this service repeatedly to train their interview skills once and once again. But we found out that when the job seeker's second scoring is lower than the first one, they will stop this repeat. So you can see the number of interesting findings in our daily experiment. People can control their temper well when facing AI, and also people do not want to bother a real human coach very frequently, but they can do that with AI. All these findings are telling us that when we apply AI technology to a very old, very ancient people and job matching, superior and subordinate matching scenarios, we need to be very cautious while using the new technology. For more than two years, it is really exciting for a sampling model to be able to generate a killer-level application in our industry. Actually, we are not in a hurry, and it actually gave us more time to find a way to harness all this new development and technology. I just mentioned that in certain placement scenarios, both in blue-collar and white-collar recruitment, such as full-cycle hosting recruitment service or semi-cycle hosted recruitment service, we have been very actively trying out new services, but also quite cautiously. So far, we have some achievements, but still not in a stage to massively roll out this. We also noticed that some leading technology companies who have been empowered by AI have expressed their interest in entering the recruitment industry. The new technology combined with old and the questions possibly can generate revolution-level industry change. Like the mobile network and recommendation technology combined with the traditional recruitment demand that have generated faster too fast. This new generation of online recruitment model. Up to today, my thinking is that the combination of AI and recruitment service's key bottleneck is actually not computing power. Merkur, who has in the bottom professionals to do the tagging, actually shows the value of high-quality data. If high-quality data is very critical, then with the foster team, other peers within our industry actually have some certain level advantages. Just to leverage your question, I want to express some observations we noticed from our data operations. And that is all of our answer to your question, Timothy. Thank you. Operator: Thank you. Due to time constraints, that concludes today's question and answer session. At this time, I will turn the conference back to Wenbei Wang for any additional or closing remarks. Wenbei Wang: Thank you once again for joining us today. If you have any further questions, please contact us directly. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the conference call on the third quarter 2025 results. I am Mathilde, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jürgen Rebel, Head of Investor Relations. Please go ahead. Jürgen Rebel: Good morning, everyone. This is Jürgen speaking. We welcome you to today's call on third quarter results for fiscal year 2025. Aldo, our CEO, will comment on business and strategy; Rainer, our CFO, will focus on financials. We are referring to the Q3 earnings call presentation that you can find on our website. There, you'll also find further materials such as the full comprehensive IR presentation. Aldo, please let us have your thoughts on Q3. Aldo Kamper: Thank you, Jürgen, and good morning also from my side. Overall, I would say a good quarter. Our strategic focus is paying off. We delivered strong cash flow and significant growth in the core portfolio on a like-for-like basis. Profitability was better than previous quarter, also supported by a one-off. We reestablished the base savings continue to be ahead of plan. And I'm now on Page 3, looking at the financial performance of the group. Revenues came in at EUR 853 million, above the midpoint of the guidance. We saw an almost double-digit percentage improvement in our semiconductor business. In the auto lamps aftermarket business, we had double-digit seasonal upswing. The weaker U.S. dollar cost us EUR 20 million top line compared to the previous quarter. Year-over-year revenues are down a bit with 3%. This is entirely due to the weaker U.S. dollar. Note the 0.07 difference in the average euro-U.S. dollar exchange rate, which equals approximately EUR 35 million top line. If we truly look at the like-for-like comparison based on today's core portfolio at constant currencies, we have grown by about 6% year-over-year. This includes the traditional auto lamps business. The semiconductor core business, that as we measure our growth, grew approximately 9% on a comparable basis, a really good result in the current market conditions. It clearly shows that our portfolio choices are paying off. Profitability. Adjusted EBITDA margin improved quarter-over-quarter and year-over-year by almost 1 percentage point to 19.5%. In euro terms, adjusted EBITDA improved by EUR 21 million. Within that number, we have a profit of a bit more than EUR 10 million from the sale of some manufacturing assets in our Singapore production facility. Now quickly on the segments. Page 4, look at the traditional halogen lamp business, a classic seasonal upswing. We saw a steep 13% quarter-over-quarter increase in revenues driven by the aftermarket season. The darker months in the Northern Hemisphere make drivers replace their broken lights in their cars more frequently. Nothing particular to report on specialty lamps for industrial and entertainment applications. The business remained at a similar level as last quarter with approximately EUR 40 million of revenues. We sold this business segment to Ushio as part of our accelerated deleveraging plan as we communicated last quarter. Closing is expected around end of first quarter '26. Adjusted EBITDA stayed almost flat. Why? If revenues were up by almost EUR 25 million, the gross profit fall-through from higher volume was eaten up by a meaningful reduction of inventories. Now on semis. I'm on Slide 5. First, business unit OS. The sequential increase in Opto Semis with 6% revenue improvement, EUR 365 million compared to EUR 344 million in the previous quarter. The increase was mainly driven by automotive, but also by the seasonal peak of the horticulture business. The upswing could have been higher if it wasn't for the negative impact on the top line of the weaker U.S. dollar. Coming to profitability, adjusted EBITDA improved by EUR 3 million to EUR 82 million. At first glance, you might have expected a higher fall-through from EUR 20 million more top line. However, the increase was balanced also here by inventory reductions and the absence of onetime effects that were supported in Q2, such as IPCEI funding catch-up. In the end, adjusted EBITDA margin stayed almost flat at 22.6%. Now sensors and ASICs on Slide 6, an encouraging seasonal jump in revenues by 13% to EUR 271 million. Consumer products were in high demand. Indoor business was okay. Products we basically discontinued still saw some further orders that, that live longer as often. Little changes in demand for industrial and medical products. Year-over-year, business grew by 2%, mainly driven by the new sensor products, which are more than compensating for the revenue loss from the phased out noncore portfolio and the top line impact from the weaker U.S. dollar. Adjusted EBITDA jumped to EUR 64 million. However, I mentioned earlier that more than EUR 10 million of windfall profit from selling manufacturing equipment was included there. Now looking at the semi end market in summary, and we are on Slide 7 here. Sequentially, 9% up and year-over-year, 2% down. If we exclude the noncore portfolio that we discontinued last year, the semi core business grew by 9% year-on-year at constant currencies, well in line with our semiconductor growth model and higher than last quarter. First, automotive. LED inventory correction has ended, but no significant restocking in sight. We even hear some customers who want to reduce their inventory reach even further. Book-to-bill hovered around 1 throughout the quarter. Nevertheless, we saw a slight sequential increase in revenues of 4%. The uncertainty in the supply chain persists, we see a lot of short-term ordering, which is now often below normal lead times. Fulfillment channel inventories went further down. We are now between 7 and 8 weeks. In the old days, 8 to 10 weeks were considered healthy and normal. Second, industrial and medical. In line with the slow recovery of the overall market, we saw a sequential improvement of 2%. However, we're still below last year's level and ignoring the weaker U.S. dollar, maybe roughly at the same level. As always, we have to look at the verticals individually. Horticulture revenues had a seasonal peak, professional lighting unchanged. Demand for industrial automation is improving only gradually. Same is true for medical. When we look at the channel, same picture as last quarter, Europe and U.S. relatively stronger than China. Third, consumer, a steep seasonal increase of 22% compared to Q2. Our main business is sensors for smartphones and wearables. Year-over-year, we see the impact of the weaker USD. The slight decline is entirely due to FX. Business-wise, our new sensor product more than compensate for the phaseout of our products. Now let's talk about future business. I'm on Slide 8. Design wins are underpinning our midterm growth model in semis. Traction in the market continued unabated in the third quarter. We are well on track reaching again accumulated lifetime value of EUR 5 billion of new business for the full calendar year. We landed about 800 projects in the September quarter across all verticals. This pushes the total to already EUR 4 billion for the first 9 months. A few wins that we are very proud of are sticking out. First, in automotive. With our industry-leading intelligent RGBi interior lighting solutions, we secured another design win at a leading Chinese OEM. And on top of that, also a large design win for a prestigious car platform at a European premium OEM. Second, consumer. Our spectral and proximity sensors are the best you can get. This once again convinced leading customers the design wins are worth a couple of hundred million euros. With that, let us look at some of our recent advances when it comes to differentiating technology platforms. Now on Slide 9. We do spend a lot of R&D money as we continue to believe in exciting growth opportunities. One part of our R&D is dedicated to mastering the cost pressure in more established technologies by creating cost performance optimized platforms. The other part of R&D is focused on differentiating technologies, especially for new applications that might see a growth inflection in the future. We're also making sure that our customers benefit from an appropriate IP safety for those innovations. For this, we signed a comprehensive cross-license agreement with Nichia covering thousands of patent protected innovations in LED and laser technologies. The new agreement also covers sophisticated LED packages and also includes metric headlamps as an example. As such, we are the right partner for our customers, holding a truly unique IP position in the industry. On Slide 9, you get an impression of our leadership in infrared emitter technologies that are used in a multitude of applications. We are speaking of AlGaAs material systems that provides LED and laser light between 808 and 1130 nanometers, just beyond what a human eye can see, the so-called near infrared. Our LEDs boast industry-leading wall-plug efficiency and red glow suppression. Our laser IOs boast industry-leading efficiency and optical output power. Together with high-quality, cost-effective standard packages, these components are ideally suited for a multitude of applications that deliver already today a revenue contribution in the triple-digit million territory. We see the infrared LEDs in the car for in-cabin sensing and consumer applications or in drones, among many others. Our lasers are very established in material treatment and LiDAR, but these properties also make them ideally suited for future defense applications such as drone defense or even for more visionary applications one day like nuclear fusion -- laser-based nuclear fusion, a technology that could harness the energy generation process of our sun. We think there's much more to come here on this technology platform. Now let's switch to the sensor side of things on Slide 10. We recently introduced the industry-leading 2-dimensional direct time-of-flight sensor platform. By direct, the sensor measures the time of photon traps from the object and back and calculates the distance pretty fancy. I'm very proud of our engineers who delivered industry-leading sensors that feature twice the frame rate at the same resolution as competitor devices or twice resolution at the same frame rate, whatever you need in your application. You can use this performance for gesture and object recognition, but also for 3D distance measurement. It also enables Edge AI sensing applications, for example, in smartphones. You will see the principle in the lower left corner when an image is enhanced with the 3D dimensional depth information from the sensor, you can place objects such as furniture in an environment completely virtually. Just to give you an example here. We see applications for the sensor technology, not only in smartphones, but also in building automation, home appliances, robot drones, consumer electronics, you name it. Completing our technology product to this quarter, I'm on Slide 11 now. We have the leading spectral sensing platform in the industry. Here, you see Honor's latest flagship model, the Magic 8, a high-end premium smartphone with 4 cameras on the world-facing site. Our sensors allow for eye-fatigue protection and professional-grade color accuracy for an enhanced user experience. With this, let us move to bottom line products. We reestablished the base continues to be a great success as it has been so instrumental in mastering many of the headwinds to our bottom line, especially when it comes to gold price this year. We're on Slide 12 here. By the end of September, we have pocketed approximately EUR 185 million of the implemented run rate savings, another EUR 25 million during the last quarter alone. Now this time for more details on the financials. And Rainer, please tell us about the latest progress. Rainer Irle: Thank you, Aldo. Hello, everyone, from my side as well. Let us look at the balance sheet first. With the private placement of an additional EUR 500 million of U.S. dollar and euro senior notes, we increased our cash on hand position to EUR 979 million end of September and end of October, we were even above EUR 1 billion. After the tap in July, we have approximately EUR 651 million equivalent of the U.S. dollar bond and EUR 1.30 billion the Eurobond, both are due on March '29. Last quarter, we got some questions about why we tapped at a particular moment. If you look at the leverage finance market in the last couple of weeks, it turns out that our timing was pretty good. Momentarily, conditions are certainly less favorable. No news on the Malaysia sale and leaseback transaction yet. We continue to talk to interested parties, but we are not yet on the final approach. The value stood almost unchanged at EUR 422 million end of September. This brings us to an almost unchanged net debt position of EUR 2 billion compared to end of June. Having just mentioned the sale and leaseback, we certainly continue full steam in negotiating the indicated asset disposals on top of the sale of the entertainment and specialty lamps that we announced in July to venture realize proceeds well above EUR 500 million. We are fully on track. Minority shares with a value of only EUR 11 million were tendered during the summer months. Consequently, the outstanding minority put options stood at EUR 570 million or 12% outstanding at the end of Q3. Taking cash, the revolver and bilateral lines into account, our available liquidity significantly increased to approximately EUR 1.6 billion. We are prepared for all eventualities, any liquidity concerns in the market should be a thing of the past. And switching to Slide 14, cash flows. A strong improvement in the third quarter operating cash flow. We recorded EUR 88 million. And that's despite us paying the coupon on the high-yield bonds, which, as you know, is always due in Q1 and Q3. So we paid that in Q3, but we also managed inventories well and made sure we are collecting money from litigation and subsidies. Last year in Q3, we had the customer prepayment of approximately EUR 220 million that came as a onetime positive at that time. CapEx stayed in check, EUR 48 million in the third quarter. For the full year, we will land between 6% and 7% of revenues, well below our long-term average ratio of 8%. In total, we finished the quarter with EUR 43 million positive free cash flow. This brings us year-to-date to breakeven in free cash flow. If you exclude the customer prepayment last year, Q3 was the best quarter in a long time, though Q4 is expected to be better with lower interest payments and counting on the promised money from the Austrian government under the European CHIPS Act. We switch to Slide 15, net earnings and earnings per share. On the left, you find the adjusted figures. The adjusted net result improved in line with EBITDA to EUR 27 million in the third quarter. Adjusted EPS developed accordingly. The net financing result came in at EUR 59 million. Income tax stood at just EUR 5 million. So following the rule of thumb that there's always EUR 50 million, EUR 60 million adjustments per quarter due to transformation cost, depreciation of PPA and share-based compensation, we ended up with minus EUR 28 million net result according to IFRS. Consequently, IFRS earnings per share also came in negative EUR 0.28. That concludes my remarks. And with that, I would like to hand back to Aldo for the summary and outlook. Aldo Kamper: Thanks, Rainer. And now on Slide 16, let me summarize the third quarter results again. Looking at the business, we delivered revenues above the midpoint and profitability at the midpoint of the guidance. 9% growth in the core semi business year-over-year on a comparable basis, well in line with our midterm target model. Execution of reestablish the base program is ahead of plan now with EUR 185 million run rate savings implemented. And we are securing future semiconductor business with unabated design win streak, now EUR 4 billion already in the first 9 months of this year. Looking at the deleveraging plan, everything well on track without being able to go into further detail right now. R&D investments I've presented to you, an example of our relentless efforts to find future growth opportunities by investing in differentiated technology with great potential. Today, we talked about infrared emitters and 2-dimensional time-of-flight sensors. With that, let us look at the right-hand side of the slide, the outlook for the fourth quarter. We expect revenues to come in between EUR 790 million and EUR 890 million at an exchange rate of 1.16. Compared to the beginning of the year, the weaker U.S. dollar cost us a middle double-digit million figure in top line. Automotive lamps will see its peak in the annual lighting season. For semis altogether, we expect a small seasonal decline. Industrial medical might be kind of stable, but we sense a lot of uncertainty in the automotive market, maybe flattish at best, whereas in consumer, the smartphone season is cooling off a bit logically. We expect adjusted EBITDA margin to come in at 17.5%, plus or minus 1.5 percentage points in absent, stable compared to Q3, if you back out the windfall profit from the selling of manufacturing assets in Singapore. Looking at cash flow. With year-to-date 0 and keeping up our promise for the full year, we expect free cash flow of more than EUR 100 million in the fourth quarter, certainly also driven by the expected inflows from the Austrian CHIPs Act. With that, I conclude my remarks, and we're now ready for your questions. Operator: [Operator Instructions] The first question comes from the line of Sébastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: The first one is on the automotive market. So do you see the demand building up? It seems that you are coming to the end of the inventory correction, but I'm just curious about the trajectory of growth moving into the next few quarters. And in the short term, have you seen any specific downside to demand linked to Nexperia turmoil or is not something that is affecting the global car production volume for you or your demand? The second question is on the synergies and the cost saving program. You already reached EUR 185 million at the end of Q3, which is well above the target for '25, and you are coming closer to what you expect for 2026. Do you plan to accelerate a little bit more further the cost-cutting action? Or you will stick to EUR 225 million for next year and then you're going to stop cutting the cost base? Aldo Kamper: Yes. Thanks, Sébastien, for those questions. Yes, on the automotive side, I would say inventory situation is okay. We do see that there is a lot of short-term order behavior. And I do also link that partly to the Nexperia topic, just our carmakers also have to be very agile in their production schedules and what they build and when they build it does vary a bit. So I would expect this quarter and next quarter to be impacted a bit by that. But overall, vehicle build volumes globally are actually holding up quite well. And here, it is also important that we have a good position in China as the Chinese market in this is doing -- is growing quite nicely, I have to say. And Europe and the U.S. are struggling a bit. But given our global exposure, we are able to balance that out. So I would say, overall, the story hasn't really changed. We still see more content per vehicle globally that we benefit from a fairly stable vehicle build volume currently and also for next year. At the same time, yes, also the usual price pressure that eats it up a bit. And then, of course, FX that also goes against us. But yes, underlying demand, I would say, is in principle, okay with some short-term hiccups, as explained. On reestablished the base, yes, we were very happy that we are making very good progress, EUR 185 million already. So I would assume that we can get to the EUR 225 million goal also significantly ahead of plan. And we are thinking about how to extend this program after that. But we at the moment, mainly focused on bringing in the savings as quickly as possible of the measures that we've already defined. Operator: The next question comes from the line of Harry Blaiklock from UBS. Harry Blaiklock: The first is just on the consumer business. I know you've had success at one of your big consumer customers in terms of getting a socket rolled out across the whole kind of smartphone portfolio. And historically, you've spoken about potentially getting further socket wins in that business. I was wondering whether you could just provide an update on that. And then my second question is just on whether there's any update you can give us in terms of progress on the further asset disposals for generating over EUR 500 million. Aldo Kamper: Sure, Harry. Thanks for the question. So yes, at the various cell phone customers, we are making good progress and are winning new sockets. And I must say that it goes across both Android and non-Android space in a very steady and good manner, I must say, without calling out one specific socket, but I must say the engagement across the customer base is very strong, and we continue to see good growth potential in this space with our technology. On the asset disposals, yes, it's hard to comment on that in detail, but I can say we are very active in the process and the plan still stands. We will deliver significantly more than EUR 500 million of disposal proceeds. As we have communicated, the first step, the EUR 200 million, on the lamp business, on the entertainment lamp business is in execution. We are progressing well towards closing probably by the end of Q1 next year. And on a second bigger step, we are making good progress, and we'll share that, of course, as soon as we can with all of you. Operator: [Operator Instructions] We now have a question from the line of Reto Huber from Research Partners. Reto Huber: Now I was wondering the adjusted EBITDA, maybe I missed it, that includes the gain from sales of assets, if I understood this correctly. Have you disclosed that number somewhere? And how much is the one-off gain? And then secondly, what is the reduction in year-over-year sales due to disposals? Rainer Irle: Yes. The adjusted EBITDA had a benefit from that asset sale of roughly EUR 10 million, a bit north of EUR 10 million. That's obviously a onetime effect. And yes, if you look at the year-over-year impact from asset disposals from the portfolio, I would say that, that is probably EUR 30 million. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Jürgen Rebel for any closing remarks. Jürgen Rebel: Thanks very much for the interest. We had a lot of people who dialed in. If you have any further questions, don't hesitate to reach out to us. And we're looking forward to receiving your feedback. Thank you. Bye. Rainer Irle: Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Ladies and gentlemen, welcome to the conference call on third quarter 2025 Results. I am Mathilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Juergen Rebel, Head of Investor Relations. Please go ahead. Juergen Rebel: Good morning, everyone. This is Juergen speaking. We welcome you to today's call on third quarter results of fiscal year 2025. Aldo, our CEO, will comment on business and strategy; Rainer, our CFO, will focus on financials. We are referring to the Q3 earnings call presentation that you can find on our website. There, you'll also find further materials such as the full comprehensive IR presentation. Aldo, please let us have your thoughts on Q3. Aldo Kamper: Thank you, Juergen, and good morning also from my side. Overall, I would say a good quarter. Our strategic focus is paying off. We delivered strong cash flow and significant growth in the core portfolio on a like-for-like basis. Profitability was better than previous quarter, also supported by a one-off. We established base savings continue to be ahead of plan, and I'm now on Page 3, looking at the financial performance of the group. Revenues came in at EUR 853 million, above the midpoint of the guidance. We saw an almost double-digit percentage improvement in our semiconductor business. In the Auto Lamps aftermarket business, we have double-digit seasonal upswing. The weaker U.S. dollar cost us EUR 20 million top line compared to the previous quarter. Year-over-year revenues are down a bit with 3%. This is entirely due to the weaker U.S. dollar. Note the $0.07 difference in average euro-U.S. dollar exchange rate, which equals approximately EUR 35 million top line. If we truly look at the like-for-like comparison based on today's core portfolio at constant currencies, we have grown by about 6% year-over-year. This includes the traditional Auto Lamps business. The semiconductor core business, against we measure our growth grew approximately 9% on a comparable basis, a really good result in the current market conditions. It clearly shows that our portfolio choices are paying off. Profitability. Adjusted EBITDA margin improved quarter-over-quarter and year-over-year by almost 1 percentage point to 19.5%. In euro terms, adjusted EBITDA improved by EUR 21 million. Within that number, we have a profit of a bit more than EUR 10 million from the sale of some manufacturing assets in our Singapore production facility. Now quickly on the segments. Page 4, look at the traditional Halogen Lamp business, a classic seasonal upswing. We saw a steep 13% quarter-over-quarter increase in revenues driven by the aftermarket season. The darker months in the Northern Hemisphere make drivers replaced their broken lights in the car more frequently. Nothing particular to report on Specialty Lamps for industrial and entertainment applications. The business remained at a similar level as last quarter with approximately EUR 40 million of revenues. We sold this business segment to show as part of our accelerated deleveraging plan as we communicated last quarter. Closing is expected around end of first quarter '26. Adjusted EBITDA stayed almost flat. Why? If revenues were up almost EUR 25 million, the gross profit fall-through from higher volume was even up by a meaningful reduction of inventories. Now on semis, I'm on Slide 5. First, business unit OS. The sequential increase in Opto semis with 6% revenue improvement, EUR 365 million compared to EUR 344 million in the previous quarter. The increase was mainly driven by automotive, but also by the seasonal peak of the Horticulture business. The upswing could have been higher if it wasn't for the negative impact on the top line of the weaker U.S. dollar. Coming to profitability. Adjusted EBITDA improved by EUR 3 million to EUR 82 million. At first glance, you might have expected a higher fall-through from EUR 20 million more top line. However, the increase was balanced also here by inventory reductions and the absence of onetime effects that were supported in Q2, such as [ ease of ] funding catch-up. In the end, adjusted EBITDA margin stayed almost flat at 22.6%. Now Sensors and ASICS on Slide 6. An encouraging seasonal jump in revenues by 13% to EUR 271 million. Consumer products were in high demand and our business was okay. Products, we basically discontinued, still saw some further orders that live longer as often. Little changes in demand for industrial and medical products. Year-over-year, business grew by 2%, mainly driven by the new sensor products, which are more than compensating for the revenue loss from the phased-out non-core portfolio and the top line impact from the weaker U.S. dollar. Adjusted EBITDA jumped to EUR 64 million. However, I mentioned earlier that more EUR 10 million win for profits from selling manufacturing equipment was included there. Now looking at the semi end market in summary, and we are on Slide 7 here. Sequentially, 9% up and year-over-year, 2% down. If we exclude the noncore portfolio that we discontinued last year, the semi core business grew by 9% and year-on-year at constant currencies, well in line with the semiconductor growth model and higher than last quarter. First, automotive. LED inventory correction has ended, but no significant restocking in sight. We even hear from customers who want to reduce their inventory even further. Book-to-bill hovered around 1 throughout the quarter. Nevertheless, we saw a slight sequential increase in revenue of 4%. If the uncertainty in the supply chain persists, we see a lot of short-term ordering, which is now often below normal lead times. Fulfillment channel inventories went further down. We are now between 7 and 8 weeks in the old days, 8 to 10 weeks were considered healthy and normal. Second, Industrial and Medical, in line with the slow recovery of the overall market, we saw a sequential improvement of 2%. However, we're still below last year's level. And ignoring the weaker U.S. dollar, maybe roughly at the same level. As always, we have to look at the verticals individually. Horticulture revenues had a seasonal peak. Professional lighting, unchanged. Demand for initial automation is improving only gradually. Same is true for medical. If we look at the channel, same picture as last quarter, Europe and U.S., relatively stronger than China. Third, Consumer, a steep seasonal increase of 22% compared to Q2. Our main business is sensors for smartphones and wearables. Year-over-year, we see the impact of the weaker USD, a slight decline is entirely due to FX. Business-wise, our new sensor product more than compensate for the phase out noncore products. Now let's talk about future business. I'm on Slide 8. Design wins are underpinning our midterm growth model incentives. Tracks the market continued unabated in the third quarter. We are well on track to reaching again accumulated lifetime value of EUR 5 billion of new business for the full calendar year. We landed about 800 products in the September quarter across all verticals. This pushes the total to already EUR 4 billion for the first 9 months. A few wins that we are very proud of are sticking out. First, in automotive. With our industry-leading intelligent RGB interior lighting solutions, we secured another design win at a leading Chinese OEM. And on top of that, also a large design win for a prestigious car platform at the European premium OEM. Second consumer. Our spectral and proximity sensors are the best you can get. This once again convinced leading customers the design wins are worth a couple of hundred million euros. With that, let us look at some of our recent advances when it comes to differentiating technology platforms. Now on Slide 9. We do spend a lot of R&D money as we continue to believe in exciting growth opportunities. One part of our R&D is dedicated to mastering the cost pressure in more established technologies by creating cost performance optimized platforms. The other part of R&D is focused on differentiating technology, especially for new applications that might see a growth inflection in the future. We're also making sure that our customers benefit from an appropriate IP safety for those innovations. For this, we signed a comprehensive cross-license agreement with Nichia, covering thousands of patents, protected innovations in LED and laser technologies. The new agreement also covers sophisticated LED packages and also includes metric headlamps as an example. As such, we are the right partner for our customers, holding a truly unique IP position in the industry. On Slide 9, you get an impression of our leadership in further emitter technologies that are used in a multitude of applications. We're speaking of AlGaAs material systems that provides LED and laser light between 808 and 1,130 nanometers, just beyond what a human eye can see, the so-called near-infrared. Our LEDs boasts industry-leading wall-plug efficiency and red glow suppression. Our [ laser design ] is post industry-leading efficiency and optical output power, together with high-quality, cost-effective standard packages, these components are ideally suited for a multitude of applications to deliver already today a revenue contribution in the triple-digit million territory, see the infrared LEDs in the car for incumbent sensing and consumer applications or in drones among many others. The lasers are fairly established in material treatment and LiDAR with these properties also making my dealer suited for future defense applications such as drone defense or even for more visionary applications 1 day like nuclear fusion, laser-based nuclear fusion, a technology that could harness the energy generation process of our sun. We think there's much more to come here on this technology platform. Now let's switch to the center side of things on Slide 10. We recently introduced the industry leading to dimensional direct Time-of-Flight sensor platform. Why direct? This sensor measures the time of [ photon transfer ] from the optic come back and calculate the distance. Pretty fancy. I'm very proud of our engineers who delivered industry-leading sensors that featured twice the frame rate at the same resolution as competitor devices or twice the resolution at the same frame rate whatever you need in your application. You can use this performance for gesture and object recognition, but also for 3D distant measurement. It also enables edge AI sensing applications, for example, smartphones. You will see the principle in lower left when it images enhanced with the 3D dimensional information from the sensor, we can place objects such as furniture in an environment completely virtually. Just to give you an example here. We see applications for the sensor technology, not only in smartphones, but also in building automation, home appliances, robot drones, consumer electronics, you name it. Completing our technology product toward this quarter. I'm on Slide 11 now. We have the leading spectral sensing platform in the industry. Here you see on our latest spec model to Magic 8, a high-end premium smartphone with 4 cameras in the world facing side. Our sensors allow for [ eye flicker ] protection and professional grade color accuracy for an enhanced user experience. With this, let us move to bottom line profits. We established the base continues to be a great success as it has been so instrumental in mastering many of the headwinds to our bottom line, especially when it comes to gold price this year. We're on Slide 12 here. By the end of September, we have pocketed approximately EUR 185 million of implemented run rate savings. Another EUR 25 million during last quarter alone. Now this time for more details on the financials. And Rainer, please tell us about the latest progress. Rainer Irle: Thank you, Aldo. Hello, everyone, from my side as well. Let us look at the balance sheet first. With the private placement of an additional EUR 500 million of U.S. dollar in euro senior notes, we increased our cash on hand position to EUR 979 million end of September and end of October were even above EUR 1 billion. After the tap in July, we have approximately EUR 651 million equivalent of the U.S. dollar bond and EUR 1.030 billion with Eurobond, both as during March 29. Last quarter, we got some questions about why we tapped that at a particular moment. If you look at the leveraged finance market in the last couple of weeks in terms that our timing was pretty good, momentarily conditions are certainly less favorable. No news on the Malaysia sale and leaseback transaction yet. We continue to talk to interested parties, but we are not yet on the final approach. The value stood almost unchanged at EUR 422 million end of September. This brings us to an almost unchanged net debt position of EUR 2 billion compared to end of June. Having just mentioned Basel leaseback, we certainly continue full steam in negotiating the indicated asset disposals on top of the sale of the Entertainment and Specialty Lamps that we announced in July. To venture realize proceeds well above EUR 500 million. We are fully on track. Minority shares with the value of only EUR 11 million were tender during the summer months. Consequently, the outstanding minority put options stood at EUR 570 million, 12% outstanding at the end of Q3. Taking cash, the revolver and bilateral lines into account, our available liquidity significantly increased to approximately EUR 1.6 billion. We are prepared for all eventualities any liquidity concerns in the market within of the past. And switching to Slide 14, cash flows. Strong improvement in the third quarter operating cash flow. We recorded EUR 88 million. And that's despite us paying the coupon on the high-yield bonds, which, as you know, is always due in Q1 and Q3. So we paid that in Q3, but we also managed inventories well and make sure we are collecting money from litigation and subsidies. Last year in Q3, we had the customer prepayment of approximately EUR 220 million became as a onetime positive at that time. CapEx base in check, EUR 48 million in the third quarter for the full year, we will land between 6% and 7% of revenues, well below our long-term average ratio of 8%. In total, we finished the quarter with EUR 43 million positive free cash flow. This brings us year-to-date to breakeven in free cash flow. We exclude the customer prepayment last year, Q3 was the best quarter in a long time, though Q4 is expected to be better with lower interest payments and counting on the promise money from the Austrian government under the European Chips Act. We switch to Slide 15, net earnings and earnings per share. On the left, you find adjusted figures. The adjusted net result improved in line with EBITDA to EUR 27 million in the third quarter. Adjusted EPS developed accordingly. The net financing result came in with EUR 59 million. Income tax stood at just EUR 5 million. Following the rule of thumb that there's always EUR 50 million, EUR 60 million adjustments per quarter due to transformation cost depreciation of PPA and share-based compensation, we ended up with minus EUR 28 million net results according to IFRS. Consequently, IFRS earnings per share also came in negative EUR 0.28. That conclude my remarks. And with that, I would like to hand back to Aldo for the summary and outlook. Aldo Kamper: Thanks, Rainer. And now I'm on Slide 16, let me summarize the third quarter results again. Looking at the business, we delivered for revenues above the midpoint and profitability at the midpoint of the guidance. 9% growth in the core semi business year-over-year on a comparable basis, well in line with our midterm target model. Execution of resemblance based program is ahead of plan now with another EUR 85 million run rate savings implemented. And we are securing future semiconductor business with an abated design win streak, now EUR 4 billion already in the first 9 months of this year. Looking at the leveraging plan, everything well on track without being able to go to further detail right now. R&D investments, I've presented to you an example of our relentless efforts to find future growth opportunities by investing in differentiated technology with great potential. Today, we talked about infrared emitter and to 2 dimensional Time-of-Flight sensors. With that, let us look at the right-hand side of the slide, the outlook for the fourth quarter. We expect revenues to come in between EUR 790 million and EUR 890 million at an exchange rate of 1.16. Compared to the beginning of the year, the weaker U.S. dollar cost us a middle double-digit million figure in top line. Automotive lamps will see its beacon annual lighting season. For semis altogether, we expect a small seasonal decline. Industrial medical might be kind of stable, but it sends a lot of uncertainty in the automotive market, maybe flattish at best, where I think consumer, the smartphone season is cooling a bit logically. We expect adjusted EBITDA margin to come in at 17.5%, plus or minus 1.5 percentage points, in absent stable compared to Q3. If you back out the win for profit from the selling of manufacturing assets in Singapore. Looking at cash flow. With easily 0 and keeping our promise for the full year, we expect free cash flow of more than EUR 100 million in the fourth quarter, certainly also driven by the expected inflows from the Chips Act. With this, I conclude my remarks, and we're now ready for your questions. Operator: [Operator Instructions] The first question comes from the line of Sébastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: The first 1 is on the automotive market. So do you see the demand building up, it seems that you are coming to the end of the inventory correction. But I'm just curious about the trajectory of growth moving into the next few quarters? And in the short term, have you seen any specific downside to demand linked to next turmoil or is not something that is affecting the global car production volume for your demand? And the second question is on the synergies and the cost saving program. You already reached EUR 185 million at the end of Q3, which is well above the target for '25 and you are coming closer to what you expect for 2026. Do you plan to accelerate a little bit more further the cost-cutting action or you will stick to EUR 225 million for next year and then are you going to stop cutting the cost base? Aldo Kamper: Yes. Thanks, Sébastien for those questions. Yes, on the automotive side, I would say inventory situation is okay. We do see that there is a lot of short-term order behavior. And I do also link that partly to the Nexperia topic, just our carmakers also have to be very agile in their production schedules and what they build and when they build it does vary a bit. So I would expect this quarter and next quarter to be impacted a bit by that. But overall, vehicle build volumes globally are actually holding up quite well. And here, this is also important that we have a good position in China. The Chinese market is doing -- is growing quite nicely, I have to say. And Europe and the U.S. are struggling a bit. But given our global exposure, we are able to benefit out. So I would say, overall, the story hasn't really changed. We still see more content per vehicle globally that we benefit from a fairly stable vehicle build volume currently and not for next year. At the same time, also the usual price pressure that eat up a bit. And then, of course, FX that also goes against us. But yes, underlying demand, I would say, is a principal okay with some short-term hiccups as explained. On reestablished base, yes, we're very happy that we are making very good progress, EUR 185 million already. So I would assume that we can get to the EUR 225 million goal also significantly ahead of plan, and we are thinking about how to extend this program after that. But we, at the moment, mainly focused on bringing in the savings as quickly as possible of the measure that we've already defined. Operator: The next question comes from the line of Harry Blaiklock from UBS. Harry Blaiklock: First is just on the consumer business. I know you've had success at 1 of your big consumer customers in terms of getting a socket rolled out across the whole kind of smartphone portfolio. And historically, you've spoken about potentially getting further socket wins in that business. I was wondering whether you could just provide an update on that? And then my second question is just on whether there's any update you can give us in terms of progress on the further asset disposals for generating over EUR 500 million? Aldo Kamper: Sure, Harry. Thanks for the question. So yes, at the various cellphone customers, we are making good progress and are winning new sockets. And I must say that it goes across both Android and non-Android space in a very steady and good manner, I must say, without calling out 1 specific socket, but I must say the engagement across the customer base is very strong and we continue to see good growth potential in this space with our technology. On the asset disposals, yes, it's hard to comment on that in detail, but I can say we are very active in the process. And the plan still stands. We will deliver significantly more than EUR 500 million of disposals proceeds. As we have communicated, the first step, EUR 100 million on the lamp business, on the entertainment lamp business is in execution. We are progressing well towards closing, probably by the end of Q1 next year. And on a second bigger step, we are making a good progress, and we'll share that, of course, as soon as we can with all of you. Operator: [Operator Instructions] We now have a question from the line of Reto Huber from Research Partners. Reto Huber: Yes. Thank you very much for your very detailed reporting. Now I was wondering, the adjusted EBITDA maybe I missed it, that includes the gain from sales of assets, if I understood this correctly. Have you disclosed that number somewhere? And how much is the one-off gain? And then secondly, what is the reduction in year-over-year sales due to disposals? Rainer Irle: Yes the adjusted EBITDA had a benefit from that asset sale of roughly EUR 10 million, a bit north of EUR 10 million. That's obviously a onetime impact. And yes, if you look at the year-over-year impact from asset disposals from portfolio, I would say that that's probably EUR 30 million. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Juergen Rebel for any closing remarks. Juergen Rebel: Thanks very much for the interest. We had a lot of people who dialed in. If you have any further questions, don't hesitate to reach out to us. And we're looking forward to receiving your feedback. Thank you. Bye. Aldo Kamper: Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Third Quarter 2025 LATAM Airlines Group Earnings Conference Call. [Operator Instructions]. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance or guidance are forward-looking statements. These statements are based on a range of assumptions that LATAM believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F 2025 updated guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. And if there are any members of the press on the call, please note that for the media, this is a listen-only call. I will now hand the conference over to Ricardo Bottas, Chief Financial Officer. Ricardo, please go ahead. Ricardo Dourado: Hello, everyone, and good morning. Welcome to our third quarter 2025 conference call, and thank you all for joining us today. My name is Ricardo Bottas, and I am the CFO of LATAM Airlines Group. Here with me is Roberto Alvo, our CEO; Andrés del Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations. And we will present our highlights and results for the third quarter. I will hand it over to Roberto to share his opening remarks. Once finished, I will present the key operational and financial figures as well as provide other updates. Roberto Alvo Milosawlewitsch: Good morning. Thank you, Ricardo, and thanks to all for being here today. This month, 3 years ago, LATAM emerged from financial restructuring. This period was one of learning, designing and executing. LATAM defined a blueprint that has a collection of essential elements we needed to excel. This blueprint was implemented and is working. The group's network is the most expansive in the region, and our loyalty program is by far the largest and most valued. No one else can connect South America within the region and to the world, reward loyalty and provide choice to customers as LATAM Group can. However, these results are the product of more than a co-branded credit card and a map of routes. At LATAM, we are obsessed with execution. Every day, in every interaction, we strive to be better, to depart on time, standard zero on every flight, to improve on what we do, seek and find cost-saving opportunities for each of our activities, to make sure we deliver what was promised to the customer at every interaction and to provide the care and respect that each one of them deserves as they entrust their journey to LATAM. We have made considerable progress, but are not satisfied. I believe we can do better. Looking forward, we must ensure that we remain disciplined, disciplined in execution and disciplined in controlling costs. At the center of all of this is our people, a group of more than 40,000 employees who care about and love what they do every day. People who believe in what they do and what it represents. They are the engine and the spirit that drives LATAM Group forward, and the most important commitment is to them, making sure that they feel that every day it is worth being part of the LATAM family. As we look into the future, I'm confident that we can continue the journey of improvement and deliver on purpose that we have, which is elevating every single journey. Thank you very much. Now back to Ricardo for a description of how we are achieving profitable growth, improving the quality of our traffic, keeping high customer satisfaction and maintaining our cost under control. Ricardo Dourado: Thank you, Roberto. Please join me on Slide 3. This quarter, LATAM Group continues to show the strength of its strategy, its unmatched network footprint, focus on disciplined operational and commercial execution as well as product improvement. In terms of operations, LATAM Group transported over 22.9 million passengers, reinforcing its role as the leading airline group in South America. Capacity grew by 9.3% year-over-year with healthy load factors of 85.4% on a consolidated basis. The group is seeing consistently high levels of customer satisfaction, increased customer preference, especially in the premium segment and sustained customer loyalty. LATAM translated this operational performance into financial results, driven by an 8.4% increase in passenger unit revenues while keeping unit costs broadly stable. Adjusted operating margin expanded to 18.1%, while adjusted EBITDAR reached $1.15 billion during the quarter, and net income totaling $379 million. During this quarter, LATAM executed its second share repurchase program for a total of $433 million with the company's disciplined approach to capital allocation. During this quarter, LATAM Airlines Group signed a major agreement for an acquisition of up to 74 Embraer E2 aircraft. Moving to the next slide about the fleet and this acquisition and the transaction. The E2 will indeed enhance LATAM Group affiliates' regional connectivity in South America and represent an opportunity for our network to open up to 35 new destinations. They also offer a 30% improvement in fuel efficiency per seat compared to previous generation aircraft, reinforcing the group's commitment to sustainability and cost discipline. In total, LATAM Group will receive 24 E2s with 12 deliveries scheduled for the fourth quarter of 2026 and the remaining 12, in 2027. With this addition, LATAM's order book now exceeds 140 aircraft through 2030, supporting the group's long-term growth and fleet modernization strategy. Initial deliveries are set to begin with LATAM Airlines Brazil, which will be the first to deploy these aircraft in its network. In Brazil, this aircraft will enhance capillarity across the country, enabling LATAM Group to expand into under-penetrated regions and destinations that are currently not served by the group. Over time and subject to market conditions and strategic evaluations, other LATAM affiliates may also incorporate the E2s into their operations. Still on this slide, we expect to receive an additional 8 aircraft on this fourth quarter of 2025. And also, we project to receive additional 44 aircraft next year, including the E2s. Let's move to the following slide, Slide 5. As mentioned earlier, LATAM Group delivered another quarter of strong traffic performance, transporting more than -- almost 23 million passengers with a consolidated load factor of 85.4%. LATAM has been committed to profitable growth at the consolidated level, passenger RASK increased by 8.4% year-over-year in U.S. dollars, a result that reflects the strength of LATAM Group's strategy and execution. A clear example of this is Brazil, where LATAM Airlines Brazil grew capacity by over 12% year-over-year. With this expansion, customer preference remained strong, and the load factor even increased by 2.2 percentage points. During the quarter, the Brazilian affiliate launched 6 new domestic routes, further supporting the strategy to deepen its presence and enhance connectivity in this market. In the Spanish-speaking countries, LATAM Group's affiliates have also improved performance during this quarter with passenger RASK increasing 18% year-over-year. In particular, as compared to 2024, LATAM Airlines Colombia experienced a stable domestic industry capacity, also seeing healthy demand. Demand is in the other Spanish-speaking affiliates domestic markets also remained healthy, except for Chile, where industry traffic figures are stable against last year. However, the focus on delivery execution and a higher premium product offering helped fully offset these effects. Meanwhile, the international segment continued to operate with high load factors, reflecting the relevance of the network and LATAM Group's role as the main connector in the region with a diversified network. Altogether, the unit revenues, even in the context of increased capacity reflect the effectiveness of the group's commercial and customer strategy. It is the result of offering the right product in the right markets while executing with discipline. Looking ahead, LATAM Group continues to focus on maintaining a sustained trajectory of discipline and profitable growth. The group is also focused on reaching the goal of high single-digit consolidated capacity growth next year, compared to 2025, supported by an ongoing focus on efficiency, a relevant fleet delivery schedule and a margin preservation on top of a healthy demand environment. Moving to the next slide, Slide 6, regarding our value proposition and customer experience. LATAM Group remains committed to deliver a superior travel experience and increasing customer preference. During the quarter, the group continued advancing initiatives. The new Lima Lounge was inaugurated at recently opened Jorge Chávez International Airport, one of the group's main hubs. This new space offers a modern and comfortable environment and comes in addition to the signature check-in area that was previously inaugurated at the same terminal, both part of a strategy to elevate the end-to-end experience for premium travelers and LATAM Pass members. Looking ahead, LATAM Group also announced the launch of its new Premium Comfort Class, which will begin rolling out in 2027 on long-haul routes. This product reflects a commitment to offering more choices to our passengers for how they want to fly. The new class will be an additional option other than the existing economy and business class cabins, for passengers seeking more space and personalized service. Finally, LATAM Group was once again recognized by APEX as a Five-Star Global Airline for 2026. This marks the fourth consecutive year the group has received these distinctions based on independent passenger feedback data from over 1 million flights worldwide. It's a testament to the team's dedication and to the impact of the investments being made across the network. In addition, LATAM Cargo Group was named Air Cargo Airline of the Year by Air Cargo News, becoming the only South American carrier to win in any category, further underscoring the group's excellence across all segments of the business. Together, these efforts underscore LATAM Group's dedication to continuous improvement and reinforce its strategic commitment to quality, consistency and the passenger experience, a focus that continues to support more passengers choosing to fly with LATAM and the group's ability to capture premium revenues. Next, let's move to the Slide 7. I will now walk you through the financial results for the third quarter, a period in which LATAM once again reflects a solid execution. Total revenues reached $3.9 billion, an increase of 17.3% year-over-year, supported by growth across both Passenger and Cargo segments. Passenger revenue rose by 18.5% with revenues from premium travelers also showing relevant growth, increasing by more than 15% compared to the same period last year, while Cargo revenues grew by 6.3%. On the cost side, total adjusted expenses ex-fuel increased by 21% year-over-year, driven mainly by increased operations, especially international and also a lower base of comparison due to the one-offs impact in the same period of last year. This increase was partially offset by 4.7% year-over-year decrease in jet fuel costs. That said, on the unit cost front, LATAM upheld its firm commitment to cost efficiency, a key pillar of its strategy. As a result, LATAM delivered an adjusted operating margin of 18.1%, testament to LATAM's operational excellence through profitable growth while also holding its cost control performance and advantage. Again, a nonnegotiable and relevant part of LATAM's strategy. Lastly, net income for the quarter totaled $379 million, up 26% year-over-year, even after $105 million negative nonoperational income statement impact related to the liability management exercise completed in last July, as disclosed to the market before. Net income for the 9 months was $976 million, 38% higher than the same period of last year. Now moving to the Slide 8. As you can see on this slide, LATAM operational performance this quarter is a result of consistent and disciplined execution of the group's strategy over the past several years. Since 2019, LATAM has steadily expanded its adjusted operating margin, rising from 7.1%, to 18.1% in the third quarter of 2025. At the same time, LATAM has maintained tight control of its cost base. Adjusted passenger CASK ex-fuel has been stable between $0.042 and $0.043 on the last 12 months basis, despite inflationary pressures and higher activity. This disciplined approach to cost has enabled LATAM to consistently grow margins while preserving efficiency, in order to continue delivering sustainable and profitable growth going forward. With regard to cash generation, as shown on Slide 9. In the third quarter, LATAM delivered strong adjusted operating cash flow generation, reaching $859 million. Interest payments remaining contained at $52 million, mainly as a result of the debt refinancing executed in 2024, which enabled LATAM's significant reduction of the cost of its non-fleet financial liabilities, which continue to translate into meaningful interest savings and overall cost of capital reduction. After both 2024 and 2025, refinance execution, combined interest payment savings expected for next year amount to $151 million compared to last year. And finally, during the quarter, LATAM executed its second share repurchase program for a total of $433 million. This reflects the group's capital allocation strategy and discipline. Let's move to Slide 10 to discuss LATAM's capital structure. LATAM ended the third quarter with a liquidity level of 25.8%, slightly above the upper end of the financial policy range, the execution of the share repurchase program this quarter brought liquidity more in line with the target levels. LATAM ended the quarter with an adjusted net leverage ratio of 1.5x, aligned with the full year guidance and well below the cap from the financial policy. A strong capital structure is not just a financial metric for LATAM. It's a strategic asset. It gives the group the flexibility to pursue growth where it's most profitable, return capital to shareholders when appropriate and manage the most accretive capital structure. This financial strength, combined with assets and cost advantage set LATAM apart from its peers and remains central to its ability to compete, adapt and lead into the region over the long term. Please join me on Slide 11. Given this solid year-to-date performance, supported by continued customer preference and the disciplined execution of a strategy centered on profitable growth, cost efficiency and financial strength, LATAM has updated its full year 2025 guidance. Consolidated capacity is projected to remain broadly in line with previous estimate with -- while revenues are expected to be higher within a tighter range. In terms of margins, adjusted EBITDAR guidance has also been refined to be between $4 billion and $4.1 billion, close to 9% higher than the previous guidance. The updated range reflects a more constructive outlook now positioned higher than the previous estimate. Adjusted passenger CASK ex-fuel was updated to be between $4.35 and $4.40, mainly due to FX variation in this period. Liquidity was also updated after the execution of the share repurchase program, and we are maintaining the same estimate to be above $4 billion by the end of this year. Mainly considered debt adjusted EBITDAR improvement in the cash generation, the forecasted leverage for year-end is now at 1.4x. And for next year, as I mentioned before, the group is focused on reaching the goal of high single-digit capacity growth compared to 2025, supported by our ongoing dedication to efficiency and margin preservation. Finally, and before we move to the Q&A, I'd like to take a moment to remind you that LATAM will be hosting an Investor Day in New York on December 9, 2025. We invite you also to tune into the live webcast on these events. With that, we now open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: Congrats on another pretty strong results. My question is on the international front. When compared to Brazil domestic and Spanish-speaking countries, it looks like the past performance was relatively weaker, although still growing on a year-over-year basis. Can you share more details on how international is tracking, maybe on a per-region basis, which other routes have been pressuring the overall results and which are doing relatively better? Roberto Alvo Milosawlewitsch: So we have seen, in general, stable and healthy demand in most of the international segments. I would say that South America to U.S. is a little bit softer than what we used to see in the last few months. And this is, in our view, linked to people probably avoiding going to the U.S. and moving themselves a little bit into other regions. Also the northern part of South America, the regional traffic, which is international flights on the northern part, is a little bit softer as well. But in general, nothing that we have seen that is worrisome or concerning with respect to the level and the quality of the demand. So in that sense, we remain confident on the prospects for the remainder of the year. Guilherme Mendes: Very clear, Roberto. When you say softer into the U.S., is it more leisure related or even corporate related? Roberto Alvo Milosawlewitsch: No. This is more leisure related. Operator: Your next question comes from the line of Mike Linenberg with Deutsche Bank. Michael Linenberg: I have a couple here. I guess, Roberto, can you just update us on this measure in Brazil to potentially force airlines to offer up a free bag? Is that just domestic? Is that domestic and international? And where is that in the legislative process right now? Roberto Alvo Milosawlewitsch: A few weeks ago, a couple of weeks ago, the lower chamber in Brazil passed a law to allow basically passengers to carry a bag without being charged and also select seat without charge on seat that have no distinction in terms of space. This, as the law was passed, was for both domestic and international flights, it affects eventually therefore, domestic and international carriers into Brazil. The law is -- needs to go to the Senate. It has not been presented at the Senate floor at this point in time, and we have no clarity if that would happen and when it will happen. So for the time being, that still has the second step. Ultimately, presidential veto is also something that the Brazilian constitution allows for laws like this. So we will see. Michael Linenberg: The reason I ask is, and you mentioned international, is that -- all right, domestic is one thing, but international, from the perspective, I know at least from the U.S., they may view it as a potential tax or additional cost that's unilateral and therefore, in violation of the bilateral. So I just wonder how they implement it internationally when international carriers have different ways in how they price their product and obviously are protected by the bilateral arrangements between Brazil and those countries. Roberto Alvo Milosawlewitsch: Yes. I completely agree with you, Michael. And of course, LATAM does not support the passing of the law, and we have together with the IATA and ABEAR in Brazil been making very clear and explaining the impact of this potential measure. This is not good clearly for the industry -- airline industry in Brazil and I think -- I believe has the potential of ending up with higher fares for passengers that fly whether into Brazil or outside or coming to Brazil. So I think that at an industry level, we are making a lot of effort in making sure that everybody understands the impact that this has on traffic and on the industry, and we're completely sure that this would not be a positive measure for us all. Michael Linenberg: Great. And then just my second on capital allocation. And this is Roberto, to you or Ricardo, how you think about it longer term? You've had a nice balance. Obviously -- the dividend is statutory. But you pay the dividend. You've been paying down debt. You've also been buying back stock. As we think about the sort of various levers going forward, should we expect to see, say, regular reductions in shares outstanding? Or was that more of just an opportunistic initiative on your part? Roberto Alvo Milosawlewitsch: Thanks, Mike. So first of all, I mean, as we think about capitalization, do remember that the development of the business and how we see and foresee opportunities for growth, is the priority. So that will always take over other potential decisions. At this point in time, we believe we have done a balanced mix of initiatives, and we remain very close to the target that we have in terms of financial policy. So we're content with what we have done during 2025. Going forward, looking forward, I think we will see -- I mean, this is a Board decision. Ultimately, the dividend payout in Chile per law is a shareholders' meeting, a shareholder decision, which will happen in April. But all options for capital allocation and growth investment remain open. And as we progress in the next few months, the company will, for sure, explain to the market how do we continue depending on our results and of course, the situation in the region and the opportunities we may see. Operator: Your next question comes from the line of Gabriel Rezende with Itau BBA. Gabriel Rezende: Congrats on these very strong results. I would like to follow up on your comments regarding the investments and the efforts you have been putting into bringing a more premium experience to the customers. And just trying to understand how relevant it has been so far in terms of your revenue growth as well as your profitability. So if you could maybe provide some color on how relevant these premium revenue are at this point? You mentioned that it has grown by 15% year-on-year. So just trying to understand how much it represents out of the total passenger revenue at this point? And how much could it represent in the future as you bring more efforts into this? Roberto Alvo Milosawlewitsch: Yes. Thanks for the message -- the question. So first, I think it's important to remark what is what we're experiencing. First, yes, premium revenue is growing faster than capacity. And a relevant portion of the improvement that we see in the RASK for Spanish-speaking domestic Brazil and to an extent, international is due to a change of mix where we have a larger proportion and portion of premium revenue coming from there. And that's both corporate and as well, let me call it, high leisure, I don't know if that's a context or the concept in English, revenue that we're seeing. Now this is a function of, in my mind, 2 things. Most importantly, it's impeccable execution and care in every interaction that we made for the customer. Secondly, it's improvements in products, as you probably saw in the presentation, the Lima Lounge, premium economy in the international and other things. But as we have, in a way, decommoditized, if you want, our product, we have focused very much on experience. And that, I think, has brought a willingness to pay that customers probably had that we were simply not exploiting because our product probably was not as good as they were expecting. And now we are, I think, very clearly seeing the impact that this has in our results. Operator: [Operator Instructions] Our next question comes from the line of Felipe Ballevona with Santander. Felipe Ballevona: Can you hear me? Roberto Alvo Milosawlewitsch: Yes, we can. Felipe Ballevona: Great. Awesome. So well, first of all, congrats on the strong results. I have a couple of questions here. First, following actually on the first question of the Q&A. What was the reason behind the growth slowdown in international traffic recorded in October? Is international traffic being dragged down by Colombia? The last couple of data points of the [ IDOCB ] that have showed a slowdown in your international, not only in the domestic as has been the case for the previous months, but also in the international front. And also my second question, if you have any news regarding a potential buyback? Roberto Alvo Milosawlewitsch: Yes. Felipe, so first of all, our international Colombia operation is very small as compared to the total international traffic. We have not seen, in particular, an impact on international travel in and out of Colombia, and that it's very unsubstantial to the size of our traffic, particularly out of Brazil and secondly, Chile and then Peru. No, I guess this is a function, as I explained in the beginning, softer demand into the U.S., particularly on leisure traffic. We believe that this is linked to people probably deciding to go elsewhere and probably spending more time within their countries and to the region. But we don't see this as a fundamental slowdown in demand. It's probably assigned to more external factors than that. So that's the main reason, okay? Having said that, do remember that we expect that our ASK growth for the whole of 2025 is going to be around 10% to 10.5% increase in capacity, which is a significant increase in capacity, and that's a reflection of a good level of demand that we see to operate this. Felipe Ballevona: That's very good color. And do you have any news regarding a potential buyback or... Roberto Alvo Milosawlewitsch: Sorry. Felipe Ballevona: You're fine. Roberto Alvo Milosawlewitsch: As I said before, at this point in time, we are close to the financial policy targets that we have. Going forward, we will see what the Board decides and do remember that the company has a range of alternatives to allocate capital and also be mindful that the first priority will always be growing the business. And after that, any excess that we believe should go back to shareholders, the company has a few tools to decide on how to do it. So rest -- at least, stay tuned, eventually. Operator: Next question comes from the line of Jens Spiess with Morgan Stanley. Jens Spiess: Congrats on the very strong results. Just wanted to know if you could provide any context on next year, how is the -- like the order book -- the booking curve looking like? And also how much do you expect to grow in terms of ASKs next year based on your fleet plan, that would be very helpful. And if you could remind us how many leases do you have expiring next year, I would very much appreciate that. Roberto Alvo Milosawlewitsch: Yes. Jens, so as we explained in the press release and Ricardo mentioned here, we expect high single-digit ASK growth, or that's our goal for 2026. We will provide more detailed guidance on 2026 in a few more weeks. You asked about -- the first part of the question, fleet. And by the way, yes, fleet. So we have on Slide 4 of the presentation, you can see 41 arrivals of A320 family and 7 E2 aircraft, plus 3 wide-bodies. We have relatively few leases. I don't have the correct figure here, the right figure, but we have the option to, of course, extend them if you want to. And our expectation at this point in time is to end up the year with a total fleet of just over 400 aircraft -- around 410. You can see that as well in the press release, okay? And -- sorry, I'm just looking at a note here they're sending me. Yes. And last thing, they just reminded me to make you feel comfortable that we have the fleet we need to grow for what we're expecting next year. So I don't expect -- we don't expect that we would need to make changes in our fleet plan for the capacity we have planned. The first part of the question you asked me, now, remember, is booking curve into the beginning of the year. Very early still, particularly on domestic markets, the percentage of booked seats is very low. But what we're seeing initially for the first couple of months of the year looks in the current trend that we have seen in third quarter and that we expect for the rest of the year. Operator: Your next question comes from the line of Ewald Stark with BICE. Ewald Stark Bittencourt: I want to know if you can provide any color behind what is driving the lower percentage of hedged fuel during this quarter? Especially I would like to focus on, is anything on booking going forward that is driving this lower percentage of hedged fuel, or maybe you're looking something different about forecast of oil? Unknown Executive: Yes, thanks for the question. If you look at the press release, it's nothing that different for what we usually do. You have about a 47% for Q4 of this year and then 33% for Q1. And of course, as soon as we approach the next quarters, we will have, of course, consistent with the policy, an increase the fuel hedge. But I wouldn't say that this is any different than what you have seen in the past. It's a very standard, I think, coverage that we have today for fuel price, nothing that really deviates from the policy. Ewald Stark Bittencourt: Financial statements say that you have a 26% hedge fuel for the next 12 months. Starting from first quarter of 2026, every quarter is below 30%. Unknown Executive: Yes. If you look at the detail on the earnings release, there's more detail here. I think at the financial, that's sort of on a weighted average of what's it going forward. But here, you have the actual percentages covered for every quarter. Again, 47% for Q4, 33% for Q1. So that's a difference you were look at the financials here. Then as this is as of November 14, 2025, it's more updated. I think, of course, the financials, they call for, I think, September 30, but this is -- you have the most updated vision of the current portfolio, as of November 14. Operator: [Operator Instructions] Your next question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: Regarding the pilot strike in Chile, can you share some potential -- expected impact for the fourth quarter? I understand it should be material, but I just wanted to hear your thoughts on what could we expect from this negotiation. Roberto Alvo Milosawlewitsch: Thank you, Guilherme. At this point in time, we have no clarity of the potential impact. So we will update that if necessary at an appropriate time. Operator: There are no further questions at this time. I will now turn the call back to Ricardo Bottas for closing remarks. Ricardo Dourado: I would like to thank you all to participating in today's call and remind you that we will have our Investor Day again on December 9. So we would love to have all of you participating on that opportunity to get more information from the company and the additional updates. Thank you all, and have a good day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Third Quarter 2025 LATAM Airlines Group Earnings Conference Call. [Operator Instructions]. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance or guidance are forward-looking statements. These statements are based on a range of assumptions that LATAM believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F 2025 updated guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. And if there are any members of the press on the call, please note that for the media, this is a listen-only call. I will now hand the conference over to Ricardo Bottas, Chief Financial Officer. Ricardo, please go ahead. Ricardo Dourado: Hello, everyone, and good morning. Welcome to our third quarter 2025 conference call, and thank you all for joining us today. My name is Ricardo Bottas, and I am the CFO of LATAM Airlines Group. Here with me is Roberto Alvo, our CEO; Andrés del Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations. And we will present our highlights and results for the third quarter. I will hand it over to Roberto to share his opening remarks. Once finished, I will present the key operational and financial figures as well as provide other updates. Roberto Alvo Milosawlewitsch: Good morning. Thank you, Ricardo, and thanks to all for being here today. This month, 3 years ago, LATAM emerged from financial restructuring. This period was one of learning, designing and executing. LATAM defined a blueprint that has a collection of essential elements we needed to excel. This blueprint was implemented and is working. The group's network is the most expansive in the region, and our loyalty program is by far the largest and most valued. No one else can connect South America within the region and to the world, reward loyalty and provide choice to customers as LATAM Group can. However, these results are the product of more than a co-branded credit card and a map of routes. At LATAM, we are obsessed with execution. Every day, in every interaction, we strive to be better, to depart on time, standard zero on every flight, to improve on what we do, seek and find cost-saving opportunities for each of our activities, to make sure we deliver what was promised to the customer at every interaction and to provide the care and respect that each one of them deserves as they entrust their journey to LATAM. We have made considerable progress, but are not satisfied. I believe we can do better. Looking forward, we must ensure that we remain disciplined, disciplined in execution and disciplined in controlling costs. At the center of all of this is our people, a group of more than 40,000 employees who care about and love what they do every day. People who believe in what they do and what it represents. They are the engine and the spirit that drives LATAM Group forward, and the most important commitment is to them, making sure that they feel that every day it is worth being part of the LATAM family. As we look into the future, I'm confident that we can continue the journey of improvement and deliver on purpose that we have, which is elevating every single journey. Thank you very much. Now back to Ricardo for a description of how we are achieving profitable growth, improving the quality of our traffic, keeping high customer satisfaction and maintaining our cost under control. Ricardo Dourado: Thank you, Roberto. Please join me on Slide 3. This quarter, LATAM Group continues to show the strength of its strategy, its unmatched network footprint, focus on disciplined operational and commercial execution as well as product improvement. In terms of operations, LATAM Group transported over 22.9 million passengers, reinforcing its role as the leading airline group in South America. Capacity grew by 9.3% year-over-year with healthy load factors of 85.4% on a consolidated basis. The group is seeing consistently high levels of customer satisfaction, increased customer preference, especially in the premium segment and sustained customer loyalty. LATAM translated this operational performance into financial results, driven by an 8.4% increase in passenger unit revenues while keeping unit costs broadly stable. Adjusted operating margin expanded to 18.1%, while adjusted EBITDAR reached $1.15 billion during the quarter, and net income totaling $379 million. During this quarter, LATAM executed its second share repurchase program for a total of $433 million with the company's disciplined approach to capital allocation. During this quarter, LATAM Airlines Group signed a major agreement for an acquisition of up to 74 Embraer E2 aircraft. Moving to the next slide about the fleet and this acquisition and the transaction. The E2 will indeed enhance LATAM Group affiliates' regional connectivity in South America and represent an opportunity for our network to open up to 35 new destinations. They also offer a 30% improvement in fuel efficiency per seat compared to previous generation aircraft, reinforcing the group's commitment to sustainability and cost discipline. In total, LATAM Group will receive 24 E2s with 12 deliveries scheduled for the fourth quarter of 2026 and the remaining 12, in 2027. With this addition, LATAM's order book now exceeds 140 aircraft through 2030, supporting the group's long-term growth and fleet modernization strategy. Initial deliveries are set to begin with LATAM Airlines Brazil, which will be the first to deploy these aircraft in its network. In Brazil, this aircraft will enhance capillarity across the country, enabling LATAM Group to expand into under-penetrated regions and destinations that are currently not served by the group. Over time and subject to market conditions and strategic evaluations, other LATAM affiliates may also incorporate the E2s into their operations. Still on this slide, we expect to receive an additional 8 aircraft on this fourth quarter of 2025. And also, we project to receive additional 44 aircraft next year, including the E2s. Let's move to the following slide, Slide 5. As mentioned earlier, LATAM Group delivered another quarter of strong traffic performance, transporting more than -- almost 23 million passengers with a consolidated load factor of 85.4%. LATAM has been committed to profitable growth at the consolidated level, passenger RASK increased by 8.4% year-over-year in U.S. dollars, a result that reflects the strength of LATAM Group's strategy and execution. A clear example of this is Brazil, where LATAM Airlines Brazil grew capacity by over 12% year-over-year. With this expansion, customer preference remained strong, and the load factor even increased by 2.2 percentage points. During the quarter, the Brazilian affiliate launched 6 new domestic routes, further supporting the strategy to deepen its presence and enhance connectivity in this market. In the Spanish-speaking countries, LATAM Group's affiliates have also improved performance during this quarter with passenger RASK increasing 18% year-over-year. In particular, as compared to 2024, LATAM Airlines Colombia experienced a stable domestic industry capacity, also seeing healthy demand. Demand is in the other Spanish-speaking affiliates domestic markets also remained healthy, except for Chile, where industry traffic figures are stable against last year. However, the focus on delivery execution and a higher premium product offering helped fully offset these effects. Meanwhile, the international segment continued to operate with high load factors, reflecting the relevance of the network and LATAM Group's role as the main connector in the region with a diversified network. Altogether, the unit revenues, even in the context of increased capacity reflect the effectiveness of the group's commercial and customer strategy. It is the result of offering the right product in the right markets while executing with discipline. Looking ahead, LATAM Group continues to focus on maintaining a sustained trajectory of discipline and profitable growth. The group is also focused on reaching the goal of high single-digit consolidated capacity growth next year, compared to 2025, supported by an ongoing focus on efficiency, a relevant fleet delivery schedule and a margin preservation on top of a healthy demand environment. Moving to the next slide, Slide 6, regarding our value proposition and customer experience. LATAM Group remains committed to deliver a superior travel experience and increasing customer preference. During the quarter, the group continued advancing initiatives. The new Lima Lounge was inaugurated at recently opened Jorge Chávez International Airport, one of the group's main hubs. This new space offers a modern and comfortable environment and comes in addition to the signature check-in area that was previously inaugurated at the same terminal, both part of a strategy to elevate the end-to-end experience for premium travelers and LATAM Pass members. Looking ahead, LATAM Group also announced the launch of its new Premium Comfort Class, which will begin rolling out in 2027 on long-haul routes. This product reflects a commitment to offering more choices to our passengers for how they want to fly. The new class will be an additional option other than the existing economy and business class cabins, for passengers seeking more space and personalized service. Finally, LATAM Group was once again recognized by APEX as a Five-Star Global Airline for 2026. This marks the fourth consecutive year the group has received these distinctions based on independent passenger feedback data from over 1 million flights worldwide. It's a testament to the team's dedication and to the impact of the investments being made across the network. In addition, LATAM Cargo Group was named Air Cargo Airline of the Year by Air Cargo News, becoming the only South American carrier to win in any category, further underscoring the group's excellence across all segments of the business. Together, these efforts underscore LATAM Group's dedication to continuous improvement and reinforce its strategic commitment to quality, consistency and the passenger experience, a focus that continues to support more passengers choosing to fly with LATAM and the group's ability to capture premium revenues. Next, let's move to the Slide 7. I will now walk you through the financial results for the third quarter, a period in which LATAM once again reflects a solid execution. Total revenues reached $3.9 billion, an increase of 17.3% year-over-year, supported by growth across both Passenger and Cargo segments. Passenger revenue rose by 18.5% with revenues from premium travelers also showing relevant growth, increasing by more than 15% compared to the same period last year, while Cargo revenues grew by 6.3%. On the cost side, total adjusted expenses ex-fuel increased by 21% year-over-year, driven mainly by increased operations, especially international and also a lower base of comparison due to the one-offs impact in the same period of last year. This increase was partially offset by 4.7% year-over-year decrease in jet fuel costs. That said, on the unit cost front, LATAM upheld its firm commitment to cost efficiency, a key pillar of its strategy. As a result, LATAM delivered an adjusted operating margin of 18.1%, testament to LATAM's operational excellence through profitable growth while also holding its cost control performance and advantage. Again, a nonnegotiable and relevant part of LATAM's strategy. Lastly, net income for the quarter totaled $379 million, up 26% year-over-year, even after $105 million negative nonoperational income statement impact related to the liability management exercise completed in last July, as disclosed to the market before. Net income for the 9 months was $976 million, 38% higher than the same period of last year. Now moving to the Slide 8. As you can see on this slide, LATAM operational performance this quarter is a result of consistent and disciplined execution of the group's strategy over the past several years. Since 2019, LATAM has steadily expanded its adjusted operating margin, rising from 7.1%, to 18.1% in the third quarter of 2025. At the same time, LATAM has maintained tight control of its cost base. Adjusted passenger CASK ex-fuel has been stable between $0.042 and $0.043 on the last 12 months basis, despite inflationary pressures and higher activity. This disciplined approach to cost has enabled LATAM to consistently grow margins while preserving efficiency, in order to continue delivering sustainable and profitable growth going forward. With regard to cash generation, as shown on Slide 9. In the third quarter, LATAM delivered strong adjusted operating cash flow generation, reaching $859 million. Interest payments remaining contained at $52 million, mainly as a result of the debt refinancing executed in 2024, which enabled LATAM's significant reduction of the cost of its non-fleet financial liabilities, which continue to translate into meaningful interest savings and overall cost of capital reduction. After both 2024 and 2025, refinance execution, combined interest payment savings expected for next year amount to $151 million compared to last year. And finally, during the quarter, LATAM executed its second share repurchase program for a total of $433 million. This reflects the group's capital allocation strategy and discipline. Let's move to Slide 10 to discuss LATAM's capital structure. LATAM ended the third quarter with a liquidity level of 25.8%, slightly above the upper end of the financial policy range, the execution of the share repurchase program this quarter brought liquidity more in line with the target levels. LATAM ended the quarter with an adjusted net leverage ratio of 1.5x, aligned with the full year guidance and well below the cap from the financial policy. A strong capital structure is not just a financial metric for LATAM. It's a strategic asset. It gives the group the flexibility to pursue growth where it's most profitable, return capital to shareholders when appropriate and manage the most accretive capital structure. This financial strength, combined with assets and cost advantage set LATAM apart from its peers and remains central to its ability to compete, adapt and lead into the region over the long term. Please join me on Slide 11. Given this solid year-to-date performance, supported by continued customer preference and the disciplined execution of a strategy centered on profitable growth, cost efficiency and financial strength, LATAM has updated its full year 2025 guidance. Consolidated capacity is projected to remain broadly in line with previous estimate with -- while revenues are expected to be higher within a tighter range. In terms of margins, adjusted EBITDAR guidance has also been refined to be between $4 billion and $4.1 billion, close to 9% higher than the previous guidance. The updated range reflects a more constructive outlook now positioned higher than the previous estimate. Adjusted passenger CASK ex-fuel was updated to be between $4.35 and $4.40, mainly due to FX variation in this period. Liquidity was also updated after the execution of the share repurchase program, and we are maintaining the same estimate to be above $4 billion by the end of this year. Mainly considered debt adjusted EBITDAR improvement in the cash generation, the forecasted leverage for year-end is now at 1.4x. And for next year, as I mentioned before, the group is focused on reaching the goal of high single-digit capacity growth compared to 2025, supported by our ongoing dedication to efficiency and margin preservation. Finally, and before we move to the Q&A, I'd like to take a moment to remind you that LATAM will be hosting an Investor Day in New York on December 9, 2025. We invite you also to tune into the live webcast on these events. With that, we now open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: Congrats on another pretty strong results. My question is on the international front. When compared to Brazil domestic and Spanish-speaking countries, it looks like the past performance was relatively weaker, although still growing on a year-over-year basis. Can you share more details on how international is tracking, maybe on a per-region basis, which other routes have been pressuring the overall results and which are doing relatively better? Roberto Alvo Milosawlewitsch: So we have seen, in general, stable and healthy demand in most of the international segments. I would say that South America to U.S. is a little bit softer than what we used to see in the last few months. And this is, in our view, linked to people probably avoiding going to the U.S. and moving themselves a little bit into other regions. Also the northern part of South America, the regional traffic, which is international flights on the northern part, is a little bit softer as well. But in general, nothing that we have seen that is worrisome or concerning with respect to the level and the quality of the demand. So in that sense, we remain confident on the prospects for the remainder of the year. Guilherme Mendes: Very clear, Roberto. When you say softer into the U.S., is it more leisure related or even corporate related? Roberto Alvo Milosawlewitsch: No. This is more leisure related. Operator: Your next question comes from the line of Mike Linenberg with Deutsche Bank. Michael Linenberg: I have a couple here. I guess, Roberto, can you just update us on this measure in Brazil to potentially force airlines to offer up a free bag? Is that just domestic? Is that domestic and international? And where is that in the legislative process right now? Roberto Alvo Milosawlewitsch: A few weeks ago, a couple of weeks ago, the lower chamber in Brazil passed a law to allow basically passengers to carry a bag without being charged and also select seat without charge on seat that have no distinction in terms of space. This, as the law was passed, was for both domestic and international flights, it affects eventually therefore, domestic and international carriers into Brazil. The law is -- needs to go to the Senate. It has not been presented at the Senate floor at this point in time, and we have no clarity if that would happen and when it will happen. So for the time being, that still has the second step. Ultimately, presidential veto is also something that the Brazilian constitution allows for laws like this. So we will see. Michael Linenberg: The reason I ask is, and you mentioned international, is that -- all right, domestic is one thing, but international, from the perspective, I know at least from the U.S., they may view it as a potential tax or additional cost that's unilateral and therefore, in violation of the bilateral. So I just wonder how they implement it internationally when international carriers have different ways in how they price their product and obviously are protected by the bilateral arrangements between Brazil and those countries. Roberto Alvo Milosawlewitsch: Yes. I completely agree with you, Michael. And of course, LATAM does not support the passing of the law, and we have together with the IATA and ABEAR in Brazil been making very clear and explaining the impact of this potential measure. This is not good clearly for the industry -- airline industry in Brazil and I think -- I believe has the potential of ending up with higher fares for passengers that fly whether into Brazil or outside or coming to Brazil. So I think that at an industry level, we are making a lot of effort in making sure that everybody understands the impact that this has on traffic and on the industry, and we're completely sure that this would not be a positive measure for us all. Michael Linenberg: Great. And then just my second on capital allocation. And this is Roberto, to you or Ricardo, how you think about it longer term? You've had a nice balance. Obviously -- the dividend is statutory. But you pay the dividend. You've been paying down debt. You've also been buying back stock. As we think about the sort of various levers going forward, should we expect to see, say, regular reductions in shares outstanding? Or was that more of just an opportunistic initiative on your part? Roberto Alvo Milosawlewitsch: Thanks, Mike. So first of all, I mean, as we think about capitalization, do remember that the development of the business and how we see and foresee opportunities for growth, is the priority. So that will always take over other potential decisions. At this point in time, we believe we have done a balanced mix of initiatives, and we remain very close to the target that we have in terms of financial policy. So we're content with what we have done during 2025. Going forward, looking forward, I think we will see -- I mean, this is a Board decision. Ultimately, the dividend payout in Chile per law is a shareholders' meeting, a shareholder decision, which will happen in April. But all options for capital allocation and growth investment remain open. And as we progress in the next few months, the company will, for sure, explain to the market how do we continue depending on our results and of course, the situation in the region and the opportunities we may see. Operator: Your next question comes from the line of Gabriel Rezende with Itau BBA. Gabriel Rezende: Congrats on these very strong results. I would like to follow up on your comments regarding the investments and the efforts you have been putting into bringing a more premium experience to the customers. And just trying to understand how relevant it has been so far in terms of your revenue growth as well as your profitability. So if you could maybe provide some color on how relevant these premium revenue are at this point? You mentioned that it has grown by 15% year-on-year. So just trying to understand how much it represents out of the total passenger revenue at this point? And how much could it represent in the future as you bring more efforts into this? Roberto Alvo Milosawlewitsch: Yes. Thanks for the message -- the question. So first, I think it's important to remark what is what we're experiencing. First, yes, premium revenue is growing faster than capacity. And a relevant portion of the improvement that we see in the RASK for Spanish-speaking domestic Brazil and to an extent, international is due to a change of mix where we have a larger proportion and portion of premium revenue coming from there. And that's both corporate and as well, let me call it, high leisure, I don't know if that's a context or the concept in English, revenue that we're seeing. Now this is a function of, in my mind, 2 things. Most importantly, it's impeccable execution and care in every interaction that we made for the customer. Secondly, it's improvements in products, as you probably saw in the presentation, the Lima Lounge, premium economy in the international and other things. But as we have, in a way, decommoditized, if you want, our product, we have focused very much on experience. And that, I think, has brought a willingness to pay that customers probably had that we were simply not exploiting because our product probably was not as good as they were expecting. And now we are, I think, very clearly seeing the impact that this has in our results. Operator: [Operator Instructions] Our next question comes from the line of Felipe Ballevona with Santander. Felipe Ballevona: Can you hear me? Roberto Alvo Milosawlewitsch: Yes, we can. Felipe Ballevona: Great. Awesome. So well, first of all, congrats on the strong results. I have a couple of questions here. First, following actually on the first question of the Q&A. What was the reason behind the growth slowdown in international traffic recorded in October? Is international traffic being dragged down by Colombia? The last couple of data points of the [ IDOCB ] that have showed a slowdown in your international, not only in the domestic as has been the case for the previous months, but also in the international front. And also my second question, if you have any news regarding a potential buyback? Roberto Alvo Milosawlewitsch: Yes. Felipe, so first of all, our international Colombia operation is very small as compared to the total international traffic. We have not seen, in particular, an impact on international travel in and out of Colombia, and that it's very unsubstantial to the size of our traffic, particularly out of Brazil and secondly, Chile and then Peru. No, I guess this is a function, as I explained in the beginning, softer demand into the U.S., particularly on leisure traffic. We believe that this is linked to people probably deciding to go elsewhere and probably spending more time within their countries and to the region. But we don't see this as a fundamental slowdown in demand. It's probably assigned to more external factors than that. So that's the main reason, okay? Having said that, do remember that we expect that our ASK growth for the whole of 2025 is going to be around 10% to 10.5% increase in capacity, which is a significant increase in capacity, and that's a reflection of a good level of demand that we see to operate this. Felipe Ballevona: That's very good color. And do you have any news regarding a potential buyback or... Roberto Alvo Milosawlewitsch: Sorry. Felipe Ballevona: You're fine. Roberto Alvo Milosawlewitsch: As I said before, at this point in time, we are close to the financial policy targets that we have. Going forward, we will see what the Board decides and do remember that the company has a range of alternatives to allocate capital and also be mindful that the first priority will always be growing the business. And after that, any excess that we believe should go back to shareholders, the company has a few tools to decide on how to do it. So rest -- at least, stay tuned, eventually. Operator: Next question comes from the line of Jens Spiess with Morgan Stanley. Jens Spiess: Congrats on the very strong results. Just wanted to know if you could provide any context on next year, how is the -- like the order book -- the booking curve looking like? And also how much do you expect to grow in terms of ASKs next year based on your fleet plan, that would be very helpful. And if you could remind us how many leases do you have expiring next year, I would very much appreciate that. Roberto Alvo Milosawlewitsch: Yes. Jens, so as we explained in the press release and Ricardo mentioned here, we expect high single-digit ASK growth, or that's our goal for 2026. We will provide more detailed guidance on 2026 in a few more weeks. You asked about -- the first part of the question, fleet. And by the way, yes, fleet. So we have on Slide 4 of the presentation, you can see 41 arrivals of A320 family and 7 E2 aircraft, plus 3 wide-bodies. We have relatively few leases. I don't have the correct figure here, the right figure, but we have the option to, of course, extend them if you want to. And our expectation at this point in time is to end up the year with a total fleet of just over 400 aircraft -- around 410. You can see that as well in the press release, okay? And -- sorry, I'm just looking at a note here they're sending me. Yes. And last thing, they just reminded me to make you feel comfortable that we have the fleet we need to grow for what we're expecting next year. So I don't expect -- we don't expect that we would need to make changes in our fleet plan for the capacity we have planned. The first part of the question you asked me, now, remember, is booking curve into the beginning of the year. Very early still, particularly on domestic markets, the percentage of booked seats is very low. But what we're seeing initially for the first couple of months of the year looks in the current trend that we have seen in third quarter and that we expect for the rest of the year. Operator: Your next question comes from the line of Ewald Stark with BICE. Ewald Stark Bittencourt: I want to know if you can provide any color behind what is driving the lower percentage of hedged fuel during this quarter? Especially I would like to focus on, is anything on booking going forward that is driving this lower percentage of hedged fuel, or maybe you're looking something different about forecast of oil? Unknown Executive: Yes, thanks for the question. If you look at the press release, it's nothing that different for what we usually do. You have about a 47% for Q4 of this year and then 33% for Q1. And of course, as soon as we approach the next quarters, we will have, of course, consistent with the policy, an increase the fuel hedge. But I wouldn't say that this is any different than what you have seen in the past. It's a very standard, I think, coverage that we have today for fuel price, nothing that really deviates from the policy. Ewald Stark Bittencourt: Financial statements say that you have a 26% hedge fuel for the next 12 months. Starting from first quarter of 2026, every quarter is below 30%. Unknown Executive: Yes. If you look at the detail on the earnings release, there's more detail here. I think at the financial, that's sort of on a weighted average of what's it going forward. But here, you have the actual percentages covered for every quarter. Again, 47% for Q4, 33% for Q1. So that's a difference you were look at the financials here. Then as this is as of November 14, 2025, it's more updated. I think, of course, the financials, they call for, I think, September 30, but this is -- you have the most updated vision of the current portfolio, as of November 14. Operator: [Operator Instructions] Your next question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: Regarding the pilot strike in Chile, can you share some potential -- expected impact for the fourth quarter? I understand it should be material, but I just wanted to hear your thoughts on what could we expect from this negotiation. Roberto Alvo Milosawlewitsch: Thank you, Guilherme. At this point in time, we have no clarity of the potential impact. So we will update that if necessary at an appropriate time. Operator: There are no further questions at this time. I will now turn the call back to Ricardo Bottas for closing remarks. Ricardo Dourado: I would like to thank you all to participating in today's call and remind you that we will have our Investor Day again on December 9. So we would love to have all of you participating on that opportunity to get more information from the company and the additional updates. Thank you all, and have a good day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, ladies and gentlemen, to a conference devoted to talking about the results of the KGHM Group for the third quarter of first 9 months of 2025. We have President, Anna Sobieraj-Kozakiewicz with us; Mr. Zbigniew Bryja, Deputy Manager for Development; Piotr Krzyzewski, Deputy Board President for Industrial; and Mr. Laskowski, Deputy Board President for Investment and Investor Relations Director. The meeting is broadcasted online, and you will be able to send your questions to -- during the conference and afterwards, and all the answers are going to be published either during the conference or afterwards. And now Mr. President, over to you. Andrzej Szydlo: Welcome, ladies and gentlemen, and apologies to the investors who are watching us from the Western Hemisphere. Apologies for atypical time of the meeting. But due to the tight schedule, we needed to move the time of the conference a little bit back. Due to also the tight schedule I mentioned, I will try to make it very brief today not to get into the competence of further speakers today. So to give you the bird's eye view of our situation, I'll start with an anecdote. But yes, this slide and the trends that we have been seeing for many months about KGHM and influences its results. I think I can jokingly say that maybe LME -- copper prices on LME should be in Polish zloty because what does this slide show us? 5% copper price in terms of USD year-on-year. So 9 months -- first 9 months of 2024. The exchange rate for -- between USD and PLN is minus 4% year-on-year, which gives us the stable results, unchanged results. So the status quo is unchanged. So if the stock market would be in Polish zloty, this chart would be much more predictable. And then average copper price for 9 months were at the level of $9,556 in dollars and PLN 36,257. We see a marked increase in terms of silver price, which is a very important product of KGHM. Let me remind you, we are the second top producer of silver in the world. And here, we have 23% of increase in terms of zloty and 29% of increase in terms of dollars. Of course, that influences our results. However, this increase of copper prices in dollars happened by the end of the reporting period. And strengthening of zloty has been observed throughout 2024. Let me just remind you that at the end of last year, the dollar versus zloty was PLN 4, PLN 4.08, PLN 4.10. Next slide, please. In reference to the previous slide, we see a minus 1% in terms of adjusted EBITDA in KGHM Group. And in KGHM Polska Miedz S.A., we have minus 1%. So almost the same year-on-year, of course. And judging by the fact that the copper prices remained unchanged and in the first half of the year, we had a major renovation in Glogow smelter, so a decreased production year-on-year compared to 2024 by 20,000 tonnes of electrolytic copper. The drop of revenues by 1% can be treated as only 1%. Then adjusted EBITDA of KGHM Polska Miedz plus 5% compared to 2024, and plus 16% in terms of adjusted EBITDA in KGHM Group. And then net profit, a bit of deja vu because the first 6 months -- throughout the first 6 months we had the same results. So it's worse than first 9 months of 2024, both in terms of KGHM Polska Miedz and consolidated. Key production indicators, as I said, 20,000 tonnes of electrolytic copper less. And it is due to planned maintenance on smelter infrastructure in Glogow smelter. So in KGHM Polska Miedz S.A., that was 421,000 compared to 441,000; better results in terms of Sierra Gorda, as you can see, plus 14%, which is almost 8,000 tonnes of copper more in Sierra Gorda. And in KGHM International, a little less than 5,000 tonnes less, which is minus 11%. I think Ms. President will talk about the reasons of decreases in Robinsons mine -- in Robinson mine. So again, I'm not going to precede her part of the presentation. We see a constant trend, about 66%, 67% of payable copper in national, domestic assets comes from own concentrate, KGHM, 1/3 that would be purchased metal, either imported or scrap. This is no surprise. It's a stable level. And we do hope that this stability won't move towards lower production from own concentrate towards purchased metals. And here, we have the production results in terms of other assets. So Sierra Gorda and KGHM International. Silver production slightly higher, plus 1%. TPM production, minus 6%. And molybdenum production markedly higher, plus 95% better efficiency and better molybdenum concentration in Sierra Gorda. And to finish up, what I would like to emphasize, the results are really good, especially the EBITDA. The exchange rate differences affect the net result. And we are very happy that -- with what we've been commenting on for many years -- for many quarters, the cost discipline, because the increase of costs that we had in the previous years, systematic increase due to the cost of work or cost of energy, we have managed to stabilize it. I'm pretty sure that President Krzyzewski will talk about it. There is no increase, even decrease of C1 cost in foreign assets, international assets, domestic assets, the increase of C1 cost is minimal. And if we look at C1 without the tax, we even are dealing with a decrease. Okay. Now Professor Laskowski. Miroslaw Laskowski: Yes, let me give you a bit of details in production. In terms of production results in all the segments, ore extraction, production of copper and concentrate, production of electrolytic copper and metallic silver production, we are within or even above the budget. And the Q3 of 2025, is one of the best production quarters compared to other -- previous year's period and compared to the other -- the previous 5 quarters. So metallic silver, as you can see, plus 1.5% year-on-year. And Q3, as I said, of 2025, 330 tonnes, and this is one of the best results across these 5 quarters that we compare it with here. Electrolytic copper, in Q3, we returned to the production level of 149 tonnes. These are the amounts that we got in Q3, Q4 last year. The President Szydlo talked about the maintenance in electro refinery department in Glogow II smelter, this would contribute to the lower production results of the first 2 quarters of 2025. And in terms of production -- in terms of ore extraction, it's similar to 2024, over 23 million tonnes. And Q3, that would be a level of extraction of 6 -- 7.8 million tonnes, the highest in comparable periods. And production of copper in concentrate, it is slightly, but still higher than the compared 2024 year-on-year. So again, 304,000 tonnes, the highest level of production in compared -- with compared periods. These are really good results. And I need to emphasize that we had unfavorable production calendar. 2024 was an off year, and February had 29 days, 1 production day more for KGHM S.A. is 100 tonnes -- 100 more tonnes of extraction, more concentrate, 1,000 copper in concentrate, 1,700 electrolytic copper or 1,000 tonnes of wire copper. So this is one more day only in our production results. So -- and then one more thing about Zelazny Most reservoir. We have safe level of filling it, 6 million cubic meters of water. This is what we mean by safe. To compare in summer last year, when we got to KGHM, the filling of the reservoir of the main and southern part reached dozens of cubic meters. And one more important thing in terms of Zelazny Most, we have obtained all the agreements and permits to the level of 205. So that gives us a couple of -- or more than a dozen years of safe work in KGHM. Anna Sobieraj-Kozakiewicz: And in terms of production results of international assets, another very good year for that sector in terms of payable copper production. In Sierra Gorda for 55 assets, the level of payable copper production was 64,900 tonnes by -- it's an increase by 14% year-on-year, an increase of the production results. This result is due to the higher grade copper ore as well as higher recovery despite the lower volume of ore produced. Very good results in line with our budget assumptions. It's worth emphasizing that, thanks to the optimization activities, we have stabilized production in Sierra Gorda, and we see more predictability of production, both in terms of copper and molybdenum. In terms of molybdenum production, here, we can boast almost 100% increase of molybdenum production year-on-year. In Q3, that was over 2 million pounds. And so by the end of September, we have 4 million pounds in total. And then molybdenum production starting from May -- end of May, actually, we see a marked increase of that. And this is due to higher concentration of molybdenum in the ore as well as higher recovery despite the lower volume of ore processed. And what we need to emphasize here, molybdenum production in Q3 was one of the highest in the history of Sierra Gorda. In terms of silver and gold production, we see slight decreases, but this is due to lower volume of ore processed. In terms of gold, compared to the budget of this year, we see that we are still higher than our budget expectations, which, thanks to high prices of this metal and good TCRC premiums, contributes to a very good level of C1 below $1 per pound. Next slide, please. When it comes to the production results of KGHM International, the production of payable copper after 9 months is 40,600 of tonnes of payable copper, so a decrease of 11% compared to the reference period, and this is the result of the lower content of copper, lower volume and yield of metal. But here, we need to highlight that we are referencing to the previous year where the results were record high. And this year, the production of ore goes into liberty which has lower parameters of ore. However, we can see that we are within the budget when it comes to the production of copper of 75% of the production. When it comes to the production of the gold in Robinson, we are above the assumptions for the given year. And I was referencing to Robinson mine. Ladies and gentlemen, we can see that the production results of international assets are very good, which transfers to the good financial condition of international units. So at the end of September, we had $240 million, from which $210 million was paid by Sierra Gorda and $30 million KGHM International, and those are payments from guarantees, loans and provision of other services. So I can say that this is a very good year for international assets. Thank you very much. Zbigniew Bryja: So Professor, right now, when it comes to the advancement of development initiatives, we have similar parameters compared to the previous year for the given period. So when it comes to the development plan, it was 62%. Right now, we have 63%. So we can compare those values at the end of the year. In accordance with the conversations that we had with the departments, we can say that we've completed our tasks when it comes to investments and the execution would be at a similar level. So 96%, which is a very good result. Let me remind you, the investment plan, so PLN 3.800 billion, also the reserve that we will not be touching, will not be moving the assets. When it comes to the distribution divisions, as mentioned during the previous conferences, mining industry when it comes to the development spending is PLN 2.492 billion from which PLN 2.406 billion is for financing; leasing, PLN 86 million. So let me tell you 3/4 of 80% is the spendings for mining. When it comes to division for tasks of recreation development, it's 35%. In total, it's not what we would like to see, but this is something that we can do because the recreation and maintenance are very important components that provide us with the chance to survive, and we cannot -- those cannot suffer because of our investment plans. So we need to divide those assets so that every party is happy with the values they receive. So let's go to the next slide right now. Okay. This slide, the circular slide that we can -- this pie chart. So we can go to the segments. So PLN 2 billion -- of the execution, PLN 2.492 billion, 2.019 billion is mining. So of course, outfitting of the mines because we are mentioning that this is a type of activity that every day we are extracting every part of the deposit, let's say, so a part, we should also prepare for the excavation for every other day. So that's why maintenance of the mining region, so the construction of conveyor belts and stuff like that is important. Also, for the construction of the transformer station, those are all basic tasks. There are plenty of basic tasks that make our work in the industry mining -- in the mining industry profitable. So we need to have active mining department. Another very important item in here is replacement of machine park. And we undertaken plenty of actions in here in accordance with the regulations that are in force to rationalize the purchase of machines. And this year, right now in -- for 3 quarters, we have 201 machines, and the goal is 256 machines. And this is the approximate number because every year, depending on the needs, it's always the approximate. So 5 -- plus/minus 5 to 10 machines. And so that's why we shouldn't be mentioning any delays because this is a result of the previous year. So 256 machines. This is something that we want to purchase until the end of the year. The next item, mine dewatering. So we know the problem. So the water in Polkowice-Sieroszowice. So for example, the anti-filtration barrier needs to be prepared under the shaft SW4, so PLN 187 million. The development of the Zelazny Most tailings storage facility, and we are referencing to that because it was all related to Q3 to get all the acceptances, permits for the exploitations, for the construction, the environmental authorizations and licenses as well, so we can proceed with the construction of the storage. So we need to be consistent and go step by step, but this is also complemented by the investment in the construction of the so-called barriers surrounding the reservoir. So in order to decrease the pressure, and this is the so-called -- so those also -- some wells, special wells, relief wells in order to relieve the area. Also, the next part, so the replacement of mines and tailings divisions. So different types of modernizations of conveyors, shafts, ACs, ventilations in the hydro facility, hydrotechnical facility. So for example, pipes, the network of pipes because as you can probably recall, one of the reasons of gathering a substantial amount of water when we arrived to KGHM was exactly that. So the infrastructure of pipelines was not good. So we are removing this downside. And right now, we can maintain the safe level of water of Zelazny Most, and we can proceed. So exploration, this is not significant, so PLN 86 million. And the next year due to the entrance of Bytom Odrzanski, we will be drilling new holes in order to get some more exploration within that region, and this is in perspective. Maintenance of shafts, those are mostly -- so PLN 56 million, and this is mostly for the SW4 shaft complex. So step by step, we need to remove the salt and move the infrastructure. And the biggest part, so deposit access program, so 34% for all investment -- mining investments. And on the first slide, we have 35%. We have development. So this is, in fact, this position, this item plus exploration, of course. So it's still mining and mostly prepared for north, for shafts because a shaft without the possibility of connecting to the mining system becomes a well, and we are not constructing wells. So that's why we are very much interested in the intensification of work for Retkow, [ GG-2 Odra ] and Gaworzyce. And for the plant areas, the gallery areas that we have, for Q1, we have 32.4. So within the plan and the execution is not endangered in here, and we are right now going back to the situation from a year ago. So the excavations were underwater. And right now, they are well prepared and accessible. So we are sort of like trying to get the time back. But the excavations are not everything. And for example, we need conveyor belts for those. We need to prepare roads. Those need to be limited because, of course, we need to prepare the proper conveyor belt systems for that. And it's all when it comes to the basic inflows, and this is also a slide that shows the scope of our works for the upcoming years. And in green, we have the upcoming shafts that we will be constructing in the future. And please pay attention that in June 2023, we have the deconstruction of the shaft. We have been noticing the increase, and it all transfers into the ton of excavation of yield. So right now we have a stabilization of Glogow. So those amounts are not so relevant anymore. But when it comes to the construction of the following shafts, so GG-1 and on the surface and the equipment of the facility, we have the reinforcement prepared for the shaft and anti-weight in -- for one of the machines, so machine 1. And we are also preparing for the construction of the target cage. We are also increasing from 33 to 34 when it comes to AC of megawatts, but it will be given for the exploitation in September '29. And -- so PeBeKa 2 units from our group, so the general contractor for the surface works, so the liquidation of the temporary facilities and Bipromet, so a company that plays a role of the so-called engineer of the contract will be overseeing the progress of work. When it comes to GG-2, apart from the planning work for the municipality because we need to get the permits because as you know, in some other words, the GG-2 will be in different place as compared to what was planned before. And the works are going in accordance with the schedule when it comes to the transformator station. So the first hall is done already. So there will be no dislocation and the shaft will be there. When it comes to Gaworzyce shaft, we have everything prepared. We are preparing for the geological drills right now. So it's all when it comes to the shaft. Let's proceed to the next slide when it comes to the execution in metallurgy. So it's PLN 358 million, and the main investments and the point of interest of ours at the end of the year. There will be a renovation, Cedynia mine conducted. But in general, we are preparing for Glogow 2 that will be taking place next year. So the first contracts, purchases as well, and those are the main points of interest when it comes to metallurgy. When it comes to ZWRs, it's modernization of mills, crushers, ball mills and press fillers -- filters, sorry. And we are counting on ending the Legnica smelter as well. So the new technology without no caps, no cap -- and until the end of the next year, this installation will be accessible and available. So that's all when it comes to the investments, the basic info. Thank you very much. Andrzej Szydlo: I will digress for a moment here. Such detailed presentation by President Bryja results from 2 things. First, his passion; and secondly, the importance KGHM puts on investment and development and providing long-term efficiency of our facilities. Thank you very much, President. You can see -- we can see your enthusiasm and heart, but time is running out. So let's move on. Piotr Krzyzewski: Thank you. So let's move on to financial results. Piotr Krzyzewski. Yes, it's good to be last because I can start from a summary. So I will borrow some of the words that my predecessors used. So to summarize, the Q3, but also all 3 quarters of this year, we've observed and have been observing good production levels with good cost discipline. At the same time, we're using our opportunities. In consequence, we have good financial results and creation of additional value for shareholders and stockholders. This is what we focused on, and you can see that after these 9 months. Before we move on to the presentation, 3 key aspects I would like to emphasize. If I started from finances, I would say the first important element here, President Szydlo mentioned that is the exchange rate. We discussed a lot about tariffs. They are important. However, through the prism of our results, we are able to manage our trade activities so that tariffs do not affect us so much. But the exchange rate affects us just like all the other European economy and all the other industries in Europe. And this is a great challenge in terms of competitiveness for the industrial -- from the European industry. In Poland, it's particularly important because zloty is also very strong right now. So as the President said, on one hand, the copper prices raised by 5%, and our currency also raised by 5%. So at the end of the day, all the national assets, the price of copper in dollars then calculated -- recalculated into zloty has the same value, even though it increased in general. In terms of trade, again, the last quarter was very dynamic. On one hand, spread between LME and CME grew by PLN 3,000 almost. And then we had the 2nd of August when we finished the claim based on Paragraph 232 in the States, and the decision was made of not imposing tariffs on semi-finished products, but raw materials were tariffed -- were taxed. So again, it did not affect us so much. We were able to rechannel our goods and the flow of our goods. So thank you very much for the commercial team and our clients, our logistics department. So we -- there was a lot of time pressure there. But as you can see, the results are impressive. And energy aspects. Again, very volatile, first transactions, first PPAs in the history of the company. We purchased 110-megawatt hours, 2 big wind farms that will provide energy for us next year. To give you the bigger picture, this is 5% of the purchased energy a year. And if we look at it from the perspective of the infrastructure, it's like Legnica will be covered by 72% by wind energy. And from the perspective of ESG, it's like in Scope 2, we reduced Scope 2 by 5% next year. So energy transition is important, but I also have to emphasize the fact that this is a very efficient financial instrument, and it will contribute very well to lower cost of purchasing energy in the next year and years to come. Moving on to the presentation now. In terms of group revenues, it's 1% lower. But as President Laskowski mentioned, it has its reasons. President Szydlo, the maintenance on electro-refinition at Glogow was responsible for that. I will show you what it means. We produced less, but we managed to earn more. And this is something we focus a lot. It's not about production volume, but we want to produce as efficiently as possible in terms of finance. Operating costs, also lower by 1%. What was mentioned during our first quarter conference, we focus on cost discipline. Cost optimization program is working very well. And then if we take into -- exclude depreciation, then it's minus 2%. So this is something we will be doing in the coming periods, as you will see. So the adjusted EBITDA, as you can see, is plus 16% year-on-year. But again, keep in mind the fact that in 2024 for 9 months compared to 9 months 2023, EBITDA -- adjusted EBITDA was plus 43%. So very, very high dynamics of growth. So we're raising the bar. In terms of the contributions, as you can see, over PLN 1 billion higher EBITDA, out of which Sierra Gorda, PLN 7 million, then KGHM Polska Miedz, and KGHM International, also strong contributors as well. President also mentioned Sierra Gorda here. What we do in our domestic assets, we also do in international assets. So we focus on one hand, fulfill our cost discipline. And in Sierra Gorda, it's a low-grade mine. This is the most important aspect. So the financial lever is very important here. And we've made a lot of changes here, both personnel and managerial, minus 1 level, relations with our partners, so far T2 is also doing very well. So the team of the President also contributes in many areas to Sierra Gorda. And the cooperation between the assets is also very good, and we see very positive results of that here. Here, looking at group sales revenue, the first is, yes, the renovation in electro-refinition. You can see the sales -- changes in sales volumes is copper and this is due to the maintenance in electro-refinition. So by 16% own contribution, own concentrate and 4% only in foreign inputs. So it shows how well we are able to adjust. A great thank you for the smelter departments. So we're looking at production through the perspective of finances. And the results are really, really well. The other positions should be connected. So position 2, 3 and 4. If we combine them, we have PLN 800 million plus. So this is how efficiency and management looks like, risk management looks like. This is plus PLN 800 million. To remind you, last year, we have generated PLN 670 million plus. In this year it's over PLN 100 million. And again, our strategies work in a way that they can allow us to participate in exchange rate increase. So this contributed positively to the result. Here, we have the expenses by nature. Again, we're getting very close to the inflation levels, 4%, both in terms of capital group and similarly on domestic assets, again, again, plus 4%. The biggest value positions here are well, tax, unfortunately, plus 10%. In terms of value, I would say, cost of -- labor costs, PLN 300 million, in the capital group in Poland, PLN 200 million. Also here, we have the reserve for the pension expenses. And let's take a look at the use of materials here. It's also going -- it's still going down. And a great work -- a great achievement of the capital group here. Energy and energy factors here, the quantity decided here, the price is lower, but we used more energy, less gas. This was also a result of some of the maintenance activities on steam and gas blocks. So I would say the budget of gas plus energy keeps being optimized, and that contributes to very good results. And that -- that gives us the image we see. So C1 unit cost. In the capital group, we have minus 6%, but if we exclude the tax, the decrease is minus 13%, which is a very good result. And that here is a result of both production efficiency and cost regime. Taking a look at some particular clusters of assets in Poland, plus 2%. But again, if we exclude the tax from that, that would be minus 4%. So from that perspective, again, great cost discipline and all the factors that we could influence determine the fact that C1 go down. And then C1 is recalculated and dependent on the USD rate. So if we exclude that as well, then that would place us on the level of minus 9% almost. So this is the real value if we eliminate both the tax and the exchange rate from our analysis. Then taking a look at KGHM International, as the President mentioned already, good levels of production, both on Robinson mine and TCRC is supporting us here. Logistics costs got down mostly. All that contributed to the fact that C1 in KGHM International got down by almost 40%. And Sierra Gorda marked decrease of almost 50%. And here, TPMs are very, very important. And the facts that were already mentioned, TCRC, molybdenum, all the opportunities on the market we have used. And that is showed in C1. And then the financial results. The first column, let me just mention that it's without -- Sierra Gorda excluded. So KGHM International and domestic assets, positive contribution. And what was mentioned by President Laskowski, I would like to thank the mining departments that contributes very, very well in both assets. And as the President said, the last quarter in Poland in terms of ore extraction is very good in Poland. And we see that this tendency is being continued also now. So these perspectives are really good. Second parameter that contributed positively would be our loans and loans also sent to Sierra Gorda. And the biggest negative element, exchange rate differences. To give you the picture. These are the exchange rate differences resulting from our loans granted to Sierra Gorda. And because of that, the change of exchange rate, the result is around PLN 1 billion. And part of our debt, part of all the bank liabilities we have is also denominated in dollars that contributed positively, gave us PLN 200 million plus, but then we are still minus PLN 800 million -- minus. That influenced detrimentally the financial result of the group. Last thing, cash flow, also very important, if not the most important because cash is what matters in the end. Looking at operational cash flow, comparing it with investing activities, we are very close to financing our investing activities with operating activities. And here, I would like to point one thing to your attention. EBITDA positive -- contributes very positively. But then stock, something that will be connected with the maintenance in Glogow smelter. We have some last corrections on our budget for the next year. We don't want it to influence our cathode production. So we are calculating right now how many anodes we need to create to make it in time without this smelter to provide stability of the company. So by the end of September, in semi-finished products, you probably observed that it's over PLN 1.4 billion semi-finished product, mainly anodes that we are producing right now for stock. We have it very well calculated and it pays off, I have to assure you. It will cost us some of the current assets. But still by the end of the day, it will positively contribute to our results. So I think on the annual conference, we will show you that and this element is going to be growing. It's going to be increasing. One more thing that I would like to mention in the last days, to conclude, the cash flow. We will be emitting our bonds in December. This is a planned transaction that contributes to the strategy, that writes in the strategy of stable financing. One of the important elements apart from bank financing would be bond financing. We have the whole program written down. We already emitted bonds once. Right now, we will refinance that emission and that issuance, we want to prolong the refinancing terms, and we want to use the positive situation, market situation. So this is something that you will be shown by the end of the year for sure. Thank you very much. Operator: I would like to thank the Management Board for the presentation of results. Now feel free to ask the questions. And due to time limitations, please focus on the questions for this presentation today. Do we have any questions from the room? No questions from the room. Janusz Krystosiak: I think I have a question from the Internet, from the web. Jakub Szkopek, Erste. It's pretty long. When it comes to 2 years ago when the Management Board was taking job at KGHM, they were basing their actions on the assumed copper prices. Right now the copper prices are 11,000 increase the prices of gold and silver, increase tax on excavation. When the Management Board will test again and reverse the -- and write-offs, and to reverse the write-offs. Piotr Krzyzewski: Yes. So to answer those questions, when I remember from PLN 8,000, PLN 8,250, right now, we are close to PLN 11,000. We need to add one more parameter. Back then, the exchange rate was PLN 4.10. Right now, it's PLN 3.60. It's a very important element when it comes to the increase because it's not high when it comes to Polish zloty, but some other aspects as well because as I understand, the matter of the change when it comes to the taxation, the tax for the balance date, we'll be talking to the auditor, to the supervisor, and this is an aspect that was -- is being analyzed by us, whether there is a reason for that. So we need to have a broader look, not only through the prism of the copper price itself. Thank you very much. Janusz Krystosiak: And to continue with the questions via e-mails, I think it's for Ms. President and for Mr. President, Piotr Krzyzewski. So 2 questions from Morgan Stanley. Number one, when can we expect an update on the Sierra Gorda development? What areas are the feasibility studies conducted for? Anna Sobieraj-Kozakiewicz: So ladies and gentlemen, we are trying to have a very detailed approach when it comes to investments for Sierra Gorda. At the current stage, we are in the preparation of the feasibility study. For which, the end date is at the end of this year or the beginning of the next year. And only then we'll have the full package of information that will be the basis for our decision. And we can -- we will be able to talk about the further investment decisions. Right now, the gathering information stage is in progress. Janusz Krystosiak: Question number 2 from [ Janusz ]. What part of the turnover capital -- working capital can be reversed in Q4? Piotr Krzyzewski: So as mentioned, the key element will be the matter of the construction of the optimal state of semi-finished products. So -- and what will be the burden of the turnover capital? And we are working on some other elements as well to free up the capital as well, and this is something that you can observe too. So it's very difficult for me to provide the details when it comes to the numbers. But just to add on what Ms. President was saying, our strategy from the very beginning was for our assets to be developed, and we are focusing on what you can see right now, and we have agreed with our partners that, first, the assets need to be produced effectively, the goals, the results need to be reached, and then we can talk about the investments. The first one is executed, reached and needs to be continuously reached. But right now we can talk about the investments. And I think that this aspect is very complex because from the perspective of the fourth line, for green line, this aspect is much more complex. So we are making the drills in the concession area. So the mineralization is in the neighborhood. And the layout, the exact layout of Sierra Gorda, this is something that we are having discussions over. And we are considering all the assets that are developing in terms of operations, and we are looking at the investments from the financial efficiency. Andrzej Szydlo: So I'll just add on this. From the very beginning, so for a longer period of time right now, we have been saying that, first and foremost, the international assets should be organized and optimized, and this is something that is being done. And secondly, not so long ago we had a problem of the due date of loans, [ so Doosan ]. And this problem was resolved too. The third thing, this year, Ms. President was referring to the payment of loans. And it's good that it's happening. So this will also be contributing to -- for us to protect us from the proper levels of the pay of the loans when it comes to the exchange rates. And the last thing, the most important one, the CapEx that are pretty relevant when it comes to the off-sites and the fourth line. And to be truth with you, the burden of the investments, when it comes to the group, we all know it, and we have been signalizing it as a Management Board. The biggest challenge when it comes to the investment is at KGHM S.A. And of course, the project that can be attractive, so increase of the -- increasing the Sierra Gorda production capacity when it comes to the fourth line, provided that it's going to be effective, efficient, can go hand-in-hand with what we are planning when it comes to the finances for KGHM. So for example, if we consider this to be very efficient with relatively short return rate, we need to remember that fourth line is working negative -- in a negative manner for the so-called loans. And we are turning this capital well, it's working well. So when it comes to the answer, we need to search for the proper balance for the investments. First, we need to proceed with the ones that are the most important. So for example, the ones that we need to execute, then we need to proceed with the ones that are the most profitable ones. Anna Sobieraj-Kozakiewicz: So just to add on that answer. The last sentence from me, we would like to focus on the production to be at a foreseeable level, and this is something that we are putting a lot of effort into right now. We're talking about the Millennia CapEx, $700 million for the fourth line of Millennia. So this is something that we need to keep in mind. And what was stated before, the international assets are contributing positively to EBITDA. So right now, 46% of corrected EBITDA. But at this CapEx, we need to be sure that the return rate will be proper. Andrzej Szydlo: So just at the very end, to remember, for Sierra Gorda, the decisions are made with our partners. So we are -- we have 50% of shares, but this is not a monopoly for the decision. So we need to agree upon those and we are co-referencing and searching for proper solutions. Piotr Krzyzewski: I would like to add one more sentence when it comes to financing because ladies and gentlemen, this is something that we have been communicating and saying to you. We are trying to separate the international assets from the banking perspective. So for example, $500 million for Sierra Gorda, there's a bigger option in here to get more financing. KI is getting more financing for different assets as well with our support from the substantial part. So I would like to say that we are not defining the risk of cannibalization of CapEx because I think there is no risk as such. But when it comes to the loans and changing the philosophy not to generate additional loans, yes, this is something that we have been focusing on from the very beginning, and we have been -- so we will be providing the financing from the operational standpoint, but for respective assets. Unknown Analyst: If I can just ask President, Krzyzewski, you said that we produced less but earned more. So at KGHM, Q4 usually was the biggest sales. So what is the prediction for the future that in Q4 we produced more and we sold more and earned more. Is that possible for the future for Q4? Piotr Krzyzewski: A very good question. But I have to answer when it comes from the sort of like the back office perspective. And I think that this is actually publicly available when it comes to the European market. So the benchmark, so [indiscernible] for cathodes is 40% higher compared to this year. So I will not comment on that. But for sure, we will be optimizing that in the long perspective. The company earns as much as possible on its products, of course, depending on the availability of the items on the market. And this is something -- we also need to remember about the geopolitical world. So we are responsible for the 50% of the copper in Europe. So this technological tract is dependent on us in Europe, depending on the partners, depending on the availability of the product and raw materials, too. Janusz Krystosiak: Thank you very much. One more question from mBank from (sic) [ for ] Mr. President, Bryja. When it comes to -- what will be the profile of the expenses for new 3 shafts in time? So the CapEx will be divided in even amounts. Are there any more intensive -- intense periods? Zbigniew Bryja: When it comes to the construction of the shaft, the most expensive part is the deepening part and then equipment of the shaft when it comes to GG-1 and Retkow is of different purposes. And this is transferring to the -- providing proper equipment for the shafts because we need to remember that any additional equipment is sort of like limiting the amount of air within the shaft. When it comes to the first hole drilled in Retkow, we are just waiting for 2 more, the construction of the freezing units, so 44 holes need to be drilled the whole installation. When it comes to the deepening of the hole, we are assuming at 2028, 2029. When it comes to the shaft, it will be deepened and evened out in accordance with our schedule around 2036. And this is the most important part for Retkow, but all the remaining shafts within the period of 2 or 3 years will be going after that shaft. So that will be the concentration of the period from 2034 to 2040. So those will be the expenses in different parts of time for 3 shafts. So Retkow will be finished in 2040, the next one in 2042, and the next one in 2044. So if we are talking about the deepening as being the most expensive part, and then providing the proper infrastructure for the shaft is the 30s, but it's very difficult to indicate a specific year because we haven't started the deepening period yet. So it's a matter of a year or 2 years. So thank you very much. Janusz Krystosiak: Thank you very much. So do we have any questions from the room? If not, then it's... The last question, a bit technical, analytical from me. I will try to answer that and maybe Mr. President will -- so Adam Milewicz from PKO BP. Why in Q3 of this year, why is it the income tax CIT, corporate income tax, is so high? Piotr Krzyzewski: So last year, we've been observing the return of CIT from the previous years, and this is sort of like distorting the analytics part of this tax. And this one that we have right now is a standard level. So please consider that for -- in terms of the previous periods as well. Operator: Right. Thank you very much for attending this conference and feel invited to the next one that will be happening next year. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2025 Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Yaffe, Chief Executive Officer; and Ron Freund, Chief Financial Officer, I'd like to remind you that we'll be referring to forward-looking information in today's presentation and in the Q&A. By its nature, information contains forecasts, assumptions and expectations about future outcomes, which are subject to risks and uncertainties outlined here and discussed more fully in Eltek's public disclosure filings. These forward-looking statements are projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. We'll also be referring to non-GAAP measures. Eltek undertakes no obligation to publicly release revisions to such forward-looking statements to reflect events or circumstances occurring subsequent to this date. I will now turn the call over to Mr. Eli Yaffe. Mr. Yaffe, please go ahead. Eli Yaffe: Thank you. Good morning. Thank you for joining us for the third quarter fiscal year 2025 earnings call. With me is Ron Freund, our Chief Financial Officer. We will begin by providing you with an overview of our business and a summary of the principal factors that affected our results during the third quarter followed by the details of our financial results. After our prepared remarks, we will be happy to answer any of your questions. By now, everyone should have access to our press release, which was released earlier today. The release will be also available on our website. We ended the third quarter with sales of $13.3 million and sales for the first 9 months totaled $38.6 million. Gross profit for the quarter was $1.6 million with breakeven operating income and net loss of $0.2 million. Our results were affected by the sharp depreciation of the U.S. dollar against the Israeli shekel, which increased our reported NIS-denominated expenses and reduced gross profits. The total impact of the currency erosion on the operation profit was approximately $800,000 compared to the third quarter of 2024. At the end of the second quarter, we updated our pricing model to reflect the currency trends. We expect to see the positive impact of the revised pricing beginning in the coming quarters as the new quotation issued after the end of Q2 2025 to take effect. Our bottom line was further impacted by approximately $0.0 million in financial expenses, primarily reflected the continued depreciation of the U.S. dollar against the shekel. This effect was mainly related to the U.S. dollar-denominated assets, including cash and cash equivalents, short-term deposits and trade receivables net of trade payables. On the operational front, we continue to experience some instability in our production processes. This is primarily related to the ramp-up of a new equipment installed over the past year as well as the integration of the newly recruited engineers and production staff, who are still gaining experience with these systems. As we have mentioned in previous calls, we are in a mindset of transitional period as we absorb significant additional capacity and technology upgrades. In addition to the foreign exchange impact, the key contributor to the operational results in this quarter were: higher depreciation expenses resulting from the purchase of new machine that become operational during this year; increased raw material consumption, driven by fluctuation of process instability during the rebound phase; higher energy costs, reflecting peak summer rates. We expect these effects to gradually be modest as the new line stabilize, process mature and the expand team reached full proficiency. From the market perspective, demand for the products remains strong, led by defense sector, which represents 63% of the quarterly sales, alongside 9% for the industrial and 6% from the medical customers. Rigid flex products accounts for 66% of the quarterly sales and 65% of the first 9 months of this year. We are seeing the entry of several new foreign competitors into our market. While this trend may limit price increase in certain segments, Eltek technological leadership, longstanding customer relationship and specification in high-end complex PCB solution position us well to maintain and, in some cases, expand our competitive advantage. Delivery time across the industry remain extended, reflecting strong global demand and constrained manufacturing capacity. Pricing dynamics also affect by segments. In low volume, high complexity production, competition remains limited, allowing for greater pricing flexibility. In mid- to high-volume production, we are seeing increased competition from new entrants. We are also facing pressure from several large Israeli customers to extend credit terms, which has increased working capital requirement and financial expenses. Encouragingly, the recent improvement in the regional security has positive effect logistics, shorter raw material delivery times now allowed us to gradually reduce inventory level and partially offset the higher working capital requirements. Our production capacity expansion program is progressing well. We're finishing the construction and the preparation of the new production hall, which will house the new coating line. Finally, our RRP project continues to progress according to plan. We are preparing to go live during 2026. The system will be replaced and integrate all company platform, including production satellite system, providing a modern data-driven work environment with greater operational visibility, control and efficiency across all business functions. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results. Ron Freund: Thank you, Eli. I would like to draw your attention to the financial statements for the third quarter of 2025. During this call, I will also discuss certain non-GAAP financial measures. Eltek uses EBITDA as a non-GAAP financial performance measurement. Please see our earnings release for the definition and the reasons for its use. I will now go over the highlights of the 2025 third quarter. All numbers mentioned are in U.S. dollars. Revenues for the third quarter of 2025 were $13.3 million compared to $13.5 million in the third quarter of 2024. Gross profit for Q3 2025 totaled $1.6 million compared to $3.5 million in 2024. Operating profit for the third quarter of 2025 was $50,000 compared to $1.9 million in the same period last year. We recorded financial expenses of $0.3 million in Q3 2025 compared to financial income of $0.3 million in Q3 2024, mainly driven by changes in the shekel exchange rate relative to the U.S. dollar, net of interest earnings on our cash reserves. Net loss for Q3 2025 was $0.2 million or $0.03 per share compared to net income of $1.7 million or $0.25 per share in Q3 2024. EBITDA amounted to $0.6 million in Q3 2025 compared to $2.3 million in the prior year period. In the third quarter of 2025, we generated positive cash flow from operating activities of $2 million compared to $1.6 million in Q3 2024. As of September 30, 2025, our cash balances totaled $11.6 million. We are now ready to answer your questions. Operator: [Operator Instructions] The first question is from Mark Sharogradsky Kepler. Mark Sharogradsky: It's pretty low quarter for you. So I wanted to understand because last quarter, you said that your all operational issues was almost behind you. So how, again, you speak about the operating issues? And then when we will see the improvement of your pricing lift due to USD depreciation? Eli Yaffe: Thank you, Mark. What we report last quarter was about the end of the construction and the dust and the erosion and the wall break and everything that is already behind us as we reported. Now the instability is due to engineering and manpower, the operator itself of the machine. So it's 2 different issues. Regarding -- what was your second question? Mark Sharogradsky: Regarding when we will see the effect of price increases due to the lower USD? Eli Yaffe: Usually, it takes 6 to 9 months until quotation is mature and translated to profits. Mark Sharogradsky: I understand. And when you think you will be behind your operational difficulties? Eli Yaffe: It's tough to say because it depends upon the absorption rate of the employees and the absorption rate of the engineering forces, which is gained from day to day. It's hard to say and hard to predict when it's going to be ended. But of course, it's our goal to reduce this period to as short as possible. Mark Sharogradsky: Okay. I have one more question. You guided for '26, '27 gross margin in the middle term. When approximately we'll be able to reach those gross margins? Ron Freund: So Mark, as we reported in the past, we expect to complete the integration of the new coating line scheduled to arrive soon by the mid of 2026. And this line is expected to streamline our core manufacturing processes and expand our production capacity. We hope also to stabilize our production processes by that time and improve our gross margin. As we have noted in the past, each additional dollar of revenue contributes meaningfully to our gross profit and of course, to net income. So therefore, increasing our sales volume is expected to have a significant positive impact on this profitability. Mark Sharogradsky: Yes, because this quarter was pretty okay on the revenue. But again, I don't understand why all time we have these operational difficulties. Ron Freund: So I think that you should take a look at, first of all, the dollar influence, which is unpredicted and we cannot change it. But except for that, as Eli said before, our production processes are still not enough stable, and we suffer from increased raw material consumption. It is not that production stopped or do we have a problem with the machine. The efficiency is not as we wanted to be and slow. As we move forward, people gain more knowledge in exactly how to work with the new machines. And we hope that it will take us by the end -- by the middle of 2026 to solve also these problems. We are not satisfied with the result as you are, but that's the situation. Operator: The next question is from Ran Su. Unknown Analyst: I wanted to ask 3 questions. First of all is, can you elaborate more about the negative impact, as you said, from new competition? Second, about the price pressure you said you felt this quarter? And third question is, can we assume the negative impact from currency and foreign exchange to U.S. dollars will continue this quarter? Eli Yaffe: Regarding your first question, the competition starts from not in Israel, competition from abroad, from the Far East, but not China. And they start to penetrate more and more to the defense sector. What was your second question? Unknown Analyst: About the price pressure you said you felt this quarter? Eli Yaffe: That's, of course, limited our possibility to increase the price to any level that we would like because they are in the entry level and they put some pressure mainly in the high-volume production to be in the entry level and reduce the price. I think all in the... Unknown Analyst: Is it something sustainable? Eli Yaffe: In the volume, there is less competition right now. Unknown Analyst: Is it something you see as sustainable competition from the new entry? Eli Yaffe: The new entry is going to stay. It's going to stay. The question is, what's going to be the price level? And it's hard to forecast. But right now, the entry-level pricing is hurting us. That's on high-volume production. On low volume production, there is less competition. And we have more flexibility in the pricing, as I said before. What was your third question? Ron Freund: It was in regards to the U.S. dollar erosion. So as I hope you understand, we are getting hit by the erosion of the U.S. dollar in finance expenses, but also in the operating income. So as long as the dollar keeps to be eroded, we are going to have additional financing expenses and also our denominated expenses -- NIS-denominated expenses are going to be in a higher level. As we said previously, we hope that the new pricing will let us to cover these extra dollar expenses. But I think that you ask for the next quarter, the fourth quarter, I think that as long as the dollar is -- the exchange rate is less than it was at the end of the third quarter, then you should expect finance expenses and also operating income to be affected by it. Unknown Analyst: So as I understand, we should feel like compounded pressure both from the top line because of the new entry and from the foreign exchange in the fourth quarter? Eli Yaffe: The new entry guys will give us a limit to the new quotations that we can send. Operator: There are no further questions at this time. Before I ask Mr. Yaffe to go ahead with his closing statement, I would like to remind the participants that a replay of this call will be available tomorrow on our website. Eli Yaffe: In closing, I would like to thank the company employees and the management teams to their hard work during this time and to thank our customers and our investors for their continued support. Operator: This concludes the Eltek Ltd. 2025 Third Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Chris Hunt: Good morning. Thank you for joining this webcast covering ICG's results for the 6 months ended 30th of September 2025 and the strategic partnership with Amundi we've announced this morning. The slides are available on our website, along with both accompanying announcements. As a reminder, unless otherwise stated, all financial information discussed today is based on alternative performance measures, which exclude the consolidation of some of our fund structures required under IFRS. This morning, I'm joined by our CEO and CIO, Benoit Durteste; our CFO, David Bicarregui. They will give an overview of our performance during the period, and we will then take questions. You can submit these through the webcast message function or by telephone, details of which are on the portal. And with that, I'll hand over to Benoit. Benoît Durteste: Thank you, Chris, and good morning, everyone. It's a pleasure to reflect today on the progress ICG has made during the first half. And this is an even more exciting than usual results announcement. We're not only reporting impressive H1 results, we're also announcing a major distribution agreement and strategic partnership with Amundi. From a group perspective, our growing breadth and scale is continuing to drive visible benefits for our clients and shareholders. And our deliberate tilt over the last decade towards higher returning strategies is clearly bearing fruit. Our track record and reputation for an unwavering focus on risk and investment performance are key factors in our recent success. Institutional clients are increasingly scrutinizing performance and in particular, realized performance or DPI. In a market where a number of players' pursuit of AUM and volume is leading to some unreasonable risk taking in our view, predominantly but not exclusively in credit and private debt, our clients recognize that we remain at heart investors squarely focused on consistency of performance through cycles. All of which means that we see substantial opportunity to grow our existing strategies and our institutional client base. This will drive significant organic growth in the coming years. And we are also well-positioned strategically and financially to continue to innovate new strategies and products where we see opportunities. These strong growth prospects are further enhanced by the announcement today of our strategic partnership with Amundi, which is a meaningful step forward in the development of our wealth strategy and will help shape appropriate product offerings for that market. It's an incredibly exciting opportunity, potentially very additive to both parties, and I'll speak about it further later in this presentation. I'll start with a few highlights on the last 6 months. Fundraising of $9 billion surpassed our expectations coming into the year with Europe IX raising more quickly than we had anticipated and Infrastructure II having a very strong run into its final close, achieving hard cap at more than double the size of the previous vintage. Our secondaries franchise continues to excite us in an area we have built entirely organically and which is now our third largest asset class by AUM. We are in the market with the subsequent vintage of LP secondaries, so Vintage 2. We are launching a European evergreen secondaries vehicle, and we are also launching a mid-market version of our strategic equity fund, which is our GP-led secondaries strategy in order to further cement our global leadership position in that asset class. On the financial side, fee-earning AUM now stands at $84 billion, up 6% in the last 6 months on a constant currency basis, and we have substantial dry powder to continue our investment programs. Management fees for the 6 months were up 16% at GBP 334 million, while expenses are being well managed and demonstrating operating leverage. At a group level, our operating cash flow was up meaningfully at GBP 450 million. So in short, we're enjoying significant growth and cash flow generation. Putting that into a longer-term perspective, you could see how our business has evolved rapidly over the last 5 years and the financial impact that's having. On the left-hand side of this chart, we set out our growth by asset class, which has been diversified, but really driven by higher return strategies in structured capital, secondaries and real assets equity. Private debt in comparison has grown but at a slower pace and remains an area where we continue to be highly disciplined, prioritizing long-term performance over aggressive deployment. We have attracted substantial capital into these higher returning strategies, leading to almost doubling our fee-earning AUM over the past 5 years, entirely organically. And we have grown our weighted average management fee rate from 85 bps at March '21 to just under 1% today. As a result, we are larger, more diversified, more resilient and more profitable. A key theme of our strategy has been scaling our higher return strategies, specifically private equity secondaries, structured capital, real assets equity, that's real estate equity and infrastructure equity. This takes time, but the successful execution of this is clearly visible in the middle of this page. In March '21, these strategies represented 1/3 of our fee earning. Since then, they have grown by 3.2x. That's compared to doubling of fee-earning AUM at the group level. And today, they represent 57% of our fee-earning AUM. From a purely financial perspective, this has been the key driver of the growth in our management fee rate I just spoke about and of course, our operating margin. But the broader rationale is arguably more important. These strategies are inherently more complex with higher barriers to entry. And this allows us to differentiate, generate outperformance for our clients, demonstrate our investment excellence, and in the process, charge higher management fees on committed capital as well as generate over time, more performance fees. These strategies are also harder to commoditize, which will help protect management fee rates and is reinforcing ICG's brand equity with our clients. These are not volume vanilla products. And what is particularly exciting is that all of these funds or strategies have significant room to grow organically for years to come. As a result of this shift, the future value of our fee-earning AUM is materially higher than 5 years ago. It is earning higher fees and is more relevant to clients' wider markets portfolios. Today, we are proud of our European heritage and of our global reach. We have presence in 18 countries, attract capital from clients around the world and invest in all the largest geographies for private markets, including 1/4 of our deployed capital being invested in the U.S. From a product perspective, we have a number of leading positions in structured capital, GP-led secondaries, European direct lending as well as an exciting array of earlier-stage strategies, including in real assets. And this has not been by chance. It is anchored in some very basic beliefs about what it takes to succeed in the long term, which is one, a focus on investment performance, always; two, a waterfront of strategies that provides something different to clients; and three, a platform that is scalable to be relevant to the largest investors globally. I'm proud that today's results show how we are continuing to build that at ICG, how they help underline the success of that execution to date and how they help demonstrate the opportunity ahead of us. Turning now to the current environment. Fundraising across the wider market remains challenging. Global private capital raised this year is likely to be lower for the fourth consecutive year. And to quote a recent Bain Report, fundraising has never been so hard. The statistic that there is about $3 of demand for every dollar likely to be raised is remarkable. It has existential consequences for many managers, some of whom simply are not and will not be able to raise capital. We're already seeing some firms effectively going into runoff or shrinking substantially, and I expect to see more of that. This will incidentally create some opportunities at the very least for hiring new talent, and we are already benefiting. One of the consequences of this is that LPs are increasingly selective with many looking to diversify towards Europe and focusing both on certain strategies such as structured capital and real assets as well as being very focused on investment performance and DPI in particular. For firms such as ICG who have a range of products and we're able to raise capital, doing so is reinforcing our position with clients. Stepping back, the real takeaway from this is that although the market has been challenging for a few years now, for firms such as ICG who have a range of products and are successfully raising capital, this is a very good time to differentiate, gain market share, and it is allowing us to set the firm up for even greater long-term success and growth. I mentioned the strong focus of investors on realized performance or DPI, how quickly you return cash to clients. And here is a slide that I showed at our Investor Days in London, New York, and Tokyo this past September and October. And this slide really resonates with our clients. To have this number of strategies as top decile or at the very least top quartile from a DPI perspective is highly unusual. It's very impressive. It's a track record we're incredibly proud of and a quantitative validation of how our focus on investment performance is delivering for clients. Importantly, this is not by chance, right? It is not new to ICG. Our investors know this well. Those of you who have known us for some time will have heard me speak about it many times in the past, how discipline in realizing assets, derisking funds is key to consistency of performance over a long period. Discipline, a consistent focus on risk return performance, not just return. This is what makes a real difference with investors today. The result of all this is that we are continuing to see strong client demand, and that's reflected in our fundraising. We have raised $9 billion in the last 6 months, which is particularly noteworthy, not just because we have surpassed our expectations, but because as we have previously indicated, we are this year and next at a structurally lower point of our own fundraising cycle. Europe IX continues to raise well with $2.8 billion raised in the period and the fund now standing at $7.5 billion, so well on the way to meeting or exceeding the previous vintage, which was just over EUR 8 billion. Infrastructure II held its final close in the period at EUR 3.15 billion. So that's over 2x larger than the prior vintage. It has been a standout success. We had a re-up rate of 85% and attracted capital from a wide range of clients. 1/4 of the capital came from North America, reinforcing the growing strength of our brand there and the appeal of high-performing European products for certain North American investors. From a shareholder perspective, we reduced the balance sheet commitment from EUR 200 million in Fund I to EUR 150 million in Fund II, so moving from 13% of total fund size in the first vintage to under 5% in Fund II. More broadly, over the past 15 months, we have had five funds close at or above their hard cap and not just flagship scaling strategies as well. In any environment, that would be remarkable. But in this environment, with fundraising under such pressure, as we discussed earlier, that's a real achievement. All of which comes from and supports our client growth. We have continued to attract new institutional clients during the period. Since we announced our fundraising guidance in May '24, 43% of new LPs came from North America and 9% from the Middle East. And looking ahead, we will continue to broaden our reach through innovating new products and diversifying our sources of capital, always with an absolute focus on developing products that are appropriate to those channels where we can deliver attractive investment returns. Today, as part of that continued broadening of our client base, we're excited to announce a long-term strategic partnership with Amundi. This partnership significantly accelerates our ambitions in the private wealth space and combines ICG's investment expertise and track record of product innovation with Amundi's global distribution capabilities and structuring know-how. We have historically taken a much more cautious approach to the wealth channel than most of our peers. While there is obviously an enormous potential for capital raising, we have also seen how it can shift investment priorities of GPs towards a more volume-driven approach to the detriment of performance, which is precisely at the opposite end of the spectrum of what ICG is about and what we want to be, uncompromisingly focused on investment quality, risk and performance. And this is where the partnership with Amundi is incredibly exciting. We have found that we have a like-minded approach to investment to delivering the best results for end clients. We share key values, and this is essential for the success of our collaboration. Our common goal is to be an important force in shaping access for individuals to private markets investments while maintaining an unflinching focus on generating attractive risk-adjusted investment performance. We see a significant long-term opportunity to develop a range of products appropriate to the wealth market and believe that together, we have the right complementary capabilities to execute on that. I'm convinced that by working together in this way, we can create significant value for our clients and respective shareholders. As you're well aware, Amundi is the largest European traditional asset manager, one of the largest globally with some EUR 2.3 trillion of assets under management and access through its distribution network to over 200 million individual clients. It is the ideal partner for ICG in this transaction, bringing scale, access, and expertise that are highly complementary to our own existing capabilities. Looking at the two components of the partnership in a bit more detail. The commercial agreement, which covers distribution and product structuring will have an initial term of 10 years. Our immediate focus will be on developing and launching two evergreen funds, one for LP secondaries and one for private credit. Globally, outside of the U.S. and Australia and New Zealand, Amundi will be the exclusive distributor in the wealth channel for ICG's Evergreen and certain other products with ICG being Amundi's exclusive provider for those products to Amundi's distribution business. Over time, we will seek to develop more products and strategies that are well suited to the wealth market. And this is a very exciting long-term prospect of this partnership. We see a real opportunity to shape the market to ensure that products are appropriate and deliver what investors are looking for, structured in ways that enable returns to be generated over the long term. To align our interest and reinforce the long-term nature of this partnership, Amundi will acquire a 9.9% economic interest in ICG in a way that is non-dilutive to our current shareholders. The structure is set out in brief here and in more detail in the appendix and in the RNS we released this morning on this partnership. As part of this, Amundi will be entitled to nominate one non-executive director to our Board, and I look forward to working with that individual and the wider Amundi team to make a success of what I consider to be a meaningful alignment of two leading European-based firms to help shape the wealth market for private investments in the years to come. So looking ahead, future -- our future growth has a number of encouraging tailwinds. Our waterfront of strategies is significantly exposed to some of the fastest-growing asset classes in private markets, providing a constructive backdrop for our strategies. I'm very positive on the long-term opportunity ahead of us and our ability to execute on that, a trajectory that is reinforced by the results we are reporting today and the partnership with Amundi. And with that, I'll pass over to David. David Christopher Bicarregui: Thank you, Benoit, and thank you all for joining us today. I'm pleased to report that we have published strong results this morning with growth across key financial metrics. Fee-earning AUM grew 6% on a constant currency basis, ending at $84 billion. It has grown every year in the last 5 years in dollar terms and over that period has increased at an annualized rate of 14%. In the past 6 months, we have raised $5 billion for strategies that charge fees on committed capital and deployed $6 billion in strategies that charge fees on invested capital. We also have $19 billion of AUM not yet earning fees, largely in private debt, which has the potential to generate approximately GBP 130 million in additional management fees. Our visible recurring management fees remain the key driver of revenue growth. As of the 30th of September, management fees reached GBP 334 million for the last 6 months, an increase of 16% year-on-year. As we discussed in October, performance fees are becoming an important contributor to our revenue mix, reflecting the growth of higher return strategies that Benoit described earlier. In the period, we recognized total performance fee revenue of GBP 98 million, including the one-off impact of GBP 72 million due to the change in recognition method. We received GBP 62 million of cash from performance fees, up from GBP 40 million in H1 of last year. Our total balance sheet returns for the period were GBP 112 million, up 57% compared to the previous year. And preempting the inevitable question on first brands, the impact was minimal, less than GBP 5 million, and the assumptions on our CLO valuations provided by third-party valuation agent are broadly unchanged compared to March. Stepping back, the revenue profile in the period underlines the trajectory that Benoit spoke about earlier. These results reinforce our continued successful long-term execution. Over 70 -- sorry, 60% of our revenue in the last 6 months is from management fees, which have grown at an annualized rate of 19% over the last 5 years and over 80% of our revenue was fee-based. As we continue to scale up and scale out our investment strategies, I expect this trajectory to continue with the balance sheet remaining an important asset to enable this growth while becoming less meaningful to our revenue mix. Group operating expenses have grown 1% year-on-year. Over the medium term, we would still expect these to grow at mid-to-high single-digit percentage. We are clearly seeing operating leverage come through as our funds get bigger and we raise subsequent vintages, benefiting from the compounding fees on fees profile. This is a theme we've spoken about a lot in recent years, and it's very visible when you compare the 11% annualized growth rate of OpEx over the last 5 years to the 19% annualized growth of our management fees. The combination of management fee centricity and operating leverage is even clearer if we look at it on an FRE or fee-related earnings basis. This metric takes our management fees and deduct all of our group cash costs. The precise methodology is in the appendix. There's no entirely consistent market approach, and the team can certainly talk you through this offline. But over the last 5 years, our FRE has grown at an annualized rate of 26%. What this serves to highlight is the visible growing earnings power of our management fees, the operating leverage we achieve as management fees grow, and given its cash is a highly valuable earnings stream for shareholders. Over time, FRE growth is an important indicator of how successfully we are executing our strategy of scaling up and scaling out. The Amundi partnership we announced this morning is a great example of scaling up our credit and LP secondaries platforms. Management fees generated as a result of this partnership should have strong flow-through to FRE given our high embedded operating leverage. And over the long term, our combined ability to develop new products that are suitable for the wealth market will help to further diversify and grow our management fee base, which again should be visible in our FRE growth, all of which underlines why we think this might be an interesting metric to look at. And of course, we welcome feedback. As well as our higher earnings, our growing fee income is generating increased amounts of cash, and our balance sheet is structurally cash flow positive. In the last 6 months, we generated operating cash flow of GBP 450 million, up 143% year-on-year, driven by higher management fees, realized performance fees, and total balance sheet returns. We ended the period with total available liquidity of GBP 1.3 billion, net debt of GBP 401 million and net gearing of 0.15x. During the period, Fitch upgraded our credit outlook to BBB+ Stable, and we are now rated BBB+ Stable from both agencies. NAV per share as of the 30th of September was GBP 9. We have ample liquidity and financial resources, which we can use through market cycles to pursue our strategic ambitions of reinforcing our relevance to clients by scaling new strategies and new products. The current market backdrop is a great opportunity to reinforce our position as a global leader, and we're doing just that. So drawing this all together, our ability to deliver breadth at scale is having clear benefits, which are visible in our financial results. Since September 2020, ICG has generated over GBP 2.3 billion of cumulative earnings with nearly half returned to shareholders via dividends. We have a clear and disciplined approach to capital allocation, focused on generating recurring and sustainable growth for shareholders. And I look forward to discussing these results and our outlook with many of you in the coming weeks. So with that, I'll hand it back to Chris for questions. Chris Hunt: Thank you, David. Thank you, Benoit. [Operator Instructions] And we have a few questions already on the phone, so should we go first of talk to Oliver Carruthers from Goldman Sachs. Oliver Carruthers: I've got two questions from my side. The first one on the Amundi partnership. When you think of the scope and depth of private markets for Amundi's 200 million wealth clients, what level of penetration do you think this partnership could be taken to, particularly, Benoit, given your comments on product appropriateness, but also the direction of travel the industry seems to be -- it looks like it could be kind of moving towards in terms of potentially combining public and private investment content into a single product. So that's the first question. And then the second question, maybe a 2-part question on private equity secondaries. Obviously, an asset class with a lot of growth. First part, could you talk to the mid-market strategic equity launch in terms of both the timing and the scale of the opportunity? I think this probably has a potential to be pretty accretive to FMC economics because its investment capabilities and deal flow that lines up with your existing strategic equity franchise. And then second part of the secondaries question, your comment, Benoit, on industry consolidation in fundraising and the potential for some GPs to go into runoff, LPs will obviously be quite sensitive to this. So how do you think about that comment as you're growing your LP secondaries franchise? And do you expect this will create investment opportunities on the LP-led secondary side? Benoît Durteste: Thank you. I think that was three questions, practically put into two. So -- and the first one is quite broad. So your first question on the scope and depth of the wealth market for private assets. I mean, it's early days. And so no one really knows. But in theory, the potential is considerable because up until now, wealth and more broadly retail clients have not had access or very limited access to private assets, which has created a very meaningful divergence between the portfolio composition of institutional investors and that of the wealth channel or more broadly the retail channel. So the potential there is undeniably very significant. But as you rightly pointed out, you mentioned the potential need to structure a product by potentially mixing some private and public. I think a lot of the growth will be dependent on our ability to structure those products, which is why I'm so excited by the partnership with Amundi because they're thinking exactly along the same lines. I think by and large, today, what the market has done is try to chew on illiquid private products into the channel. And there are significant limitations and perhaps risk as well to that. But it can be structured in the right way where you're providing some liquidity without losing some of the key advantages of private asset investments. And so that's what we're -- that's clearly what we're going to be focusing on. In a sense, we're going -- initially, we're going for the relatively low-hanging fruits, the easy wins in areas that are structurally more liquid or offer more liquidity, such as credit and LP secondaries, but there's much more that can be done and that we've already started discussing. So I'm very excited. But I mean, you know us, we never want to overpromise and these things can also take time. But if I think long term, I think this partnership has enormous potential. And for us, it's really important that we're not just part and benefiting from this shift because there are many ways in which we could have benefited from this long-term shift, but that with and we'll be able to actually influence it to actually craft or steer the market in a direction that we think is the most sensible. On -- your second question was on key secondaries, and we don't talk about potential size of fund. But yes, you're right that this should be very accretive because it's not very difficult for us to roll out a mid-market version of our strategic equity strategy, very much in the way we've done that for European corporate. But having said that, I always a word of caution, even though we are the global leader in the space, and we benefit from a very strong track record, it's still, in a way, a first-time fund. So we always have to be a bit cautious about the speed of fund raise for that. But yes, medium term makes a lot of sense. It should be very accretive. And for us, strategically, it matters a lot as well because it enables us to essentially occupy the whole space in terms of size and so that we keep maintaining the first-mover advantage that we have in that asset class. So yes, very promising. And finally, you squeezed in a third question on some of the shakeup in the industry with some players will clearly struggle or already struggling. Will that generate opportunities in the secondary space? Perhaps. I'd be somewhat cautious there because if you think about it, we operate in two segments of secondaries, one which is the more traditional LP secondaries. And typically there, you want to be looking at strong managers with strong assets. Can you develop a more distressed play as part of that? Perhaps, but I'd be wary of that. I mean if a manager has underperformed and gone into one-off, there's probably a good reason. So not so sure for LP secondaries. And likewise, in GP-led secondaries, you clearly want to be backing only very strong assets with very strong managers. So if there are opportunities that come out of some pain in the market, I think it might be a more direct investment potentially in our structured capital strategy. This is where potentially we could see some opportunities. And depending on how broad-based this phenomenon is, we might revise our recovery fund, which we dust off every time there is a bit of a market crisis, but we're not there yet, right? So this is maybe in the future. Chris Hunt: Thank you, Benoit. Shall we keep on the phones for now? And should we go to David McCann at Deutsche Bank, please. David McCann: Congratulations on the results from the deal. So sticking with the theme largely of Amundi for the first questions really. Amundi on their own slides are talking about 5% EPS accretion linked to the ICG deal from 2028. Is this purely just their share of the profit from their anticipated 9.9% ownership? Or can we read anything into that in terms of the partnership ambition with that? And also sort of linked to Amundi, noting that this is excluding the U.S., would you be looking for a similar partnership in the U.S.? Or how would you -- how do you anticipate to address the U.S. market? That's really the first question. Second question is a more technical one probably for David. Can you just help us understand the CLO dividend income is obviously very strong in the period, much more so than normal, but that contrasted obviously with some mark-to-market credit losses. So how could we kind of square the circle? Why are we seeing sort of good news on one side, but then sort of bad news on the other side of what is obviously a related piece. Chris Hunt: Thanks, David. That was again three questions under the pretending to two. I'll take the first one very briefly. No, you can read nothing into that number. That's a question for Amundi, but there's nothing you can read into that figure as regards to partnership at all. Benoit, do you want to pick up the sort of the wealth strategy in the U.S.? And then David, maybe you talk about the CLO question. Benoît Durteste: Sure. So a couple of things. One is even though we've generally been more cautious. We haven't been standing still. So we have been addressing the wealth channel in the U.S. for a number of years. You may remember that we were an early investor in case, which is a distributor. We still are, by the way, and that's been -- in itself, that's been a very, very good investment for us. But obviously, that's one way for us to deploy, particularly in secondaries, both GP-led and LP secondaries. But also, I mean, we've had relationship with a number of banks, of large banks distributing a number of our strategies in the U.S. and that is -- that will continue. I think the exclusion here reflects the fact that this is not a geography where we has significant presence. So yes, so that's the answer on the U.S. part of our strategy. David Christopher Bicarregui: Yes. And then, David, on your more technical question about CLOs, I mean, as you said, I think you have to look at this in the round. The total returns across all the asset classes on the balance sheet were positive, including the credit business stripe. As you say, dividends are actually a little higher than where they've run historically, that tells you more about the performance of the underlying funds being good and performing in line with expectations, hence, the generation of dividends. And we'll continue to mark the book in accordance with the third-party model. And there's nothing certainly in the data that gives us any broader concern at this point. Chris Hunt: Hubert Lam from BofA. Hubert Lam: I've got two of them. Firstly, on Amundi again. So how much could the Amundi partnership bring you think in terms of flows over the next few years? How should we think about the opportunity here? And when do you think we should start seeing meaningful benefits of flows starting to come through? First question. The second question is on, again, the balance sheet and net investment return. Again, it was pretty -- it was at 5%, I think, for the period. So when do you think we can start getting back to the high single-digit or low double-digit growth, which you're targeting over the midterm? Benoît Durteste: Well, I'll take the first question, but I think that's the same question as from Oliver at Goldman Sachs. So I'll make the same answer. I think the long-term potential is very significant, but I'm always cautious about overpromising in the short to medium term, particularly since in a number of areas, essentially, we're going to be creating the market. So there are some -- I mentioned there are some easy wins. And yes, we'll benefit from that. But the biggest surprise is what we'll do in the longer term. That's where you'll see some very significant or potentially see some very significant impact. But yes, I think that's -- at this point, that's all that we can say. David Christopher Bicarregui: On the balance sheet, Hubert, I mean you know this, but the balance sheet is an outcome of how the funds are performing over periods of time. And again, we don't manage the balance sheet is an independent exercise. It's going to be what the funds perform over time. If you look at the NIR over time, 5 years about 9% now and total balance sheet return is about 11%. So clearly, over the medium to long term, it's reflecting fund performance as you'd expect it to. Benoît Durteste: And I think it might be worth reminding everyone, David, that -- I mean, as you said, I mean, the performance of the balance sheet has to be looked at over the long run because over short periods of time, what's mostly influencing it is our pace of deployment because increased deployment because we keep the valuations flat for -- typically for a year, when we increase deployment, it has a short-term negative impact on the -- or perceived negative impact on the balance sheet performance. But obviously, that evens out over time. Chris Hunt: [indiscernible]. We've had a quick question online around the status of fundraising for real estate equity. So as a reminder, we raised just over $1 billion in real estate equity in Europe during this half. But Benoit, do you have any broader observations or comments around the real estate fundraising market at the moment? Benoît Durteste: Sure. I mean it's been incredibly difficult these past few years because that is -- it is one of the asset class where the pain has been taken. Valuations have come down. And so LPs have suffered some significant losses or at least underperformance in their existing real estate portfolio. So generally, that creates a pause in the fundraising appetite. For us, that creates an opportunity because we did not have legacy real estate equity strategies or funds, which means that we don't have to be firefighting on older vintages. Essentially, we're starting from a clean slate. So it's a very -- our timing is very good in terms of establishing ourselves in the market. It's creating a window. But obviously, it takes a bit longer because the fundraising has been -- environment has been more difficult. It's starting to reopen. I think I mentioned during the presentation that some of the asset classes strategies that LPs are looking at right now, that includes real assets. There's increased appetite for real assets and real estate. And so we're starting to see that. So it takes time and it's early days for us, but I'm very confident that for us, the real estate asset class is going to be an area of significant growth in the next 5 to 10 years, and we're taking the cycle exactly at the right time. So we're starting to progressively see that it's speeding up. We're raising more. But I think fast forward 5 years from now, I mean, you'll see that our real estate franchise will be a bigger part of what we do. Chris Hunt: Thank you. One question online around the economics of the emerging partnership and how that will work. I'll take that. It will obviously vary by product. We obviously don't disclose terms of individual funds and strategies. But as David alluded to or mentioned earlier, we think over the medium term, this is a very exciting opportunity, and there's a lot of value to be created for all of the stakeholders involved in this, including the end clients. That's how we're thinking about the economics of that partnership. Another on the partnership, and this may be one for you, David. Look, the structure looks clear, the end outcome, 9.9% economic share, 4.9% voting rights looks clear. Would you mind just running through briefly the steps of how we're getting there from today to by the 30th of June 2027, please? David Christopher Bicarregui: Yes, sure, happy to do that. So actually, the best page, if you have it to refer to is probably Page 25 of our presentation, where we lay out a little bit more detail on the steps that will take place. As you can see, as we've discussed, through the steps, Amundi is going to acquire 9.9% economic stake. I think the key point here, though, is that there's no dilution to ICG shareholders and Amundi is going to be paying for all the voting and nonvoting shares using their own cash reserves. The first step is for Amundi to acquire 4.64% ordinary shares in the secondary market. Then ICG has agreed to repurchase 5.26% of ordinary shares to be canceled with Amundi then subscribing to non-voting shares that basically have the same economic ownership. So they happen in tranches over time. And as Chris mentioned, it will be completed by the 30th of June 2027. So ownership stakes, share buyback activities will be disclosed in the normal way as all of these steps progress. But I also want to emphasize the structure ensures no dilution to existing shareholders and no change to the ICG balance sheet P&L or cash position. Chris Hunt: Okay. Thank you. A couple of another question on the phone from Angeliki at JPMorgan. Angeliki Bairaktari: Just a couple from myself as well, please. First of all, with regards to the Amundi partnership, can you explain the rationale behind the exclusivity in distribution? We know that many of your peers in private markets actually distribute at the moment in Europe across several different distributors. So are you not limiting yourselves a little bit by just going exclusive with only one partner? And second question on Europe IX. You mentioned that the fund is now at EUR 7.5 billion. Can it exceed the EUR 10 billion target? And can you give us an update on when we should be expecting the final close of this strategy, please? Benoît Durteste: Yes. Thanks, Angeliki. On the I mean, the important part is that this is mutually exclusive, right? So are we limiting ourselves? Yes, you could say we could also distribute through others, but Amundi is by far the largest asset manager, traditional asset manager in Europe, and they're going exclusive with us as well. So I mean, it's -- I think it's incredibly valuable for both parties and should enable us to accelerate our position in the wealth market in a way that we would not have been able to had we gone through just normal commercial agreements on a fund-by-fund basis. And by the way, I mean, the way typically these agreements work is those distributors always ask for exclusivity at least for a period of time when they're distributing a fund. So even if you're going fund by fund, you're still giving exclusivity to JPMorgan, for instance. You've been distributing some of our products for a period of time. So no, I think it's only on that point, I think it's only positive. I think it's very, very positive for both parties. On Europe IX, we don't comment on ultimate target. The one thing I would say is that, as always, we're not obsessed with size. I mean, for me, the key criteria on the size of a fund is ability to deploy it well in a 3- to 4-year period. And so as always, when we're sizing a fund, we take a look at the speed of deployment in the first year or the first 18 months of the life of the fund, so in parallel with the fundraising effort, and we're right in the middle of that right now. And depending on that and our own assessment of the market, we either push the size up or we remain more cautious. It's too early to say. Chris Hunt: And just to build on -- Angeliki, just to build on the first question. This isn't going exclusive with one person, right? Amundi have got relation, a network of more than 600 distributors and over 200 million individual clients. So this doesn't limit us. This opens up a significant opportunity. So I think definitely, we're thinking about it in that way. We -- there's another question now online around private credit and how we see the deployment pipeline in private credit. Benoit, do you want to make some comments around that market as a whole? Benoît Durteste: Sure. So broad context is that the buyout market remains slow, certainly slower than it was 4, 5 years ago. And that has an impact on the credit and the private debt market because these markets are essentially aligned with the private equity buyout space. So that's for the general environment. Within that, it's obviously easier if you benefit from a long history and a large existing portfolio because those existing portfolios generate their own financing opportunities. If I look at where we deploy quite significantly in Europe, we deployed EUR 3 billion, EUR 4 billion per year. Actually, this year, we're on track to be at the upper end. But a significant portion of that, call it, 2/3 to 3/4 is by taking advantage of mining our existing portfolio. So that has a very big impact on our ability to deploy and deploy well. So that's a competitive advantage, if you will. Overall, it's -- we are cautious in this market environment. I mean, there are areas of the market where we feel it's overheating. It's probably more pronounced in the U.S. than Europe, but Europe is not immune. So we remain cautious in the way we deploy and particularly, we remain very cautious on the quality of legal protections and legal documentations where we're seeing in some instances, things that we find are unsatisfactory and so we stay with. Chris Hunt: And then two final questions online, both of which sound like possibly for you, David. First of all, FMC costs were flat year-on-year in H1. How should we -- can you just remind us, and I think you've mentioned this before, how should we think about growth in the medium term and cost base as a whole? David Christopher Bicarregui: Yes. So as I said in my sort of prepared remarks, I wouldn't read too much into a 1% change in cost base. There has been, as we mentioned in the presentation, there are quite a lot of cost discipline in the system. Our headcount is actually slightly down period-on-period. As we continue to scale the business up, we've made a lot of investments in the past that we've spoken about and actually, a lot of that is now in place. So that's a good and positive backdrop. But I'd still guide people to cost base increase more between the 5% and 10% range at this point because there'll be some seasonal effects anyway when you're looking at this over the 6 months. So that's how I'd guide for the future. Chris Hunt: And then what looks like the final question. FRE seems new disclosure this half. Could you sort of talk through a bit about the rationale and why now? David Christopher Bicarregui: Yes. So FRE, as I said, I think, is another way to think about our business. It's obviously one that many others use to compare asset management companies and their growth potential. So actually having a comparable metric, I think, in the public domain is helpful. Many analysts obviously do it already. So here's us explaining how we think about it internally. It brings together also a number of the themes I touched on in the presentation. If you think about our management fee growth of 19% over 5 years, cost growth of 11% over 5 years, it comes together into a very powerful FRE outcome. It's grown 26%. So for now and for the future, this is probably another one that we should watch and monitor, and we'll continue to evolve our financial disclosure as always, and I appreciate the feedback. Chris Hunt: Absolutely. And just for clarity, that's 26% annualized FRE growth over the last 5 years. With that, we have come to the end of the questions. So thanks ever so much for joining us, and this concludes the presentation. Thank you.
Operator: Thank you for joining us for Navios Maritime Partners' Third Quarter 2025 Earnings Conference Call. With us today from the company are Chairman and CEO, Mr. Angeliki Frangou, Chief Operating Officer, Mr. Efstratios Desypris, Chief Financial Officer; Mrs. Erifili Tsironi and Chief Trading Officer, Mr. Vincent Vandewalle. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Partners' website at www.navios-mlp.com. You'll see the webcasting link in the middle of the page and a copy of the presentation referenced in today's earnings conference call will also be found there. Now I will review the safe harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties and which could cause actual results to differ materially from the forward-looking statements. Such risks are not fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows: First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will give an overview of Navios Partners' segment data. Next, Mr. Tsironi will give an overview of Navios Partners' financial results. Then Mr. Vandewalle, who will provide an industry overview. And lastly, we'll open the call to take questions. Now I turn the call over to Navios Partners' Chairwoman and CEO; Ms. Angeliki Frangou. Angeliki? Angeliki Frangou: Good morning, and thank you all for joining us on today's call. I am pleased with the results for the third quarter and first 9 months of 2025 and which reported revenue of $346.9 million and $978.6 million, respectively. We also reported EBITDA of $193.9 million and $519.8 million respectively, and net income of $56.3 million and $168 million, respectively. Earnings per common unit was $1.90 for the quarter and $5.52 for the 9-month period. For the past 5 years, it seems as if we have been addressing constant change, not operating environment driven by geopolitical and other brands. Yet, we have remained laser-focused on our business, modernizing our fleet. As you can see on Slide 3, our fleet has an average age of 9.7 years compared to an industry average of 13.5 years for our 3 segments. Our reinvestment program puts us in a fortunate position of having a fleet that is almost 30% [indiscernible] than the have an almost half when you look at our tanker fleet. Angeliki Frangou: Please turn to Slide 4. Navios is a leading maritime transportation company owning operating a charter and modern fleet of 171 vessels across 3 segments, and 15 asset classes. As it split about 1/3 in its category by vessel number and vessel values. Vessel values are $6.3 billion in gross value and $3.8 billion net equity. We also enjoy a low net LTV of 34.5% and have $412 million available liquidity and strong credit rating of Ba3 by Moody's and BB by S&P. Angeliki Frangou: Please turn to Slide 5. We believe that diversification is strength when embedded in the culture of risk management, we have a business providing significant optionality in our decision-making process. For example, on charter-in, if we are able to secure long-term charters that provide a reasonable return on our investment will limit our exposure to short-term waiting for sector opportunity to return. We approached the allocation of capital similarly, patiently observing the market for either opportunistic purchases or acquisitions that can be held by long-term charters with the credit was counterparty. These activities are accompanied by deleverage cost we maintain strong balance sheet and a target net F&D of 20%, 25%. I would offer that all this works because of our strong lease management case. We are continuously monitoring and assessing as we evaluate and structure our transactions with risk management professionals who are equal partners in all our activities. We also obtained robust insurance coverage for liability and losses. And we have implemented many tools to manage operational risk and crew training. Angeliki Frangou: Please turn to Slide 6. Our gross LTV was 40.6% at the end of the third quarter. Net LTV was 34.5% in and we aim to continue to drive net LTV lows. We added $745 million of long-term contracted revenue during the quarter and net revenue backlog is $3.7 billion. Currently, virtually all of the fleet is covered for the fourth quarter of 2025. Angeliki Frangou: Please turn to Slide 7. I would like to focus on prospects for 2026, which are shaping up nicely. We have covered 58% of our days induced a cash breakeven to $894 per day for the remaining remaining 23,387 open and index days. You can see the breakdown of each segment on the right part of the slide, 92% of our container base and 7 [indiscernible] of our tankers are fixed we drive bank base, representing most of our market exposure by a number of days. Angeliki Frangou: Please turn to Slide 8. A few weeks ago, we took the opportunity to offer a $300 million senior secured bond in the Norwegian market. We drive one at par at a coupon of 7.75% with a -- the profit and usually paid $292.3 million of floating rate debt and the bias for issuance fees and for general corporate purposes. This transaction has no impact on our leverage rate because the profits are used to refinance existing debt, but we believe opportunistic financing reduces interest rate risk by replacing floating rate debt with a fixed interest rate. It also releases collateral, and we have around $1.2 billion of debt-free vessels. Pro forma for this transaction, we have 41% of our debt fixed at an average interest rate of 6.2%. [indiscernible] won't also introduce us to the Norwegian market, providing a targeted source of financing. Angeliki Frangou: Please turn to Slide 9 where we outlined a term capital program. As you can see here to date, we have returned $42.2 million under the dividend and unit repurchase program. Today, we purchased almost 5% of the number of units outstanding determined as of the date we launched the program. We have $37.3 million purchase power enable. These purchases have resulted in $4.6 per unit value creation, assuming the annual estimate of NAV of around $138 per unit. Angeliki Frangou: Please turn to Slide 10. Navios is a proven platform that has been executing its strategy in a challenging environment. I refer to the many uncertainties when we started this discussion, certainly the geopolitical risk, regional conflict change in global tariff regime and evolving trend patterns and unprecedented in recent history. We have remained focused on over the past 4 years. We have built [indiscernible] with an EBITDA run rate of about $750 million while increasing our book of contracted revenue to $3.7 billion and a vessel value to $6.3 billion. At the same time, we have decreased a net NPV by 33% to 34.5%. We have more to do, but we believe that this proven platform containing a divisive freight fleet with a risk management is the way to do it. I now turn the presentation over to Mr. Efstratios Desypris, Navios Partners Chief Operating Officer. Despyris? Efstratios Desypris: Thank you, Angeliki, and good morning all. Please turn to Slide 11, which details operating free cash flow potential for Q4 of 2025 and 2026. For Q4 2025, we fixed 88% of our available days at a net average rate of $24,871 per day. Contracted revenue exceeds estimated total cash operating costs by about $86 million, and we have 1,594 remaining open or index-linked base that should provide additional cash flow. For 2026, we have fixed about 58% of available days at a net average rate of $27,088 per day, generating about $860 million in revenue. This almost covers our ultimate cash operating cost for the year, resulting in a breakeven of $894 per day on our 23,387 open index dates. . Efstratios Desypris: Please turn to Slide 12. We are constantly renewing our fleet in order to maintain a young profile. We reduced our carbon footprint by modernizing our fleet, benefiting from new technologies and advanced environmental trading features. During Q3, we acquired 4 new building, 8,800 TEU contracts for a total $460 million. These vessels have already been chartered out for a fair period of over 5 years at a net rate of $44,145 per day, generating revenues of $336 million. We have 25 new building vessels delivered into our fleet since 2028, representing $1.9 billion of investment. Based on our financing, both are billing process, we have about $250 million of equity remaining to be paid. In container ships, we have 8 vessels to be delivered with a total acquisition price of about $0.9 billion. We have mitigated the residual value risk with long-term credit working charges expected to generate about $0.6 billion in revenue over a 5-year average stated duration. In tankers, we have 17 vessels to be delivered for a total price of $1 billion. We chartered out 11 of these vessels for an average period of 5 years, expected to generate aggregate contracted revenue of about $0.6 million. We also continue to opportunistically sell all the vessels. In 2025, we sold 12 rent vessels, 6 dry bulk, 3 targets and 3 containerships with average age of over 18 years for a total of about $275 million. Efstratios Desypris: Moving to Slide 13. We continue to maintain a strong backlog of contracted revenue that creates visibility in an uncertain environment. During the quarter, we added $745 million of contracted revenue. $595 million from containerships, including the $336 million on the 4 new building vessels, $138 million on tankers and $12 million on dry bulk vessels. Total contracted revenue amounts to $3.7 billion, $1.3 billion relates to our tankers fleet, $0.2 billion relates to our dry bulk fleet, and $2.2 billion relates to our containerships. Charters are extending through 2037 with diverse group of quality counterparties. I now pass the call to Erifili Tsironi, our CFO, who will take you through the financial highlights. Eri?. Erifili Tsironi: Thank you, Stratos, and good morning all. I will briefly review our unaudited financial results for the third quarter and the 9 months ended September 30, 2025. The financial information is included in the press release and is summarized in the slide presentation available on the company's website. Moving to the earnings highlights on Slide 14. Total revenue for the third quarter of 2025 increased by 1.8% to $347 million compared to $341 million for the same period in 2024 due to higher fleet combined time charter equivalent rate despite lower available days. Our combined TCE rate for the third quarter of 2025 increased by 2.4% to $24,167 per day, while our available days decreased by 0.8% to 13,443 days compared to Q3 '24. In terms of sector performance, a CCLA for our combined container and tanker fleet increased by 3.7% and 1.7% to 31,832 and 26,238 per day, respectively. In contrast, our TC rate for our dry bulk fleet was 3.5% lower at $17,976 per day. for the third quarter and first 9 months of '25 was adjusted as explained in the slide footnote. Adjusted EBITDA for Q3 25 decreased by $1.4 million to $194 million compared to Q3 20 million. The decrease was primarily driven by a $4.5 million decrease in other income net, mainly due to the decrease in foreign exchange gains and a $3.2 million increase in vessel operating expenses mainly due to a $3.4 million increase in OpEx pay and a $2 million increase in general and administrative expenses in accordance with our administrative services agreement. The above decrease was partially mitigated by a $6.1 million increase in time charter and voyage revenues and a $2.2 million decrease in time charter and voyage expenses, mainly due to the decrease in banker expenses as a result of lower freight volume base in the third quarter of '25. Our average combined OpEx rate was 6,798 per day, only $10 more than Q3 '24. Adjusted net income for Q3 '25 was $84 million compared to $97 million in Q3 '24. The decrease is mainly due to a $9 million increase in depreciation and amortization and a $2 million increase in interest expense and finance cost net. Adjusted earnings and earnings per common unit for the third quarter '25 were $2.8 and $1.9, respectively. For the first 9 months of '25, revenue decreased by $33 million to $979 million, adjusted EBITDA decreased by $29 million to $520 million and adjusted net income decreased by $67 million to $196 million compared to the same period in 2024. Our combined PCE rates the first 9 months of '25 was [indiscernible] per day. In terms of performance, the TCE rate for our containers increased by 3.1% to $31,213 per day compared to the same period in '24. In contrast, our dry bulk and tanker TCE rates were approximately 9.2% and 3.5% lower, respectively. TCE rates for our dry bulk vessels stood at $15,369 per day and for our tankers $26,290 per day for the first 9 months of '25. Our average combined OpEx rate was 2.4% higher compared to the first 9 months of '24 at $6,161 per day, also as a result of the change in the composition of our fleet. Adjusted earnings -- per common unit for the first 9 months of 25 was $6.6 and $5.60, respectively. Erifili Tsironi: Turning to Slide 15. I will briefly discus some key balance sheet data. As of September 30 '25, cash and cash equivalents, including restricted cash and time deposits in excess of 3 months were $382 million. During the first 9 months of '25, we paid $178 million underwriting building program, net of debt. We concluded the sale of 6 vessels for $75 million, adding about $49 million cash after debt repayment. Long-term borrowings yielding the current portion, net of deferred fees, increased to $0.2 billion following the delivery of 6 vessels during the first 9 months of the year. Net debt to book capitalization improved to 33.8%. Erifili Tsironi: We Slide 16 highlights our debt profile. With our recent $300 million senior unsecured bonds, we further diversified our funding new sources in addition to bank debt and leasing structures. The bond has a fixed interest rate of 7.75% and pro forma for the bond 41% of our debt is fixed at an average rate of 6.2%. We also have mitigated part of the increased interest rate cost by reducing the average margin for our floating debt and bareboat liabilities for -- in water fleet to 1.8%. I would like to note that the average margins for the completed undrawn floating rate debt of our new building program is 1.5%. Our maturity profile is targeted with no significant volumes due in any single year until 2030 when the bond matures. In Q3 '25, Navios Partners' completed 3 facilities for a total amount of $246 million, 1 additional facility of $68 million was signed in October. Efstratios Desypris: I now pass the call to Vincent Vandewalle, Navios Partners', Chief Trading Officer, to take you through the investor section. Vincent? Vincent Vandewalle: Thank you, Eri. Please turn to Slide 18. Geopolitical developments continue to shift worldwhile trading routes caused by the tariff war, restricted Suez Canal passages, Ukraine war and Port fee impositions by U.S. and China. Announced tariffs and the implementation pauses in effect, are not expected to have a significant effect on tankers and dry bulk trade apart from steel. Tariff impacts on grain and container ships are expected to reduce following the recent trade deal between U.S. and China. The Red Sea entrance leading to the Suez Canal continues to operate at restricted transit levels increasing -- for most vessel types. Since the Gaza ceasefire, Houthis announced that they have ceased the tax on shipping, but there were several piracy incidents of Somalia at the beginning of November. Ukraine war is shift in trading patterns, limiting grain exports out of the Black Sea and benefiting exports out of Brazil and U.S.A. Russian crude and product exports are adjusting to tie to sanctions on Russian oil producers, Rosneft and LUKOIL, elevating rates for non-sanctioned vessels. USTR port fees on Chinese vessels and similar Chinese port fee on U.S. vessels have been put on hold for the year, while the 2 countries negotiate a more permanent solution. Vincent Vandewalle: Please turn to Slide 20 for the review of the dry bulk industry. Demand growth for dry bulk has been relatively stable over the last 25 years at about 4% average annual ton mile growth. The current order book stands at about 11% of the total fee and will remain low due to high newbuilding prices, uncertainty about new fuel regulations and availability and general market outlook. The fleet is aging quickly with 39% of the vessels 15 years old, and with the older vessels for [indiscernible] on order, supply should be constrained over the medium term. Vincent Vandewalle: Please turn to Slide 21. The main driver of dry bulk demand will be strong Atlantic basin item growth over the next several years with new projects in Guinea and Brazil. The biggest new project is Simadou in Guinea starting now, which will ramp up to 120 million by '27. Also, Vale in Brazil has 3 new projects totaling 50 million tons expected to start exporting by the end of '26. The total of 170 million tonnes are all long-haul ton mile trades, creating demand for an additional 234 capes -- with the current order book of only 173 capes, the further tightening of supply and demand is expected over the next few years, benefiting rates. Overall, the dry bulk market looks positive based on steady long-term demand growth and a constrained supply of vessels. Vincent Vandewalle: Please turn to Slide 23 for the review of the tank industry. Reviewing the supply side as in dry, we see a relatively low tanker order book of 6% with 51% of the fleet already over 15 years old, rising quickly in the next few years. With all vessels exceeding the order book and the [indiscernible] offering first deliveries in late '28, supply is set to be tight for several years. Vincent Vandewalle: Please turn to Slide 24. The U.S. Office of Foreign Asset Control, OFAC, the EU and the U.K. continue to sanction Russian, Venezuelan and Iranian oil revenue and the ship is delivering their crude and products. These tighter sanctions have 2 main effects. Sanctioned oil volumes from these 3 countries have more difficulty finding willing buyers, raising demand for compliant barrels and nonsanctioned vessels to carry that all. Secondly, with 785 tankers now sanctioned, the fleet has already seen a significant reduction of about 14% of total capacity. The tanker market also looks positive over the medium term based on a low order book and aging fleet and a reduced fleet due to sanctions. Vincent Vandewalle: Please turn now to Slide 26 for a review of the container industry. After the COVID pandemics, containership ordering focusing mainly on the biggest units with fleet expansion in large vessels set to continue from high levels this year into next. Currently, 80% of the order book is for bigger ships with 9,000 TEU capacity or greater, and only 70% of the order book is for 2,000 to 9,000 TEU capacity where Navios is most active. Smaller segments of the fleets are well positioned to take advantage of shifting trading patterns. As shown on the right hand graph, growth non-Mainland trades, far exceeds the traditional mainly trades to the U.S. and Europe due to tariffs and higher growth in developing economies. It involving the Southern Hemisphere, mostly served by smaller-sized vessels are expected to see continued help growth as this trade shift continues. Overall, Navios Fleet is well positioned within the container market and continues to benefit from long-term employment with our high-quality charters. This concludes our presentation. I would now like to turn the call over to Angeliki Frangou for her final comments. Angeliki? Angeliki Frangou: Thank you, Vincent. And this concludes our formal presentation, and we'll open the questions. Operator: [Operator Instructions] We'll take our first question from Omar Nokta with Jefferies. Omar Nokta: Slide 11 has a really nice summary that shows and by '26, how you have 42% of your available days open to say the spot market or index rates yet given how much target could you have, you only need $894 to breakeven on those ships. Clearly, a great place to be, gives you plenty of flexibility. With that, how does that shape your interest in fixing your vessel kind of going forward from here, at least into '26. Do you keep what's available now to the spot market to keep those free and open given you've got that, say, flexibility? Or do you want to continue to put these ships on contract and fix the coverage out. . Angeliki Frangou: Let me take you through, and I think throughout the -- like to add a couple of things. One of the things we are doing is we use maximum flexibility. So you will see that the [indiscernible] the vessels that are open for 2026 is the majority is dry bulk. And basically, those vessels are on -- a lot of them are index-based with the premiums. So those we are actually very comfortable on how we are reaching that quarter forward, depending on what we have shown on the market. This is a very nice position wherein majority of our container vessels have been fixed. And basically, that is the area where we see a lot of upside. We also are seeing for the first time after quite some period that we see a fixed period for dry bulk that we haven't seen for some time. And with that, I'd like Efstratios to give you a little bit of feedback. Efstratios Desypris: Just asking to what [indiscernible] in 2026, we said [indiscernible] the container ship is covered. So there is an exposure in that sector, which is a sector that has -- people are discussing a lot of uncertainty. The majority, I would say, more than 50% of the tankers of CapEx. So the majority of the exposures in detail. You see that with the contracted revenue, we only have $20 million to cover for the next year, and we have 23,400 days approximately with basically [indiscernible]. We have seen a very big strength of the dry bulk sector recently, with rates across all the sectors of dry bulk being very healthy. And we have seen also the forward [indiscernible] being very healthy. So the exposure that we have today provides a very good opportunity for us, and it shows how much of the upside you can have on this portfolio. Omar Nokta: And just a follow-up. Clearly, we're seeing a pretty healthy containership chartering market and you've been able to take advantage of really good, strong, I would say, liner interest to build ships against contracts. And you've been fairly active in recent years in that 5,000 to maybe, say, 9,000 TEU range. There's been some focus recently or at least it feels like there's been a shift where liners are starting to look more at the feeder size kind of the net sub 2000 TEU size range. You don't have a big focus on that in today's -- with your fleet today. But is that something you see an opportunity in? Are there opportunities to build these smaller ships against contracts? Or is that more just talk at this point? Angeliki Frangou: There is always projects, and I will tell you that we see a lot of activity in every side. What you have to be very good is counterparty and duration because newbuilding prices remain at the levels we have seen. So it's very important, the [indiscernible], you mentioned into a value of the risk factor. But we see an increased activity. I mean it is quite interesting that there is a focus. We see a lot of inefficiency in the market, the trading patterns and it seems that the smaller vessels give more flexibility to the lines in order to achieve their this may -- this ever changing trading patterns. It's almost on a yearly basis, you will have new -- I mean, we saw China and United States having a 1-year agreement. So -- and basically, we see that it will happen in a lot of other areas. So you need to be alert and smaller vessels gives us flexibility. Omar Nokta: That makes sense. Okay. And maybe just finally, you had the successful $300 million bond issue last month, unsecured good rate. How are you thinking about those proceeds in terms of how you plan to employ them? Angeliki Frangou: As you said, I mean, addressing the market, [indiscernible] market is quite important. It hasn't been open for quite a time, I think, almost 10 years for the Maritime section. So what we achieved with that is we fixed our interest rate at 41% at 6.2%. We got a diversification in sources but also very importantly, we've got $1.2 billion of debt reverses. Basically, our net debt is the same before and after. And that gives us about $1 billion of debt-free vessels that gives us the most important thing that we get optionality. And this is a nice -- but we will see how to -- you have 1.2% of your vessels of 6.6%, basically that are... Omar Nokta: Very good. I'll turn it over. . Operator: And now I will turn the call back to Angeliki for final comments. Angeliki Frangou: Thank you, this concludes Q3 results. . Operator: Thank you, ladies and gentlemen. This does conclude today's program. Thank you for your participation, and you may disconnect at any time.
Joanna: Morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer Holdings, Inc.'s Fourth Quarter and Fiscal Year 2025 Conference Call. After the speakers' remarks, there will be a question and answer session. As a reminder, this call is being recorded. I would now like to turn the conference over to Jonathan P. Poldan, Vice President Treasurer and Investor Relations. You may begin your conference. Good morning. Jonathan P. Poldan: And welcome to Energizer Holdings, Inc.'s Fourth Quarter and Fiscal 2025 Conference Call. Joining me today are Mark S. LaVigne, President Chief Executive Officer, and John J. Drabik, Executive Vice President and Chief Financial Officer. In just a moment, Mark will share a few opening comments, and then we will take your questions. A replay of this call will be available on the Investor Relations section of our energizerholdings.com. In addition, please note that our earnings release, prepared remarks, and a slide deck are also posted on our website. During the call, we will make forward-looking statements about the company's future business and financial performance, among other matters, and are subject to risks and uncertainties. These statements are based on management's current expectations, which may cause actual results to differ materially from these statements. We do not undertake to update these forward-looking statements. Other factors that could cause actual results to differ materially from these statements are included in reports we file with the SEC. We also refer in our presentation to non-GAAP financial measures. A reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in our press release issued earlier today, which is available on our website. Information concerning our categories and estimated market share discussed in this call relates to the categories where we compete and is based on Energizer Holdings, Inc.'s internal data, data from industry analysis, and estimates we believe to be reasonable. The battery category information includes both brick-and-mortar and e-commerce retail sales. Unless otherwise noted, all comments regarding the quarter and year pertain to Energizer Holdings, Inc.'s fiscal year, and all comparisons to the prior year relate to the same period in fiscal 2024. With that, I would like to turn the call over to Mark. Good morning, and thanks for joining us today. We delivered strong earnings in fiscal 2025 by staying agile and focused in the face of a disruptive environment and shifting trade policies. We moved quickly, capitalized on opportunities, and executed with discipline to achieve outstanding results. Our decisive actions to reshape our operational footprint, combined with strategic investments and strong execution, have established an elevated earnings base positioning Energizer Holdings, Inc. to win as we close 2025 and move into 2026. Let me share a few highlights that define our progress in 2025. We grew net sales in a challenging environment driven by significant growth in e-commerce, international expansion, and meaningful innovation in auto care. We made necessary changes to our network and executed targeted pricing to mitigate tariffs and preserve margins. Project Momentum achieved over $200 million in savings to date. As we announced this morning, we have extended it into a 2.3% to nearly $3 billion. Adjusted earnings per share increased 6% to $3.52, supported by organic growth, disciplined cost management, and manufacturing production credits, enabled by our investments in U.S. production. We also returned $177 million to shareholders in fiscal 2025 through dividends and share repurchases, reducing our outstanding shares by roughly 5%. The macro environment continues to evolve. Tariffs have increased our costs, consumer demand softened late in the year, and supply chains required rapid rebalancing. We responded quickly, realigning our manufacturing footprint to minimize tariff exposure and executing pricing actions to protect margins. These steps were not easy, but they were necessary and created a solid foundation for future growth. As we enter fiscal 2026, we know the first quarter will reflect a challenging sales comparison, transitional tariff-related costs, and moderating consumer sentiment. But beyond Q1, the benefits of our actions, including network realignment, accelerated APS integration, and Project Momentum savings, will build. And we expect these initiatives to drive double-digit adjusted earnings per share growth over the final three quarters of the year. In short, fiscal 2025 was a year of resilience, agility, and progress. We faced a challenging environment head-on, made bold decisions, and strengthened our foundation for the future. I want to thank our colleagues, suppliers, and customers for the collaboration that helped us overcome these headwinds and deliver. This year-over-year growth reflects disciplined execution and the strength of the partnerships built on trust and shared commitment to solving challenges together. Thank you for your continued confidence in Energizer Holdings, Inc. Together, we are ready to compete, win, and grow. With that, let's open the call for questions. Joanna: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We do ask that you limit yourself to one question and one follow-up. You may certainly re-queue if you have additional questions. The first question comes from Peter K. Grom at UBS. Please go ahead. Peter K. Grom: Great. Thank you. Good morning, guys. Hope you are doing well. So I wanted to pick up on that last point and just on the phasing end of the year, specifically just kind of the ramp needed to hit the full year following a challenging first quarter. So can you maybe just speak to the degree of confidence or maybe the visibility you have on the implied ramp just given how difficult and dynamic the operating environment continues to be? And then just related, I mean, what is the level of flexibility or cushion you have kind of embedded in the outlook at this stage? Thanks. Mark S. LaVigne: Thanks, Peter. Look. Let me start. I am going to hand it to John, and then I will maybe finish and kind of how we were how we approach providing outlook for the year. I mean, look, we acknowledge that we expected a stronger Q4. But I still think we want to take a step back at least as we get started. And really reflect and be proud of what the organization achieved in '25. And to do that, I think you have to go back to we launched Project Momentum three years ago, and the objective behind that was to restore gross margins, enhance free cash flow, strengthen the balance sheet. We have delivered across all of those metrics over that three-year period with $200 million in savings. We have recovered 350 basis points in gross margin. And momentum has enhanced free cash flow played a part in enhancing free cash flow. We delivered more than $740 million in free cash flow that time period. The result over that time period is nearly 5% EPS growth on average over that time period. And over 3% EBITDA growth. As we started momentum, we understood the need for supply chain agility. And in FY 2025, put that to an early test. And with the tariff and trade policies, we needed to adjust fast, and we did. We overhauled our network. We preserved margins in '25, and this will get Peter to your question. Essentially do that in '26 once you incorporate kind of the APS margin integration that we are going to go through. So there is a transitional period which we saw in Q4, you are going to see in Q1, but the pieces are in place and the plans are mostly complete. For the ramp that John's going to describe. So it has really been a remarkable transformation and, as you said, in a really disruptive volatile environment over the last three years, which ended in a sort of six-month sprint. Where we needed to rebalance our network to make sure that we took into account new trade policy. So as we exit that sprint at the '1, we are really set up from Q2, three, and four to get back to more historical wells performance from a financial perspective. So, John, you want to talk to Durant? Yeah. Yeah. Let me start with the first quarter and then we can kind of go into what we see Q2 through Q4. So on the top line in the first quarter, we are getting we have got both that storm comp and the shift in display timing that we called out. Both of those we view as one-time or timing in nature. And then kind of as you look at the rest of it, the category overall we are calling down for the quarter about 300 to 400 basis points, but we see that improving as we kind of go throughout the quarter and then into the rest of the year. So our outlook for the full year on the category you know, kind of contemplates back to, you know, roughly flat in the back half. And then we are going to lean into other areas for growth that have been driving us for the last year or two. And that is really international markets, as well as transitioning that APS business into our Energizer Holdings, Inc. branded portfolio. That is a big driver in the back half of our fiscal year. And then we are going to continue to see growth in e-commerce and some of the innovation that we expect to launch this year. So when you put those in place, I think we are going to get past the first quarter and start to see better growth in the back half of the year, really starting in Q2. Then gross margin is also getting impacted in the first quarter. So as we get past the first quarter, we should benefit getting past the transitional operational inefficiencies that we really generated over the summer and into fall. As we kind of moved our supply chain around to offset the tariffs. Then we will further benefit from transitioning the APS business to our branded portfolio think that will help us on the margin side. So as we look at kind of Q2 through Q4, I think low single-digit top-line growth normalized gross margins with some of the momentum savings should allow us to generate that EPS growth of kind of low double digits. And then Peter, to wrap up on your final question, how do we approach '26? I mean, look. There is a lot of stuff we cannot control. And so what we tried to do is be really clear-eyed about what we are seeing in the environment today. We did not rely on anything necessarily changing except for the progression that we will talk about it from a category standpoint. But we basically said the battery category is going to be down roughly 2% for the year. Trade policies are going to stay in place. Things that are macro factors, we basically took them as they are and enrolled them forward. And so if you look at our EPS call, there is growth at the higher end of our range. And as we were contemplating it, we felt it was appropriate to build in some downside just so that we can absorb some shocks to the system, which we have seen over the last couple of years and not having to change our outlook. So we were a little bit conservative in terms of the EPS growth. We did not build in anything out of our control to cooperate over the year. And so I think we feel like it is an appropriate call and one that we can achieve as we go through the year. Yeah. That is going to inevitably change along the way. Peter K. Grom: Got it. That makes a ton of sense. I will pass it on. Thank you so much. Mark S. LaVigne: Thanks, Peter. Joanna: Thank you. The next question comes from Lauren Rae Lieberman at Barclays. Please go ahead. Lauren Rae Lieberman: Great. Thanks so much. Good morning. Just wanted to take a step back maybe and like, a bigger picture look. You know, consumer slowdown softening, just wanted to get your perspective on maybe what has changed since we last spoke, you know, both August and then you were at our conference sort of what has changed, what has not, and how are you thinking about the consumer and cost environment from here? Thanks. Mark S. LaVigne: Laura, I think so if I start with gross margin, we saw the landscape changing we had plans in place. So I would say the gross margin projection largely as we expected. We knew Q4 was going to get hit by some of these costs. We expected them to continue into '26. They have, but we have also executed the plans to make them go away as we exit Q1. Would say the biggest changes we have just seen is softening consumer sentiment. You have heard it from a lot of our peers. You have certainly seen it in some of the macro data that as we progress from August September and into October, you really did see softening consumer sentiment. And we are seeing it in the category data for batteries. We are seeing some of the more recent time periods, some improvement in that. But we did not feel like it was appropriate to rely on that continuing to ramp up long term. We are still very bullish on the battery category. We expect it to be kind of a low single-digit grower, but we are going through a disruptive time. And I think it is important to call that from a consumer standpoint as we have. Gross margin, we have controlled what we can. Overall for the year, again, I just mentioned in Peter's question, down 2% is our call for value. But we are going to be able to offset that with some growth in other areas of our business. Lauren Rae Lieberman: Okay. Okay. Great. So just Oh, one other thing, Laura. I am sorry to cut you off. I just as we progress through the year, this is one thing I failed to mention. So the category we are assuming is down 3% to 4% in the first quarter. As we progress, we are expecting stabilization in the category. We are going to start to lap some softer comps that you saw in '25. I failed to mention that. Lauren Rae Lieberman: Okay. Okay. And that is a big part of the driver of the sort of projected improvement in trends after January. Or the comp? Mark S. LaVigne: Yes. Okay. Okay. Great. Alright. I will pass it on. Thank you so much. Mark S. LaVigne: Thanks, Lauren. Joanna: Thank you. The next question comes from Robert Edward Ottenstein at Evercore. Please go ahead. Robert Edward Ottenstein: Great. Thank you very much. I was just wondering if you could talk a little bit about channel dynamics. Obviously, weaker consumer, how is the consumer responding in this environment in terms of which channels they are going to and shopping? What is going on at Amazon with you and the category, and how are you responding to these different changes in consumer dynamics and shopping patterns? Thank you. Mark S. LaVigne: Good morning, Robert. Consumers are certainly seeking value. They are cautious. They are very comfortable shifting channels to be able to find the value of the product and to meet their needs. That manifests itself in a lot of different ways. You have got brands, pack sizes, as you mentioned channel, Certainly e-commerce is a big part of that channel shift that is going on. It has been a point of emphasis for us to make sure that we win in e-commerce. We had a really strong Q4 in e-commerce. We saw our e-commerce business grow more than 35%. In Q4, we saw it grow 25% for the year. As we look ahead to '26, we expect 15% growth off of that. As we go into '26. So it has been an area we have invested in. It is an area where we are winning. And, you know, over that time period, if I look in the aggregate, over a four, thirteen, and fifty-two week period, we are winning with consumers because Energizer Holdings, Inc. is gaining share over each of those time periods. So as consumers are seeking value, our broad portfolio of premium and value brands are there to meet consumers where they are. And we are capturing we are capturing consumers. Robert Edward Ottenstein: Great. Thank you very much. Mark S. LaVigne: Thanks, Robert. Joanna: Thank you. The next question comes from Andrea Faria Teixeira at JPMorgan. Please go ahead. Shovana Chowdhury: Hi, this is Shovana Chowdhury on for Andrea. Thanks for taking our question. Your management commentary, one of the levers to restore gross margin includes optimizing US manufacturing to a your future benefits from production credits. As such, can you give us a sense of magnitude of incremental benefit from your prior estimate of $35 to $40 million annually? Mark S. LaVigne: Yeah. We are continuing to invest in domestic production to drive those credits. We think there could be upside $15 million to $20 million over what we have generated to date per year. So that is where we will continue to focus and try to recoup those. Shovana Chowdhury: Thank you. And quickly, just to clarify, and is that something that would be a benefit starting fiscal 2026 possibly, or is that, like, more of fiscal 2027 onwards story if you get this incremental benefit? Mark S. LaVigne: Yeah. That is we anticipate that in '26. So kind of that level. Shovana Chowdhury: Sounds good. Thanks. I will pass it on. Joanna: Thank you. The next question comes from William Michael Reuter at Bank of America. Please go ahead. William Michael Reuter: Hi. My first question on the weakness that you are seeing in consumers, do you expect that they are just reducing the amount of product that they have in their pantries, or do you believe that their behavior is changing such that they are utilizing devices that need batteries less? I am just kind of trying to dig a little more into your expectation that the category is down. By two or three or 4% this year, and then it bounces back in for future years. Mark S. LaVigne: Consumers are changing. I mean, what we see is consumers will typically drain household inventory. Consumers will typically maybe skip a purchase cycle. And so what you see that play out over a multiple quarter period, but then everything stabilizes and consumers go back to that historical low single-digit growth that we expect to see out of the category. So we believe these are temporary behaviors out of consumers. It will you know, it also manifests itself with channel shifting, pack size changes, and other things that come through in the category data. But we do expect a reversion back to more normalized behavior as we head into '26. William Michael Reuter: Got it. And then just a follow-up for me. I think that there had been an algorithm of an expectation of kind of half a turn of deleverage annually. And if I kind of look back over the last handful of years, leverage really has not moved a whole lot. So I guess, what is your expectation for that deleveraging path? And, I guess, in that context, will you think about allocation relative to share repurchases, which you guys did $90 million this year? Mark S. LaVigne: Yeah. Look. First priority is going to be to pay down debt. We think we can get back to resumption of normalized cash in twenty-five or cash flow twenty-five you know, we were down and that was really largely due to our press plastic-free packaging transition in North America. We invested in both inventories, so working capital was way up for the year. We invested in a lot of CapEx, frankly, to make that product. That should normalize both of those as we head into '26. So we think that we can get that kind of somewhere north of 10% on free cash flow we would focus on paying down $150 to $200 million of debt. I think the, you know, the offset from a leverage perspective will be where the earnings ends up. So we will, you know, we will have to see where that comes in, but it will not probably be all the way to half a turn. It would be something less than that if the earnings fall off. I will say that, you know, we generated decent cash as we finished up the fourth quarter. And we paid down about $80 million of debt so far in the quarter. So we are making good progress and will continue to push there. William Michael Reuter: Great. That is all for me. Thank you. Mark S. LaVigne: Thank you. Joanna: Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press 1. The next question comes from Brian Christopher McNamara at Canaccord Genuity. Please go ahead. Brian Christopher McNamara: Good morning, guys. Thanks for taking the question. I am curious how your retail partners are behaving as it relates to channel inventories. We have heard a variety of takes from other companies but the predominance has generally been they have been pretty tight on inventories heading into the holiday season. I am curious how your categories are being impacted by that. Mark S. LaVigne: Good question, Brian. I think that plays a part in kind of Q4, Q1 dynamic that we were highlighting today. So we saw displays going at the end of that we thought were going to go in Q1. And then obviously with some softening in the consumer sentiment in the category, you have seen lighter replenishment as we have gotten into Q1 simply because they are managing inventory more tightly. We have expected that, you know, for purposes of what the outlook we are providing, we are expecting that to continue for the balance of this year. I think we do expect tighter inventory management as we progress through '26. Brian Christopher McNamara: Great. And my other question was already asked, so thanks. Appreciate it. Mark S. LaVigne: Thanks, Ryan. Joanna: Thank you. We have no further questions. I will turn the call back over to Mark S. LaVigne for closing comments. Mark S. LaVigne: Thanks, everyone, for joining today. Have a good rest of the day. Joanna: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your line.
Operator: Greetings. And welcome to The Home Depot Third Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabelle Janci. Isabel Janci: Thank you, Christine, and good morning, everyone. Welcome to Home Depot's Third Quarter 2025 Earnings Call. Joining us on our call today are Ted Decker, Chair President and CEO; Ann-Marie Campbell, Senior Executive Vice President; Billy Bastek, Executive Vice President of Merchandise Inc.; and Richard McPhail, Executive Vice President and Chief Financial Officer. [Operator Instructions] If we are unable to get to your question during the call, please call our Investor Relations department at (770) 384-2387. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives include forward-looking statements under the federal securities laws, including as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to the factors identified in the release in our most recent annual report on Form 10-K, and in our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures including, but not limited to adjusted operating margin, adjusted diluted earnings per share and return on invested capital. For a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website. Now let me turn the call over to Ted. Edward Decker: Thank you, Isabel, and good morning, everyone. Sales for the third quarter were $41.4 billion, up 2.8% from the same period last year. Comp sales increased 0.2% from the same period last year, and comps in the U.S. increased 0.1%. Adjusted diluted earnings per share were $3.74 in the third quarter, compared to $3.78 in the third quarter last year. In local currency, Canada and Mexico posted positive comps. Our results missed our expectations primarily due to the lack of storms in the third quarter which resulted in greater-than-expected pressure in certain categories. Additionally, while underlying demand in the business remain relatively stable sequentially, an expected increase in demand in the third quarter did not materialize. We believe the consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand. Today, we've revised our guidance for fiscal 2025, which Rich will take you through in a moment. We remain focused on controlling what we can control. Our teams are executing at a high level, and we believe we are growing market share. We continue to invest across the business, supporting our associates and delivering the value proposition expected by our customers. In September, SRS completed the acquisition of GMS, a leading distributor of specialty building products, including drywall, ceiling and steel framing related to remodeling in construction projects. GMS further enhances SRS' position as the leading multi-category building materials distributor, bringing differentiated capabilities, product categories in customer relationships that are highly complementary to SRS' existing business. We could not be more excited to welcome GMS to the family and look forward to bringing a truly differentiated value proposition to our Pro customers. We're excited to see many of you in person in a few weeks at our investor conference, the New York Stock Exchange on December 9. We will update you on our strategic initiatives, our unique positioning in the marketplace, our investments and the traction we are seeing with our customers as we continue to position ourselves to win market share in both the near and long term. In closing, I would like to thank our store associates, merchants, supply chain teams and vendor partners who continue to take care of our customers and execute at a high level. With that, let me turn the call over to Ann. Ann-Marie Campbell: Thanks, Ted, and good morning, everyone. Our associates did an incredible job focusing on our customers and delivering exceptional customer service in our stores during the quarter. We continue to lean in on initiatives that help our associates do their jobs more effectively while also driving productivity in our operations. I'm going to highlight our progress across a number of initiatives that have helped improve the associate experience and are resulting in a better customer experience and increased customer satisfaction. Last year, we rolled out our [ freight flow ] application to all our stores, which has improved our freight processes and driven efficiency in our operations. This initiative has significantly improved our cartons per hour metric resulting in greater efficiency in our onload and packout process. We also continue to focus on-shelf availability and through computer vision and [indiscernible] we have reached record in-stock and on-shelf availability levels, Lastly, our faster fulfillment efforts leveraging both our stores and distribution centers that you've heard about over the last few quarters have driven an over 400 basis point increase in our customer satisfaction scores. In addition, we continue to focus on our Pro ecosystem, maturing the new capabilities we have built for Pros working on complex projects while enhancing the tools we have to serve Pros. We are pleased with the progress we are seeing as our customers engage with our capabilities. There are two new tools we have deployed over the last several months that help us differentiate our offering. The first is a new project planning tool that we launched in September, which allows our Pros to create and manage material lift and track orders and deliveries. The second tool, blueprint takeoffs, will transform the way Pros plan and prepare for their projects. This new tool leverages advanced AI and proprietary algorithms to deliver accurate blueprint takeoffs and material estimates in record time. Both can then quickly and easily purchase all materials they need for their project through The Home Depot, simplifying this complex process by going through a single supplier. This technology replaces a manual intensive process that took weeks to complete increase in accuracy and reliability. Adding this advanced technology to our ecosystem of capabilities to better serve the Pro working on complex projects will further enable us to be the one-stop shop for all project needs from initial planning to material delivery, saving [ our ] Pros time and money. We look forward to seeing you in a few weeks in New York to provide a holistic view of how our full ecosystem is resonating with our Pros and allowing us to gain traction and win in the market. With that, let me turn the call over to Billy. William Bastek: Thank you, Ann, and good morning, everyone. I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, the underlying demand in the quarter was relatively similar to what we saw in the second quarter. However, our results were below our expectations, largely due to a lack of storms relative to historic norms which most notably impacted areas of the business such as roofing, power generation and plywood to name a few. Turning to our merchandising department comp performance for the third quarter, 9 of our 16 merchandising departments posted positive comps, including kitchen, bath, outdoor garden, storage, electrical, plumbing, millwork, hardware and appliances. During the third quarter, our comp average ticket increased 1.8% and comp transactions decreased 1.6%. The growth in comp average ticket primarily reflects a greater mix of higher ticket items, customers continuing to trade up for new and innovative products, as well as modest price increases. Big ticket comp transactions for those over $1,000 were positive 2.3% compared to the third quarter of last year. We were pleased with the performance we saw in categories such as appliances, portable power and gypsum. However, we continue to see softer engagement in larger discretionary projects where customers typically use financing to fund renovation projects. During the third quarter, both Pro and DIY comp sales were positive and relatively in line with one another. We saw strength across Pro-heavy categories like gypsum, insulation, siding and plumbing. In DIY, we saw strength across our seasonal product offerings, including live goods, hardscapes and other garden products. Turning to total company online comp sales, sales leveraging our digital platforms increased approximately 11% compared to the third quarter of last year. We're excited about the continued success we're seeing across our interconnected platforms, our faster delivery speeds of resonating with customers and driving greater engagement and sales. We know that as we remove friction from the experience, we see incremental customer engagement, leading to greater sales across all points of interaction. During the third quarter, we hosted our annual supplier partnership meeting, where we focused on how we will continue to work together to bring the best products to market, deliver innovative solutions that simplify the project, and offer great value with best-in-class features and benefits. At the event, we recognized a number of vendors across categories who continue to transform the industry with the innovation they bring to our customers on a daily basis. They include [ Leaderson ], [ Cover Torque ], [ Feather River ], Milwaukee, RYOBI, [indiscernible], DEWALT, [ Rigid ], [ Diablo ], Husky and many more. We are proud of the innovation and partnership that our suppliers bring to The Home Depot, and the value we're able to offer both our Pro and DIY customers. As we turn our attention to the fourth quarter, we're looking forward to the excitement we will bring with our annual holiday, Black Friday and Gift Center events. In our Gift Center event, we continue to lean into brands that matter most for our customers with our assortment of Milwaukee, RYOBI, [indiscernible], DEWALT, [ Rigid ], [ Diablo ], Husky and more. We'll have something for everyone, whether it's our wide assortment of [ cordless ] RYOBI tools for Milwaukee hand tools. And in appliances for Black Friday, we have exciting offers on LG, Samsung, [ Bosch, Whirlpool, GE and Frigidaire ]. Our assortment includes multiple exclusive products like LG stainless steel front store refrigerator with craft ice, and [indiscernible] new gallery dishwasher with a wash cycle time of only 50 minutes. This quarter, I'm also excited to announce the addition of PGT Windows to a wide assortment of exclusive retail brands, including American Craftsman and Anderson windows. PGT's impact-resistant windows are engineered to meet some of the highest performance standards in the industry, reducing storm damage risk, providing energy efficiency, UV protection and sound reduction. And they will be exclusive to The Home Depot in the big box channel. Our merchandising organization remains focused on being our customers' advocate for value. This means continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers. It is the power of our vendor relationships, coupled with our best-in-class merchant organization that allows us to offer our customers the best brands with the most innovation to solve pain points, increase functionality and enhance performance at the best value in the market. With that, I'd like to turn the call over to Richard. Richard McPhail: Thank an you, Billy, and good morning, everyone. In the third quarter, total sales were $41.4 billion, an increase of $1.1 billion, or approximately 3% from last year. Total sales include approximately $900 million from the recent acquisition of GMS, which represents approximately 8 weeks of sales in the quarter. During the third quarter, our total company comps were positive 0.2%, with comps of positive 2% in August, positive 0.5% in September, and negative 1.5% in October. Comps in the U.S. were positive 0.1% for the quarter with comps of positive 2.2% in August, positive 0.3% in September and negative 1.7% in October. For the quarter and in local currency, Canada and Mexico posted positive comps. In the third quarter, our gross margin was 33.4%, flat compared to the third quarter of 2024, which was in line with our expectations. During the third quarter, operating expense as a percent of sales increased approximately 55 basis points to 20.5% compared to the third quarter of 2024. Our operating expense included transaction fees related to the acquisition of GMS, but otherwise were in line with our expectations. Our operating margin for the third quarter was 12.9%, compared to 13.5% in the third quarter of 2024. In the quarter, pretax intangible asset amortization was $158 million. Excluding the intangible asset amortization in the quarter, our adjusted operating margin for the third quarter was 13.3%, compared to 13.8% in the third quarter of 2024. Interest and other expense for the third quarter was $596 million, which is in line with our expectations. In the third quarter, our effective tax rate was 24.3%, compared to 24.4% in the third quarter of fiscal 2024. Our diluted earnings per share for the third quarter were $3.62, compared to $3.67 in the third quarter of 2024. Excluding intangible asset amortization, our adjusted diluted earnings per share for the third quarter were $3.74, compared to $3.78 in the third quarter of 2024. During the third quarter, we opened 3 new stores, bringing our total store count to 2,356. At the end of the quarter, merchandise inventories were $26.2 billion, up approximately $2.3 billion compared to the third quarter of 2024 and inventory turns or 4.5x, down from 4.8x last year. Turning to capital allocation. During the third quarter, we invested approximately $900 million back into our business in the form of capital expenditures, and we paid approximately $2.3 billion in dividends to our shareholders. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was 26.3%, down from 31.5% in the third quarter of fiscal 2024. Now I will comment on our outlook for fiscal 2025. Today, we are updating our fiscal 2025 guidance to include softer-than-expected results in the third quarter, continued pressure in the fourth quarter from the lack of storm activity, ongoing consumer uncertainty and housing pressure, as well as the inclusion of the GMS acquisition into our consolidated results. For fiscal 2025, we expect total sales growth of approximately positive 3% with GMS expected to contribute approximately $2 billion in incremental sales, and comp sales growth percent to be slightly positive compared to fiscal 2024. Our gross margin is expected to be approximately 33.2%. Further, we expect operating margin of approximately 12.6% and adjusted operating margin of approximately 13%. Our effective tax rate is targeted at approximately 24.5%. We expect net interest expense of approximately $2.3 billion. We expect our diluted earnings per share to decline approximately 6% compared to fiscal 2024, when comparing the 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024. And we expect our adjusted diluted earnings per share to decline approximately 5% compared to fiscal 2024, when comparing the 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2025. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement. Thank you for your participation in today's call. And Christine, we are now ready for questions. Question & Answer Session Operator: [Operator Instructions] Our first question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: My first question is more short term on the fourth quarter. So when you guided for the full year after the second quarter, we didn't have GMS in the numbers. Now we do. And then we now know your third quarter came in a little light, and that the fourth quarter may be a little lighter on revenue as well. So there's some deleverage. We're having a tough time getting to the full amount of, call it, EBIT dollar shortfall, because GMS looks like they made money last year. Are there any expenses that are tied to it? Or how do we think about the deleverage? Richard McPhail: Yes. Simeon, thanks for the question. I think you could look at it two ways. Let's talk about fiscal year and then let's talk about Q4. So fiscal year, as you know, we've revised our guidance by 40 basis points from 13.4% adjusted operating margin to 13% operating margin. The walk there, let's talk about the most significant item, which is GMS, the inclusion of GMS in our results. If you take their likely impact to 2025, and you add the transaction expenses to it, you're basically at 20 basis points of year-over-year impact to operating margin. You then take into account the decrease in our comp sales from one comp to slightly positive. And then we -- so that assumption would have obviously deleverage that we've spoken of previously. And then with respect to SRS and its impact. First, SRS continues to perform extremely well. There is significant pressure in the roofing market. We know that shipments are down double digits from the absence of storm activity this year. SRS actually comped flat for Q3. And so we think that they are taking significant share. But as our expectations have weakened slightly for them in the full year, rather than seeing them grow at mid-single digits, they're likely to grow low single digits. You do some see some deleverage in SRS in the supply chain and in OpEx. And so you add those together and get your revision to the fiscal year guide. And really, you just add to that if you're talking about Q4, you have all the same dynamics, but let's not forget, you're comparing Q4 last year has 14 weeks of expense. Q4 this year has 13 weeks of expense. And so you've got 50-ish basis points of operating expense deleverage in the quarter. So hopefully, that will help you with the walk. Simeon Gutman: Yes, that helps a lot. And then a follow-up. You mentioned on this call and in the release that there was an expectation of increased or improving demand. I guess, for the remainder of the year at one point. Was that an expectation based on housing or an expectation that there would be storms? And if there was any volatility related to government shutdown, do you have enough time looking backwards since the reopening that there's been an improvement in how the consumer is behaving. Edward Decker: Yes, Simeon, let me step back and just paint a broader picture of what we're seeing with the consumer in our sector. Our comps definitely slowed as the quarter progressed, but great work by the team to register the positive comp for the entire quarter. And as we said, the primary driver of that sales pressure was the lack of storm activity in the quarter. We don't plan per storms per se, but there's always some weather impact in the baseline. And given last year, a pretty significant storm activity in this year, truly zero. There was no storm activity this year. So we saw that most acutely in October. That was the single heaviest impacted month, and that's where, as Richard called out, the comp progression return negative in October. And then you talked about the overall economy in housing, we did expect to start seeing some pickup in demand in the second half of the year. And this wasn't just the calendar dynamic of things will be better in the second half. We're expecting interest rates and mortgage rates to come down, which they did, that would have been some assistance to housing. But we really just saw ongoing consumer uncertainty and pressure in housing that are disproportionately impacting home improvement demand. I think the good news is the team, as I said, is executing at a very high level, and we believe we're taking share. And if you adjust for the storm activity, our Q3 comp, the underlying business comp, was essentially the exact same as Q2. In adjusting, again, for storm and weather, call that underlying business to be about a 1% comp in each of Q2 and Q3. So now here we are going into Q4, and we're going to see even more quarter-over-quarter pressure from the storm activity. So again, there's nothing that's happened this year. The storm activity and the rebuild and repair continued into Q4 last year. So we'll have even more storm pressure year-over-year in Q4. And then we just don't see the catalyst to increase that underlying storm adjusted demand in the market. So it's certainly a very interesting consumer dynamic out there. On the one hand, you look at certain economic indicators and you say, geez, things are pretty good. You look at GDP, you look at PCE, those are both strong. But on the other hand, what's impacting us and home improvement is the ongoing pressure in housing, in incremental consumer uncertainty. So take housing. I mean, housing has been soft for some time. We all know the higher interest rates and affordability concerns. But what we're seeing now is even less turnover, the housing activity is truly a 40-year lows as a percentage of housing stock. I think we're at 2.9% turnover. And then home prices have started to adjust in even more markets over this past quarter. And then when you look at the consumer, what's going to spark the consumer? We still believe we have one of the healthiest consumer segments in the whole economy. But again, the economic uncertainty continues largely now due to living costs, affordability's a word that's being used a lot. Layoffs, increased job concerns, et cetera. So that's why we don't see an uptick in that underlying storm adjusted demand in the business. So as I said earlier, we're going to keep controlling what we can control, support our associates and deliver just a great value proposition for the customer, and I believe we took share in Q3, and year-to-date this year, and do the same thing in Q4. Operator: Our next question comes from the line of Zack Fadem with Wells Fargo. Zachary Fadem: Wanted to start on the average ticket. I guess, any call-outs on commodities versus same-SKU inflation? And then with last quarter ticking down on promo, curious how Q3 played out, and whether you'd expect the industry to be more or less promotional this Q4? William Bastek: Zack, it's Billy. Thanks for the question. As it relates to ticket, as we've talked about on the few calls, I mean we've continued to see customers trade up for innovation. In fact, we really haven't seen any trade down that we haven't spoken about in previous calls as it relates to that. So a modest increase in ticket, but most notably, that was from people, innovation and things in the marketplace that we've seen. As it relates to the promotional activity, it's really consistent year-over-year, both in Q3 and Q4. And as Ted mentioned, the fundamental demand in our business, while it didn't increase certainly was very consistent with what we saw in Q2 outside as we mentioned, in the storm impact. So from a fundamental standpoint, feel very good about that and continue to see customers engage projects, as I mentioned, they're going to continue to have pressure where they're financed. But from a promotional activity standpoint, it's really a similar environment than it was in really for the balance of the year, and certainly as it relates to Q4 a year ago, it's a similar environment for us as well. Zachary Fadem: Got it. And then, Richard, a couple of follow-ups on GMS. First of all, on operating expenses. Could you help us understand what's onetime in terms of impact transactions, et cetera, on Q3 and Q4? And then on the inventory growth, up about 10%, any color you can offer on how much is GMS versus underlying volume versus pricing? Richard McPhail: Sure. You can think about the GMS transaction fees is about 5 basis points of margin to the year, or 5 basis points of expense when you put it. About 15 basis points for the quarter. Obviously, Q3 is one of our larger quarters. And you can think of the impact is about $0.05 of EPS for the year for GMS transaction fees, and those all occurred in Q3. With respect to the inventory, inventory increases reflect, principally, the inclusion of GMS now in our balance sheet. And the fact that we've leaned into investments, in particular investments with respect to hitting our speed promise. So we've seen fantastic results from improving our speed and reliability of delivery over the last year. That's something we've leaned into. We have our DFC network, which we think is unmatched in our market. And as we see results from it, and obviously, this quarter, you saw an 11% comp online, we're going to continue to lean into that investment. So for the most part, it's investments in the business. Operator: Our next question comes from the line of Michael Lasser with UBS. Michael Lasser: Given all the comments from this morning, [indiscernible] question, can home improvement demand recover without some assistance from either an increase in underlying housing activity or a reduction in interest rates? And how should this faster the market's expectation towards the recovery, or potential recovery in 2026? Edward Decker: Thanks, Michael. We've talked about all the different drivers of demand in our segment. And there are leads and lags in all of them, and we've clearly called out over time the most statistically relevant would be home price appreciation and household formation and housing turnover. Those three right now are pressured for sure. But we also know that we've more than worked our way through the pull forward of the COVID years. And there are many industry reports and calculations of now under spend per household. So on one hand, we're looking at something as much as a $50 billion cumulative under spend in normal repair and remodel activity in U.S. housing. On the other hand, we have less turnover and home price appreciation. So that tension is going to have to balance itself out as we work through the rest of this year and into next year. But fundamentally, our job is to put great value propositions in front of the customer and take share in any environment. So can The Home Depot grow? The answer is yes. Will the industry have some shorter-term pressures with turnover in home price? Yes, as well. Michael Lasser: My second question is, as The Home Depot has taken a significant number of big steps over the last few years to gain market share, particularly in the Pro segment, has The Home Depot increased its fixed cost structure such that it's now experiencing deleverage as sales are under pressure, but this can act as a significant tailwind to the earnings outlook as sales improve? Edward Decker: Yes. I mean you're right, Mike. We have had a number of big steps on Pro. It's -- we've talked about the size of the overall home improvement TAM at $1-plus trillion and evenly split between Pro and consumer, and how strong we've always been in both sectors out of our stores, the Pro and the consumer. But identified real opportunity to bring increased value proposition to that Pro space by building out wholesale [indiscernible] type capabilities to capture more share of wallet with that customer. And that's what we've been doing, and we'll talk a lot about that more in a few weeks in New York, but we're very, very happy with all the initiatives and the organic investments we've made to build out those capabilities. And then we've augmented that with two acquisitions very, very strong wholesale platforms with each of SRS [ and ] GMS. Your question specifically on fixed cost structure. What's interesting, we've mentioned this several times, the organic effort is reasonably asset light. This -- the -- regardless of whether we lease our DCs or not, the capital deployed in those DCs is first and foremost for general store replenishment. It's an added benefit that we're able then to deliver to the customer out of those buildings. And as Richard said, the speed equation is a flywheel that works and all our investments in our direct fulfillment centers, regardless of what we're doing with the Pro, that's to serve all customers and increase the speed, which we have done very effectively. And then all the other related operating costs, we have variable incentive pay structures for our outside salespeople. We lease trucks, and we add trucks and take trucks away from markets as volume ebbs and flows through the season. So really other than an IT spend, which is modest investment in the scheme of things, there's not been a lot of incremental fixed cost put into the business to support the Pro organic initiatives. Operator: Our next question comes from the line of Christopher Horvers with JPMorgan. Christopher Horvers: So I wanted to follow up on the implied 4Q operating margin question. It looks like you're saying about 10.3%. Did you say that 50 basis points of that was the 53rd week lap? And is there anything like unique that we should think about that this is not -- this is or is not the right level to start to think about building the business as we look to the out year? So for example, 53rd week lap, or perhaps the seasonality of the SRS and GMS business structurally changing the normal flow of operating margin over the year? Richard McPhail: I would -- yes, thanks, Chris. I would use our full year guide as the appropriate jumping off point, I think Q4 has a couple items of noise. The first was the 53rd week. The second actually is the shape of the business. And if you look, you can actually see, for instance, the public filings of GMS when they were a public company and see the Q4, or rather our Q4, is a significant low point from a volume perspective. That's true for SRS as well. And so SRS and GMS see seasonal swings that are greater than Home Depot you're going to just see that amplified if you hold Q4 in isolation. And so that's why I would really point you to the full year as the right jumping off point for your modeling. Christopher Horvers: That's super helpful. I mean if you step back about... Richard McPhail: And the 53rd week is a year-over-year contract. So it doesn't impact your 2025 numbers, but it does impact the year-over-year. Christopher Horvers: Got it. Makes sense. If you think about this quarter, I mean if you look at the monthly basis, even with the really tough weather/hurricane driven compare in October. Maybe you also look at the last -- the first 3 quarters of the year. The 2-year trend seems to be improving on the line, which points to replacement cycle demand and maybe some pricing and just life moves on. I guess -- and then there's some research out there that points to maybe the consumer is waiting for the full effect of the head. We have a couple of meetings coming up and you had all this noise with a government shutdown that impacted even retailers that sell milk and eggs, and take share every day. So why wouldn't we think that the launch point into 2026 is, sort of one, or if not better, than this 1%, sort of, underlying demand? Just because uncertainty goes away, full effect to the Fed, housing stock ages and life moves on and replacement cycle demand continues to build. Edward Decker: Yes. And Chris, another positive add. There'll be more robust tax returns and the tax rates going into effect in '26. So yes, there is a positive story there. But again, the underlying 1% that is what it was. And this ongoing consumer uncertainty we're talking about and specifically housing turnover and now price, those are near-term and newer phenomenon. Richard McPhail: Let me -- Chris, I mean I'll just circle back. I was focusing on your question in context of Q4 being a jumping off point and thinking about 53rd week. Let me add something, though, when you pro forma GMS, we do need to take that into account. So on a pro forma basis, recall, we've sort of guided you to within The Home Depot numbers now with SRS included, SRS changes our margin profile by about 80 basis points of gross margin and about 40 basis points of operating margin. GMS, which was about half the size of SRS, is about half the impact. So you've got a pro forma, this is not fiscal year, but a pro forma impact of about 40 basis points of GMS and about 20 basis points -- and about 20 basis points of operating margin for GMS. So 40, 20. You add those together, you roughly have a change in our profile with both of them together of 120 basis points of gross margin and 60 basis points of operating margin. Now when you're talking fiscal year 2025, Obviously, we have some wonkiness in the comparison periods. We've owned SRS for a full year of 2025, but only on a partial year in 2024. We owned GMS for about 5 months in 2025, and own them for no months in 2024. So I'm just going to avoid all the steps in the math and tell you on a fiscal year perspective, you've got about a 55 basis point impact to gross margin year-over-year, reflecting the ownership of both SRS and GMS, and about a 35 basis point impact to operating margin mix, reflecting the year-over-year comparison of those ownership periods of SRS and GMS. We'll clarify this more just one more time when we move forward and in the future talk about future years. But hopefully, that gives you a little bit more clarity. So I do want to put an asterisk. The jumping off point is our full year guidance, but you also have to include that comparison, or rather the full year impacts of GMS next year. Christopher Horvers: Right, offset by a tick of transaction fees? Richard McPhail: That would be correct. Yes. Operator: Our next question comes from the line of Zhihan Ma with Bernstein. Zhihan Ma: I wanted to follow up on the complex Pro and GMS side. So firstly, a short-term question, the $2 billion contribution to sales from GMS this year, I think if we do the math based on the reported numbers last year, kind of implies a high single-digit percentage decline on a year-over-year basis. I don't know if I completely got the math right? If that's true, how much of that is macro weakness versus underlying [ CR ] dynamics? And is there any additional color you can provide on that underlying market? Richard McPhail: So basically, you're owning it for a quarter plus 8 weeks, and you're heading into the lowest quarter of the year for GMS' fiscal year. There was also weather impact Home Depot, SRS and GMS. No one was immune to the broader weather impacts in the market. And so $2 billion is an approximation. We know that GMS continues to take share. We continue to take shares in enterprise and particularly in all of GMS' categories, and we feel great about that business going forward. Zhihan Ma: Got it. And then a long-term question to your point about the current margin dilution impact from the acquisitions. Is there a long-term argument that as you further consolidate, assume if you further consolidate in the complex Pro space, is there a path for you to structurally improve or recover your margins as you start to gain more [indiscernible] power versus suppliers? Edward Decker: Well, there's structural differences in the margins of the wholesale business in retail. I mean, at the highest level, retail would have higher gross and lower operating cost in the inverse with wholesale. Of course, as we drive synergies between the two platforms, and the most important synergy is the cross-sell and the value proposition to the Pro, we'll be able to leverage incremental sales in both retail and wholesale platforms to leverage the businesses and, of course, just operating efficiencies across a larger scale business, we'll be able to drive efficiencies as well. But the fundamental difference of wholesale margin structure and retail margin structure would be the case going forward. Those wouldn't dramatically change. Operator: Our next question comes from the line of Seth Sigman with Barclays. Seth Sigman: I had a couple of follow-up questions. Just first on transactions slowed while ticket accelerated this quarter. Just curious, how do you read that? Are there any signs of elasticity? Maybe just elaborate on price changes that you made in the quarter? Or is the slowdown in transaction just really storm related? William Bastek: Yes. Thanks, Seth. It's Billy. I'll answer your last question first. As it relates to the transaction that was really related strictly to the storm impact that we called out. As I mentioned, in our Q2 call after some policy changes were made around tariffs, we would take some moderate price moves with the entire strategy to make sure we protected the project. And so as it relates to elasticity, it's a little early, and then you couple that with a lot of dynamics in the marketplace over the last 60 days, 90 days since our last call, it's a little early to say how much of that was going to -- the elasticity piece will play out. I'm thrilled with the work that the team has done. If you go into our stores right now and look at Gift Center and all the value that we have there, and certainly with our holiday program, same thing. So we're watching that. Again, our entire goal was to project the project. And it bears also to point out that over 50% of our inventory is not part of tariffs and it's obviously sourced domestically. So we'll continue to watch that and look forward to the Q4. Seth Sigman: Okay. And then just to follow up on some of the demand comments today and what seems like a more cautious view on the consumer, I'm just trying to figure out how to reconcile that with big ticket still outperforming? You've had a few quarters of big ticket being positive that continued this quarter. And I guess just based on what you've seen historically, should that be a leading indicator for big projects that have still been pressured? How do you think about that? William Bastek: Well, I mean, you pointed out correctly and in my prepared comments, I talked about big ticket transactions over $1,000, or positive 2.3%. But I wouldn't read into that from a project standpoint. Think about appliances. Think about power tools, and some of those pieces. Those are individual items as we've kind of talked about that metric in the past, versus more of the project-oriented pieces that customers are still challenged with based on all the things that we talked about earlier. Edward Decker: I think some of that -- some of the big ticket as well, we've called out, there was pressure on commodities overall. But some of that big ticket is the success in our Pro initiatives. I mean the managed accounts, the activities that [indiscernible] and team are driving to capture more share of larger pro complex purchase. That is also driving that. So it's not so much that it's an indicator of demand as it is an indication of our taking share in bigger ticket Pro oriented project. Operator: Our next question comes from the line of Chuck Grom with Gordon Haskett. Charles Grom: There's a lot of talk about a [ K-shaped ] economy right now, but we're starting to see more evidence of job losses for white collar employees. So I guess I'm curious when you look at your data, is there anything you see that supports more fatigue in your upper income customer base? And I guess as a follow-up, anything regionally that you'd call out over the past couple of months? Edward Decker: Well, I think that regionally, the most acute difference, again, is the storm and weather patterns. On the larger, the higher income cohort, we don't see anything specific. As Billy said, there has not been a lot of trade down and we've talked in the past. Things like countertops, there's been some trade down, but we have still not seen trade down across the broader assortment in the store. If there's an indication of maybe some fatigue in taking on bigger projects, we have seen Pro backlogs and larger backlogs start to diminish a little bit. So our Pros are reporting months that they're booked out. As we know some time ago, you couldn't find a Pro. And then they all had full books and we're seeing a little softening in larger project backlog. I can't say we've tied that directly to an income cohort, so we've definitely seen the dynamic. Charles Grom: Okay. And then just, Richard, can we just double click on the opportunity to improve the margin structures of both GMS and SRS? It sounds like 35 basis points of pressure this year. You probably have some wrap of that into '26. But just like broader picture over the next few years, I mean, how should we think about the improvement line for those 2 businesses? Richard McPhail: Well, we don't like to separate them out. While they do operate independently, as Ted said, the name of the game here is synergies and synergies in the form of cross-selling. And so I think the leverage in the businesses is going to be a function of how we create a differentiated value proposition across the entire enterprise, including SRS and GMS. So look, SRS, the combined entity is an engine for growth for The Home Depot. And so we're just getting started. So I wouldn't put a formula on it. But it's all going to be a function of how fast we can drive cross-sell. Operator: Our next question comes from the line of Steve Forbes with Guggenheim. Steven Forbes: Maybe, Richard, on the idea of cross-selling, I would love to sort of hear high-level thoughts on -- I don't know if you can like rank order how you guys see the cross-selling opportunities to get today now that GMS is integrated. Sort of what are you sort of building the business for from a cross-selling standpoint as we head into next year? Like rank order the opportunities would be great? Unknown Executive: Yes. I mean, it's Mike here. Thanks for the question. We see just from the relationships that have already been established between the outside sales force that we've got, we're here within Home Depot, combined with the sales forces that they have originally with SRS and now with GMS, there is account handoffs that happened. So a great example, recently, with GMS engaged in a large roofing sale on a property. The customer was looking for much more in terms of product, in terms of whether it be framing, flooring and more. And that relationship than that SRS introduced to The Home Depot outside sales force to come in and sell that engagement to the contractor work quite successful. And that's just one example of many that have happened, and they happen both ways. Whereby the Home Depot sales organization recognizes a large roofing opportunity that they can pass over to SRS, or a large drywall opportunity that they can pass over to GMS. And those engagements are happening on a daily and weekly basis. Steven Forbes: And then just a quick follow-up. I was hoping to maybe explore the branch growth opportunity across SRS, DMS and heritage. So I don't know, Ted, if you can provide a current update on branch counts across the various assets? And then -- and then like what's the right way to think about or think through the out-year branch growth opportunity? And I don't know if you can, sort of, talk about like what's the end state as you see it today, versus the [ 1,200 ] you have today? How do we sort of think about the footprint evolving over the next 3, 5 or so years? Edward Decker: Yes. We'll certainly go into a lot more detail in a few weeks. But the model that SRS deploys is very similar to GMS that they will -- they'll drive organic comp growth through existing branches. They open greenfield branches, and then they'll focus on tuck-in customer list expansion-oriented acquisitions. And they've been doing that quite successfully on the branches. Think of SRS, GMS 40 to 50 branches a year. And they've been sort of running at that pace since we acquired SRS. And then they've done a handful of little tuck-in acquisitions. And again, these can be a one branch, $5-ish million acquisition, or a smaller regional $30 million, $40 million, $50 million a couple of few branch operations. So it's going really, really well, and we see that continuing a key part of their business model. Richard McPhail: And I mean, just to -- it's not just about our plans, it's actually happening right now. If you talk about our noncomp sales, putting new stores and new SRS branches together, you've got about 0.5 point of sales growth driven by those two investments. And so we're thrilled with that. Operator: Our final question will come from the line of Steven Zaccone with Citi. Steven Zaccone: I wanted to follow up on the storm impact. So it sounds like it was 80 basis points for the third quarter, pressure to same-store sales. How large will that be in the fourth quarter? And then we should be mindful that that's also a headwind to think about in the first half of next year? Richard McPhail: Well, thanks. As Ted said, the underlying demand for the business was sort of similar Q2 to Q3. If you talk about storm Q3 to Q4, we absolutely are lapping strong results, in fact, even slightly higher sales last year in Q4 than in Q3. Let's call it relatively even. So let's say, you basically -- if you've got underlying minus the storm impact, you've got pretty much similar run rates for Q3 and Q4. Steven Zaccone: Okay. Understood. And then your comments on the housing pressure, how does that inform you maybe near to medium-term outlook for SRS and GMS, right? Like these are new assets for Home Depot. So should we think that original expectation of mid-single-digit growth for SRS stepping down to low single digits, is that kind of a run rate we should consider for the near to medium term? Edward Decker: I mean I wouldn't say that. We'll, again, talk more about this in a few weeks. But the first thing to remember is SRS is much more in the reroof than new construction. So they're 80-plus percent reroof. So yes, they're 15%, 20% of the business that goes into new construction is impacted. But the fundamental business is reroof activity. Again, which is why it's disproportionately impacted with storms, particularly in their home and biggest market, which is Texas, which is by far, we think of hurricanes, we think of hail and other wind events. There was none such in 2025. So no, we look at SRS is a long-term mid-single-digit grower. And this is principally a storm impacted dynamic that's taken them down to flattish right now. But as Richard said earlier, we think roofing shipments, you can see this [ at the ] reported data, roofing square shipments into the market are down mid-teens and SRS was flat. So clearly taking share. Isabel Janci: Christine, I'd like to turn the floor back over to you for closing comments. Isabel Janci: Thanks, Christine, and thank you all for joining us today. We look forward to speaking with you at our investor conference on December 9. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.