Good day, and welcome to the Oatly's Third Quarter 2025 Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Brian Kearney. Please go ahead.

Good morning. Thanks for joining us today. On today's call are our Chief Executive Officer, Jean-Christophe Flatin; our Global President and Chief Operating Officer, Daniel Ordonez; and our Chief Financial Officer, Marie-Jose David. Please review the cautionary statement regarding forward-looking statements and other disclaimers on Slide 3, which are integrated into this presentation and includes the Q&A that follows. Please also refer to the documents we have filed with the SEC for a detailed discussion of the risks that could cause the actual results to differ materially from those expressed or implied in any forward-looking statements made today. Also on today's call, management will refer to certain non-IFRS financial measures, including adjusted EBITDA, constant currency revenue, and free cash flow. Please refer to today's release for a reconciliation of non-IFRS financial measures to the most comparable measures prepared in accordance with IFRS. In addition, Oatly has posted a supplemental presentation on its website for reference. I'd now like to turn the call over to Jean-Christophe.

Thank you, Brian, and good morning, everyone. Slide 4 has the key messages I want you to take away. First, I am proud to report that for the first time since our IPO, we drove profitable growth in the quarter with solid constant currency revenue growth and positive adjusted EBITDA. Second, we are seeing clear signs that our refreshed growth playbook is working, and we are driving positive category momentum in every market where we have fully deployed it. And finally, we are reaffirming our 2025 guidance. Turning to Slide 5. This quarter marks an important milestone for Oatly as we achieved our first quarter of profitable growth. Achieving profitability reflects the disciplined strategic actions we have taken over the past 3 years to strengthen the foundation of our business. Since Daniel and I joined the company in mid-2022, our sales have increased by over 20% and both our COGS per liter and total SG&A each have been reduced by over 25%. These results are the outcome of a company-wide effort to operate smarter, serve customers better, and position the company for sustained success as we execute our company's mission. A turnaround like this is not the making of just a few people. It has taken everyone throughout the company to deliver these results. And I therefore want to thank our entire team for their trust, dedication, and effort. To be clear, profitability is not our finish line. It's a marker of progress, a crucial credibility milestone, and even more important, a ramp-up for future profitable growth. On my first earnings call as this company's CEO, I spoke to the importance of balancing performance and purpose. I believe achieving profitable growth is validation that we can achieve our dual mandate of driving both purpose and performance. We see further potential ahead, and we are confident that the steps we have taken have set us on a path for durable, scalable, and profitable growth. This quarter's performance is a proof point of what this team can accomplish, and this is only the beginning of what's possible. Turning to Slide 6. Here, you can see the results of the deliberate and disciplined execution of our refreshed growth playbook. Put simply, our refreshed growth playbook is working. Our European and International segments started to roll out this playbook last year, and it grew revenue by over 12% in the third quarter. And the North American segment has started to see early progress, especially in the foodservice channel, which is where execution of these playbooks begins. Daniel will go deeper on the topic, but we are pleased with the progress we are seeing so far, and we are doubling down on the execution of our strategy. On Slide 7, we are reaffirming our 2025 guidance, and we remain on track to deliver our first full year of profitable growth. We continue to expect constant currency revenue growth of approximately flat to 1%, adjusted EBITDA in the range of $5 million to $15 million and CapEx of approximately $20 million. We will continue to deploy our playbook while maintaining strong cost discipline. We believe this is a winning recipe for our company, and we believe we remain on the right path. Finally, Slide 8, gives an update on our Greater China segment and the ongoing strategic review. Our Greater China business and our Greater China team continue to perform well, and it drove strong profitable growth in the quarter. The strategic review is ongoing, and we continue to evaluate a range of options, including a potential carve-out with the goal of accelerating growth and maximizing the value of this business. We continue to believe in the future potential of this business. As we mentioned last quarter, we continue to operate in the region, including our Ma'anshan facility, and we remain committed to our customers, our consumers, and our employees while maintaining the safety and continuity of our operations. We will update the market on our progress as is necessary and appropriate. Daniel, over to you.

Thank you, JC. Good morning, everyone. Slide 10 shows how the Europe and International segment has performed. Revenue grew 12% in the quarter, driven by strong 8% volume growth. This growth is a direct result of the rollout of the refreshed growth playbook. As we're driving the top line, we're also expanding margins. The segment delivered another quarter of strong profitability with an EBITDA margin of 18%, which is 700 basis points higher than last year's third quarter. I am enormously thankful to this team who are really hitting its stride. As we move forward, we expect this segment to drive profit growth primarily through generating incremental consumer demand as we continue to execute against our growth playbook. Slide 11 shows why we believe we are on the right track with our new growth strategy. Recall that the pillars of our playbook are to drive relevance, to attack barriers to conversion, and to increase availability. To do so, we're partnering with our customers to make their menus and shelves much more relevant for the taste and flavor-obsessed Gen Z generation. We start with our iconic Barista market developers to renovate foodservice menus to be ahead of the trend curve with drinks that use Oatly as a default experience canvas, not just as cow's milk substitute any longer. As these drinks generate vast awareness, consumer engagement and trial, our growth naturally shows up first in the foodservice channel with retail following. Here you can see that exact dynamic occurring in our E&I segment. Foodservice growth started to accelerate as we rolled out the playbook late last year, driving 28% year-on-year growth in quarter 3. The retail business has started to accelerate, moving from 4% growth in the last few quarters to 11% growth in quarter 3. On Slide 12, you see this dynamic playing out in a specific market. The takeaway of this slide is that Germany is our success story and an example of how this strategy can and will drive repeatable, consistent results. We rolled out this strategy in Germany late last year with relevant messaging that directly attacks the primary barrier to conversion, taste. We then launched the Lookbook to inspire foodservice customers to renovate their menus with much more interesting and Gen Z-friendly offerings. These actions have driven foodservice growth over 45% for 5 straight quarters. As consumers engage with our products in the foodservice channel, they naturally look for our products in retail. So that outstanding foodservice growth has led to strong growth in retail, accelerating over 14% year-on-year growth in the last 12 weeks. This strong performance has driven a 70 basis points increase in our retail market share of the plant-based milk market and 280 basis points increase in the oat-milk market when compared to full year 2024. And it's not just Germany, Slide 13 shows that we are seeing similar trends across our largest European markets like the U.K. and Sweden. Retail sales growth in these markets was about 4% in the last 12 weeks and have accelerated those growth rates in the last 4 weeks. In the U.K., we have gained 70 basis points of plant-based market share since 2024. And in Sweden, we have gained 40 basis points. In a nutshell, we see that our experience and taste-driven strategy hits the bull's eye of what young and not so young generations are expecting. Oatly is creating relevance and generating category demand again. We see this strategy working not only in the big established markets but also in our expansion markets, where we grew nearly 50% year-on-year in quarter 3 as we continue to create the category. When Oatly enters a new market, we consistently see that it goes all oats. We believe these markets have a long runway for growth, and we're excited to continue bringing the Oatly magic to more people in more places around the world. We are convinced that making our customer menus and shelves more relevant by sharing the future trends from around the world is no doubt the way to continue to drive excitement and create the next wave of all drinks category momentum. While each market will have its unique execution and timeline, we're confident that there is still more runway for expansion everywhere. That is why we're taking this strategy to the next stage. Slide 15 shows the latest steps in capitalizing on the Gen Z-driven flavor bonanza that is going on across the globe. We have seen an explosion in popularity in Matcha-based drinks. And so we fast track the launch of the Oatly take on Matcha, an incredible product at the center of taste and flavor paradigm, tailor-made for Gen Z to shake, open, and pour. We then execute our unique foodservice-led and experience-based model. As always, we are at our best when we drive culturally relevant experiences like in music festivals, engaging with content creators or meeting with customers. The engagement has been exceptional. Then to enable consumers to enjoy our products at home, we executed the third pillar of our playbook, which is to increase availability. On Slide 16, you can see several of our in-store executions. These products, not only Matcha, but the top conversion we presented last quarter have been performing very well and are driving truly incremental volume by bringing new young consumers into the category and expanding the consumption of the existing consumer base. Across Europe, we're seeing examples of these new products quickly becoming the fastest turning in the category and with excellent repeat rates. Importantly, these new products are accretive to our sales mix and gross margin, which is very encouraging indeed as a business model. But we're not stopping there. Slide 17 shows what we're working on. We recently launched our first Future of Taste report, where we interviewed hundreds of baristas and drinks experts from all around the world to identify the key trends that we expect to drive menus going forward. Again, we do not just follow trends, but true to our DNA, we aim at creating them. I encourage you all to read it. But if you don't have the time, you should know that we have used those insights to inform our latest Lookbook, which we recently launched in Berlin at the global event where we invited customers, media, and opinion leaders from around the world. Our prior Lookbook was a big success and helped us drive incremental demands with provocative drinks and unexpected recipes that totally changed the way in which consumers view oat milk. It is no longer just an alternative to cow's dairy, but an exciting canvas to experience drink in the broader and more exciting beverage space that is way bigger than only coffee. Turn to North America on Slide 18. We continue to face the discrete headwinds that we have discussed in the past, including a large customer sourcing change and the frozen SKU rationalization. Importantly, though, we made underlying progress. Excluding the impacts of those headwinds, the segment has grown revenue by 5% in the quarter and by 4% year-to-date. We believe these growth rates are a better representation of how the underlying business is actually performing. We have clearly reduced our dependence on our largest foodservice customer as they represented just 10% of the segment's revenue in the quarter compared to nearly 30% 3 years ago. This enhanced diversification increases our flexibility to pursue growth where it is most strategic. As we move forward, we are open to partnering and growing with any customer if they are supportive to our mission, helpful in building our brand, and committed to growing the category profitably. As we have started to roll out the playbook, we have found that many new customers checked all those boxes. On Slide 19, you can see that our North American foodservice business, excluding the largest customer, grew by 11% in the quarter as we are building momentum with the playbook. Our relevant messaging using the unique Oatly voice to inform consumers that they are likely to prefer Oatly to cow's dairy. These executions are in super high-traffic areas such as train stations, you see on this slide. And then when consumers are at their local coffee shop, they can now order interesting social media-ready drinks that use oat milk as the default base. On Slide 20, you can see, we have also continued to make progress in retail, where total revenue increased by 4% in the quarter. This growth was helped by extending our relevant messaging to in-store executions. Additionally, I am excited to see the growth contribution from strong club sales, which have rapidly increased to 6% of the segment's quarter 3 revenue compared to less than 1% in 2024. We're driving strong velocities, and we expect clubs to be a growth driver for us. Today, we're in 5 Costco regions, and we expect to add more clubs and more SKUs in the near future. While foodservice and club sales are not in the scanner data you tracked closely, these are high-quality channels that are very helpful in building our brands, growing the category, improving profitability, and ultimately delivering on our mission. As I mentioned last quarter, we are being thoughtful, deliberate, and disciplined in rolling out our playbook in North America. Given the success in Europe and international, we know what's possible. We continue to see that the underlying category, coffee, and consumer trends are extremely similar in both regions. However, our execution is a few steps behind and we're still in the very early stages of rolling out our playbook. The U.S. market is also more complex. And what we expect, we will continue to improve. We do not expect the growth acceleration to come as quickly as we have seen in the Europe and International markets. Make no mistake, though, we are committed to driving the performance that we expect in these critical segments. And we're confident that with sharp, locally relevant execution, our playbook can drive strong profitable growth in North America, but step by step. Turning to Greater China, on Slide 21. Our Greater China team continued to execute well in a challenging consumer environment. The segment posted strong growth in both channels. The foodservice business, which is the largest part of this segment, grew revenue by 18% in the quarter, and we maintained a strong relationship with the largest coffee chains. We have continued to develop the retail channel with our entrance into club. In the quarter, the segment's retail volume reached an all-time high. And the segment drove positive adjusted EBITDA in the quarter and on a year-to-date basis. I am proud that the teams have remained focused on the business as we execute the ongoing strategic review. They have continued to build the business and service customers very well. I will now turn the call over to Marie-Jose.

Thank you, Daniel, and good morning, everyone. Slide 23 shows the quarterly P&L, which is our best performance as a public company. This quarter, we grew revenue 7.1% and 3.8% on a constant currency basis. Gross margin was 29.8%, which is flat compared to last year's Q3. Adjusted EBITDA was a positive $3.1 million in the quarter, which is $8.2 million higher than last year's Q3. Slide 24 shows the bridging item of our revenue growth. Volume grew 6.6%, partially offset by a 2.8% decline in price mix. Foreign exchange was a 3.2% tailwind. Slide 25 shows our year-over-year gross margin bridge. The benefits of absorption and supply chain efficiency improved margin by 60 basis points. This includes the benefits of the closure of our Singapore manufacturing facility in December. These benefits were partially offset by the impact of lower volumes in North America, including absorption headwinds and supplier penalties that were higher than anticipated as we true up our accruals. We expect fewer supplier penalties in Q4. Pricing and product mix was neutral to gross margin in the quarter. The benefits of our strategic mix management in Europe and International and customer mix in North America were offset by unfavorable product mix in Greater China. We experienced a 90 basis point headwind from inflation in the quarter, which was mainly driven by higher labor costs in our European supply chain. Finally, the impact of foreign exchange movements added 30 basis points. Slide 26 shows the year-over-year improvement in our adjusted EBITDA. The $8.2 million improvement was driven by a $4.3 million increase in gross profit and a $3.8 million decrease in SG&A and other. The reduction in SG&A reflects the ongoing work for a more fit-for-purpose cost structure. These reductions are from various areas, including indirect procurement that we mentioned last quarter and were partially offset by the impact of FX movements. Slide 27 shows segment-level detail. Europe and International grew volume by 8.4%, which highlights that our growth playbook is working. This strong growth drove a $9.5 million increase in the segment adjusted EBITDA. North America's 10.1% revenue decline was driven mainly by the change in sourcing strategy at a large customer. The segment's adjusted EBITDA declined $4.5 million compared to the prior year, which was mostly driven by the decrease in revenue. Greater China grew constant currency revenue by 28.7%, which was higher than we expected. This outsized growth was impacted by the timing of customer orders, and we do not expect sales to be as strong in the fourth quarter. Corporate improved by $3 million as we continue to drive out costs. Turning to our cash flow, on Slide 28. In the quarter, free cash flow was a net cash outflow of $5 million, which is $22 million better than last year's third quarter. A big driver of our cash flow improvement has been working capital. Year-to-date, our total working capital as reported in the cash flow statement was a $20 million cash inflow. In the quarter, our cash conversion cycle was below 40 days, which is the best level since our IPO, driven by strong processes to manage inventory, collections, and payment terms. I continue to see good progress through the company, and I believe we still have room for improvement. Turning to Slide 29. In September, we disclosed that we signed a series of transactions to improve our capital structure and our financial foundation. The transactions were fully executed at the beginning of October. Specifically, we reduced the size of our revolving credit facility to SEK 750 million, which is a more appropriate size for our asset-light strategy. We issued SEK 1.7 billion of Nordic bonds. We prepaid our Term Loan B, and we repurchased and canceled a portion of our convertible notes. These transactions will be fully reflected in our financial statements starting next quarter. This slide shows the impact of the transactions on certain financial items of our go-forward business. We expect to save approximately $5 million in annualized interest expense, which is a 7% reduction. These savings will hit the finance expense line in our P&L. Finally, the repurchase of convertible notes reduced the potential dilution from the convertible notes. We benefit from both the reduction in outstanding convertible notes as well as the avoidance of any future peak interest. The potential dilution from the convertibles is approximately 40 million shares lower or approximately 10%. This equals to 2 million ADS. On Slide 30, we are reaffirming our outlook for our main guidance metrics. We continue to expect constant currency revenue growth in the range of approximately flat to plus 1%. This full year range is slightly below our year-to-date growth of 1.4% and Q3 growth rate largely due to a shift in timing of sales in the Greater China segment. Based on recent FX rates and assuming no change for the rest of the year, we estimate FX to add approximately 250 basis points to full year net sales growth versus our prior expectations of 150 basis points. For adjusted EBITDA, we are reaffirming the range of positive $5 million to $15 million. Given our year-to-date performance and outlook for the fourth quarter, we are likely to be in the bottom half of that range. Our guidance continued to assume no direct impact from U.S. tariffs. We also assume that the current economic conditions and consumer behavior will remain largely consistent for the rest of the year. Finally, we continue to expect CapEx to be approximately $20 million for the full year. This concludes our prepared remarks. Operator, we are now ready to take questions.

The first question comes from Andrew Lazar with Barclays.

I guess, first off, you were able to reaffirm your constant currency top line sales guide for the year. It looks for very modest growth. That's obviously inclusive of some of the one-time headwinds in North America and the discontinuation of some of the frozen products in the region. It's obviously still early to give any specific 2026 guidance. But as we start to lap some of these one-time headwinds in North America and momentum in Europe remains strong, how are you thinking through what sales growth might look like next year? And what are the sort of the key puts and takes to consider? And then I've got a follow-up.

Andrew, it's Daniel here. I'll address your question. While it's early to discuss 2026, we are currently focused on the direction of our business as you mentioned. In Europe, we are seeing strong continuity in the playbook that is clearly effective. As I mentioned in the prepared remarks, we anticipate profit growth through demand generation, which is currently evident in Europe. To elaborate, in the U.S., progress will continue step-by-step. We expect to navigate without the one-off effects that we will eventually face in 2026. Regarding Europe and profit growth through demand generation, it involves a significantly stronger portfolio focusing on new drink occasions, enabling our taste strategy to present more exciting recipes to foodservice customers and increase shelf share. The increase in shelf share in retail is quite notable right now. Additionally, we are experiencing a growth in the critical mass of the expansion markets. As Oatly's growth returns, the category also revives. We are optimistic that our new playbook will ultimately lead to category growth, though this transformation will take some time. However, we are already observing concrete signs that we are on the right path. In the U.S., as I previously mentioned, we see advancement. Excluding one-off effects, we are achieving the highest sales on record in both retail and foodservice channels. We continue to outperform the market and competitors in a retail sector that remains soft, and I emphasize retail for clarity. This is important because we anticipate some one-off portfolio delistings will continue to impact us through the remainder of this year and the beginning of 2026. We should ideally begin to move past that and establish a clean base by the second quarter, after which we expect to see new distribution opportunities. Additionally, we are excited about clubs. We see increasing velocities and substantial expansion still ahead, including preparations for at least two more Costco regions. Notably, foodservice is showing double-digit growth quarter-over-quarter, which serves as initial evidence that our playbook is also effective in North America in the channels where we can activate more swiftly and robustly. That's all I can share with you today, Andrew, and I hope that helps.

And then just a quick follow-up on Slide 11. It looks as though the European retail consumption for the oat milk category accelerated in the third quarter, surpassing that of plant-based milk category overall. And that had not been the case, I guess, in any of the prior 3 quarters. I guess what would you attribute the acceleration to? And would you expect the trend of oat milk taking share within plant-based to continue in Europe? Or were there any extenuating circumstances that made this quarter sort of more of a one-off?

Thank you, Andrew. Daniel again. The attribution certainly goes to our experience and taste strategy, which is driving consumer relevance and creating renewed demand in Europe. Did we expect to see this rapid growth? Possibly not. However, we are observing clear signs that as Oatly grows, the category follows suit. We’ve mentioned before how we differentiate plant-based milks from oat milk specifically, and that’s exactly what we are witnessing. There is strong volume growth, and the penetration of oat milk, which we’ve discussed many times, serves as a key indicator of overall category growth, albeit more challenging. We’re noticing an uptick in category penetration. What stands out is that this aligns perfectly with Gen Z’s expectations: flavor, excitement, well-being, and sustainability. Our new strategy places us at the forefront of the expanding beverage market, as illustrated in our presentation. We are making foodservice menus and retail shelves more engaging, vibrant, and appealing. I like to think of it as reframing the category. We’re creating not just an alternative to milk anymore but an experiential canvas for beverages that resonates with everyone, not just a select few. As we move past the initial phase of plant-based growth, we are indeed sparking what we refer to as the second revolution internally. We are applying the same strategy in the U.S. with positive developments in foodservice. I know you were thinking about the U.S. situation, and so are we daily. It’s a bit more complex there, and we expect it will take longer to develop that retail cycle since it is a slower-moving channel. I hope that answers your question, Andrew.

The next question is from Tom Palmer with J.P. Morgan.

I wanted to just first ask on kind of some of the trialing that you've mentioned this quarter and also in some recent quarters, how the taste preference is a great way to highlight or, I guess, a great differentiator and way to drive traction with customers. What are the most effective ways you found to, I guess, get customers to trial? And maybe some color on kind of how that plays out. I mean it does seem like there is some distribution opportunity, especially in the U.S. that you're starting to take advantage of. So just kind of driving the trial to bolster that.

Very good, Tom. This is Daniel again. I will do my best not to repeat what Andrew mentioned in response to your question. We believe we are truly taking advantage of what we call an explosion of taste and flavor. This has changed coffee from merely a hot beverage to a broader beverage category. Regarding your question about generating trial, Oatly has a unique approach to business, having been involved in the coffee space since our beginning. We now have a strong team of over 60 Barista market developers who collectively spend more than 1,500 hours each week in coffee shops globally, from Mexico City to Seoul and Paris. They focus on collaborating with our partners to ensure their menus align with the ongoing evolution in coffee, which is still in the very early stages of change. This is our belief and how we generate trial. We want people to first experience our signature drinks, then we scale our offerings. We have a clear monetization strategy that outlines how we show up in retail. You may recall from last quarter that we mentioned the popcorn flavor, which is selling exceptionally well, and we have now introduced the Matcha Oat drink. These are drinks that customers have sampled in foodservice settings, at concerts, and in pop-up stores, and later find them available in retail to take home. This is part of the cycle or flywheel of how we envision our business model working. That's what I can add, Tom, regarding your question.

And then just on the guidance, and you did provide, not a super wide range here in terms of EBITDA. But when thinking about kind of the upper end versus the lower end of the range, what are kind of the key swing items that you're watching?

Yes. Hello, Tom, this is Marie-Jose. So as we said, I'm going to repeat a little bit what we already said in the prepared remarks. If you look at Q3, right, from a top line standpoint, you do know that there is a timing shift here going into Q4. When it comes to gross margin, if you take back what we said in the prepared remarks, there is an impact that it's a true-up that happened in Q3 that will not happen in Q4. So we expect this impact to be for about 200 to 300 basis points in Q4. And then if you take that from a gross margin standpoint and you add the work that we're doing in SG&A, which has been, and you can see that we have made improvement in our Q3 results as well, the combination of the 2 is what will drive a few million dollars to impact in Q4. So if you look at the evolution and the continuous improvement, what I just said explains why we just call out the low end range of our guidance.

I apologize. I thought it was the bottom half of the range, so essentially the 5% versus the 10%.

Yes, that's right. The expectation is that we will be in the lower half due to our Q4 outlook, particularly regarding the phasing on the top line and the true-up that will not affect gross margin in Q4. Additionally, our improvements in SG&A will contribute to adjusted EBITDA being on the lower half for the full year.

The next question is from the line of Dara Mohsenian with Morgan Stanley.

So you've done an impressive job reinvigorating growth in Europe in the last few quarters. As you mentioned, North America is taking more time. Just anything you've learned in Europe from your success there that you think is applicable to the North American market as you think about returning to consistent growth in that region? Obviously, separate consumer dynamics in the 2 regions and the U.S. is a complex market, but any cross-geography learnings you think can be applied? And just as we look forward to 2026, can you just give us a bit more detail on plans to drive greater household penetration in the U.S., more conversion of the oat milk category, the club expansion maybe is perhaps part of that? But just as you think about really trying to unlock new customers for this category, what are the biggest focus points for you?

Dara, it's Daniel. We're constantly considering this question, and I'm confident that we can achieve strong and profitable growth in the U.S. We truly believe it's more about when rather than if this will happen. First, the evolution of consumers in both Europe and America within our sector is quite similar. This is based on solid evidence of consumer trends and feedback from our Barista market developers. We have over 60 developers across various cities monitoring these changes. The three key points supporting our belief are as follows: first, the coffee market has evolved similarly in both regions, moving from hot to cold drinks and experiential beverages, showcasing identical trends, including a shift of customers from London to New York in the foodservice sector. Second, younger consumers, especially Gen Z and the Alphas, are passionate about flavor and taste. Third, we previously noted that perceptions of taste for plant-based drinks hinder conversion in both regions. Our blind taste tests show a consistent 50% preference for Oatly in both the U.S. and Europe. Additionally, we're seeing positive results in the coffee and foodservice segments, even though we are facing some challenges, like a significant customer representing only 10% of our revenue and some unsuccessful product listings. When we exclude these challenges, we see success where customers are more open to the strategies we've discussed, allowing us to move more quickly. We believe a taste-focused strategy is right for the U.S., and we are making necessary adjustments regarding taste and formats. We recognize that the offerings are not identical across both markets. One major difference is the U.S. market's complexity, particularly regarding the strict annual timing of shelf resets in retail. Although these complexities may slow progress compared to Europe, we are aware of them and are charting a suitable course. We anticipate steady progress, albeit gradual.

And then just on the profitability front, obviously, EBITDA progress this year. Just as we look beyond the guidance that's in place for this year, any thoughts around being able to drive continued cost savings, whether it be efficiencies on the supply chain front or SG&A in the broader organization as we look out to 2026 and beyond?

Thank you, Dara, Jean-Christophe speaking. Just to be clear, we will continue harvesting savings on both fronts, both supply chain and SG&A. What was initially 2 to 3 years ago, a turnaround urgent necessity has become a permanent daily mindset. So all the teams are permanently looking for opportunities to be more efficient, leaner, and drive more impact with the same amount or even less of resources. So this continuous improvement obsession is all around and will continue in '26. As you can imagine, we are still in the middle of the budget planning. So too early to translate that statement into figures, but that's exactly what we will continue to do.

The next question is from John Baumgartner with Mizuho Securities.

I'm curious, coming back to North America in terms of the profitability there, quarterly EBITDA has been bouncing around breakeven now since, I guess, early 2024. And presumably, some of the operating leverage benefits have now leveled off. I'm curious, in the context of this ongoing productivity, how are you thinking about the margin evolution in the region going forward? Short-term needs for incremental reinvestment relative to new opportunities for efficiencies, what those efficiency buckets might be? And then long-term, how do you anticipate North America margins at normalized levels relative to those in Europe?

John, I'll begin by saying that MJ might add to or complement what JC has mentioned. Your question regarding the volume decline in North America is clear and significant, as it indeed affects absorption levels and the penalties MJ referred to. This situation can be attributed to what we might call a lack of progress in North America. However, as we move through the first and second quarters, we anticipate overcoming these effects. We are seeing underlying growth in both foodservice and adjacencies, indicating that these two aspects will likely converge in the future. Importantly, there’s nothing structural or long-term to worry about. We have established clear long-term guidelines for our margins and profitability and have consistently stated our belief that the U.S. will show strong, profitable growth shortly. The top line has been somewhat stubborn due to reasons we've explained repeatedly. Some challenges are mechanical and beyond our full control. Nevertheless, we are committed to stimulating consumer demand, as evidenced by positive trends in clubs and foodservice. With a focus on volume and demand generation, we expect to achieve profit growth through consumer demand similar to what we’re experiencing in Europe.

And then looking at Europe, a lot of conversation about the oat milk part of the category. But I'm curious, given how well established plant-based beverages are in general in the region, what are you seeing from some of the other varieties, soy milk, hazelnut? How do you think about the competitive advantage of oat, whether it's formulation being used in creamers? I'm curious what you're seeing with interactions with other plant-based varieties. Are volumes softer? Do you see more price competition from other varieties? Can that price competition derail some of the progress that you're making in oat? Just your thoughts on the competitive environment in Europe.

There are several aspects to your question. First, it's important to note that the category is still in its early stages, with only about 30% penetration. This suggests that there is still a significant 70% opportunity for growth. By creating new consumer demand, we're attracting new consumers to this category, which is now viewed by newer generations as more than just an alternative to cow's dairy. While our mission remains unchanged, expanding this category requires a different approach. As coffee evolves into other beverages, newer generations are becoming engaged, and although we're seeing some other crops emerging, their market presence is still quite minimal. The macro dynamics in Europe indicate that Oatly's growth is outpacing the oat milk category, which in turn fuels the overall growth of plant-based milk. Regarding pricing, we hold a strong premium in Europe and have consistently stated that there is always room for pricing and private labels, but that doesn't align with our market strategy. We respect those consumers who choose price options, but we focus on delivering value and feel confident in our position. Overall, that summarizes our perspective on the current situation in Europe.

The next question is from Samuel with Nordea Markets.

Perhaps one question from my side. Looking at the financials, sequentially, we didn't see any improvement in free cash flow from Q2 despite the decrease in the cash conversion cycle. I'm just curious that how much there is still to squeeze from and what you would expect to be the magnitude for the next improvement in the coming quarters regarding the free cash flow?

Hello, Samuel, this is Marie-Jose. So look, since I joined Oatly 2 years ago, I've been repeating how cash is important to me and to the company. And this quarter, as you just mentioned, is another proof point of how much we are progressing on that field. So how to look at it? You know that we've been working through a couple of building blocks. First one, of course, is to continue our P&L profitability journey. Second is definitely to double-click on good practices and processes. And we do know that we have room for improvement when it comes to working capital. You saw the slide on the deck that as well show the improvements we're making, not only from a free cash flow, but as well on the cash conversion cycle. And then on top of that, we remain disciplined on CapEx, and you saw that as well as we go. So I'm not going to call any numbers or any evolution. But if you take all those building blocks and you look at how we have been continuously improving, it's a matter of time. We are on track. We are delivering our business plan. We are fully funded. It's a matter of time. This is all what I can tell you.

This concludes our question-and-answer session. I would like to turn the conference back to Brian Kearney for any closing remarks.

Great. Thanks, everyone, for joining us today. If you have any follow-up questions, please feel free to reach out to me, and we can set something up. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.