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Operator: Good day, and welcome to the Western Union Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Tom Hadley, Vice President of Investor Relations. Tom, please go ahead. Tom Hadley: Thank you. On today's call, we will discuss the company's Third Quarter 2025 results, 2025 outlook, and then we will take your questions. The slides that accompany this call and webcast can be found at westernunion.com under the Investor Relations tab and will remain available after the call. Additional operational statistics have been provided in supplemental tables with our press release. Joining me on the call today is our CEO, Devin McGranahan; and our CFO, Matt Cagwin. Today's call is being recorded, and our comments include forward-looking statements. Please refer to the cautionary language in the earnings release and in Western Union's filings with the Securities and Exchange Commission. Including the 2024 Form 10-K for additional information concerning factors that could cause actual results to differ materially from the forward-looking statements. During the call, we will discuss some items that do not conform to generally accepted accounting principles. We have reconciled those items to the most comparable GAAP measures in our earnings release attached to our Form 8-K as well as on our website, westernunion.com, under the Investor Relations section. I will now turn the call over to our Chief Executive Officer, Devin McGranahan. Devin McGranahan: Good afternoon, and welcome to Western Union's Third Quarter 2025 Financial Results Conference Call. Today, we reported a solid quarter against a difficult macro backdrop, demonstrating the benefits of our large-scale global and now multiproduct business model. We saw strong performance in many corridors and product categories, offset by continued weakness in North America across several specific large corridors, most notably U.S. to Mexico. While we are on our way to becoming a much more customer-centric company, we have invested significantly in becoming market competitive and have increased our executional and operational rigor. We are now delivering an improved omnichannel customer experience across our products and channels. As a result, in this quarter, we saw reasonable to strong performance in Europe, South America and Asia, driven by our retail business in Europe, our digital business in Asia and our consumer services business in Europe and LACA. Our opportunity is to continue to drive our strategy across all geographies and channels and see the benefits as market conditions improve. An important element of the strategy has been to accelerate the development of our retail model in the U.S. Our goal is to have a strong base of strategic accounts, a large and competitive mix composed of exclusive and nonexclusive agents -- independent agents in the middle and a small selection of high-performing company-owned stores at the top. Upon completion, our recently announced acquisition of Intermex will help accelerate our progress towards this goal. With the passing of the HSR review period 2 weeks ago, we are now excited to begin the appropriate integration planning with [ earnestness ]. We remain optimistic about the longer-term outlook for our business as we expect migration patterns to stabilize and our investment in becoming market competitive over the past 2 years has provided a foundation for ongoing revenue and share gains. We also see many opportunities to continue to expand our consumer services business, which contributed significantly to the company's results in the quarter. Over the past 3 years, we have delivered above-average industry margins and returned substantial capital to our shareholders via dividend and share buyback. We have and will continue to fund the necessary investments in our transformation through cost discipline and good operational performance management. For the third quarter, we reported revenue at $1.033 billion (sic)[ $1.03 billion ] on an adjusted basis and excluding the impacts from Iraq, this was a decline of 1% year-over-year. Consumer money transfer transaction growth was down 2.5% in the quarter, excluding Iraq, and cross-border principal growth was up mid-single digits on a constant currency basis, speaking to the resilience of our customer base and their perseverance in the current macro environment. While our retail business in the Americas continues to face headwinds associated with the current geopolitical environment, we are encouraged by some improving trends in recent months. And while it is too early to say that we have reached the bottom, we are potentially seeing some stabilization. Our strategy continues to perform well with our retail business in Europe with mid-single-digit transaction and revenue growth. Our branded digital business increased transactions by 12% and adjusted revenue by 6% in the quarter. Consumer Services adjusted revenue was up 49% in the quarter, driven by our acquisition of Euro Change and a strong European travel quarter, which is the driver of our travel money business. I was in London last week with our new team discussing our plans for 2026, and we remain excited about the potential for expanding that business across both retail and digital channels. We expect Consumer Services to have another strong quarter to the end of the year, and our travel money business is likely to approach $150 million in revenue in 2026, up from nearly nothing just a few years ago. Adjusted earnings per share came in at $0.47 compared to $0.46 this quarter a year ago. Our discipline in managing operating costs continues to come through. Matt will discuss our third quarter results and 2025 outlook in more detail later in the call. Switching now briefly to the macro environment. Economic conditions globally remain reasonable with inflation rates declining in key markets around the world and GDP outlooks remaining relatively strong despite elevated interest rates. These economic conditions are providing a stable backdrop for our business and should improve further as we have begun an interest rate cutting cycle, both here in the United States and in Europe. Globally, migration continues to evolve in complex and dynamic ways. Our business remains fundamentally linked to human mobility. When people move, they rely on Western Union to send money home. This connection makes our business sensitive to shifts in migration patterns, policies and enforcement practices. The good news is that our business is globally diversified across countries and channels, mitigating much of any one region's specific risk. When we see trends towards more restrictive migration policies like we are seeing in the United States now, it does influence our business. Recent policy changes have led to a substantial decline in border crossings and an increase in enforcement actions, including workplace inspections and deportations, which have created uncertainty and hesitation within migrant communities. These developments continue to impact customer behavior with some customers reducing transaction frequency or shifting to other channels. That said, the U.S. is not monolithic. And in the quarter, we saw transaction growth that was positive to places like Brazil, India, Haiti, Panama and Vietnam, flat to slightly negative in important corridors like the Philippines, Jamaica, Guatemala and Colombia, offset by significant declines to Mexico, El Salvador, Peru and Ecuador. The U.S. to Mexico corridor is the most important to monitor going forward to which we have begun to see some recent improvements from the lows in June. The Bank of Mexico data would also indicate some improvements with the most recent month down 8%, improving materially from the June lows. In other instances, we see beneficial new patterns emerging from the macro changes, such as strong growth in outbound remittances in Argentina and growth in corridors like Canada to India and Singapore to Indonesia. Despite these short-term headwinds, we believe the long-term trajectory remains clear. Global migration is not disappearing. It is adapting. People will continue to move in search of opportunity, education and family. And Western Union will continue to stand with them, providing trusted, compliant and accessible financial services. Looking ahead, our role is clear. We will support the evolving needs of senders and receivers with a broad base of solutions that are fast, secure and built on trust. Our 100 million-plus customers around the world are a resilient force and so are we. Over the last several years, we have frequently spoken about our desire to make Western Union a more digital company and to expand our product set to meet the needs of our customers as they evolve. We also see our strong brand recognition and the large base of existing customers as key building blocks to cost effectively build our digital business without having to invest hundreds of millions of dollars in nonscalable marketing. In advance of our Investor Day in a couple of weeks, I want to take a moment to highlight the significant progress we've made in becoming a more digital-centric company. Our transformation is not just about technology. It's about reimagining how we serve our customers, deepening relationship and unlocking new areas of growth. Over the past several quarters, we've accelerated the shift towards digital channels. Our branded digital business has now delivered 8 consecutive quarters of mid-single-digit or better revenue growth with strong transaction momentum in key regions like the Middle East and APAC. Our digital business now accounts for over 40% of the principal we move around the world. We are also seeing a continued expansion in our payout-to-account capabilities, which now represent over half the principal we send through our digital business. Our expansion of card acceptance and digital funding options across both our retail and digital channels is another example of how we're becoming a more digital company. Today, over 55% of all of our money transactions are digital. Our global digital payment network is a fundamental asset that we will continue to lever and grow as a foundation for future expansion and growth. We have been making progress on our digital wallet strategy. We are now live in 7 countries, having launched Brazil in the first quarter and the U.S. in the second. We have onboarded over 0.5 million customers and now have a growing number of active and loyal monthly users. We see real benefits in capturing payouts in our wallets with Argentina now approaching 15% of all inflows and Brazil after less than a year of -- post launch, nearing 5%, saving us on commissions and enabling a better and more digital receive customer experience. We anticipate change of control regulatory approval in Mexico before the end of the year and have received a license for a digital wallet offering in Australia with an anticipated Q1 launch of 2026. We envision our future as a broad-based 2-sided payment network with digital wallet options on both sides in all of our major markets. We also anticipate being able to facilitate both traditional and digital asset transfers for our customers and potentially others as well. But digital is more than a channel. It is a platform for innovation. This includes our new point-of-sale system, which is now nearly ubiquitous around the world and allows our retail network to connect digitally to all of our account and wallet payout points quickly. Executing the rollout of a new point-of-sale system in under 12 months is something that we would not have been able to do just a few years ago and is a true testament to the progress we are making on the technology front. With this new platform fully implemented in the U.S., we are continuing to make progress in meeting the needs of our customers with digital payment options, when the new U.S. 1% remittance tax on cash transfers goes into effect in January, we will be well positioned. Looking ahead, our strategy is clear. We will continue to modernize the movement of money, expand our product suite and deliver trusted, compliant financial services to our global customer base. We are building a platform that is resilient, scalable and ready for the future. And we look forward to discussing this with you more in detail at our Investor Day in just a couple of weeks. To capitalize on our strong brand, trusted customer relationships and omnichannel platform, we have been enhancing our product suite with new or revamped products that our customers want and value. We have made significant progress in this effort within what is now our Consumer Services segment. Over the last 2 years, we have invested in our existing product offering to improve functionality and value and added new products like travel money, prepaid cards, digital wallets and our out-of-home advertising business. Today, Consumer Services now accounts for roughly 15% of total company revenues, which is up 70% or over $200 million in just the last 2 years. That incremental $200 million is about 5 percentage points of additional revenue growth for the company. Travel Money, which has been a big driver and which we believe will account for roughly $150 million of revenue in 2026 is up from almost nothing in 2023. We believe there is a much longer runway to finding unique and interesting ways to monetize our highly differentiated asset base, including our 100 million-plus customers, our growing portfolio of well-recognized and trusted brands, our global reach and scale and our digital payments network. More recently, we have seen an opportunity to accelerate our development and use of digital assets. The work we have been doing to modernize our technology stack, invest in digital payments network and roll out digital wallets around the world are all foundational enablers that will help us accelerate a digital asset strategy. Historically, Western Union has taken a cautious stance towards crypto, driven by concerns around volatility, regulatory uncertainty and customer protection. However, with the passage of the GENIUS Act, we are now seeing potentially interesting opportunities to integrate digital assets into our business in ways that enhance efficiency, reduce friction and improve customer experience. We are actively testing stablecoin-enabled solutions in our treasury operations. These pilots are focused on leveraging on-change settlement rails to reduce dependency on legacy correspondent banking systems, shorten settlement windows and improve capital efficiency. We see significant opportunities for us to be able to move money faster with greater transparency and at lower cost without compromising compliance or customer trust. Beyond treasury, we are exploring how our global payments network can serve as an on-ramp and an off-ramp between fiat and digital currencies. We are seeing strong interest from potential parter -- potential digital native partners using our infrastructure to bridge these worlds, particularly in regions where access to traditional banking is limited, but crypto adoption is growing. Finally, we are expanding our partnerships and capabilities to allow customers to move and hold stablecoin digital assets. This is not about speculation. It is about giving our customers more choice and control in how they manage and move their money. In many parts of the world, being able to hold a U.S. dollar-denominated asset has real value as inflation and currency devaluation can rapidly erode an individual's purchasing power. These innovations align closely with our broader strategy to modernize the movement of money. They complement our investments in digital channels, payout-to-account capabilities and next-generation platforms like our digital wallets. Together, they position Western Union to lead in a future where digital assets could play a growing role in global finance. We look forward to sharing more with you at our Investor Day in a couple of weeks. In closing, I want to reiterate our confidence in the path we are on. Western Union is transforming. We are becoming more digital, more agile and more aligned with the evolving needs of our global customer base. We are expanding our product suite, modernizing our platforms and unlocking new opportunities for growth across all of our channels. This transformation is not just about technology. It's about building a resilient, scalable business that delivers trusted financial services in a rapidly changing world, whether it's through faster account-directed payments, expanded digital wallet capabilities or innovative digital asset-enabled solutions, we are positioning Western Union to lead in the future of cross-border money movement. We remain focused, disciplined and optimistic. Our strategy is working, our execution is accelerating, and our platform is stronger than ever. I look forward to sharing more with you at our upcoming Investor Day and continuing this journey with all of you. Thank you. I would now like to turn the call over to Matt Cagwin, our Chief Financial Officer. Matthew Cagwin: Thank you, Devin, and good afternoon, everyone. I'm delighted to be here today to walk you through our third quarter results as well as our 2025 financial outlook. In the third quarter, GAAP revenue was $1.033 billion and consistent with our expectations, our adjusted revenue, excluding Iraq, was down 1%, driven by growth in Consumer Services and branded digital offset by our retail business. Our industry-leading adjusted operating margins was 20% in the quarter, up from 19% in the prior year period. Our adjusted operating margins primarily benefited from the continued cost discipline that we've now -- as we've now completed our cost redeployment program 2 years ahead of schedule. Adjusted EPS was better than our expectations at $0.47 in the current period compared to $0.46 in the prior year. Adjusted EPS benefited from our cost management discipline as well as fewer shares outstanding, primarily offset by higher interest expense and higher adjusted tax rate. Our adjusted effective tax rate was 12% in the quarter, up from 8% in the prior year period. The adjusted effective tax rate was higher due to discrete benefits in the prior year period. Consumer Services adjusted revenue was up 49% in the third quarter, driven by our Travel Money business, and strength in our bill pay business. The Consumer Services segment has accelerated since the first quarter due to the acquisition of Euro change. Our Travel Money business drove about half of our growth this quarter. Organically, consumer services continue to grow double digit. And as expected, consumer service margins have improved 1,300 basis points to 22% in the third quarter as our new product sets began to scale. As Devin mentioned, we've made meaningful progress expanding the products and services we offer, and we believe there's meaningful runway ahead. Travel Money is a great example. It is now $100 million of revenue and on its way to $150 million next year from close to nothing just a few years ago. We believe there are many other potential opportunities to serve our 100 million-plus customers and look forward to sharing those as ideas developed and get launched. Now turning to our consumer money transfer or CMT business. Transactions declined 3% in the quarter or 2% excluding Iraq, U.S. immigration policies continue to disrupt our business, although the third quarter was not meaningfully different than what we saw in the second quarter. Customers continue to send fewer transactions but higher average principal per transaction. Our PPT increased roughly 6% in the third quarter compared to the prior year on a constant currency basis. Our branded digital business grew adjusted revenue 6% and transactions by 12%. This marks the eighth straight quarter of solid revenue growth. It also marks a return of double-digit transaction growth driven by the Middle East, where we saw a meaningful acceleration of our business from partnerships that we announced in the second quarter this year. These partnerships are primarily focused on account-to-account transactions. Which has put pressure on the gap between revenue and transactions. However, we're super excited about these relationships because they expand our reach in the fast-growing Middle East. We also continue to see strong growth in our digitally initiated paid out to account business. In the quarter, principal grew over 40% and now accounts for over 50% of all principal sent from our branded digital business. We continue to expand our payout capabilities worldwide to meet the evolving needs of every customer segment. The rising demand of account directed payouts reflects our customers' desire for speed, flexibility and convenience. This shift provides a unique opportunity to deliver higher-quality service while building a long-lasting relationship with our customers. Turning to our retail business. Overall, the performance has remained relatively consistent with the second quarter, with softness in North America, driven by the effects of immigration policies in mid-single-digit revenue growth in Europe. Now turning to cash -- now turning to our cash flow and balance sheet. We have generated over $400 million in operating cash flow year-to-date compared to $272 million in the prior year period. Included in this number is over $200 million in cash taxes paid this year related to the transition tax. We're excited about these obligations being behind us and look forward to the additional flexibility that we'll have to invest our free cash flow in support of our business or return to our owners. Year-to-date, our CapEx was $101 million, up 10% year-over-year. I'd like to highlight that our CapEx will be up slightly this year versus prior trends. As this has been a large strategic agent renewal year as well as we've had an infrastructure refresh. We continue to maintain our strong balance sheet with cash and cash equivalents of roughly $1 billion and debt of $2.6 billion. Our leverage ratios remained at 2.6x and 1.7x on a gross and net basis, which we believe provides us ample flexibility to return capital or potential M&A while maintaining our investment-grade credit rating. In the third quarter, we returned over $120 million to our owners, via dividends and share repurchases and over $400 million during the first 9 months of this year. This represents a cash return to our owners of over 15% based on our current market cap. Through the first 9 months this year. Now moving on to our 2025 outlook, which assumes no material changes in macroeconomic conditions. We are reaffirming our guidance today, which includes adjusted revenue to be in the range of $4.035 billion to $4.135 billion. However, based on our current trends, we anticipate adjusted revenue to be at the lower end of this range. This range reflects the continued benefit of our branded digital business. Double-digit growth in Consumer Services and a slight improvement in retail. I would also like to remind everyone that our consumer services -- consumer service business has different seasonality in our CMT business. Travel Money is seasonally higher in the second than third quarter. And I'd also like to remind everyone that we had a very strong media network business in the fourth quarter of last year due to higher media demands related to the U.S. presidential election. These comments are not meant to foreshadow consumer service growth being below our double-digit goal but rather to highlight it will probably not be at 49% next quarter. We continue to expect adjusted operating margins to be in the range of 19% to 21%. And finally, we expect adjusted EPS to be in the range of $1.65 to $1.75. Based on our current trends, we expect adjusted EPS to be at the upper end of this range. In conclusion, I want to emphasize the momentum that we're building across our business. Western Union is executing with discipline, clarity and delivering results while transforming for the future. Our strategic focus is on becoming a more digital-first company is yielding tangible outcomes. This is the eighth consecutive quarter of mid-single-digit branded digital revenue growth or better to also the rapid expansion of our payout to account capabilities. We're not just adapting to change. We're also leaning into it. Our Consumer Services segment is unlocking new revenue streams. Our operational efficiency program has exceeded expectations and our financial foundation remains strong, which gives us the flexibility to invest and innovation as well as returning capital to shareholders. I look forward to seeing many of you at our Investor Day on November 6, and thank you for joining today's call. Operator, we're ready to take questions. Operator: [Operator Instructions] Our first question comes to us from Tien-Tsin Huang from JPMorgan. Tien-Tsin Huang: Good to catch up with all of you. Yes, no surprises. It sounds like -- and it sounded like you were encouraged by some of the recent trends in recent months in the retail and Americas segment that in your prepared remarks. Can you maybe elaborate on that? Was that just some of the Mexico statements you made in the recent months? Just wanted to get a little bit more detail on that. Devin McGranahan: Yes. Tien-Tsin, thanks. We are seeing the lows from the mid-summer have come back a bit, particularly in Mexico. But more or less across some of the important corridors. As highlighted in the prepared comments, we still see corridors that are growing and some important ones that are now approaching what I'll call stable or flat. So we remain positive that in the back half of the year, those trends will continue and the outlook will improve, but I would say things are still lumpy. Tien-Tsin Huang: Okay. Good. I'll ask on Consumer Services quickly. Just Travel Money. You mentioned a few times that will probably grow 50% next year. Just curious on the visibility there and the incremental margins on that business, just to highlight it because it is a bigger contributor now. Matthew Cagwin: So our expansion next year is we'll have one more quarter of the grow over from Eurochange. We're pushing into other new markets based on now, we've got a good scale. We've got a management team that's very competent. As Devin talked about, we were in Europe last week, and we actually spent most of the week with the management team there and came away very impressed by their quality of the stores, the strength of the management team and their vision for how we can continue to expand both same-store sales as well as across new footprints. And the last little fun fact for you. When we did the acquisition, we had talked probably 2 quarters ago that we bought it for a little under 5x. Now having owned it for a couple of quarters, they're meaningfully above our models that we had done and on track to have a great return for us. Operator: Our next question comes to us from Darrin Peller from Wolfe Research. . Darrin Peller: See the profitability. We see [indiscernible]but I wouldn't or were use penetration [indiscernible] Matthew Cagwin: Darrin? Darrin Peller: Yes, can you hear me? Matthew Cagwin: Your mic is really, really hard. Unknown Executive: I think you might be better now. Try it again. Darrin Peller: Just the same reason of penetration. Matthew Cagwin: DarrIn, you got a bad connection, maybe try coming back in, and we'll put you back in the queue. Operator: Our next question comes to us from Will Nance from Goldman Sachs. Please ask your question. William Nance: I hope my audio is not also bad. But because I'm hearing it on a couple of people's calls now -- so I guess, I just wanted to hit on some of the trends that you saw on LACA. It looked like the trends there actually got a little bit better this quarter. So maybe just echoing the earlier question on the North American trends -- anything to kind of call out and just the linearity of results? Are we starting to hit easier comps and maybe some of the -- starting to lap some of the changes in migration patterns? And just any color on how you're thinking about that over the next -- in the near term? Devin McGranahan: Yes. And so a couple of things. One, we've seen some overall market stability, which we commented in the public comments. And as you know, it was in this quarter last year where we highlighted the impacts and the effects of the then recent elections across certain parts of South America, Northern South America and Latin America. We are now starting to see the lapping effects of some of those declines when the Darién Gap was closed and when we had presidential elections in Venezuela and a few other places. Including Mexico. And so I think you're starting to see both the effects of some market stability as well as now we're a year into what was a relatively significant change in outlook and trajectory for the region following a series of elections. Operator: Our next question comes to us from Bryan Keane from Citi. Unknown Analyst: Guys, thanks for having me on the call. Just wanted to ask on digital, in particular, it improved from 9% to 12% in transaction growth from the second and third quarter. But the revenue growth stayed about the same at 6%. Just trying to figure out the delta change there, why we didn't see a lift in the revenue as well? Matthew Cagwin: Bryan, thanks for joining the call. Really, the vast majority of the acceleration we saw from our partnerships in the Middle East, which are account-to-account payout, which, as you know, come generally with a lower RPT. So it's really a combination of that. So we've seen a little bit of -- we would have had a hair of slowdown in revenue and trans about [indiscernible] but that didn't help provide a little uplift on both sides. . Devin McGranahan: I think the Bryan, the other thing that we've historically talked about given the current market dynamics where new customer pricing and we've actually seen some more aggressiveness in the marketplace on some of those offers, not just offering 1 time fee-free but in some cases, by some folks, 2 and 3 transactions free for new customers. The new customer growth causes a degradation in the revenue line. And so anytime we see an acceleration in transactions, we're likely to see, a, as you saw this time, stability or maybe even if we could accelerate it enough, some degradation in the revenue line relative to the transaction line. And historically, we are and will continue to be in looks of ways to cost-effectively accelerate and knowing that revenue will catch up over time. Unknown Analyst: Got it. And then just one follow-up on the guidance in fourth quarter. You're talking about an improved -- a slight improvement in retail going into the fourth. Is that all macro driven? Or is that something specific you guys are doing for the improvement in retail into the fourth quarter? Matthew Cagwin: Really, it's driven by a few things. One is the comment was made a minute ago about LACA. We're starting to lap easier comps as we hit the latter part of the year. We've also seen some good momentum and some customer wins that will help or agent wins. Devin McGranahan: The other thing I would add, Bryan, we talked about this, I think in the second quarter, we've asked one of our leaders who leads our European region to spend some material time with us here in the U.S., implementing much of the model that's been successful in terms of our go-to-market, particularly around independent agents the strategic pricing model that we employed there and a bit more rigor around managing that independent agent network. We're starting to see some of the fruits of that as well, and we are excited about the ability to integrate -- Intermex and accelerate that retail program at a much faster rate than we have been able to over the last year, 1.5 years. Operator: We're going to take the call from -- or the next question from Darrin Peller from Wolf Research. Darrin Peller: Yes. Is that better now, guys? Devin McGranahan: Much better. Darrin Peller: Just where do you see overall digital penetration going long term I mean the company is basically near global penetration of 38% of transactions this quarter. Does that continue to move higher? And just talk a little bit more about how that impacts the take rate. And then a quick follow-up would just be just -- just when I look at the principal per transaction up 6%, is that a trend around people that are setting more now, but less often, just maybe associated with migration policies in the U.S. or something more structural? Devin McGranahan: Yes. It's a great question, Darrin. And so I think there are 2 or 3 things I think we would highlight what we believe and aspire to a reasonably stable retail business around the world, which will be somewhere between minus [ 2% ] and plus [ 1% ] over time as we get our operating model in place as we believe the retail value proposition does have merit, and there are many migrants, particularly new to country see value in that. We do expect digital to continue to grow at double-digit rates into the certainly intermediate if not indefinite future, which we will see over time, the ability of that digital become a larger and larger piece of our business with the stability in retail. We also know, at least for Western Union, there are a lot of places in the world. U.S. to India is one of them. U.S. to Guatemala is another one, where our digital penetration still has plenty of opportunity to grow relative to both the size of the market and our current market share. So we could even see some acceleration in that low double-digit growth that we've been seeing for the last 8, 10 quarters as we focus on specific corridors going forward. Darrin Peller: All right. Thanks, Devin. Matt, just a very quick follow-up with just the understanding where Eurochange -- is Eurochange entirely in consumer services? I'm just trying to get a sense of organic growth segments. Matthew Cagwin: So, no, it's not. So we actually use the business for both CMT but also CS. They were an agent of ours before we acquired them. So if we're doing any remittance transactions would go to our CMT line and the rest CS. But to take away is, we're using that footprint for money -- travel money, we're using for prepaid cards. We're using it for remittances, and we split it up based on the type of product. Operator: Our next question comes to us from James Faucette from Morgan Stanley. James Faucette: I wanted to ask quickly about dynamic pricing in Spain. It seems like you've seen some good results there. And just curious how quickly you may be able to roll out to other markets and maybe start to garner some of the same benefits? Devin McGranahan: Thanks, James. Great question. We have rolled out dynamic pricing or strategic pricing, as we call it, probably in about half to 2/3 of our European market. We asked the leader of our European market to come here to the U.S. to help us. And we are in 3 metro markets at some scale now in the U.S. with the anticipation that over the course of '26 and the integration with Intermex who has a very similar model that will be able to be kind of across the U.S. by the end of 2026. It has less applicability in other parts of the world like the Middle East, which, we have a lot of large master agents where they have a lot more control over pricing or frankly, in Asia, which has gone significantly more digital than either the U.S. or Europe is. James Faucette: Got it. That's really helpful. And then I think, Matt, you touched on this a little bit, but I may have missed it, is that you guys have done a really good job in terms of your cost efficiencies, programs, et cetera. How should we think about like future programs or where there may be incremental opportunities on that side? Matthew Cagwin: Yes. Thanks for the question. I'll actually spend about 5 minutes of that in 2 weeks from the day talking about our next step, but I'll leave a teaser. We still think there's meaningful opportunity ahead and look forward to sharing that with you on the 6. James Faucette: Stay tuned to like it. Devin McGranahan: And James, one of the things, the first part of our program really was what I'll call the blocking and tackling and Matt and the team, the broader management team did a great job of creating the normal operational efficiencies in terms of managing our real estate footprint. Reducing customer service calls, managing vendors, we're now starting to really see the benefits as we implement new technology. We have some adoption of AI into both our development functions, our customer service functions. Where we could start to see some shifting of the business model, which will, again, as Matt said, yield results for a reasonably long period of time relative to the first chapter of this, which was really just blocking and tackling. Matthew Cagwin: Now I got to remove that page in my presentation. So, I got more work on Investor Day. Operator: Our next question comes to us from Tim Chiodo from UBS. Timothy Chiodo: Great. On the Intermex, 10,000 locations, they were always viewed to be as very strategically well placed, but one of the advantages was the speed, the UI, the UX, and it was generally talked about as being better for the agent, and that was something that was attractive to them. Is that an advantage that somehow gets ported over to Western Union? Or does that system get retired in the sunset and those locations move on to the Western Union platform. How will that all play out? Devin McGranahan: It is our intention to maintain both the Intermex brand, the Intermex locations and the Intermex go-to-market model. We also are now as we begin integration planning, looking at ways in which we can take that into Intermex model and bring it into our Vigo independent agents and our Western Union branded independent agents here in the U.S. So we have aspirations of belief that we think we can learn a lot from what they do, and we will preserve everything that they do, the way they do it today. Operator: Our next question comes to us from Rayna Kumar from Oppenheimer. Rayna Kumar: I think there's an echo here. So [indiscernible] to hear me. Just on North America, it looks like trends have gotten a little bit worse versus the second quarter. You expected to improve from here? Like have we reached the bottom in North America? Devin McGranahan: Yes. So the quarter was, as I described in the call, what I would say is lumpy. We had a little bit better July than August was pretty tough. And then we started to see some trends in the back half of September and a little bit early here in October. But the linear improvement is certainly not there, but the directional improvement would seem to indicate that we may be hitting some stability relative to what we saw in either June or August. Operator: Our next question comes to us from Nate Svensson from Deutsche Bank. Christopher Svensson: Thanks for the question. I wanted to ask on payout to account -- so I think last quarter in the Q&A, you mentioned a slowdown in growth there, but it sounds like in 3Q principal was up 40%, and it now represents 50% of the digital business. So maybe it's the Middle East partnerships, but I was hoping you could unpack some of the drivers and the improvement there and maybe how sustainable you think the trajectory impact to account could be? Matthew Cagwin: I don't remember making that comment last quarter. We've seen very consistent 30%-plus growth rates for going on 2, 3 years now for account payout. So we see it everywhere. We're seeing strong growth in our retail business to be digitally funded. We've seen growth there with our rolling out more digital acceptance or card acceptance in Europe and North America. We've seen growth in account payout from retail. We've seen great account payout from our digital business as well as the new partnerships in the Middle East. So don't remember the comment from last quarter, but there was not a dip last quarter. There has been a modest acceleration this quarter, but I would argue it's modest, and the new partnerships have driven that because they're a largely account payout or digitally funded relationship. Devin McGranahan: Nate, I think we believe that this is a secular change in customer behavior. And again, whether it's originated in a retail transaction or a digital transaction, the received customers are rapidly entering the banking or digital wallet infrastructure in their countries. And we've seen that, whether that's in the Philippines or Malaysia, now even to a certain extent in Mexico, where the receiver preference is to receive the money in a more digital form. We think that has implications over time for us in terms of our payout network and our ability to create efficiency and streamlining some of our retail payout network. And the shift also in payout costs will become margin beneficial to us as payout to account has a different economic profile than pay out to cash in many regions around the world. Operator: Our next question comes to us from Cris Kennedy from William Blair. Cristopher Kennedy: Can you just talk a little bit more about the 500,000 digital wallet users. What kind of engagement are you seeing or retention trends? Or anything you could talk about that? Devin McGranahan: Cris, we are on a journey, right? And so -- we launched our first digital wallet in the third quarter of 2022. And over the course of the last 3 years, we've iterated both the platform the value proposition and to a certain extent, the nature of the customers that we're acquiring. The customers that we're currently acquiring tend to be much more in the receive markets. And as I highlighted in the prepared comments in Argentina, Brazil, also in Romania and to a certain extent, even here in the U.S., people putting money into their wallets from inbound remittances and then using that either for everyday living expenses through our cards or through like in Brazil, the [ PICK ] system, is a growing trend for us. And so what I would say is our most engaged customers are those that are in our received markets and are using the product as an alternative to having received cash in one of our retail locations. Operator: Our next question comes to us from Jamie Friedman from Susquehanna. James Friedman: I wanted to ask about the ability to transfer some of the best practices you've had in Europe, the European orders really doing well for you. I think you alluded, Devin, to some similarities or differences between there and here, like you talked about the independent agent network. But to what extent are those -- are there like synergies between those markets? And how can you transfer the success that you're having there here? Devin McGranahan: Jamie, great question. Thank you. We'll actually spend a bunch of time at our Investor Day talking about this. But recall, our European go-to-market model really has 3 components to it. One is the nature and shape of the distribution. Two is our go-to-market strategy in terms of how we structure our sales teams and our support model for the agents. And then third, which we talked about on this call already, really is the strategic pricing capability where we manage and monitor on a daily basis, market prices in specific locations in order to present the best possible option while maintaining our discipline on margins. And so those 3 components in certain ways differ in the U.S. So part of the rationale for the Intermex acquisition was historically, in the U.S., we had a much larger base of the large strategic accounts, the Kroger's, the Publix, the Walmart and as Matt mentioned in the commentary, we've gone through a big renewal cycle with those. We think they're important, but you have less ability to influence what happens in those than you do in the independent agent channel. So adding Intermex into that mix significantly broadens the middle of that pyramid of distribution with a very strong independent agent, nonexclusive independent agent channel. The other part of the pyramid in Europe that we have is -- Matt will know this, but I think we're up to 300 or 400 company-owned stores across the European footprint. And the company-owned stores are 6 to 8x more productive than your average agent, and therefore, they play an important but small role in the strategy. Here in the U.S., we had 3 when we get done with the Intermex acquisition and some other work we're doing, we'll end up close to a couple of hundred. So that change is kind of in process to get the distribution right. The strategic pricing, we're in the process of putting in place. I said we're now kind of in 3 metro markets with an aspiration to roll that out over the course of the next 12 months. And then on our go-to-market model, as we do the integration with Intermex, we will restructure our sales force and our agent support model to align much more closely with our European approach and the historic Intermex approach here in the U.S. So again, I see that as in the second half of '26 getting fully implemented. Operator: Our next question comes to us from Kartik Mehta from Northcoast. Kartik Mehta: Devin, just to understand North America a little bit better, I think you said August was a lot worse than maybe July or the second half of September. Was that a result of icing competition or just the market was really slow? Devin McGranahan: From our view, it was a market view. We didn't see any different, what I would call, competitor behavior, but we certainly did see different consumer behavior and so again, we don't have complete transparency, but the Bank of Mexico data would also support some of that as well where June was probably the worst. July improved moderately significantly and then August reverted back to a double-digit decline. So I can't explain it. I can just tell you what we observed. Matthew Cagwin: And just to build on Devin's point there, just give you some external data. Bank of Mexico had a low point for the year of down 18%. July got down 13% down 17%, then down 12% and the improved from there. So it's bounced around as time has passed on a transaction basis. Operator: Our next question comes to us from Zachary Gunn from FT Partners. Zachary Gunn: I wanted to ask on consumer services and apologies if this is -- if I missed this, but what was the contribution from euro changes over I know you stated consumer services still grew double digit organically. And just with that in mind, I appreciate the comments on 4Q and some of the headwinds in consumer services. But how do we think about the sustainability of that growth kind of going forward? Matthew Cagwin: Zach, pleasure to meet you. I said in the prepared remarks that the Eurochange acquisition contributed roughly nearly half of the overall CS growth this quarter. So that's the simple answer to your first part of your question. And then to your second part about how sustainable is consumer services in the long run. We've now had 3, 4 years of 10% plus growth in that business, how we've gotten there has varied from year-to-year, but we've got lots of new products that we've launched that are starting to scale. . We've got some that are doing very well already, and there's new ideas we're working on. So we think there's a long runway to continue to grow consumer service for the foreseeable future, and we'll do a really good long deep dive on that in 2 weeks. Operator: Our final question will come to us from Gus Gala from Monness, Crespi, Hardt & Co. Please ask your question. Unknown Analyst: I wanted to ask about the [indiscernible]strategy to the U.S. from Europe. As we think about that, I mean, is your fleet in Europe a little bit more focused on smaller retail format versus a large retail format in U.S., and then just by thinking about how cities are set up in Europe versus the U.S. what are kind of some of the differences as changes that you're having in terms of trying to approach in retail? Devin McGranahan: Yes Gus. great question. So the European model is slightly different than the U.S. model, but there are analogies. So the European model does have a relatively significant independent agent network, of which Western Union has a pretty strong presence in, which is different in the U.S. where we've historically participated in the independent agent channel with our Vigo brand and less so with our Western Union brand. But there is a large and significant independent channel in the U.S. We've just had less presence in it than say a Ria or an Intermex, which was part of the opportunity with Intermex. The U.S. does have a large base of what I will call the strategic accounts for us, the Walgreens, the Kroger's, the Walmart's, that is not true in Europe. The analogy in Europe, though, is a fair number of relatively significant postal systems. And so like in the U.K., we have the U.K. post or in Spain, we have the Spanish post. We work with La Banque Postale in France. And so that big base of what I'll call relatively lower productivity, but omnipresent distribution is done with postal systems in Europe versus grocery or convenience retailers here in the U.S. So we see the biggest opportunity really to bring and import some more of that independent agent model and do it on a -- as I said, we're doing it on a city-by-city basis, just like in Europe, so we're now implementing it in 3 major metropolitan areas in the U.S. But the reason it's going to take some time is you got to do it across 50 or 60 when in any European country, you do it across 3 or 4, and you've covered the majority of it. So we see upside. We see potential. We like the Intermex acquisition. As an ability to accelerate it, but we think the model is right, whether it is in Europe or here in the U.S. Thanks, everybody. Operator: Thank you for joining the Western Union Third Quarter 2025 Results Conference Call. We hope you have a great day.
Operator: Good afternoon. Thank you for joining us, and welcome to BeFra's Third Quarter 2025 Earnings Conference Call. Before we begin, the company would like to remind participants that this call may contain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Please consider these statements alongside the cautionary language and safe harbor statement in today's earnings release as well as the risk factors outlined in BeFra's SEC filings. BeFra undertakes no obligation to update any forward-looking statements. A reconciliation of and other information regarding non-GAAP financial measures discussed on the call can also be found in the earnings release as well as the Investors section of the company's website. Present on today's call are BeFra's President and Chief Executive Officer, Andres Campos; and Chief Financial Officer, Rodrigo Muñoz. I would now like to turn the call over to BeFra's President and CEO, Andres Campos. Andres Chevallier: Thank you, operator, and good afternoon, everyone. I am pleased to share our results for the third quarter of 2025, a quarter that once again demonstrates the strength, resilience and agility of our business model. Before we begin our review, I would like to note that we are conducting today's webcast with a slide presentation to help better convey the relevant information that we want to share with you in our quarterly results conferences. Turning to Slide 4. Let me begin by sharing some overall highlights for the quarter. Despite a softer consumer environment in Mexico and the U.S., we delivered another quarter of growth, solid profitability and strong cash generation. Our operations continue to be executed with discipline, focus and passion while driving efficiency and reinforcing the foundations of our long-term strategy. During the quarter, revenue grew 1.4% year-over-year and EBITDA grew 22%, with the margin expanding 362 basis points to 21.4% EBITDA. Our free cash flow conversion remained strong at 77% of EBITDA, reflecting our continued financial discipline and healthy balance sheet. These results were driven by strong execution across the group. Betterware Mexico maintained solid profitability. Jafra Mexico continued to lead growth. Jafra U.S. delivered sequential improvement and our start-up operations in Ecuador and Guatemala exceeded expectations. It is important to highlight that we have continued to decrease inventories, freeing up space for future innovation, and our net leverage ratio decreased sequentially from 1.97x to 1.8x. All of this confirms that our strategy is on the right track. We have built a strong and diverse business group, one that is not only positioned to capture long-term opportunities, but also resilient in the face of short-term challenges. To talk about our results and progress on Slide 5, I am very excited to share with you what we have defined as BeFra's five strategic pillars, which will guide our growth and transformation over the next years. As you know, in the past four years, we have transformed the BeFra Group from being one single company in one country to becoming a diverse group of companies with multiple brands and categories and a diverse geographic footprint. Accordingly, these five pillars represent the next stage of BeFra's evolution through which we will capitalize on opportunities that lay ahead of us. For today's call and future ones, we will discuss our results in this context to explain the progress that we are making across these pillars. On Slide 6, the first pillar is strengthening our leadership in the Mexican market. It is important to remember that both Betterware and Jafra hold around 4% market share in each of the home solutions and beauty markets, which means there is still substantial room for growth. Turning to Slide 7. Third quarter 2025 sales at Betterware decreased 5.3% year-over-year as Mexico's softer demand has had a more significant impact on discretionary items in particular. That said, we remain focused on fine-tuning our internal strategies to mitigate these effects and to get Betterware back on track to consistent growth. Our focus this quarter was on optimizing pricing, reducing inventories, which fell 17% versus last year's quarter and refreshing our catalog merchandising techniques. These actions are strengthening the commercial fundamentals and set the stage for future volume recovery. On Slide 8, we showcased some of Betterware's most relevant innovations during the third quarter 2025. Innovation remains an important driver for our success, and this slide provides just a few examples. This quarter, we continued to advance product innovation across all of our major categories, ensuring our portfolio remains at the forefront of evolving customer needs, including stellar new innovations such as the limited edition Barbie Katrina we launched during the quarter with Mattel, which sold out in just two weeks. On Slide 9, Behind Betterware's revenue and profitability strength, we'd also like to point out three actions implemented during the quarter that showcase our continuous advancements. First, we reconfigured our catalog, decreasing our total SKU count to 370, including decreasing the products in our promotional portfolio. This move seeks to make our SKUs more productive and our products more visible with direct improvements in revenue, margins and inventory management. Second, Betterware has launched a new VIP program for its associates, which segments them according to their performance level. The new program better motivates associates by rewarding top sellers with more benefits. Finally, we launched an idea section in our proprietary Betterware Plus app, which all associates and distributors can now use to send us product ideas or reviews. We expect this new feature to have a significant impact on ongoing innovation at Betterware. Turning to Slide 10. The Jafra Mexico business continues to be one of our key growth engines. Revenue increased 8% year-over-year and EBITDA grew 31%, reaching a margin of 24%. Although we expect a run rate margin of 20% to 21%, this reflects our ability to strengthen profitability while driving growth. Our consultant base expanded 2% quarter-over-quarter, while the average order increased by roughly 10%. We continue to show how our business model proves highly effective when applied to new brands and product categories. Almost four years since its acquisition, Jafra is set to close the year with almost 50% higher revenues than the year before we had acquired it, which is particularly relevant when compared to its almost 15 previous years without growth. Turning to Slide 11. We highlight several of Jafra's most relevant product innovations for the third quarter. We launched our first collaboration with Disney, the Evil Queen's flash collection, which delivered outstanding consumer engagement and strong sales performance. We also continued to expand our successful new BioLab dermo-cosmetic brand with the introduction of our first dark spot removing product line, which performed exceptionally well from the outset. In additional, we completed the revamp of our Royal Body line, featuring updated packaging and a refreshed brand image, resulting in a more than 50% increase in volume compared to prior versions. Importantly, by year-end, we expect to have revamped approximately 80% of Jafra's portfolio under the new brand image with full completion anticipated by the first half of 2026. Finally, on Slide 12, we would like to highlight two relevant operational advancements for Jafra, mainly the success of the new printed Purple guide for Mexico, which explains Jafra's incentive program in a much simpler way than it used to. Jafra also adopted Betterware's outbound messaging system to associates, which we use to remind them of specific actions they can take to win more customers and orders according to their individual context. We continue to make other advancements to Jafra's model to make it more modern and effective. Please see Slide 13. Our second pillar is regional expansion, which we are executing by having BeFra's successful business model replicated across the U.S. and Latin American markets. On the following slide, starting with the U.S., Jafra achieved a quarter of stability versus last year. After a couple of quarters of decline, we see the trajectory of Jafra U.S. continues to improve each quarter. While the third quarter usually has a seasonal decline in revenue versus second quarter, this year, it remains stable, demonstrating the strength of the trajectory. It is important to highlight that in September, the business recorded its strongest month in the last three years, including 30% year-over-year growth in revenue. With regard to profitability, Jafra U.S.' losses reflect extraordinary legal expenses related to cases and issues that had begun before we acquired the company. Without those expenses, the company operates at a breakeven point and is getting close to generating profits. On Slide 15, as we've mentioned before, we have implemented three main measures to achieve Jafra's U.S.'s positive trajectory. First, the adoption of Shopify Plus platform, which is now complete and an important source of growth for all associates and distributors. In addition, we implemented a profound change in Jafra U.S.' incentive program, now called the Purple Guide, which we launched in May and which has started to kick in with good results. Finally, on Slide 16, we redesigned the product catalog to make it more attractive and yield higher sales conversion rates. On the next slide, you will note that since its launch in May, Betterware Ecuador has exceeded expectations, reaching almost 6,000 active associates, 380 distributors and revenue growing around 20% month-over-month. In Betterware Guatemala, sales grew 32% year-over-year, following the appointment of a new management team that has been in place since September of last year. Encouraged by the promising results in both countries, we are moving forward with plans to launch Betterware in Colombia in the beginning of 2026 with the aim of strengthening our presence across Latin America. We thought it'd be important to clarify the opportunity that Latin America represents for BeFra. On Slide 18, you'll note that the Andean and Central American direct selling markets are an estimated $4.5 billion in total size, which is almost as big as Mexico's market. We are confident that our scalable business model and proven playbook will enable us to replicate our success in these markets, representing another significant lever of growth for the group in the years to come. Now I'd like to jump into our third pillar, new brands and categories. While we will not showcase any specific progress in this quarter, I would like to mention that this pillar will be a major avenue for growth going forward. We are actively looking for potential acquisitions of new brands that can strengthen BeFra's position in our markets and enable us to expand into new product categories. With the huge success of Jafra's acquisition, which has demonstrated our ability to positively impact acquired brands, we are ready for possible new ones in the future. Within this same pillar, we are also assessing new categories that could fall under the Betterware and Jafra brand umbrellas. This includes analyzing opportunities that would strategically broaden our brand portfolio in the coming quarters. Moving to Slide 20, our fourth pillar, activating digital person-to-person selling, I am very pleased to announce that last month, we formed a new digital transformation team, which will help us adapt more quickly to emerging consumer trends and digital capabilities. Led by LatAm digital commerce expert, Maria Fernanda Hill, who reports directly to me, the digital transformation team will be crucial in adopting new technologies such as generative AI and agentic AI to further boost our successful person-to-person model. More to come on this front in the quarters ahead. Lastly, on the following slide, our fifth and final pillar, which is one that underpins everything we do, financial strength, discipline and control. This has been a hallmark of our company throughout the years. It enables us to grow without compromising company health and has also made us resilient in challenging times. We continue to operate with tight cost management, efficient working capital and healthy leverage ratios. Financial discipline isn't just part of our strategy. It's part of our DNA. With that strategic overview, I'll now turn the call over to Rodrigo, our CFO, who will walk you through the consolidated financial results for the quarter. Rodrigo Gomez: Thank you, Andres, and good afternoon, everyone. For starters, all figures I'll be referring to are in Mexican pesos, and all comparisons are year-over-year unless otherwise stated. Additional details are available in our earnings release published earlier in our Investor Relations website. Starting on Slide 22, in terms of net revenue, we saw growth of 1.4% year-over-year, which means that despite softer consumer trends, our business model and strategies remain strong and efficient. For EBITDA, we had a great Q3, which saw an increase of over 22% versus last year's Q3. While year-to-date EBITDA is still below last year's level due to a difficult first quarter in '25, we are recovering strongly and expect to achieve 1% to 5% growth over the year. On the next slide, it is also important to highlight that while maintaining a strong focus on profitability and continuous improvement across both Betterware and Jafra, we have continued to invest in our international expansion strategy. Thanks to the solid performance and financial strength of our home market in Mexico, we are in a good position to fund these investments. As Andres mentioned earlier, our international strategy represents a significant growth opportunity for the future and a key pillar in BeFra's long-term vision. Turning to Slide 24. Our adjusted net income increased 71% versus third quarter 2024. This was mainly due to higher operating profit, but there was also a positive impact from lower net interest expenses resulting from lower interest rates in Mexico as well as lower provisional income tax for the quarter. Our income was negatively impacted by FX effects due to the fact that FX this year is recognized in our gross margin under new hedge accounting guidelines. While last year, we had positive financial effects from our hedge positions, which used to be recognized under the EBITDA. On Slide 25, you'll note that our free cash flow increased 32.6% year-over-year and is expected to reach an annual rate of 60% free cash flow to EBITDA by the end of the year. We also remain consistent in our commitment to generating value for our shareholders through dividends. And the Board proposed a MXN 200 million dividend that was approved at our General Stockholders' Meeting held on October 21. This represents our 23rd consecutive quarter of paying dividends since we became public in 2020. I'd like to highlight that the 2021 and 2022 dividends were positively impacted by the pandemic demand surge in relation to Betterware, and 2023 was negatively impacted following the post-pandemic decline as well as the 2022 Jafra acquisition. As you can see in the last two years, the 2024 and 2025 dividends have resumed, representing between 30% to 40% of EBITDA. On the following slide, you will see our total debt and our net debt-to-EBITDA ratio demonstrates our ability to manage debt for growth initiatives. It is important to highlight that BeFra normally operates without debt as was the case before we invested in the new campus and in the Jafra acquisition. Since our debt peaked in beginning of 2022, we have reduced total debt from MXN 6,700 million to MXN 5,200 million at the end of third quarter 2025. During the same period, the net debt-to-EBITDA ratio fell from 3.1x to 1.8x. We expect to continue to drive down debt as quarters progress, including an estimate to close the year at around 1.6x. I will now pass the word back to Andres for final comments. I will now pass the word back to Andres for final comments. Andres Chevallier: Thank you, Rodrigo. Before we open the line for questions, let me conclude with a few remarks on Slide 27. While the external environment, particularly in Mexico and the U.S. remains challenging, our results this quarter confirm the resilience and viability of BeFra's business model. We are growing profitably, generating cash, expanding our footprint in the U.S. and Latin America and strengthening our brands. We are executing our strategy with discipline and focus and the momentum we're building gives us great confidence as we prepare to close 2025 and enter 2026. BeFra today stands as a stronger, more diverse and well-positioned group with great brands, committed teams and a clear road map for long-term growth. I will now pass the call to our operator regarding any questions you may have. Thank you. Operator: [Operator Instructions] Our first question is from Eric Beder with SCC Research. Eric Beder: I want to talk about inventory. You've reduced the inventory by almost, I believe, about 8% year-over-year and the revenue went up, which is a great combination even despite the fact that tariffs probably raised some of the cost of goods sold there. How should we be thinking about the potential inventory targets going forward? And will that provide extra free cash flow here to help drive expansion and paying down more debt? Andres Chevallier: Yes. Thank you, Eric. So, I will pass that question to Rodrigo so that he can give you our projection for year-end on inventory, how it looks like. Rodrigo Gomez: Eric, nice to hear from you. Remember that in Q3 last year, we were up in inventories in Betterware, and we are aiming through the year to get it down. We do believe that expectation to close 2025 will be around MXN 2,100 million to MXN 2,200 in inventory from the MXN 2,500 that we initiated the year. So that would be the aim and the future for inventories in the company. Andres Chevallier: And just to clarify the exact number, it's MXN 2,100 million where we aim to finish. Eric Beder: Okay. Well, that would be impressive. When you look at the better catalog, I guess there's two things here. One is, how are you taking advantage of the stronger peso in terms of ordering and being able to maximize margins? Obviously, you've already done part of that. And what should we be thinking about is a more -- what we see now kind of the focus on returns, lower inventories kind of what we're going to see going forward? How should we be thinking about the ability to drive potentially top line growth from the Betterware catalog? Andres Chevallier: Thank you, Eric. That is a very good question. As you say, we are benefiting now from a strong peso at around MXN 18.50 to MXN 19 per dollar. And then at the same time also, the freight costs have come down again near the lowest levels that we have seen. So this is coming together to benefit Betterware Mexico. And we are -- obviously, our first line of attack is to pass these benefits on to the consumer to drive more demand. Obviously, all while protecting the profitability that we aim for. But it obviously allows us to be a bit more aggressive with consumer prices. At these moments where consumption is sluggish in Mexico to have this benefit is very good, so we can be more aggressive in prices. Eric Beder: And you mentioned -- I guess one more question about Jafra. So you've talked about moving the business into new areas where the consumer is continually buying them, skin care, you mentioned dark spot remover, and that takes time. And it also has taken some of the changes you've done there. Where kind of are we in that kind of movement there in terms of that? And in terms of expansion, is there a preference to do it as direct ownership, joint venture? How should we be thinking about the new expansion like Colombia and the other potential countries in South America as how you want to structure that? Andres Chevallier: Yes. Thank you, Eric. So, on your first question from the Jafra side, still fragrances for Jafra Mexico, fragrances is still the main category. But in the last year and the years to come, the other categories will -- we expect the other categories to start growing at a faster pace than fragrances and start building on that mix of the revenue. Now on the second question about expansion, we are doing the expansion directly ourselves, 100% owned by us. And we are hiring management, professional management on site that has experience in the country or the region that lives in the region, and we're bringing them on board to manage the expansion to those regions. But it's by the moment, for the foreseeable future, 100% owned by us. Operator: [Operator Instructions] Our next question is from Cristina Fernández with Telsey Advisory Group. Cristina Fernandez: A couple of questions. I wanted to see if you can talk more about what you're seeing with the Mexican consumer in your categories. It's been a pretty volatile year with a soft first quarter, but then the second quarter, it seemed like the consumer was spending more and now back track. So I guess, what do you think is driving that? And how much outperformance you're seeing in your businesses versus the overall market? Andres Chevallier: Yes. Thank you, Cristina. Andres here. So, yes, I mean, the Mexican consumer has been pretty sluggish, I would say. We're seeing consumption growth lessen, and we're seeing consumption trends to come down. As you said exactly now, we saw a pretty rough first quarter, then it picked up again in the second. And then by the end of August, beginning of September, it came down again. So very volatile, what we're seeing with the Mexican consumer, and it's obviously not easy to operate in these conditions. We believe that this may be temporary as the Mexican economy as a whole, we think stands strong. But obviously, these are very uncertain moments, and we try to operate in these moments with, I would say, two things in mind. One is maintain strong profitability and cash flow. When we attack difficult times, we try to make sure that our cash flow and profitability is very well positioned and that we remain as a healthy company. And the second one, obviously, is keep attacking growth and keep trying to gain market share even in these tough times. So this will be how we will maintain our mindset in the coming months and quarters. Cristina Fernandez: And then another question I had was on the profitability, the pretty strong EBITDA margin we saw this quarter. You mentioned a couple of factors like FX and lower transportation costs that might be sustainable and continue to see those benefits going forward. But I guess, how should we think about this level? I mean, is this a level you want to stay or you want to reinvest back in the business to drive growth? And were there any onetime benefits that skewed this quarter higher? Andres Chevallier: Yes. So no, there's no relevant like onetime benefits. Nevertheless, we obviously saw a pretty strong gross margin, especially in Jafra. Mexico, we saw pretty like a 76% plus gross margin in Jafra Mexico, which is not the normal margin we have in Jafra Mexico. The normal gross margin we shoot for is like 74.5% to 75%. So we did have a little bit of a high margin in Jafra Mexico, which we do not expect to sustain, but reinvest that to continue driving Jafra's growth. So more or less, that's where I would say, our mindset would be at. Cristina Fernandez: And then the last question I had was on the -- on the technology transformation that you call out, as you look across the businesses, where do you see the most opportunity to embed greater technology or make it more efficient as you look out over the next couple of years? Andres Chevallier: Yes. It's a very good question. As you know, we have been investing in technology and in technology advancement for quite a while. It's one of our pillars of growth. And today, we are at a, I would say, a pretty good spot with our own proprietary app and the new Shopify Plus platform that we launched in all of our businesses and all of that. But technology continues going. So we see going forward with the whole surge of generative AI, agentic AI, there will be a lot of transformation that we can use. And we want to be at the forefront of these technological advancements. So this department, one of the things that's going to be working at is our evolution within AI. We're also looking at the fact that person-to-person selling is also evolving towards a more and more digital landscape where you see platforms such as social selling starting to explode, live shopping starting to explode in the U.S. with TikTok Shop or with other. So all these spaces, we need to move very fast and be at the forefront of all these technological advancements. So those are some of the ones I would mention. And it's become so relevant and so important that that's why we decided to make a specific department of this and bring a specialist to help us drive everything we do with the commercial technologies in order to evolve our channel. Operator: With no further questions, I would like to turn the conference back over to Andres for closing remarks. Andres Chevallier: Thank you, operator, and thank you, everyone, once again for your trust and continued support. We look forward to updating you on the next quarter. Thank you. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Welcome to the FirstService Corporation Third Quarter Investors' Conference Call. [Operator Instructions] Today's call is being recorded. Legal counsel requires us to advise that the discussion scheduled to take place today may contain forward-looking statements that involve known and unknown risks and uncertainties. Actual results may be materially different from any future results, performance or achievements contemplated in the forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the company's annual information form as filed with the Canadian Securities Administrators and in the company's annual report on Form 40-F as filed with the U.S. Securities and Exchange Commission. As a reminder, today's call is being recorded. Today is October 23, 2025. I would like to turn the call over to Chief Executive Officer, Mr. Scott Patterson. Please go ahead, sir. D. Patterson: Thank you, Didi. Good morning, everyone, and welcome to our third quarter conference call. Thank you for joining us. I'm on with our CFO, Jeremy Rakusin. And together, we will walk you through the results we reported this morning. I'll begin with an overview and some segment-by-segment comments. Jeremy will follow with additional detail. Total revenues were up 4% versus the prior year, driven by tuck-under acquisitions completed over the last 12 months. Organic growth was flat overall, as gains at FirstService Residential and Century Fire were offset by organic declines in our restoration and roofing platforms. EBITDA for the quarter was up 3% to $165 million, reflecting a consolidated margin of 11.4%, generally in line with the prior year on a consolidated basis. Finally, our earnings per share were up 8% to $1.76. Looking at divisional results. FirstService Residential revenues were up 8% with organic growth at 5%, in line with expectation. Solid net contract wins versus losses have led to an improvement in organic growth sequentially. We expect similar growth for Q4 in the mid-single-digit range. Moving on to FirstService Brands. Revenues for the quarter were up 1% in aggregate, with growth from tuck-under acquisitions largely offset by organic declines of 4%. Revenues for our two restoration brands, Paul Davis and First Onsite, were up sequentially relative to Q2, but down versus the prior year by 7%. I mentioned last quarter that we were pleased with the level of activity, both day-to-day at the branch level and in terms of our wallet share gains with national accounts. That continued into Q3. Industry-wide claim activity and weather-related damage was very modest across North America and generally down in every region, but we still generated higher revenue sequentially than the first 2 quarters of this year. We believe we're capturing market share gains during this prolonged period of mild weather. We were down from the prior year, as we were up against a very strong quarter, particularly in Canada, that benefited from significant flood and wildfire restoration work. As well, storm-related revenues in the U.S. were minimal this quarter compared to Q3 of 2024, when we generated about $10 million of revenue from named storms, primarily Hurricane Ian. Looking to Q4, absent widespread inclement weather or named storms over the next few months, we expect to be down from the prior year quarter by about 20%. We generated $60 million of revenue from Hurricanes Helene and Milton in Q4 of last year. On average, since 2019, our revenues from named storms has exceeded 10% of total restoration revenues. Based on our visibility today, we anticipate this year's revenues from named storms to land at less than 2%, a big drop that impacts Q4 in particular. Apart from cat storm events, which we all believe will, on average, increase in frequency, we continue to grow and improve our platform and believe we're in an excellent position to capitalize on the long-term opportunity in restoration. Moving to our Roofing segment. Revenues for the quarter were up mid-single digit, driven by acquisitions. Organically, revenues declined 8%, an improvement over Q2, but below expectations. We simply did not convert backlog into revenue at the rate that we anticipated. We continue to see the deferral of large commercial projects and a general reduction in new construction. Our 3 largest operations all benefited last year from several large industrial roof projects that have not been replaced this year. Most of our year-over-year decline relates to these specific operations. Bid activity remains solid, but award activity has been delayed. We're confident that our market position and relationships remain strong. The uncertainty in the macro environment is definitely impacting new commercial construction and causing delays in reroof and maintenance decisions. We continue to believe that the demand drivers in roofing and generally in commercial building maintenance are compelling, and we remain focused on investing in this segment. As evidence of that, we were pleased during the quarter to announce the acquisitions of Springer-Peterson Roofing in Lakeland, Florida and A-1 All American Roofing in San Diego, California. These operations extend our presence and capability in two key markets. The Springer-Peterson and A-1 teams will continue to operate the businesses, and we're excited to have them on board with us. They jumped right in, collaborating and creating value with our existing operations in the regions. Looking ahead to Q4, we expect total roofing revenues to be up modestly from prior year, again due to acquisitions. Organically, we expect continued weakness, with revenues down 10% or more in the seasonally weaker quarter. Moving on to Century Fire. We had another strong quarter, with revenues up over 10% versus the prior year. Growth continues to be broad-based across the branch network and again, is supported by robust repair, service and inspection revenues. Our backlog remains strong at Century, and we expect similar double-digit year-over-year growth for Q4. Now on to our home service brands, which as a group generated revenues that were flat with year ago, right on expectation, and a result we're proud of in the current environment with weak existing home sales and broad economic uncertainty. Consumer sentiment remains depressed and is down from Q2. Our lead flow reflects this trend. Our teams have held revenue steady by driving a higher close ratio this year, combined with a higher average job size. They are executing extremely well in a challenging environment. Looking forward, we expect a similar result in Q4, with revenues roughly matching the prior year quarter. Let me now hand it over to Jeremy. Jeremy Rakusin: Thank you, Scott. Good morning, everyone. Leading off with a recap of our consolidated third quarter financial results, we recorded revenues of $1.45 billion, up 4%, and adjusted EBITDA of $165 million, a 3% increase relative to the prior year period. Our consolidated EBITDA margin for the quarter was 11.4%, down slightly from last year's 11.5% level. Adjusted EPS during Q3 was $1.76, resulting growth of 8% quarter-over-quarter. The growth on the bottom line exceeded our EBITDA performance as we saw the benefit of reduced interest rates on lower outstanding debt compared to prior year. I'll provide more details on our balance sheet in a few moments. For the 9 months year-to-date, our consolidated financial performance includes revenues of $4.1 billion, up 7% over the $3.85 billion in the prior year; adjusted EBITDA at $425 million, a 13% increase year-over-year, with our overall EBITDA margin at 10.3%, up 50 basis points versus a 9.8% margin for the prior year period. And lastly, our adjusted EPS year-to-date is $4.39, reflecting 20% growth over the $3.66 reported for the same period last year. Our adjustments to operating earnings and GAAP EPS in providing adjusted EBITDA and adjusted EPS, respectively, are disclosed in this morning's press release and are consistent with approach in prior periods. I'll now walk through the third quarter performance within our two divisions. At FirstService Residential, we generated revenues of $605 million, resulting in 8% growth over the prior year period. EBITDA was $66.4 million, a 13% increase over the third quarter of last year. Our current quarter EBITDA margin came in at 11%, up 50 basis points over the 10.5% in Q3 '24, extending the year-to-date margin improvement we have realized through ongoing operating efficiencies and streamlining efforts across our property management platform. Our teams have done a terrific job of execution, driving to a year-to-date margin expansion of 60 basis points. For the upcoming fourth quarter, we expect some tapering of these favorable impacts, leading to margins roughly in line to slightly up versus prior year. Shifting over to our FirstService Brands division. We generated revenues of $842 million during the current third quarter, up 1% versus the prior year period. EBITDA for the division was $102.1 million, down from the $105.8 million last Q3. Our margin of 12.1% compressed 50 basis points compared to the 12.6% margin in last year's third quarter. The lower margin was attributable to negative operating leverage resulting from tempered activity levels and declines in organic top line growth at our restoration brands and roofing operations. Our Home Improvement and Century Fire Protection brands continue to deliver healthy margins, roughly in line with prior year. Reviewing our cash flow profile, we generated more than $125 million in cash flow from operations during the third quarter, driving to a total of $330 million year-to-date, a significant year-over-year increase of roughly 65% compared to prior year period's. Capital expenditures during the quarter totaled $34 million, and spending year-to-date sits at a little under $100 million. We expect to be in line with our annual target of $125 million in CapEx for 2025. Acquisition investment during the quarter was approximately $45 million, largely encompassing the roofing tuck-under acquisitions that Scott noted. Our balance sheet at quarter end included net debt of $985 million, resulting in leverage at 1.7x net debt to trailing 12 months EBITDA. Maintaining a strong balance sheet has always been a cornerstone of FirstService's operating philosophy and has been aided by the ability of our businesses to collectively generate strong and relatively consistent free cash flows in any type of environment. This has played out once again over the past almost 2 years since our Roofing Corp of America platform investment at the end of 2023, with the steady quarterly deleveraging bringing us now back in line with our long-term historical trend. We also have more than $900 million of total cash and credit facility capacity, providing us with ample financial flexibility and liquidity. In terms of outlook, to close out 2025, Scott has provided top line indicators by brand, which will aggregate to revenues roughly in line with prior year for our upcoming fourth quarter. This will culminate in mid-single-digit growth in consolidated annual revenues for the full year. We expect that our 2025 consolidated annual EBITDA growth will be in the high single digits, approaching 10% compared to prior year. During our February year-end earnings call, we will provide indicators on our outlook for 2026. And that now concludes our prepared comments. Didi, can you please open up the call to questions? Operator: [Operator Instructions] And our first question comes from Daryl Young with Stifel. Daryl Young: I just wanted to touch on the divergence in the performance between Century Fire and the roofing business. And I would have expected that both of those would have had similar end markets, and so it's just a bit interesting to see the performance delta between the two. Is there a specific end market versus industrial versus data center or something like that, that is maybe driving the difference between the two divisions? D. Patterson: Daryl, there's a few things. I'll start with the fact that Century, close to 50% of the business is service repair and inspection, more recurring in nature. And then you've heard from us over the last couple of years that Century has been very successful in driving consistent growth in this aspect of the business. Century does have a piece of its business, again, close to half, it's tied to new construction. It's been more resilient than our Roofing Corp of America platform, in part based on the verticals that it focuses on, as you alluded to in your question. Century has benefited from the growth in data centers. And also, they have a strong multifamily business that has been -- remained solid through the year. Their strong results are hiding the fact, though, that a number of jobs continue to be delayed, deferred at Century, similar to what we're seeing in our roofing platform. Work is not being released at the same rate as the prior year, although bid activity remains strong. Hopefully, that answers your question. Daryl Young: Yes. That's good color. One more for me, just on margins. The margins in the Brands division were actually, I would say, fairly healthy in the context of the weak restoration and roofing results. So just wondering if you can give me a little bit of color on where the strength is coming from in margins in that platform? Jeremy Rakusin: Yes. Thanks, Daryl. I'll take that. I touched on it, home improvement, a lot of initiatives over the last year or 2, 1.5 years and in a tough environment for the top line have really produced superlative profitability. Century Fire, we have top and bottom line, a terrific performance throughout. We've made great strides in restoration over the last couple of years. And even in periods of mild weather patterns like we're experiencing, just the focus on the brand, the platform, the client relationships, the national accounts that Scott touched on, a lot of efforts around that. And then there has been some streamlining and headcount reductions in appropriate places as we've centralized a lot of functions. So just terrific execution there, and notwithstanding the mild weather patterns that we've seen year-to-date. Operator: And our next question comes from Stephen MacLeod of BMO Capital Markets. Stephen MacLeod: Just a couple of questions I wanted to follow up on. Maybe the first one is kind of in line with what you were just -- or dovetails with what you were just talking about, Jeremy, just on the restoration side. You talked about having gained some share in the market despite the weak backdrop. And I'm just curious if you can point to kind of where that's coming from? D. Patterson: I think it's a lot of the things that Jeremy just referred to. It's the hard work our teams are doing in positioning with national accounts, solidifying the account base. We have evidence that we are gaining wallet share with a number of our larger accounts, and we're signing new national accounts. It feels healthier across the board. We just have more activity across the branch network. We're not relying on any one event or one region to drive results. And I think it sets us up well to continue gaining momentum in mild weather conditions, but also to really benefit during more significant weather conditions. Stephen MacLeod: Right. Okay. That's helpful, Scott. And then maybe just on the margins and looking at the FirstService Residential business, you guided to sort of flattish margins year-over-year for Q4. And I'm just wondering if some of the streamlining that you've seen that's led to the improvements in recent quarters, is that kind of coming to an end? Or is that more reflective of the seasonal Q4 weakness? And I guess, would you expect those kind of benefits to continue into 2026? Jeremy Rakusin: Stephen, I'll take that one. 2026, we'll go through budgets with the businesses, so I'll defer on that point. But in terms of the outlook for Q4, I think we've known all along that the performance should taper. We've been working on these initiatives or the teams have at FirstService Residential for the better part of a year or more. And we saw it carry through. We've had significant margin improvement. There's also some moving parts in the quarterly fluctuations. And so what we're seeing in Q4 between the mix of higher-margin ancillaries, the timing in terms of hiring teams in face of contract wins, when we're going for contract renewals and getting pricing, there's a whole bunch of moving parts in this large enterprise. So it's just what we're seeing, but we're always working on initiatives. And again, I think we'll have more to speak about in terms of margin outlook for '26 on the February call. Stephen MacLeod: Okay. That's helpful. Thanks, Jeremy. And then maybe just one more, if I could. Just maybe more higher level when you think about restoration and roofing, where we're seeing some of the near-term temporary macro headwinds. Do you believe this is just, particularly in roofing, just a delay of work that people are -- your customers are putting off? And I just want to confirm, is that more of a delay that you expect to get back over time? D. Patterson: We certainly expect to get back, but we need some -- we need macroeconomic stability to see improvement in commercial construction and to give buyers more comfort and confidence to release work. It's -- we're in an uncertain environment, and it's definitely impacting roofing. And of course, in restoration, we need some weather. And I said in my prepared comments that this is the lightest year that we've seen since we took the big step with our acquisition of First Onsite in 2019. And -- so we expect both to improve. When we made these decisions, originally, our focus was and remains on the long-term opportunity in both these spaces. There is more fluctuation quarter-to-quarter and year-to-year. But on the flip side, there are more tailwinds and opportunity as well. So we remain focused on the long term in these businesses. We believe that there's a huge opportunity in both of them. And we've got the right teams and the right platforms to capitalize on them. Operator: And our next question comes from Stephen Sheldon of William Blair. Stephen Sheldon: Maybe just starting on the M&A front. Can you talk some about the level of competition you're seeing for tuck-under deals? And is it generally getting tougher to deploy capital towards M&A at attractive valuations in this environment? So yes, just be helpful to get any color on what you're seeing there in terms of competition across the different segments, if you could. D. Patterson: Yes, Stephen, I think it's definitely competitive. Multiples remain high, particularly in fire protection and residential property management. They've been at elevated levels for a few years now. Very competitive environment. Multiples are trending higher in roofing. I've indicated previously that there are literally dozens of private equity-owned roofing platforms that are competing for acquisitions. So similarly, very competitive in that space. The one thing I would add is that activity has actually slowed in roofing this -- in the last couple of quarters, slowed considerably due to the uncertain environment and the fact that most roofing companies are experiencing exactly what we are and are down year-over-year. So there's a number of processes that have been pulled this year or deferred until results improve. But those are all private equity-owned, generally. And they'll be back to market. But to answer your original question, it is very competitive. I don't know if it's increasingly competitive. But as always, we've got to make smart decisions and pick our spots. And we've been in that place the last few years. And we have opportunities in the pipeline, and we'll deploy capital every year. We'll find a way. Stephen Sheldon: Got it. That's helpful. And then just maybe to dig in a little bit more on the slowdown in roofing awards. I guess you kind of answered earlier, it seems like it's kind of macro factors. I guess, any more detail you can give on some of the bigger factors weighing down roofing projects moving forward even with the strong bid activity? And this is not -- this would be a tough question to answer, but just how long do you think it could take for decisions there to be made and activity to move forward, especially on the reroofing side? I mean, I get new construction permitting starts are down. But on the reroofing side, it seems like -- how long could this kind of be a pause in activity? D. Patterson: Yes. I mean, I don't know the answer to that. Certainly going to carry through Q4. I do think we need macroeconomic stability. Some of these reroof projects can be patched and sort of prepared and kicked down the road for a time. So it's -- I would say it's uncertain right now. For us, I mean, the good news is that we have 24 branches, and most of them are performing at approximately year-ago levels or even better. We do have these 3 large branches that last year, were benefiting from significant large new construction and reroof work. And some of these jobs are $10 million to $15 million. So if they're not replaced, it can skew a quarter. But generally, backlogs in roofing are stable. They are weighted towards reroof. As a reminder, we're generally 1/3 new construction, 2/3 reroof and repair and service. Our backlogs are weighted at that even more heavily towards reroof. And so it's going to take some time. We just don't know. But again, I'll just repeat, the long-term demand prospects are excellent. Our thesis has not changed. The aging building stock, increased frequency of weather events, increased legislation around building codes and other drivers. The other thing I would add is that last year in Q4, our Florida operations were benefiting from weather, and we're not seeing that this year. And so that's 1 of the 3 operations that are down. And that is -- they're missing a few of their large roof projects, but it's also being impacted by weather. So weather would certainly help in a few areas for us. Operator: And our next question comes from Himanshu Gupta of Scotiabank. Himanshu Gupta: So just a follow-up on the roofing weakness here. Is there any commercial asset class, specific commercial asset class or geography which is where you're seeing most of the contract deferrals and weakness? I think you did mention Florida, but any other region or within... D. Patterson: One of our larger branches is in Las Vegas, and that market is very soft. And we see that, Himanshu, in all of our other brands. We're weak in Vegas, really across every business that we operate. So that's -- each of these branches has a little bit of a different story. In terms of the asset classes -- I think I can only really speak to new construction, and it's down everywhere except for data centers, and that's not a vertical where we have participated historically in our roofing platform. Himanshu Gupta: Got it. And I mean, assuming that the new construction cycle is further delayed, like without the help of new construction cycle, how much organic growth can you deliver, assuming the strength in reroofing business comes back? D. Patterson: Organic growth in roofing? Himanshu Gupta: That's right, yes. D. Patterson: Well, we've been down every quarter this year, in part because we were surging in a few areas last year. But we'll reset here and get -- and we'll start growing. We'll get to a point. Our branches are strong. The leadership at our branches are strong. It's -- this is market-driven. We're in a good position, and we'll start to see the growth come back. I just can't tell you -- I can't give you dates in time. We need more clarity in the marketplace. Himanshu Gupta: Got it. And is Roofing still a segment where you want to grow from an M&A point of view? Or would you wait for this weakness to pass and then get more active on the M&A side? D. Patterson: We're definitely interested. I mean, our thesis really hasn't changed at all. We're very pleased with the transactions we did last quarter. We continue to look -- we have priorities. We're focused on white space areas to build out the platform. We're very focused on fit with our culture and the people at any business that we'd be interested in. If we find the right opportunity, absolutely, we will participate. Himanshu Gupta: Got it. And then turning attention to restoration business. Can you comment on the backlog? I mean, in terms of the magnitude or directionally speaking, like, how is the backlog today versus last year or versus last quarter? And also, if I exclude the strong activity, how is the backlog looking? D. Patterson: The backlog is about the same as prior quarter and a little off from last year. And it's off from last year for some of the reasons I talked about in my prepared comments, just the strength we had in Canada with -- and some remaining named storm work. And at the end of September, we did start to see a little bit of Helene and Milton get into the backlog. So we're a little off from last year, but solid and healthy based on the environment we're in. I feel good about it. Himanshu Gupta: Got it. And my last question is on FSR, FirstService Residential. I mean, good to see organic growth back to 5% level this quarter. Question is, is Florida also at mid-single-digit level? Or is it a bit slower than the rest of the portfolio? And I remember, you've been talking about budgetary pressures in Florida a bit more than some of the other regions, so just to check how Florida is doing. D. Patterson: Yes. Florida is, I'd say, in line. And the budgetary pressures have been relieved a bit because the insurance market stabilized. It's still a difficult one because there are many communities that are underfunded. So it's our largest region, and it can influence results for the division, and we've seen that. But it's holding its own right now and is up low- to mid-single digit in the prior quarter, Q3. Operator: And our next question comes from Tim James of TD Cowen. Tim James: Just wondering if you could talk about the relationship between sort of pricing and costs in each of the different segments? And I realize that involves kind of different brands to talk about on one side of the business. But I'm just thinking about as we look forward or into next year and beyond, is there -- do you feel fairly confident that kind of your pricing power, if I can call it that, is going to be or is suitable to offset any cost pressures? Or is there potentially an opportunity to push pricing and actually use that as a lever to push margins slightly higher? D. Patterson: Jeremy, over to you. Jeremy Rakusin: Yes, Scott, I can take that. Well, right now, we think we're in a good equilibrium with FirstService Residential. We've always talked about that business being a very price competitive industry, always has been, and currently is in line with historical trends. So we're always needing to look for efficiencies even to maintain margins, and the teams have been very successful with that over time. In terms of the Brand side of the business, the Brands division, Century Fire, I think quarter in, quarter out, year in, year out, has been getting good pricing power in their business, and don't see any pressures there. Home improvement, it's a watch for us. Obviously, the top line, Scott spoke about lower lead flow, but we're converting at a higher rate, and the top line is holding in there. We will flex pricing there accordingly to ensure that we keep revenue -- top line growth and profitability intact. And right now, we're not using promotional activities extensively, with the exception of some local marketing. So we see that holding. I think the one area where we could see it is in roofing, the availability of labor, subcontractors in some of our operations versus self-perform, resulting in a little bit of an uptick in our cost there and perhaps competing more for reroof jobs with our competitors. Pricing and margins could come in a little bit there. But we're going to go through budgets with all of our businesses in November and through the end of the year, and we'll have greater visibility for '26, which we'll communicate in the appropriate fashion with you on the February call. Tim James: Okay. That's really helpful. My second question, and kind of along a similar track. Again, the margins are actually, I think, really good considering the challenges that the business had. But are there any particular initiatives that we should think about on the cost side or on the efficiency side? And I guess I'm thinking more about in the Brands business sort of going forward, where you're looking to focus on -- again, not maybe to drive net margin improvement, but to kind of stand still or to keep just making the business more efficient or making sure that you're keeping as cost competitive as possible. Jeremy Rakusin: I mean -- and that's exactly what we've been doing. I mean, we do it every year, year in and year out. The businesses are focused on healthy profitability. The last year, we pointed out the strides we made in home improvement. Longer term, I alluded to it in one of the earlier questions around the performance in the restoration brands over the last couple of years, focusing on the brand, focusing on accounts, but also streamlining costs. So every brand -- and including FirstService Residential, the strides we've done this year, always looking for ways to be more efficient. I wouldn't call anything major out for significant margin improvement in the Brands division heading into 2026. And if we do -- if any of that surfaces during the budget discussions, again, we'll build that into our thinking and communicate it in February. Operator: [Operator Instructions] And our next question comes from Sean Jack of Raymond James. Sean Jack: Just quickly switching back to roofing. If the short-term macro has been softening for a while, do you expect this to make acquisitions easier in the space coming up, especially and like specifically with mom-and-pops? D. Patterson: I don't see that. And again, it's because of the number of private equity-owned roofing platforms that are in the market. Private equity firms have made a bet on the space. They are all focused on adding to their platforms. And so we need to differentiate ourselves and focus on the long-term brand-building strategy that we have. I don't think it will be -- we'll value it appropriately, based on the results of the business. But I don't see us having an advantage or it being any easier to buy the companies. Sean Jack: Fair, fair. Looking at that brand-building strategy you mentioned, is there any new offensive strategies you guys are employing to position or gain share while the broader macro is weak? D. Patterson: Nothing of note. I mean, we -- the strategy, the focus we have on building iconic brands over time is all focused on people and customer service, building culture and incrementally improving the platform, and that does take time. But we approach these investments with a very long-term focus and timeline. Operator: Thank you. I'm showing no further questions at this time. This concludes the question-and-answer session and today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to PLS September 2025 Quarterly Activities Report. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, PLS Managing Director and CEO, Dale Henderson. Please go ahead. Dale Henderson: Thank you, Maggie. Good morning, and good evening. Thank you for joining us today. I'd like to begin by acknowledging the traditional owners on the land in which PLS operates. Here in Perth, we acknowledge the Whadjuk people of the Noongar Nation. And we also recognize the Nyamal and Kariyarra people on whose land our Australian operation is located in the Pilbara region. We pay our respects to their elders, past and present. Joining me today is Flavio Garofalo, our Interim CFO; and Brett McFadgen, our Chief Operating Officer. We are also joined by other members of our senior team. This call will run for approximately an hour. We'll begin with the presentation on our September quarter performance, then move through market commentary before finishing with Q&A. We'll address questions submitted via the webcast at the end of the session. Now starting with some opening commentary. The September quarter delivered a strong start to FY '26, demonstrating the benefits of our expanded operating platform and our contact ore focused operating strategy. We've continued to build on the momentum from a transformational FY '25, demonstrating resilience and operating discipline through stable production of just under 225,000 tonnes of spodumene concentrate, improvement in lithium recovery to deliver a record quarterly average of 78% lithium and a 13% reduction in unit costs to $540 per tonne FOB. These results highlight the continued optimization of the P850 operating model and the benefits of our deliberate strategy to increase contact ore feed to maximize unit cost reductions. They also affirmed that the Pilgan Plant is now operating in steady state, delivering the scale, efficiency and cost performance we envisaged when we embarked on our expansion journey. Pricing conditions improved materially with a 20% uplift on the prior quarter, contributing to a 30% increase in revenue to $251 million. As the largest 100% owned and operated hard-rock lithium producer, every price improvement flows directly to PLS' bottom line, providing strong leverage to any recovery in lithium pricing and reinforcing our position as a sector's pure-play leader. Underlying operating cash flow remained positive after adjusting for customer receipt timing, and we closed the quarter with $852 million in cash, maintaining a strong balance sheet and significant flexibility to invest through the cycle. Now let's please turn to Slide 2. Beginning with a reminder of our strategy. Our strategy is underpinned by a clear vision to create sustainable value for our shareholders while strengthening PLS' position as a leading long-life and low-cost producer in the global lithium supply chain. Turning to Slide 3. PLS is the world's largest independent hard-rock lithium producer. That independence remains one of our greatest strengths, giving us agility and responsiveness needed in a fast-changing global market. Our foundation asset is a high-quality, long-life Pilgangoora operation in Western Australia. Through our P680 and P1000 expansions, we've established a leading low-cost processing platform that delivers greater scale, efficiency and operational flexibility, firmly positioning PLS at the lower end of the global cost curve. Beyond, beyond Pilgangoora, we are continuing to build a truly diversified growth platform with downstream exposure through our POSCO joint venture in South Korea and early-stage international optionality through the Colina project in Brazil. Importantly, our balance sheet remains exceptionally strong with $852 million in cash and $625 million in undrawn cash (sic) [ credit ] facilities, providing the flexibility and confidence to invest, grow and lead through all stages of the lithium cycle. Turning to Slide 4. Some of the key highlights for the quarter include production of 224,800 tonnes, up 2% quarter-on-quarter, reflecting strong operational recovery and consistent plant performance as we operate the expanded Pilgan Plant at a steady state. Unit operating costs, as mentioned, a 13% reduction to $540 per tonne FOB, delivering clear cost leadership and highlighting the operational leverage of our optimized production platform. As it relates to pricing, a 20% uplift in realized pricing and a 30% increase in revenue, resulting in positive cash margin even as we continue to make modest investment in our growth and improvement programs. Importantly, this performance marks a disciplined and confident start to FY '26, validating our strategy of building scale, efficiency and flexibility to capture margins through the cycle. Now with that, I'll now hand over to Brett to take a deeper look at the operation. Brett McFadgen: Thank you, Dale. If we move to Slide 5. Starting with safety, our 12-month rolling TRIFR was 3.08 at the end of the September quarter. We also achieved 2.95 quality safety interactions completed per 1,000 hours worked, well above our target of 1.6, demonstrating strong leadership engagement in promoting a positive safety culture. This outcome reflects the ongoing work we're doing to build and strengthen our safety culture across the site. While this improvement is encouraging, we recognize there's always more work to do to ensure every team member goes home safe and well after every swing. Moving to Slide 6. The September quarter delivered strong disciplined operational outcomes across mining, processing, cost and sales performance. Total material moved increased due to improved operational efficiencies. The transition of the mining fleet to the owner-operator model is ongoing, supporting greater cost control and flexibility. Processing. Lithium recovery of approximately 78% demonstrates the sustained benefits of the P1000 expansion and the reliability of our processing platform. Our operating strategy of maximizing contact ore feed through effective utilization of the ore sorting capability is delivering expected unit cost benefits. The proportion of contact ore processed will be progressively increased over the remainder of FY '26 to leverage our ore sorting capability and maximize unit cost reductions. Together, these initiatives across mining and processing continue to unlock more capital efficiencies and lower unit operating costs. A unit FOB cost of USD 540 a tonne or USD 353 a tonne delivers a 13% reduction on the June quarter, a significant improvement driven by scale, efficiency and our optimized operating model. While the Pilgan plant now operating in steady state, we've delivered on our vision of a larger, more efficient and lower cost operation. The expanded platform provides us with a greater operational flexibility, improved resource utilization and the ability to adapt to changing market conditions. Most importantly, this transformation positions us to capture margin through the cycle, enabled by industry-leading ore sorting technology, improved efficiency and strong cost discipline. Thank you. I'll now hand back to Dale. Dale Henderson: Thanks, Brett. Moving now to Slide 7. PLS has built a portfolio of strategic growth options designed to drive long-term shareholder value through flexibility, diversification and market responsiveness. The Ngungaju processing plant remains in care and maintenance for FY '26, providing immediate low capital restart capability when market conditions improve. This is a unique source of latent capacity and optionality within our portfolio. Our P2000 feasibility study is progressing well, assessing the potential to expand Pilgangoora's production capacity to more than 2 million tonnes per annum. Study outcomes are expected in FY '27 with the development timing dependent on successful technical results, funding readiness and, of course, a sustained improvement in lithium pricing. In Brazil, drilling continues and study optimization work is advancing with outcomes targeted for the June quarter '26. This program will help define the development pathway for the Colina project and strengthen our presence in one of the world's most prospective emerging lithium provinces. Together, these initiatives demonstrate a balanced portfolio-based approach to growth, leveraging Tier 1 assets, global reach and disciplined capital allocation to create value and optionality through the cycle. Moving now to Slide 8. Our chemical strategy continues to advance, providing exposure to value-added lithium chemical products and enhanced supply chain diversification. As it relates to P-PLS, our joint venture continues to make steady progress with customer certifications. Production has temporarily moderated to batch processing, reflecting near-term softness in the South Korean battery sector following reduced U.S. EV incentives and higher tariffs during the quarter. Encouragingly, P-PLS, our joint venture, is receiving interest from a number of new customers across existing and additional geographic regions, particularly those seeking to diversify lithium chemical and battery supply chains outside of China for EV mobility and energy storage applications over the medium term. Moving to midstream. Construction of our Mid-Stream Demonstration Plant remains on schedule with completion target for the December quarter this year. This project will provide valuable technical data and commercial insight to inform future midstream participation opportunities. Lastly, relating to our Ganfeng partnership, work on the joint -- downstream partnering study with Ganfeng has progressed during the quarter. More than 1,000 industrial sites have now been assessed with detailed evaluation continuing on a select few. We are in discussion with Ganfeng to extend the agreement's sunset date to December '27, providing additional time to assess market conditions, shortlist sites and the overall investment case. Together, these initiatives demonstrate a measured capital disciplined approach to downstream integration, building capability and partnerships today that will position PLS for greater diversification and value capture across the lithium supply chain in the future. Now with that, I'll now hand over to Flavio for an overview of our financial performance. Flavio Garofalo: Thank you, Dale. Good morning, and good evening to everyone joining us today. Please turn to Slide 10 for a summary of the group's key financial metrics for the quarter ended 30 September 2025. The September quarter delivered strong financial results, demonstrating the operational leverage of our optimized Pilgan plant across all key metrics. Group revenue of $251 million was 30% higher quarter-on-quarter, driven by a 24% increase in average realized price to USD 742 per tonne for SC5.3% and stable sales volumes. This demonstrates our ability to capture improved market pricing while maintaining operational consistency. On the cost side, FOB unit operating costs decreased 13% to $540 per tonne, with CIF unit cost also down 11% to $645 per tonne. This improvement reflects the benefits of higher production volume and scale efficiencies delivered through our expanded platform, along with ongoing optimization initiatives. Our cost reduction focus is now embedded in the culture at PLS and is driving strong performance across all areas. We closed the quarter with a cash balance of $852 million, providing financial flexibility for strategic opportunities and maintaining our balance sheet resilience. Turning to Slide 11. Slide 11 shows a cash flow bridge for the September quarter. During the September quarter, our cash balance declined by $122 million from $974 million to $852 million. This reduction was primarily driven by capital expenditure of $78 million and working capital time effects. Working capital movements included approximately $50 million in customer receipts due in the early December quarter and $32 million in final pricing adjustments on the June quarter shipments. Cash margin from operations of $8 million was supported by improved pricing, but impacted by these timing effects. Cash margin from operations less mine development costs and sustaining CapEx was negative $19 million. The capital expenditure was $78 million on a cash basis and $55 million on an accrual basis, comprising infrastructure and projects of approximately $28 million, mine development of $20 million and sustaining capital of $7 million. Despite these working capital impacts, our balance sheet remains robust with total liquidity of $1.5 billion, positioning us well to navigate the current market conditions and invest strategically through the cycle. I'll now hand back to Dale. Dale Henderson: Thanks, Flavio. Turning to Slide 13. Global geopolitical dynamics continue to highlight the strategic importance of secure and resilient critical mineral supply chains. PLS is actively contributing to the policy discussions, from recent participation in the Austrade Critical Minerals Delegation trip to the U.S. to consultations on the proposed strategic reserve and through direct engagement with policymakers in Canberra. Next week, I'll represent PLS at the APEC CEO Summit in South Korea. This is another opportunity to help position Australia as a reliable low-cost supply of critical minerals to global markets. We welcome the Commonwealth government's continued commitment to developing Australia's critical minerals sector and will contribute to -- and we will continue to contribute to the policy discussions shaping its long-term success. Australia has an incredible opportunity to expand its role in the global lithium and energy transition supply chain. But the race for market share is well underway. Other jurisdictions are moving fast with coordinated policy and public investment to attract capital and downstream manufacturing. To remain competitive, Australia must match that ambition through targeted investment and shared infrastructure that lowers the cost for all across the industry and helps secure our position in this global race. Turning to pricing. Conditions remain volatile but improved from the prior quarter with both spodumene and lithium carbonate spot prices recording double-digit gains. During my recent visit to China last month, every one of our customers reiterated confidence in the long-term outlook and expressed strong interest in securing additional supply from PLS. That continued demand and engagement underscore confidence in the sector's fundamentals and the prospectivity of our product supply. Moving to Slide 14. Now turning to demand. Lithium fundamentals remain robust. Global EV sales continue to expand, up around 9% quarter-on-quarter and 26% year-to-date, with penetration now approaching 30% globally and more than half of all new vehicles in China being EVs. Battery energy storage installations are also accelerating, up nearly 40% year-on-year, strongly supported by China's rapid renewable energy build-out. From a policy perspective, China's supportive regulatory framework continues to underpin domestic storage growth. While recent U.S. tax credit changes may create short-term noise, this doesn't alter the long-term global demand trajectory. In short, the demand story remains intact and PLS with its 100% ownership model and strong balance sheet is positioned to capture full benefit as markets recover. Moving to Slide 15. Battery energy storage is now the fastest-growing segment and lithium demand rising just 3% of total consumption in 2020 and around 17% today according to BMI. BMI's latest forecast projects about 323 gigawatts of new BESS installations in calendar year '25, 50% growth year-on-year. If achieved, this is an extraordinary growth rate. China remains the main catalyst. In September, the National Development and Reform Commission released a major action plan targeting 180 gigawatts of a new type of energy storage by '27. This represents more than USD 30 billion in new investment and 140% increase from China's installed base at the end of calendar year '24. At the same time, a second demand driver is emerging, the rapid build-out of AI and data center infrastructure. These facilities require large-scale instantaneous power support, making grid-connected BESS a critical enabler of reliable infrastructure. Recent announcements from Google, NVIDIA and Meta illustrate this trend with each committing tens to hundreds of billions of dollars to new AI-driven data center capacity. McKinsey & Company recently projected that global data center investment will reach nearly USD 7 trillion by 2030 with more than USD 4 trillion allocated to computing hardware. That level of capacity -- sorry, that level of capital intensity underscores how central data center resilience and therefore, dependable power and storage is becoming to the global economy. Together, policy-driven renewable storage expansion and the digital infrastructure boom are expected to contribute significantly to continued growth in lithium demand, a dynamic that reinforces PLS' long-term opportunity to supply and partner across the global energy storage value chain. In summary, BESS or B-E-S-S demand is being driven by 2 significant emerging drivers: one, aggressive renewable energy storage policy, particularly in China; and two, the rapid expansion of digital infrastructure. Together, these forces are reshaping the energy and technology landscape, underpinned by strong long-term fundamentals for sustained lithium demand. The broader lithium market continues to demonstrate resilience and depth with total demand growing at around 30% CAGR since 2020. This, of course, is driven by accelerating electrification across mobility, energy storage and emerging technology sectors. While regional policy changes may create short-term noise, the global trajectory remains firmly positive. For PLS, this environment reinforces the strength of our strategic positioning and customer relationships across key markets, giving us the agility and confidence to navigate near-term volatility while capturing long-term value as the industry expands. Lastly, for my closing comments, I'd like to leave you with a few key reflections. The September quarter marked a strong and disciplined start to FY '26, confirming that the expanded Pilgan plant is operating in steady state with improved efficiency, lower cost and consistent performance. Financially, the business remains robust. Underlying operating cash flow was positive after adjusting for sales timing impacts, demonstrating our ability to generate cash even in a volatile pricing environment. We remain on track to deliver our FY '26 guidance, reflecting the strength and resilience of the platform we've built. Near-term pricing remains volatile, but the long-term fundamentals are unchanged. Structural growth drivers from electrical vehicles to stationary energy storage continue to strengthen and current prices are not -- and current lithium prices, I should say, are not incentivizing new supply, which suggests tighter markets ahead. With a scalable technology-enabled operating base, a strong balance sheet and a globally diversified growth portfolio, PLS is well positioned to lead through the cycle and capture value as market conditions improve. As the largest 100% owned and operated hard-rock lithium producer, every price improvement flows directly to our bottom line, providing strong leverage to any recovery in lithium pricing. Our confidence is anchored in what we can control, disciplined execution, operational excellence and strategic agility, the hallmark that define PLS and make us a partner of choice in global supply chains. Now with that, I'll hand back to Maggie to open the floor for questions. Thank you, Maggie. Operator: [Operator Instructions] Our first question comes from the line of Jon Sharp from CLSA. Jonathon Sharp: First question is just on the uplift in recoveries. You averaged -- in FY '25, you averaged 72% this quarter. We saw quite an uplift to 78%. You've recently commissioned the ore sorters. Can you just quantify how much of that improvement was directly attributed to the ore sorters versus anything else? And do you expect recoveries to continue to rise potentially into the 80s percent as you sort of iron out any issues with those ore sorters? Brett McFadgen: Yes. Thanks, John. It's Brett here to answer that question. And yes, the recoveries have been attributed to the work that we did with the P1000 and the P680. So ore sorting plays a tremendous part in that, but it's not limited just to the ore sorting. That's been the big lever, but the site team and corporate technical team have been working on a range of initiatives through the rest of the circuit there that are working in combination with the ore sorting. What we will be doing, though, in the next quarter and then in the next half is increasing our contact ore ratio and really leveraging the ore sorting circuit just to try to flex that cost in the mine right through to the mill and get those cost efficiencies. So recoveries are always a big focus of us, but I wouldn't be expecting them to get into the 80s we are getting closer. And certainly, with our geometallurgy work, we're well on track to make the most out of our recovery circuit. Jonathon Sharp: Okay. Just second question, I know you've answered this before, just on Ngungaju. And I know you've said that you expected to remain in care and maintenance in FY '26. But can you just remind us of what price signal or duration of price strength would trigger a restart there? Dale Henderson: Yes, John, thanks for revisiting that one. So we haven't given a price guidance around that. But really, the way we -- what we need to see is obviously a considerable lift from current pricing, probably something north of USD 1,200 per tonne. But more importantly, we want to make sure that, that's sustained. But as I say, we haven't picked a threshold value on that. Operator: Next question comes from Hayden Bairstow from Argonaut. Hayden Bairstow: Great operating result. I just wanted to touch on the ore sorter a bit more. Can you sort of give us some rough metrics when you run 1 million tonnes through that, are you getting a modest grade uplift as well into the process plant. So what does that -- what does the 1 million tonnes through the ore sorter provide you with feed for the actual mill? Dale Henderson: Yes. Thanks, Hayden. That's a -- yes, that's quite a complex question that I could sort of say depending on what we're feeding it. But that is a large part of the work that we're doing with the geometallurgy to make sure that we're getting that blend right. So we're maximizing those ore sorters, and we're getting the cleanest feed that we can through to the plant. So it's not always a strict percentage, but what we're doing is really looking at what's coming out in the mine plan, how do we optimize that through the ore sorters and make the best feed for the plant. Hayden Bairstow: Yes. Okay. Brilliant. And then just on the product grades moving around a bit. Just keen to sort of understand who's taking all the product at the moment. I presume there's a little bit of spot sales going on. But is the movements in the grade reflecting who you're selling it to each quarter? Or is it just more what's coming out of the back end of the plant? Dale Henderson: Yes. It's more of the latter. It's not related to customer requirements. And as it relates to where is the flow of sales going to. At this moment in time, it's largely offtake, while we had a little bit of spot, but not a lot. But yes, the grade fluctuations are not driven by customer requirements. Operator: Next, we have Rahul Anand from Morgan Stanley. Rahul Anand: I've got 2 questions. Look, the first one is on POSCO and your P-PLS JV. Obviously, you've pared back some of the volumes going into that contract to [ 150 ] this year, just given the ramp-up in demand for hydroxide, as you've mentioned in the release. That contract sits at over [ 300 ] going into future periods, [ 315 ] to be precise. So just wanted to understand the makeup of that contract. Is that take-or-pay? Is there flexibility within that? And I mean, how are you thinking about that option that you have coming up to buy into that plant? That's the first one. I'll come back with the second. Dale Henderson: Yes. Thanks, Rahul. So as it relates to the offtake requirements, we -- and across all of our offtakes, we finalize sort of the year ahead in advance of the year we're heading into. So we do that across the board, including with our joint venture partner: P-PLS. So -- as sort of outlined in the release, so we've adjusted those volumes for the year ahead. And of course, bearing in mind that there's sort of 2 things at play. This is about bringing online and introducing a whole new chemical facility in a new market. So as per our releases, there's been a lot of development around qualifications, which a lot of that is sort of serving into new growth markets, in particular, the U.S., that's part of it. The other part, which is less of a bearing is obviously ramp-up progress, which we're quite comfortable with. But it's really those 2 things which are guiding volumes. The team is in the thick of the planning process right now for the budgets and outlook for next year. So there could be some further adjustment to come. As it relates to the equity election option that we have coming up to go from 18% to 30%, the timing of that is not due until July next year, which in the lithium industry is a very long time away. So between now and then, we'll continue to monitor the market and take a view of what we want to do close to the time. Rahul Anand: Got it. Okay. Look, -- and just on the second one, I wanted to touch a bit more on the recoveries. I guess, the missing piece of the puzzle here is obviously the head grade that went into the plant for ore processing, and I think that's what Hayden was alluding to as well in terms of his question. Are you able to give a bit of a color perhaps on how that plant grade changed given the elevated recoveries because obviously, just trying to figure out sort of how the recovery performance goes for the rest of the year. You flagged that recoveries will reduce. So I just wanted to kind of square that circle, if that's possible. Brett McFadgen: Yes, sure. The head grade, we weren't high grading, just to make that clear that, that was not an intentional high grading of the mill feed. Mill feed was no different to it has been and also just part of the mine plan. The recoveries will take a slight impact, but mainly for the -- more of the contact ore that we're intending to feed over the next quarter. We really need to maximize those ore sorters to take as much of the contact ore around the main ore body as we go through our mine rather than stockpiling it and rehandling it later. So that's the bigger impact to the recoveries. Dale Henderson: I might just add to Brett's commentary in the space. Look, obviously, an absolutely cracking lithium recovery result. And as mentioned, a record for us. And as to how that got achieved, there's actually multiple processing levers, which have been worked on simultaneously by Brett's team. And across several, we've had fantastic progress. And it's a real credit to Brett, his team, the operating team and the projects team. And just to rattle off a few, as it relates to the processing plant, the ore sorting, of course, gets a lot of focus, but it's not just that. There's a series of online analyzers at the front of the circuit, the back of the circuit. Separate to that, the team has been working on different reagent regimes. There's also different monitoring systems in the float circuit, some optical type gear, which has been deployed. There's been further work around tying mineral variation, in particular, crystal size and grind size in the circuit and a new level of sophistication has entered the operating strategy. So the sum of all of these things is contributing to the improved results that you see. And if I just circle back to the idea of to what extent did you scale up contact or not, that answer is complicated, and it depends where you're at in the mine plan. It also depends what stockpiles are available or not available. So in short, it's a complex equation with a lot of subcomponents summing through to the result that you see. So I appreciate that's a longer explanation, but this is the art and the science that the team have been working on for years. Operator: Next, we have Austin Yun from Macquarie. Austin Yun: Really good operational results against the backdrop of a tightening lithium market. Just a follow-up question on the Ngungaju plant. In update, you expect the plant to remain in care and maintenance in the financial year '26. I'm just keen to understand the rationale and thinking behind it. Does that mean you don't believe the price is going high up and fast enough in the next 9 months. So the base case is care maintenance? Or it's actually because you believe you can squeeze a bit more from the current Pilgan plant given the good performance and also really well. I'll circle back. Dale Henderson: Sure. Thanks, Austin. Thanks for your question. And the short answer is no. I wouldn't read through. That's our view of the market outlook. Austin, as you know, lithium market has got an ability to surprise is what we've seen historically. Given these incredible growth rates, we could well see a pull-through and a rapid turn. All of that's possible. We've seen it before. In which case, we will respond accordingly. So if the market turns rapidly and we think it's game on, well, of course, we'll flick the switch. We'll bring Ngungaju back to life, and our shareholders will enjoy the benefit of that. So yes, so don't take a read through in terms of that type of guidance. Austin Yun: The second one, just a quick one. It seems like lithium is a hot topic and part of the critical minerals discussion. And do you as Pilbara Minerals expect any support funding or other forms from the U.S. or anything you could share on your recent trip to White House? Dale Henderson: Yes. So as it relates to our engagement and as I mentioned in our notes, we have been contributing inputting into a number of processes, and we'll continue to do that to support the government's thinking. But it's too early to take any view of where that all heads. Yes, a number of the avenues federal government is exploring. I think they're still really at the early stages of working through what type of support they would like to deploy. But certainly, PLS is at the table and contributing to that. And [ as Brett ] noted, we're at pains to reinforce the need for shared infrastructure. We think this is utterly critical for Australia to become more competitive. When I say shared infrastructure, it's about shared port facilities, shared by all to lower the cost for all. It's about shared power, network power to lower the cost for all. Putting in place these types of infrastructure, that's the role of government. That's what we need to do. So that's top of the list as we advocate the government about the right types of support. Operator: Next, we have Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Thanks for the update. Obviously, great to see some of the early efficiencies of the mine coming through. I won't belabor the point on the feed grade. I assume that's just going to average down with the mine grade and contact ore strategy. But if I can pick up the P-PLS points, what are you now budgeting in terms of FY '26 hydroxide production relative to that offtake revision? Is it sort of 40% to 50% utilization going forward? Dale Henderson: Yes. We'll be able to give you a clear answer on that next quarterly update because the refinement of the calendar year plan for next year, the teams and the thick of it. But you can take an assumption based on what we've committed in the release of the 155,000 tonnes. Hugo Nicolaci: Got it. So in terms of any further losses in the JV or further contributions into it to consider, that's probably something for next quarter as well? Dale Henderson: Yes, correct. That will flow from the budget process. And look, as it relates to the medium- to long-term outlook, we are very happy about the strategic rationale and our sort of positioning with that hydroxide facility. And you can appreciate, particularly given the rise of our almost aspiration for critical mineral security, we think our joint venture with POSCO puts us in a very, very unique position. So in terms of where we're at today, we're very comfortable about that strategic positioning. And of course, we've got some good runway just to see how the next 6 to 9 months go. So very happy with our involvement there with P-PLS. Hugo Nicolaci: Yes, makes sense. And then maybe just one on -- given the price volatility in the quarter, how should we think about any provisional pricing impacts that come through this quarter? Dale Henderson: Do you want to take that? Flavio Garofalo: Yes, I'll take that. Yes, in terms of -- we've obviously seen an uplift in pricing in that September quarter. We will expect to see some gains, which will flow through to the December quarter, which obviously we'll benefit from. During the September quarter, as mentioned, we took a $32 million hit, which was provided for in the June accounts. So we had that number there. So moving forward, I think we want to see some benefits coming through. Hugo Nicolaci: Got it. So in terms of just the timing of when that price peak, you don't have some unwind of that going forward? Flavio Garofalo: No, we'll expect to see some of that come through in the December quarter. But yes, essentially, most of that will crystallize in the early part. Operator: Next, we have Levi Spry from UBS. Levi Spry: Can I just explore these many discussions you're having with government bodies and things like that on strategic reserves and potential government support. What role, if any, do you think floor pricing could play? Obviously, the context is MP and that obviously seems to be getting a bit more airtime. But in your discussions, what role do you think it could play? Dale Henderson: Yes, Levi. So at this stage, we've just been inputting our ideas to government and in particular, the group task with thinking through the strategic reserves. So they're very much in input mode. And of course, they're taking views around for pricing and what could that mean and the pros and cons. And as to yes, the idea around full pricing. Look, devil is in the detail. And I think if deployed the right way, there could be positives, but equally, there could be bad unintended consequences if not rolled out the right way. And I appreciate there's others in the market who have been vocal about that. And of course, that's all going into the thinking though as government considers what support they'd like to deploy. But as I say, for us, we've been very much advocating for the shared infrastructure aspect. We think that's a very clear cut, sensible investment case and hard to dispute. Levi Spry: Yes. Okay. And maybe I should know this, but what's the timing of all this coming to a head. Dale Henderson: That's in the government's hands. They haven't provided publicly an outline as to their timing. So we'll wait and see. We're not holding our breath. Levi Spry: And just the last one, just to come all the way back to recoveries. Previously, you said mid-70s haven't used. So isn't this a material step up? How should we consider -- think about the long-term number in our models? Should I be tweaking it up a couple of points? Brett McFadgen: Yes, the life of mine recoveries, their levies are in the mid-70s. We've in this quarter, corresponding quarter in FY '25 is also in 75s. So we're always going to be trying to push the recoveries. It's the best lever that we have. But at the moment with all of the good work that we've done that Dale touched on, and we're continuing to lever the contact ore. That's the main variable that is going to change for the next quarter and half year. Dale Henderson: And, Levi, I'd just to add, look, maximizing lithium recoveries, this is what the team is here to do. And I love the idea that if we could eke up that long-term average expectation, that would be obviously incredible in terms of value lift and we'll be able to reset the reserve and a whole bunch of flow-ons would flow from that. So that, of course, remains the central aim. But what we need to do is we're really into the process of really starting to sweat and leverage the full power of this new platform we've built. And yes, early signs are really positive. But we're really going to get more runs on the board and get more data processed and -- but yes, it will be fantastic as we've got more runs on the board to look at resetting those long-run expectations, but too early to do that. Operator: Next, we have Glyn Lawcock from Barrenjoey. Glyn Lawcock: Two questions. Just -- maybe just on offtake and price floors. What about industry discussions? Is there any probability of price flows with industry participants rather than government? And we've seen that in the past in the lithium industry, just if they want new supply non-China, is that an alternative? Dale Henderson: But to date, I haven't heard much about around that in terms of coming together for a shared approach. Obviously, any of those discussions would have to be handled, obviously, with a great gear given various anticompetition laws depending where in the world those groups or domicile. But I'm not aware of any of those types of discussions. But I'd also add that in terms of the structure of the market today, it is very much a global market. You've got some supply from all continents in different forms. I think the probability of alignment across that supply is pretty unlikely, but you never know. Glyn Lawcock: So you don't think you could see a price floor to get Ngungaju restarted with a car manufacturer or a battery manufacturer. That's not something you contemplate. Dale Henderson: No, we would -- the door is open for that. But yes, if a buyer would like to do that, and there has been overtures of that. But I'll believe it when I see it, but the door is open. Glyn Lawcock: Okay. And then maybe just staying on Ngungaju. With all the benefits you've now seen through ore sorting, contact ore, everything for Pilgan, how much of that can you translate through to Ngungaju? Like would it be a bit of capital you need to spend? Or can -- what you've got benefit Ngungaju when you do finally come to turn it on? Just trying to think about all your learnings that you've got now, how we could do a lot better with the Ngungaju plant, get the cost down, volume up? Dale Henderson: Great question. Let me start and Brett, you might want to follow in on this one. Yes, the short answer is, yes, we are considering what knowledge transfer we could go from the Pilgan to Ngungaju plant. And we have been sort of waiting to sort of ramp up the Pilgan and start to sort of sweat the asset for the purpose of really being able to have confidence in what the benefit delta is. And so we're increasingly moving to a position where we can start to do the evaluation on the investment case at Ngungaju. But given those units and the materials handling complexity, it's not straightforward to augment that into an existing circuit. There's a lot to sort of work through. So it's complex and there's capital intensity involved. So there's a fair bit to work through to work out, is it worth the investment? Glyn Lawcock: Yes. Is there a time line. Dale Henderson: There's not a time line at the moment. But the other thing, Glyn is that a lot of the downstream benefits that we're seeing with the ore mineralogy and the flotation chemistry is directly applicable to Ngungaju. And so we can transfer that knowledge straight in there and obtain the benefits. And that's the beauty about having the 2 plants side by side is that we can leverage what we learned in one take directly into the other. And yes, we certainly -- there'll be some significant benefits that we can directly transfer from the Pilgan expansion. Operator: Our next question comes from the line of Daniel Roden from Jefferies. Daniel Roden: Just wanted to, come back to the recoveries. And I think I just wanted to labor the point and clarify that the recovery that you're reporting doesn't account for the ore sorting losses or rejects. And I guess, how should we be thinking about accounting for this? So if I look at your numbers, if I'm just taking your reported mines and your reported mills, if I forecast that out and take your numbers into -- over the next -- into perpetuity, would there be a disconnect there? And I just see my, I guess, ROM stockpiles build because it's not accounting for, I guess, the ore sorting losses. And so, I guess, where I'm trying to get at is the ore sort of? What's the reject recovery factor that we need to be? What are the guardrails that we need to be assuming there? Brett McFadgen: Yes. Thanks, Daniel. The -- I guess, those guardrails are ever changing at the moment as we're leveraging up the contact ore. So the level of rejection is highly dependent on what level of that contact ore that we put in the front end of the ore sorters. That material actually goes back to -- into the mine. So it's prior to the crushed ore stockpile. So the feed grade that we report there is from the crushed ore feed grade forward. So it's pretty hard to kind of give a number at the moment, particularly since we're ramping up the contact ore. So it's -- yes, it's a bit of work in progress at the moment? Dale Henderson: Yes. So just to clarify, so there is -- from a financial modeling perspective, the lithium recovery is what we've been able to recover from the mine of what's in situ. Now the fact that we've added ore sorting or various other process leaders does not change that methodology. And the whole idea of ore sorting is it's really for 2 aims, just enable more extraction and enable more concentration to maximize lithium recoveries. So yes, is there some additional exit streams? Yes, but this is all for one aim is actually to improve that value. So you don't need to allow for any additional complexity in terms of how the mine was modeled pre-ore sorting. Hopefully, that clarifies. Daniel? Daniel Roden: No, definitely. Just -- I think I'm just being conscious that we're not on a forecasting perspective over accounting for [ ROM stockpile ] build is kind of where I'm coming from. But maybe just bringing it back to you, you kind of mentioned that, I guess, from next quarter, you're going to start increasing that contact ore feed. How should we think about that in terms of, I guess, fresh ore mining volumes? Are you going to be leveraging your stockpiles a bit more and decreasing, I guess, mining activity from next quarter? Or is that more contact from the fresh ore feed that you're going to leverage on? Dale Henderson: Yes, it's more of the contact ore from the fresh feed around the peripheries. So as we get further down in the central pit over in our East pit, we start to get more of that contact ore. So rather than stockpiling it, we're intending to use it, which will allow us to get the economies through the mining fleet as well. Daniel Roden: Okay. Perfect. And if I can, just one more for me. But with regards to the P-PLS, what's the utilization being there? And I guess if you run it at full noise, like how close to nameplate would you be running out? Dale Henderson: So from memory, Daniel, on that one, the first train that brought up on has been brought up to close to full utilization and whereas the second train that have been purposely moderating it as a function of the sales changes. So I have to double check on this. I'm pretty sure both in terms of the sort of throughput rate of being run up to full throughput. But as I say, the utilization levels are just different at the moment. Operator: Last question from the audio before we move on to the webcast. We have Matthew Frydman from MST Financials. Matthew Frydman: Can I ask a question on the cash burn during the quarter? Obviously, you ran ahead of guidance in the quarter, but you're highlighting that you're expecting upward unit cost pressure from here. And obviously, the cash position went backwards. So just wondering if there's any further step change necessary in your view to stem that cash burn outside of waiting for prices to improve, whether that maybe looks like a further change to the P850 operating model, whether there's any sort of discretionary CapEx that you can take out across the various project streams? Or are you happy to operate at kind of steady state as you've outlined and use your cash balance and your debt liquidity as required to continue funding operations? Flavio Garofalo: Matthew, thanks for your question. Look, the cash burn for the period was really a function of cash flow timing. As I pointed out, we had some provisional pricing adjustments, which we actually booked $40 million for in the year-end accounts. We crystallized $32 million of that in the September quarter. And then we had high receivables at the end, which didn't come through of $50 million. So it was purely a timing impact for the period of the September quarter. Moving forward, we don't expect any material changes. So it's just purely a function of timing between the quarters. Matthew Frydman: Yes. Okay. I mean your cash margin from operations was negative, understanding that there were some receivables, but you're going to get receivable movements from quarter-to-quarter. And obviously, there was growth capital spend, interest and leases and other spend, which obviously weighed on that cash balance to bring it down by $122 million quarter-on-quarter. So it's not necessarily a problem that isn't going to repeat in future quarters outside of price. So just wondering if you guys are happy for that situation in terms of continuing to lean on your existing balance sheet and liquidity or whether there's any other further step changes operationally to deliver? Flavio Garofalo: Yes. I think just to add to that, obviously, as part of our cost smart measures, we'll have further cost discipline and cost reductions moving forward. And we'll be very disciplined in terms of managing our cash balance as part of maintaining our strong balance sheet moving forward. And there are some other opportunities in terms of timing from a capital perspective that we will look at. And we'll obviously look at this through the lens of the lithium price as we move forward through to the December quarter as well. Dale Henderson: And Matthew, probably just add a few points a good one and although there's some enthusiasm returned to the sector of late, at the end of the day, the price appreciation we've seen is still well below the long-run requirements of the industry. And so depending on which analyst you choose, that range is from USD 1,000 per tonne to USD 1,600 per tonne with an average of about USD 1,300 or so. Of course, the prevailing price is well below that at this time. So for PLS, what we've done is we set the business up for this low-cost environment. So to your question, we're comfortable with the way we've configured the business. We've optimized for lowest cash burn here maximizing contact ore. We've got a very strong balance sheet, et cetera, et cetera. We are set up to last a longer storm if that is to eventuate. However, of course, given the strong growth signals, et cetera, et cetera, where this tightness is coming, and that's what really sets up what we think is the big opportunity for our shareholders. Operator: Now I'll pass to James for webcast questions. James Fuller: Okay. Thank you. Dale, some questions online here. Does collaborating with Ganfeng for the study on downstream processing rule out the U.S. as a possible site for projects? Dale Henderson: The short answer is no. As a large operator with an incredible unallocated profile ahead across our Australian asset and Brazil asset, we're able to do multiple downstream collaborations if that's what makes most sense to our shareholders. And we're not ruling out any jurisdiction or counterparty. James Fuller: Dale, what is your response to Trump's Critical Minerals deal with Albanese? Could it help sustain Australia's position long term as the world's largest lithium producer? Or are there still challenges to that? Dale Henderson: Look, I think the announcements that we're seeing between the President and our Prime Minister are incredibly encouraging. At the end of the day, the lithium industry is still young. It needs to grow significantly to support the growth needs globally. And therefore, multiple supply chains need to be built out to serve the world. So this type of government-to-government collaboration is fantastic to see, and we need more of it to not only for lithium, but other key critical minerals. James Fuller: Okay. Dale, what do you mean by targeted investment is needed by government? How would you like that investment to be targeted? I think that's referencing infrastructure. Dale Henderson: That's right. Targeted is not a polite way of saying, don't blow money on the wrong things. So for us, it's about investing in shared infrastructure to lower the cost for all, which makes Team Australia more competitive on the global stage. James Fuller: Okay. In regards to Ganfeng JV, what possible countries that we're looking at and any idea on ballpark capacity? Dale Henderson: So as it relates to what possible countries, of course, we've got a view around what's near the top of the pile. And within that, there is some Asian countries, some Middle East. But I would also say that other parts of the world may welcome into the picture depending on whether the government comes through with larger support or not. So for this reason, we've been deliberately not guiding one area over another because as you've seen in the media, it's a bit of a moving feast. Different support regimes are coming in, and that could really tip the scales from one prospect to another. James Fuller: Okay. Great. With consistent requests from customers to secure additional supply and a strong demand going forward, is PLS considering more sales on a spot market? Dale Henderson: Yes. So in terms of our realized price, in terms of the market structure today, I think we're achieving the best of both worlds. And the offtakes, of course, provide long-term security, but the pricing that's used to derive those sales actually comes essentially from the spot market. But we also sell spot sales. And the reason we do that is that supports price discovery. So one supports the other effectively. And we've taken a portfolio approach there where we're largely weighted to offtake, which gives us security with the strongest in the supply chain, whilst also doing a little bit of spot for price discovery. James Fuller: Okay. Is there any serious threat from African supply? Dale Henderson: The jury is not out on that. Look, there's a big game being talked from certain areas. In terms of the work we've done understanding that area, the low-cost operations are few and far between would be our view. But further, there is an overlay of risk depending on which country you're speaking to. And we've seen time and time again, different impediments arise, which debilitate those operations and really jeopardize some of those investments and continuity of those operations. And it's for these reasons, we've not sought to look in that direction in terms of our own growth profile. But bringing back to home. At the end of the day, we view this market as a globally competitive market. What we keep focused on is making sure we continue to improve such that we move to the left of the cost curve and position ourselves as one of the best in the business. James Fuller: Okay. Thank you, Dale. That's the last of the questions. Just a reminder that the presentation is available on our website, and the webcast recording will be available via our website within a few hours. Dale Henderson: Great. Well, thank you, everyone, for dialing in today. The September quarter was an incredibly strong start to this financial year, building on the FY '25 year, which was obviously a transformational year for the business. We look forward to updating you again next quarter. Thank you for your time. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to the Enea Q3 Presentation 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Teemu Salmi; and CFO, Ulf Stigberg. Please go ahead. Teemu Salmi: Thank you so much, and good morning, everyone. This is Teemu Salmi speaking, CEO of Enea. And with me in the room, I have Ulf Stigberg, CFO as well. Today's agenda is going to be very similar to the way we have presented the previous quarter since I joined Enea after Q1 this year. A short introduction and summary of the quarter. We will do a more deep dive into our financial results. And then we will talk about the way forward and our outlook as well at the end of the presentation. And obviously, there will be time for questions and answers as well at the end of the presentation. But let's get straight into it and talk about the key numbers of third quarter, where we are reporting a net sales of SEK 213 million, which in reported currency is a decrease with 1.8% from last year, but in constant currency is a growth of 3% year-over-year. Our margin is coming in at 33%. Our net debt is at SEK 212 million and our cash flow coming in a little bit increased year-over-year at SEK 21 million. What I would say that we have spent quite a lot of time on the last 2 quarters is to clean up our balance sheet to ensure that the items that are impacting the financial net in our result is being handled. So the exposure from those have been taken down, and we can also see a clear improvement on our earnings per share with SEK 1.77 as a result in the quarter compared to SEK 0.18 in quarter 3 last year. We're going to come back to these key numbers in depth when Ulf takes you through the financial summary as well. Obviously, last but not least, we continue to invest in R&D, which is the key fundament for making sure that Enea stays relevant and ahead of the curve and competitive on the market. So 25% of our turnover is invested back into R&D. Some highlights from the market and business development in the quarter. I think that we see the continued trend that we reported in the second quarter as well that the geopolitical developments are fueling the need of increased Security Solutions in communication, and that has not -- it has accelerated, I would say, in the quarter, and I'm going to come back shortly to tell you about a couple of incidents in the quarter that actually are also fueling the need for the Enea solutions. We also see a good continued momentum for our traffic management business. The need for increased network intelligence is there and it's accelerating as well. So that's good. So fundamentally, we see traffic management business continue to grow. And then in the short term, at least in this year, year-to-date, the continued strengthening of the Swedish krona with more than 16% stronger currency or exchange rate today compared to the beginning of the year is creating pressure on us when it comes to our top line. So I'm actually very pleased to say that we show 3% growth in constant currencies in the quarter, even though this strengthening of the currency is impacting our reported top line result. On the business side, we have a good underlying business, and we have also a good and solid pipeline, which gives us confidence that we are well positioned to reach our ambitions. We see also from a market point of view that the business in Middle East and North America is developing well from a regional perspective. And those are also the regions where we made 2 press releases of new deals during the quarter for 2 different Tier 1 operators, respectively, and also for traffic management solutions. On top of that, we also see our Deep Packet Inspection developing well in the Security core area according to plan or maybe even a little bit ahead of the same. When we look at the new customers that we have acquired in the quarter, we have 5 in total, and they are all in the Security area. We have 3 new customers when it comes to our firewall solutions, and we have 2 new customers when it comes to Deep Packet Inspection, and they are spread across the world, as you can see on this slide. Then if we continue to look at, as I said on the previous slide, of course, the geopolitical development is just continuing to accelerate, not always in the most positive side. But on the other hand, it's good for Enea and our solutions become even more relevant than they have been before. I'm highlighting here 3 examples of incidents or happenings in Q3 that we see -- where we see an increased trend. For instance, when it comes to massive SIM farms, there are more and more of those out in the world that are being revealed. And of course, these pose a big threat to national infrastructure from many different perspectives and is used for fraudulent activities. Here, our firewalls can counter such threats by detecting and blocking fraudulent traffic in real time. Another thing that we see developing as well is that there's a lot of leaked location data that's been exposed and where users' movements into sensitive areas and private movements can be tracked. And then these movements are tracked by different apps that we all of us download from App Store or from Google Store and where we just accept the terms and conditions. And our location data is being saved when it comes to how we move and how we act. And that data is then in turn being sold to different actors in the world. The third, I would say, trend that we see and that we hear more and more about escalating is, of course, the increased drone traffic and threats in general. I think that we've seen in the quarter, we know the warfare that's happening all around the world. And of course, on that also the hybrid warfare with -- in the Nordic countries, many drones being, so to say, disturbing traffic around major airports in major cities in the Nordics and in Europe. And here, we -- at Enea, we are right now developing fingerprints so we can actually help our customers track drone traffic in mobile networks to make sure that we can help secure those threats in the world that we see emerging. Two other press releases that we've done in the quarter that is not related to new deals. We have renewed our partnership with Suricata. Suricata is an open source, rule-based framework where we contribute with our expertise from Enea, but we also use the Suricata framework for the development of our own solutions and products. We believe strategically and strongly that open source is a good way of developing and contributing to our product development for the future. We have also announced a new customer win with a French AI-based network detect and response supplier, called Custocy. Custocy is using our Deep Packet Inspection engine in their solution. And they have also announced a win with the French region, Haute-Garonne. It's a major department council in France, and they have chosen Custocy's MDR technology to secure their asset base that consists of more than 25,000 different assets and 1,500 subnets in their operations. We are very happy and proud to be part of that journey from an Enea point of view. Last but not least, before I hand over to Ulf and we dive deeper into financials, we continue to be very active on the market, sharing our thought leadership. This slide shares you 4 examples, and I will only comment one of them. I think that we focus very much on together with GSMA to impact and help the development of both existing and future standards when it comes to mobile communication. And we are very proud to be part of that and to help that and of course, also making sure that the products that we develop for the future also support the new standards that are being brought out into the market. We want to stay at the edge. We want to be relevant, and we want to make sure that our thought leadership is seen in different parts of the ecosystem out in the world. With that introduction, I would like to hand over to Ulf, who will take us through the more details of our financials. Please, Ulf. Ulf Stigberg: Thank you, Teemu. 3% growth in fixed currency for the quarter, and we report a 2% decline in reported net sales for quarter 3. Over 9 months, we also reported 3% growth in fixed currency, and we are in line with the 9 months net sales previous year. We reported 33% adjusted margin for the quarter. And for the 9 months result, we report a 30% adjusted EBITDA margin. And this is partly thanks to, of course, the net sales development, but also that our operational expenses are declining compared to previous year. And if we exclude D&A, we are in line with the cost base that we had previous year in quarter 3. We report a 16% EBIT margin for the quarter. Compared to last year, the reported EBIT margin was 13%. So it's a slight increase. But the major difference compared to last year is the development of the earnings per share, which is reported now in Q3, SEK 1.77 compared to SEK 0.18. If we look into our product area, Security Solutions, we report similar revenues in the different revenue categories. We have licenses almost at the same level. We have professional service almost at the same level and support and maintenance almost at the same level as previous year. For Network Solutions, we can see an increase compared to Q3 previous year and a sequential decrease actually in support and maintenance. But giving the increased number of new deals and solid recurring revenue, we foresee a good development of license sales going forward as well. If you look into the different product areas, we can see a growth of 9% within the Network area compared to Q3 previous year. And we are having a slight growth in the Security area, all in fixed currency, and we have a currency impact for the quarter of SEK 10 million. Looking at the 9 months report, we see a slight decline for Security and a 7% growth in Networks, all in fixed currencies. And if we sum up the core, putting Security and Network together, we report a growth of 3% in fixed currency for the 9 months period. Over to cash flow. We have an operational cash flow that's in line with Q3 previous year or a slight increase. We also can see that the investments and the buybacks are also in line. However, we have done some amortizations higher than previous year, and we are utilizing some of our credit facilities. That gives us a net cash flow that's better than last year, but mainly driven by financial items. We reported net debt of SEK 211.9 million, equity ratio of 71.1% and a net debt to EBITDA of 0.78. Coming back here to the improved financial net that Teemu mentioned initially. In the quarter 3 this year, we report a financial net of SEK 87,000. And this needs to put in perspective of that we had quite negative items in the beginning of the year. And an explanation to that is that we have a total impact for currency net of positive SEK 4 million this quarter. It's a combination of bank revaluation -- bank balance revaluations impacting us with SEK 1 million and impact from intercompany loans revaluations of positive SEK 5 million. And in the quarter, we have been active in reducing our dollar positions. We have optimized our cash balance. We also have worked harder with our global treasury to secure optimized operational liquidity. And also, we are reviewing, as we speak, our balance sheet to optimize our currency exposure in all different items in the balance sheet. And this will lead to a reduced exposure when it comes to currency fluctuations in the future. We continued with the buyback program. And in the quarter, we bought 232,000 shares for a total consideration of SEK 17.7 million. And this is part of the program that was decided by the AGM in May, and we are executing on this decision that gives us or that is on a plan of buying back up to 50 million share -- or SEK 50 million of shares until the next AGM 2026. Teemu Salmi: Good. Thank you, Ulf, for that. And we will conclude the presentation with a bit of a short-term outlook. We see that the market for us remains stable to moderately positive. And we also say our portfolio is highly relevant for the markets and the segments that we serve. I have myself spent quite some time on the road meeting quite many of our customers in Middle East and the North American region in the past quarter. And I can confirm that we are seen very strong as a partner to our customers serving both network intelligence, but also Security Solutions. We also expect to deliver on our short-term targets for the full year as we have stated since the beginning of the year. And also, as I mentioned from the first day when I started at Enea, we have been doing updates to our strategy, and we will communicate them now in quarter 4 as promised, and that content will be focusing on an accelerated growth agenda for us as a company. So we will come back with that message later on in quarter 4 of this year. So finally, our guidance stays exactly the same. We have not changed our long-term guidance or our short-term guidance. So we -- in the short term, our guidance for the year is that we will see continued growth in our focus areas, Network and Security, with an EBITDA margin in the range of 30% to 35% and a stable cash flow for the conclusion of 2025. And obviously, we're going to come back also in our strategy update with more information later on in the fourth quarter. That actually concludes our presentation, and we are now ready to take some questions. Operator, please. Operator: [Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions and closing comments. Teemu Salmi: All right. Thank you for that, operator. We have actually a couple of written questions. We will take them now as we speak. We will start with the first one. How much of cost improvement is driven by FX? Ulf, do you want to comment? Ulf Stigberg: Yes. And round figure for this quarter is that the change in FX has improved our cost level by roughly SEK 5 million. Teemu Salmi: Thank you, Ulf. We continue with the next question. Could you please comment on the organic growth and the weakness seen despite late quarter deals, has there been any deterioration in end markets since Q2? Are deal closing extending further? I would say, well, I mean, our business is very volatile when it comes to kind of single deals that we are signing. They might come in a quarter or they might slip out into the next quarter. I would say that we actually see a stronger market, like I also shared in the presentation that we see a slightly moderate positive market development. That's kind of my and our assessment of where we stand right now. Then if a deal lands in one quarter or another, that can be depending on days, right? So we still report in constant currencies 3% growth. Under these circumstances, we are not happy, but it's an okay result, I would say. So -- and we have a strong and mature pipe that we are currently working on turning into sales as well. So I would not say that we see a weakness in the market, slightly on the opposite, actually. Then we have another question with 25% R&D investments, why are you not able to deliver better growth in the last couple of years now? Is 25% R&D needed to stand still? Well, I think that the answer to the question is that we have a mixed portfolio, right? We don't only have a growth portfolio, we also have a part of our portfolio that is in structural decline that we have discussed and presented many times. I think showing our core areas that we are growing in those, not to the speed that we want and that we hope to see moving ahead that I should be clear about. But we see a 9% growth of our Network business in the quarter, which is one of our focus areas. And then in the Security business, we see a bit of slippage when it comes to signing contracts and closing deals, not necessarily that we are losing. So I think definitely, we are -- we need to spend those money to stay relevant and to continue to grow. And the ambition is, of course, to have an accelerated growth further than we've had over the past couple of years. Do we have any more? I think those are actually the questions that we have in the chat. So with that, then I would like to thank you for listening. Thank you also for your questions, and I hand it back to you, operator. Thanks for today.
Operator: " Diego Echave: " Head of Investor Relations Sameer S. Bharadwaj: " Chief Executive Officer Jim Kelly: " Chief Financial Officer Andres Cardona: " Citigroup Inc., Research Division Tasso Vasconcellos: " UBS Investment Bank, Research Division Alejandra Obregon: " Morgan Stanley, Research Division Leonardo Marcondes: " BofA Securities, Research Division Jeff Wickman: " Payden & Rygel Jaskaran Singh: " Golman Sachs Operator: Good morning, and welcome to Orbia's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Diego Echave, Orbia's Vice President of Investor Relations. Please go ahead, sir. Diego Echave: Thank you, operator. Good morning, and welcome to Orbia's Third Quarter 2025 Earnings Call. We appreciate your time and participation. Joining me today are Sameer Bharadwaj, CEO; and Jim Kelly, CFO. Before we continue, a friendly reminder that some of our comments today will contain forward-looking statements based on our current view of our business, and actual future results may differ materially. Today's call should be considered in conjunction with cautionary statements contained in our earnings release and in our most recent Bolsa Mexicana de Valores report. The company disclaims any obligation to update or revise any such forward-looking statements. Now I would like to turn the call over to Sameer. Sameer S. Bharadwaj: Thank you, Diego, and good morning, everyone. Before we begin discussing this quarter's results, I would like to thank our global employees for their continued commitment to improving business performance and staying customer-focused in difficult market conditions. Turning to Slide 3. I will share a high-level overview of our third quarter 2025 performance. Revenues of $2 billion increased 4% year-over-year and EBITDA of $295 million increased 2% compared to the prior year period. Our performance this quarter reflects subdued end markets in some of our business groups with some positive signs in others. As a result, we are reaffirming our 2025 EBITDA guidance adjusted for nonoperating items of between $1.1 billion and $1.2 billion, with results likely falling in the lower half of the range. In this environment, we are intensely focused on strengthening our leading market positions, making important progress on cost reduction and cash generation, realizing incremental profitability from recently completed investments, executing noncore asset sales and taking proactive actions to simplify and strengthen our business and balance sheet for the long-term. I will now turn the call over to Jim to go over our financial performance in further detail. Jim Kelly: Thank you, Sameer, and good morning, everyone. I'll start with a discussion of our consolidated third quarter results on Slide 4. Net revenues of $2 billion increased by 4% year-over-year, reflecting higher sales across all business groups. Revenue growth was mainly driven by strong demand in Precision Agriculture and Connectivity Solutions. Higher volume in Polymer Solutions, favorable pricing across several regions in Building & Infrastructure and strength in Fluor & Energy Materials. I'll provide a more comprehensive description of these factors in the business by-business section. EBITDA was $295 million in the quarter, a 2% increase year-over-year. Higher volume in Connectivity Solutions and a favorable product mix in Precision Agriculture were partially offset by lower resins pricing in Polymer Solutions, restructuring costs in Building & Infrastructure and higher input costs in Fluor & Energy Materials. Operating cash flow of $271 million decreased by $12 million compared to the prior year quarter and free cash flow in the quarter of $144 million improved by $2 million year-over-year. The decrease in operating cash flow was driven by lower cash generation from working capital. The increase in free cash flow was driven by lower capital expenditures, which more than offset lower operating cash flow. Net debt to EBITDA decreased from 3.98x to 3.85x during the quarter. This decrease was primarily driven by an increase in cash and cash equivalents of $132 million and an increase in the last 12 months EBITDA of approximately $7 million, offset by an increase in total debt of $26 million. The increase in debt was entirely driven by the appreciation of the Mexican peso during the quarter and included a paydown of $7 million of debt in the quarter. Net debt to EBITDA at the end of the third quarter using adjusted EBITDA to better reflect underlying earnings decreased from 3.51x to 3.42x. On October 6, 2025, Orbia redeemed and canceled the remaining portion of its 2027 senior notes in accordance with their underlying indenture. This transaction represented the final step of the completion of the refinancing of our near-term debt maturities that was initiated in the second quarter. Turning to Slide 5, I'll review our performance by business group. In Polymer Solutions, third quarter revenue of $647 million increased 2% year-over-year, largely driven by higher resins volume, partially offset by lower derivatives volume and lower resin pricing. Third quarter EBITDA of $78 million declined 13% year-over-year with an EBITDA margin of 12%. The decrease was primarily driven by lower resin pricing and higher ethane costs. In Building & Infrastructure, third quarter revenue was $647 million, an increase of 2% year-over-year, driven by better pricing across most of EMEA, Brazil and the Andean region, partly offset by lower volume and pricing in Mexico and Eastern Europe and the recently completed noncore asset divestments. Third quarter EBITDA was $76 million, a decrease of 3% year-over-year with an EBITDA margin of 12%. The decrease was driven by restructuring costs and an unfavorable product mix in Western Europe, partially offset by better results in the UK and Brazil and continued benefits from cost reduction initiatives. Moving to Precision Agriculture. Third quarter revenue was $257 million, an increase of 11% year-over-year. The increase in revenues for the quarter was primarily driven by strong demand in Brazil and the U.S. as well as higher project activity in Africa and Peru. These improvements were partially offset by declines in Mexico and Central America. Third quarter EBITDA was $30 million, an increase of 28% year-over-year with an EBITDA margin of 12%. The increase was driven by higher revenues and a favorable product mix. In our Connectivity Solutions business, third quarter revenue was $253 million, an increase of 8% year-over-year. The increase in revenues for the quarter was driven by strong volume growth, supported by increased demand in telecommunications and data center markets as well as a favorable product mix, partially offset by lower prices. Third quarter EBITDA increased 36% year-over-year to $42 million with an EBITDA margin of 17%. The increase was primarily driven by higher revenues, higher plant utilization levels and benefits from cost reduction initiatives, partly offset by lower prices. Finally, in our Fluor & Energy Materials business, third quarter revenue was $227 million, an increase of 3% year-over-year, driven by strong demand across most of the product portfolio, partially offset by constrained volume and shipment timing for upstream minerals and intermediates. Third quarter EBITDA was $64 million, a decrease of 3% year-over-year with an EBITDA margin of 28%. The decrease was driven by higher input costs across key raw materials, freight costs and unfavorable currency fluctuations, partly offset by strength in refrigerants and the benefits from cost savings initiatives. Turning to Slide 6. I'd like to provide an update on our progress in improving earnings and strengthening our balance sheet as first outlined in our October 2024 business update and reviewed again last quarter. First, by the end of Q3 2025, our cost reduction program achieved $169 million in annual savings compared to 2023. This represents 68% of our target to reach a savings level of $250 million per year by 2027. Second, the contribution from recently completed or close to complete organic growth investments, which are primarily focused on new product launches and capacity expansions, reached approximately $35 million of EBITDA year-to-date. The goal is to achieve $150 million in incremental EBITDA per year from these investments by 2027. And finally, we have signed agreements that have generated net proceeds of approximately $83 million from noncore asset divestments as of the end of the third quarter of 2025, exceeding our full year target of at least $75 million. We continue to aim for total proceeds of approximately $150 million by the end of 2026. Before I turn the call over to Sameer, I'd like to comment on a recent change in our credit rating. On Tuesday, Moody's announced the downgrade of our debt rating from Baa3 to Ba1, largely as a result of their more pessimistic view of the chemical sector trends and their belief that a market recovery does not appear imminent. We remain focused on our plan to generate cash and reduce leverage supported by the initiatives that we've been executing on since last year. As I previously indicated, all of these initiatives are on track. The business continues to show its resilience with year-to-date adjusted EBITDA margin slightly above 15%. We also have strong liquidity with cash on hand of $991 million and availability of $1.4 billion of committed funds on our revolving credit facility. Finally, we extended all of our material debt maturities to 2030 and beyond, and we have healthy and stable cash generation from operations to service our debt commitments. We will continue to maintain an open dialogue with the credit rating agencies, investors, bankers and the general public, consistent with how we have done this over the last years, providing updates on our progress toward improving our financial ratios and strengthening our balance sheet. With that, I will now turn the call back over to Sameer. Sameer S. Bharadwaj: Thank you, Jim. Turning to Slide 7. I will now provide an update to our outlook for the current year. The underlying assumptions for the company's guidance reflect a continued subdued environment in Polymer Solutions and Building & Infrastructure, partially offset by improving conditions in Precision Agriculture, Connectivity Solutions and Fluor & Energy Materials. Therefore, we reaffirm the full year 2025 adjusted EBITDA guidance range of $1.1 billion to $1.2 billion, likely falling in the lower half of the range. The company also reaffirms its 2025 capital expenditures guidance of approximately $400 million with a continued focus on investments to ensure safety and operational integrity completing growth projects under execution that are close to revenue and being extremely selective on any new growth investments. Now looking ahead in each of our business segments for the coming quarter and remainder of the year. Beginning with Polymer Solutions, persistent weak market dynamics driven by excess supply and lower export prices from China and the U.S. are expected to continue for the remainder of the year alongside rising ethane and ethylene input costs. While the first half was marked by raw material disruptions and operational issues in derivatives, the business has now stabilized operations and is focused on running at high utilization to improve profitability and cash management control. In Building & Infrastructure, we anticipate modest growth driven by new product launches and margin expansion. This growth is expected despite persistently challenging conditions in Western Europe and Mexico. To navigate this environment, the business remains intensely focused on realizing operational cost efficiencies to further improve profitability. In Precision Agriculture, market conditions are expected to remain stable to slightly improving, supported by continued positive momentum in Brazil and the U.S. The company anticipates continued strong performance in parts of Latin America and from projects in Africa. The business will remain focused on driving growth through deeper penetration in extensive crops while maintaining a consistent emphasis on cost management and working capital improvements. In Connectivity Solutions, we expect continued volume growth throughout the year, supported by sustained momentum in network deployment, data center demand and investment in the power sector. Profitability is set to grow, driven by the benefits of cost-saving initiatives and higher facility utilization. And finally, in Fluor & Energy Materials, we expect continued strength in Fluorine markets with resilient demand and pricing expected through the remainder of the year, which will help offset input cost increases. To support margins, the business is centered on prioritizing cost control initiatives complemented by active portfolio management -- product portfolio management to maximize value creation. In summary, our near-term priorities are to deliver on our commitments, delever the balance sheet, simplify operations and focus on our core business. We aim to improve EBITDA and cash flow through cost savings and growth from recently completed project investments, complemented by cash generation from noncore asset sales. These actions will enable us to significantly improve our leverage and strengthen our balance sheet by the end of 2026 without relying on potential market recovery or further benefits from business simplification. We remain committed to meeting customer needs and generating long-term value for our shareholders. Before I turn the call over for Q&A, I would like to note that we have issued a formal statement regarding recent market rumors about the Precision Agriculture business. As indicated in that statement, the company is continually engaged in assessing opportunities to optimize its portfolio and create value for its shareholders. Operator, we are ready to take questions at this time. Operator: [Operator Instructions] And your first question today will come from Andres Cardona with Citi. Andres Cardona: Stay on the capital allocation front, I just wanted to ask a very straight question about the JV you have with OxyChem and if there is any tag right that you may eventually decide to secure to exit your investment in this particular business. And if it exists, if there is any time for you guys to trigger it? Sameer S. Bharadwaj: Thank you, Andres. As you are aware, earlier this month, it was announced that Berkshire Hathaway had agreed to acquire the Occidental Petroleum's Chemicals business, including our joint venture with OxyChem in Ingleside, Texas. Now this joint venture is important and of significant value to both parties, and we are pleased that Berkshire Hathaway has decided to make this investment. Their long-term perspective and their commitment now at the bottom of the cycle validates the belief in the long-term prospects and value of the PVC chlor-alkali sector. And so on our side, we look forward to building a strong collaborative and productive relationship with our new partners, Berkshire Hathaway. And as far as any tag-along rights are concerned, no, there are no tag-along rights as such, and things continue as usual. Operator: And your next question today will come from Tasso Vasconcellos with UBS. Tasso Vasconcellos: I do have a question on the CapEx side. You did reaffirm the $400 million in CapEx for this year. I'm just wondering how do you view this level of CapEx as being sustainable looking forward? Because we have been reducing the disbursements because of the low of the cycle. So I'm just wondering if the cycle turns or if it doesn't, maybe looking one, two or three years ahead, if you should do some kind of catch-up on this CapEx or if eventually, you'll be able to maintain the maintenance CapEx at this low level? That's my question. Sameer S. Bharadwaj: Tasso, thank you for the question. In fact, the way we think about capital expenditures is our first and foremost priority is safety and asset integrity that allows business continuity. And so we will not compromise on that because that can have serious consequences both from a disruption standpoint as well as safety standpoint. And so our steady-state maintenance CapEx, it varies depending on the turnarounds for the different plants in various years, but it's somewhere in the range of $250 million to $270. And anything in addition to that is basically completing projects that we have already started so that they can get to revenue as soon as possible. And we would be extremely selective about any growth capital investment while we are going through the bottom of the cycle, right? And so our expectation would be to not compromise on maintenance CapEx and be super selective on growth CapEx going forward. Operator: And your next question today will come from Alejandra Obregon with Morgan Stanley. Go ahead. Alejandra Obregon: Hi. Good morning and thank you for taking my question. I actually have 2. The first one is on your optimization program. I was wondering if you can elaborate on what has been achieved so far? Where do you think there is more room for 2026? And if there's any region or any division that you believe could be optimized more for the coming year? And how should we think of it? And then the second one is on the Fluorspar division. I was just wondering if you have observed any recent change in the supply chain of fluorspar or maybe HF among your conversations or with your customers and competitors. This in the context of tightening export policies in China and of course, the increased scrutiny over critical minerals. It's clear that fluorspar is gaining some recognition, I have to say, as a strategic resource. So just wondering if you think that Mexico and Orbia could emerge as a relevant partner or a more relevant partner for the U.S. Sameer S. Bharadwaj: Okay. Well, look, I'll let Jim respond to the first question, and I can complement that as necessary, and I'll take the second question. Jim Kelly: Thanks, Alejandra. Appreciate the question. In terms of the optimization efforts, as I mentioned during my comments, the 3 key legs of the program that we announced a year ago are very much on track. So the cost reductions of $169 million achieved cumulatively over the -- since 2023, so over the past couple of years, with $250 million. And I would say at this point, honestly, $250 million plus being the objective by the time we get to 2027. We continue to look for alternatives and are proactive about continuing to drive cost reductions across all areas of the business. And secondly, we talked about the generation of EBITDA through already implemented or as Sameer calls it sort of near revenue growth projects that we've been driving, and that is on track to generate another $150 million of EBITDA by the time we get to 2027. And then the third element being the cash generation from the sale of noncore assets, where we've said we would generate approximately $150 million or potentially even more through 2025 and 2026, and we are ahead of schedule on that. We mentioned already having achieved about $85 million on that so far through this year relative to our target of $75 -- so that is well on track. And I believe that there are additional alternatives that we can be executing as we go through the remainder of the period of the next couple of years to continue to drive the delivering plan that we've stated. And important to note that as you see the results of that is in the third quarter, we did see leverage come down, as I noted in my comments from 3.51 to 3.42, and we would expect that process to continue over the remainder of this year and through next year. So I think we are beginning to see the results of that, and we'll continue to be aggressive in finding ways to continue that process. Sameer S. Bharadwaj: So as far as your second question is concerned, Ali, Fluorspar is on the list of U.S. critical minerals. -- and Orbia maintains its position as the global market leader in fluorspar supply. This competitive edge is difficult to replicate due to the unique assets Orbia controls and its exclusive rights to operate these critical resources in Mexico. So in that context, we expect the fluorine chain to continue to remain tight through the course of the decade with growth in new applications such as lithium-ion batteries and semiconductors. And the Mexico-U.S. corridor will play a very important role in securing that value chain for the U.S. So you're absolutely right. This is very important to us, and we are very well positioned to take advantage of this. Alejandra Obregon: And perhaps can you remind us of your utilization in your fluor plant in San Luis Potosi at the moment? Sameer S. Bharadwaj: So the mine actually is running at -- we are basically producing at maximum output. There have been some constraints with respect to the optimization of the tailing circuit and the water circuit, and we have been optimizing that over the last year with new technologies, and that will allow us to increase the output even more next year. But the bottom line is we sell every fluorine atom we produce. So we are completely maxed out. And our strategy is to place that fluorine atom in the highest value segments and the most profitable segments down the chain. Alejandra Obregon: Okay, Thank you very much. Sameer S. Bharadwaj: Thank you. Operator: And your next question today will come from Leonardo Marcondes with Bank of America. Please go ahead. Leonardo Marcondes: Good morning, Thank you for picking my questions. I have 2 from my end and the 2 are regarding the Netafim, right? So you mentioned the noncore asset sales, right? But could you maybe provide a bit better color on what you're thinking about the sale of core assets, right? How relevant this is for you nowadays? If you guys -- if this is something that you guys are considering? And the second question, this one is more related to Netafim, right? I mean when you bought the assets in 2018, right, and the first time you disclosed the company's EBITDA, I mean, Netafim's EBITDA was in 2019, the EBITDA was around $190 million, right? So if you guys could do a small analysis of what happened with Netafim over the past years that lead to a drop in profitability and drop in EBITDA as well. If you guys see any micro or macro trends there, I mean, this would be very helpful. Sameer S. Bharadwaj: Okay. Leonardo, let me address both of your questions here. In terms of noncore asset sales, what we call noncore are these small sales of smaller businesses or segments that are not strategic to us long term or sale of land buildings and machinery. And these are relatively small amounts. And as Jim said, we executed on about $83 million of noncore asset sales this year. With respect to Netafim, right, we are aware of certain recent media reports and market speculation concerning a potential divestiture of the business. Now we are continually engaged in assessing opportunities to optimize the company's portfolio. And we don't comment on market rumors on speculation. We are obviously committed to providing material information to the market in accordance with our disclosure obligations and regulatory requirements. We continue to assess ways in which potential changes to our portfolio could on our focus, reduce leverage and create significant shareholder value. And this includes considering divesting in whole or in part businesses that we determine are not an optimal fit within our portfolio or that would create more value under a different owner. Any such process would be done deliberately on a time line we determine. Our focus remains building a strategically focused, highly synergistic portfolio going forward with a single-minded dedication to creating value for our shareholders, okay? Now in terms of what happened to Netafim over the last several years in terms of profitability, Netafim's profitability at its peak was around in the mid-180s, around $180 million, $185 million. And back then, the market, particularly in the U.S. for our traditional heavy wall market and also in Europe were very strong. And these heavy wall crops typically are almonds, pistachios, walnuts, the entire greenhouse market in the Netherlands, where all the major greenhouses use Netafim equipment. And that took a significant hit after COVID, okay? So there were blockbuster years. There were huge inventories created, supply chain restrictions prevented exports of these materials. And then there was a significant slowdown in our traditional heavy wall markets. and that led to a decline in profitability. And the breaking out of the war in Europe had energy costs go through the roof and that impacted the greenhouse market, the drip irrigation equipment that we sell into greenhouses in a very significant way. We compensated for that by growing in new areas, in particular, the thin wall market, which is used for a broader fruits, vegetables and seasonal crops. And we have had tremendous growth in volume in the thin wall segment, but that comes at a somewhat lower profitability and wasn't enough to offset the decline in profitability in the heavy wall segment. Now what we have seen in the past 12 to 18 months, and you've seen a consistent improvement in Netafim's performance over the last couple of years, -- and we have also been focused on reducing costs, optimizing the footprint, focusing on cash generation. There's a huge focus on cash flow generation within Netafim. And you can see that in the results. And we are beginning to see some of our core markets like the United States, Mexico come back. And in particular, Brazil is an exceptionally strong market, driven by growth in coffee, cocoa, oranges, citrus and a number of other crops, okay? So I think we are in a very good trajectory to continue the improvement that we see in Netafim and with a strong focus on cash generation. But essentially, that's what happened with that business over the last several years. Leonardo Marcondes: That’s very clear, Thank you very much. Sameer S. Bharadwaj: Yes. And the thing to note is the thin wall market that we have created is completely complementary. So when the heavy wall market recovers, and we are beginning to see signs of that, that will be all additive. And so there is tremendous operating leverage in Netafim's earnings going forward. Leonardo Marcondes: Thank you. Operator: [Operator Instructions] And your next question today will come from Jeff Wickman with Payden & Rygel. Jeff Wickman: Thank you for the call, Could you provide an update on where you think leverage will be at the end of this year and then at the end of 2026, please? Sameer S. Bharadwaj: Jim, do you want to take this question? Jim Kelly: Sure. I'd be happy to do that. Thanks for the question, Jeff. So as I mentioned, we do expect that we'll continue to see a reduction from where we were at the end of Q3. So this is -- normally, we have a seasonal reduction in working capital, in particular, on top of all the initiatives that we've been driving. So my expectation for the end of the year is we talk about the leverage based on our adjusted EBITDA. That's the one that I talked about that went from 3.51 down to 3.42. I would expect that to end in the roughly 3.2 region by the end of the year. And we continue to drive significant reductions as we go through 2026. And I would expect to be in probably the kind of certainly between 2.5 and 3, probably around the middle of that range, 2.7ish, 2.8ish range, by the end of next year, based on what we see right now. Jeff Wickman: " Got it. Thank you. And then could you give us an update on what Netafim EBITDA is currently. [Audio gap] Sameer S. Bharadwaj: Jim... Go ahead. Jim Kelly: EBITDA for Netafim. So when you say what Netafim is currently in what regard in terms of their EBITDA or? Jeff Wickman: EBITDA, please. Jim Kelly: So on a year-to-date basis -- just give me 1 second. 135... So on a year-to-date basis, we are at $103 million. And we would have an expectation to be in the -- close to the $130 million or slightly above $130 million range, I would say, for the full year in that business. Jeff Wickman: Thank you very much. That’s it from me Jim Kelly: Thank you Jeff Operator: And your next question today will come from Jaskaran Singh with Goldman Sachs. Jaskaran Singh: Just a small clarification on the debt maturities that is there in the appendix. It shows a bank loan of $266 million in 2025. Is the expectation that this will be rolled? [Audio gap] Jim Kelly: Yes, I'm sorry. Yes, I did. the question now. So the expectation is, yes, that the bank debt that we have outstanding will be rolled over. We do not expect to have to pay that down. We'll speak with the banks and just roll that over. Although as we pay down our debt in the coming years, that may be one of the alternatives that we consider in terms of debt reduction, some combination potentially of that and the outstanding bonds. But the expectation right now, I would say, would be to roll that debt. Jaskaran Singh: Got it. So second question is just on Moody's. You mentioned like you are in constant touch with the rating agencies. I see that ratings are still on a negative outlook, and Moody's looks at a downgrade trigger is gross leverage of around 3.5x. I think -- so within that, could we expect any divestment that you already that is rumored? And would that lead to basically redemption of bonds? Just if you can share any thoughts on that because gross leverage as of LTM is around 4.8x, which needs to be around 3.5x for Moody's to at least stabilize the ratings at Ba1. Sameer S. Bharadwaj: I think you've already Go ahead, Jim. Go ahead, Jim Kelly: No, I was just going to say that we can't predict necessarily what other rating agencies will do. Moody's has decided to downgrade based on their metrics and their view of what the chemical sector is going to look like in the coming years. Their projections of leverage are through their model and how they view the world. We will continue to drive, as I mentioned during the comments that I made, the initiatives that we've had going that we talked about starting a year ago, but honestly, which we began considerably before the time that we had a public discussion about the sort of the 3 legs of the initiatives. We will continue to drive those things and the things that are within our control to bring our leverage down. So in terms of whether we would be looking to divest of assets to help to drive this or whatever, I think Sameer addressed that. And any potential divestiture of assets, I would say, would be largely driven by shareholder value creation and focus of Orbia's portfolio and our ongoing strategy more so than being focused just to delever. So we'll continue on the things that we control. And as you have seen, we will continue to bring the leverage down as we've already begun to do. And that process will continue over the course of the next coming years. Sameer S. Bharadwaj: Yes. But as Jim said, we have a strong plan to continue to delever as we generate earnings growth and free cash flow over the next 2 or 3 years. And any portfolio move only accelerates that effort. That's it. Operator: And your next question today is a follow-up from Alejandra Obregon of Morgan Stanley. Alejandra Obregon: If I can just piggyback on the prior question about the EBITDA for Netafim. If you can help us understand how much of that is the Netafim business and how much of that is Mexichem's legacy irrigation business? And if you were to explore alternatives around the division, would that include the whole thing? Or would that exclude Mexichem's irrigation legacy business? Sameer S. Bharadwaj: I think there's some confusion around that. I mean, at this point of time, there is no -- I mean, there is only one irrigation business. And so a long time ago, all operations were merged. And as of today, there is only one irrigation business. And Netafim is what it is, Alejandra Obregon: Got it. Understood, thank you very much. Sameer S. Bharadwaj: Yes, there might be some confusion with PVC pipe we may have sold through Wavin into the Irrigation segment, but that is completely independent of the drip irrigation systems that we sell. Operator: Okay, This will conclude our question-and-answer session. I would like to turn the conference back over to Sameer Bharadwaj for any closing remarks. Sameer S. Bharadwaj: Thank you, Nick. Our business continues to show resilience in challenging market conditions. With all our actions, we have created meaningful operating leverage to increase profitability when market conditions normalize. Thank you for participating in today's call. I look forward to our next update in February. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to Norfolk Southern Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And I would like to turn the conference over to Luke Nichols, Senior Director, Investor Relations. Please go ahead. Luke Nichols: Good afternoon, everyone. Please note that during today's call, we will make certain forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or future performance of Norfolk Southern Corporation, which are subject to risks and uncertainties and may differ materially from actual results. Please refer to our annual and quarterly reports filed with the SEC for a full discussion of those risks and uncertainties we view as most important. Our presentation slides are available at norfolksouthern.com in the Investors section, along with a reconciliation of any non-GAAP measures used today to the comparable GAAP measures, including adjusted or non-GAAP operating ratio. Please note that all references to our prospective operating ratio during today's call are being provided on an adjusted basis. Turning to Slide 3. I'll now turn the call over to Norfolk Southern's President and Chief Executive Officer, Mark George. Mark George: Good afternoon, and thank you for joining us. With me today are John Orr, our Chief Operating Officer; Ed Elkins, our Chief Commercial Officer; and Jason Zampi, our Chief Financial Officer. We delivered another quarter that demonstrates the team's ability to deliver a quality railroad. Throughout the year, we have highlighted our continued commitment to focus on what we can control, running a safe, efficient network, improving processes, delivering solutions for our customers' most pressing needs and supporting our people. That remains the approach today of our 20,000 Thoroughbreds who deserve thanks and credit for our performance. On safety, our train accident and employee injury rates continue to improve. That's the result of disciplined execution and continued emphasis on training. Safety is a core value, and we will never compromise on it. On service, our network is running well. Terminal dwell and car velocity remain stable, and we once again saw fuel efficiency gains, attaining a new quarterly record. These improvements are integral to delivering reliable, high-quality service for our customers, and they position us to sustain performance over the long term. Safety and service together form the foundation of our ability to serve customers at the highest level. And what truly powers this progress is our people. Across the railroad, the Thoroughbred team shows up every day with focus and determination. We are committed to building the next generation of railroaders because careers in rail continue to be among the best in the country. As we noted at recent conferences, the third quarter volume surges forecasted by partners didn't materialize as expected, and the truck market remains oversupplied. Ed will detail this. So while revenues were short of where we expected, the continued success on productivity was evident in the quarter. We also had a large land sale at the end of the quarter that helped neutralize other adverse impacts that Jason will cover. While not big in Q3, we started to see some of the revenue erosion from competitor reactions to the merger announcement. We expect the impact to grow in the fourth quarter and continue to be a challenge over the near and medium term. As we make progress towards getting approval for the proposed merger with Union Pacific, our focus remains squarely on ensuring momentum on safety and service while executing on our strategy and delivering for our customers. We've got a lot to be optimistic about. We're on a good path, and we're doing what we can on the controllable side to prepare for growth. I'm proud of the progress we've made, and I'm even more excited about what's ahead. With that, I'll turn it over to John and the rest of our leadership team to walk through the quarter in more detail. John? John Orr: Thanks, Mark, and good afternoon, everyone. Turning to Slide 5. I want to recognize the deliberate transformation Norfolk Southern has delivered in safety, service and cost structure from 2024 and throughout 2025. This progress reflects a culture of accountability and disciplined execution, powered by generational leadership investments that position us for long-term success. We're creating a network that is safer, more reliable and more efficient, shaping the future of rail and setting the standard for what rail service can and should be. Our PSR 2.0 transformation is delivering measurable outcomes that matter to every customer and stakeholder. For example, Amtrak host delays across Norfolk Southern improved 26% year-over-year, underscoring our progress and unwavering commitment to precision, reliability and the standards that define Norfolk Southern. In Q4, we're going live with clarity camps, the next cornerstone of the Thoroughbred Academy. The curriculum elevates PSR 2.0 business excellence. And importantly, as we transform safety and service standards, we're simultaneously delivering productivity gains, creating a clear and steady direction across the organization. All these efforts are aligned to our broader commitment to deliver meaningful expense controls while operating a reliable and more resilient railroad. Relative to 2024's full year results, our year-to-date safety figures demonstrate FRA personal injury ratio has improved 7.8%, and our train accident ratio has improved 27.7%. Our team will never be satisfied with our safety results. We always strive to improve on our best performance. That's why my team and I are spending more time in the field this quarter, staying close to the work, staying close to our people and staying focused on what drives results. Turning to Slide 6. We achieved stronger service and volume growth this quarter while operating with fewer assets and resources. That discipline is clearly reflected in our financial outcomes. GTMs increased 4% year-over-year, which were accurately delivered with 6% fewer qualified T&E. Our revolving zero-based train service plan continues to drive cost control, precision and productivity. Key highlights include a 19% reduction in recrews, a 12% decrease in intermodal train starts since the beginning of the year, alongside a sequential improvement in intermodal service composite and a 5.5% merchandise carload growth. Turning to Slide 7. These results reflect decisive actions to balance quality service and efficiency. We're on track to exceed our expense reduction and broader financial commitments. And we're not stopping there. The team is stretching for more, raising our efficiency targets to a 2026 cumulative goal in the range of $600 million. Operational metrics confirm the effectiveness of our fuel management strategy, which delivered an all-time quarterly record of 1.01, a 5% year-over-year gain. This reflects both immediate savings and a durable path to greater efficiencies. Sequentially, train speed rose 3%, allowing us to store more locomotives while running a leaner, more reliable fleet. Turning to Slide 8. Rapid deployment of next-level field technology is part of a broader strategy to transform inspection, reliability and overall performance. In the photos, you can see a new state-of-the-art wheel integrity system being installed near Burns Harbor, one of our busiest corridors. We're advancing machine vision at speed across our network. In the quarter, we deployed a new inspection portal in Virginia, bringing the total now to 8. We positively identified over 40-wheel integrity defects, and we've launched 6 new algorithms with 9 more already in development. The data from these field technologies feed our war room that are staffed with craft employees, managers and senior executives, facilitating real-time problem solving and cross-functional collaboration. We're leveraging digital tools, operational analytics and ecosystem level coordination to elevate our capabilities and operation and safety excellence. Wayside stops are down 6.7% year-over-year and 36% year-to-date, even as we expect 5% more axles daily. This quarter reflects that our operational fundamentals are sound and are supporting a strong service offering. This is made possible by the commitment and resilience of our railroaders across the entire enterprise. At Norfolk Southern, results matter, and our people continue to deliver with confidence and momentum. With that, I'll turn it to you, Ed. Ed Elkins: Thanks so much, John. Now let's go to Slide 10, where you'll see that we achieved 2% year-over-year growth in both revenue and RPU in the quarter. We see several dynamics at play in the business portfolio. We have strength within our merchandise markets, partially offset by meaningful declines in export coal markets. We see reduced fuel surcharge revenue and softer-than-expected intermodal volumes. Overall, our volume for the third quarter finished flat despite gross ton-mile growth of 4%. Let's look inside of merchandise. Volume grew 6% from a year ago, driven by our auto, chemical and metals and construction markets. Revenue less fuel grew 7%, which underscores our pricing discipline and our volume performance. However, we had mix headwinds from growth in commodities such as natural gas liquids, sand and scrap metal, which diluted our overall RPU performance. In Intermodal, we're navigating the complexity of ongoing trade and tariff uncertainty, persistently abundant highway truck capacity and outside factors, including competitor responses to our merger announcement, which caused volumes to decrease 2%. Intermodal revenue less fuel and RPU less fuel both grew, reflecting the overall stable pricing environment right now. Now here, I have to note that year-over-year RPU comparisons benefited from an abnormally high volume of empty shipments ahead of the East Coast port disruptions last year. Let's turn to coal, where weakening seaborne coal prices drove RPU less fuel lower by 7%, and this was the most significant revenue headwind for the quarter. We enjoyed stronger demand in our Utility segment, but it didn't offset the sustained weakness in export. This interaction has been playing out throughout the year, and we expect it to persist. Let's go to Slide 11 and talk about the market outlook. Like the third quarter, we continue to navigate a dynamic economic environment, along with competitive cross currents. For our merchandise markets, we forecast vehicle production will be challenged in part due to recent disruptions at a key material supplier to our customers. We expect this will have a meaningful impact to production at several NS-served automotive plants in the fourth quarter. At the same time, overall manufacturing activity remains mixed with output expected to grow despite the backdrop of trade and tariff uncertainty. Strong fracking activity in the Marcellus/Utica Basin is supporting demand in NGLs and sand in our merchandise markets. Looking into our intermodal markets, we expect softer import demand in the near term. This reflects the impact of tariff volatility and growing trade pressures. Warehousing capacity remains tight as inventory levels expanded at the beginning of the year ahead of tariffs and truck capacity remains oversupplied. Coal prices have remained pressured with significant uncertainty surrounding export trade. And at the same time, we're expecting utility demand to see continued support from growing electricity demand and lower existing coal stockpiles. Now these dynamics should be considered against the backdrop of our recently announced merger, which has intensified competitor activity across the industry. And as a result, we anticipate volume pressure, particularly in our Intermodal segment. And so we're maintaining a cautious outlook for the remainder of 2025. Lastly, as always, we want to thank our customers for their continued partnership and business. The entire NS team is aligned around delivering the service that our customers need every day, building trust as a vital partner in their supply chains. Now with that, I'll hand it over to Jason to review our financial results. Jason Zampi: Thanks, Ed. I'll start with the reconciliation of our GAAP results to the adjusted numbers that I will speak to today on Slide 13. Total costs attributable to the Eastern Ohio incident were $13 million, which included $16 million of recoveries under our property insurance policies. In addition, we recognized a $12 million restructuring charge in the quarter as we continue to rationalize our technology projects. Finally, we also recorded $15 million in merger-related costs, consisting primarily of legal and professional services as well as employee retention accruals. Adjusting for these items, the operating ratio for the quarter was 63.3%. And from a bottom line perspective, we earned $3.30 per share. Moving to Slide 14, you'll find the comparison of our adjusted results versus last year and last quarter, both comparisons reflecting a 10 basis point improvement in the operating ratio and the sequential comparison basically even with the current quarter. On a year-over-year basis, revenue was up, as I just discussed, but we were expecting approximately $75 million more revenue as we had guided to within the second quarter materials. Continued macro headwinds, a surge that never materialized and competitor responses from the merger announcement that started to really ramp up at the end of the quarter, all were barriers to the attainment of that expectation. Expenses were up 2% on a 4% increase in GTMs, but there are a lot of puts and takes within OpEx, and those year-over-year expense drivers are laid out on Slide 15. You'll note that the quarter benefited from higher land sales, which were $65 million more than last year. In fact, the entire variance was driven by one large sale that closed at the very end of the quarter. Another quarter of strong productivity gains also helped to mitigate both inflationary and volumetric pressures in addition to the absence of benefits recorded last year in the form of cancellation of stock awards and fuel recoveries. I'd also point out that claims expense was elevated in the quarter despite the outstanding progress we're delivering on our safety initiatives as we react to unfavorable developments on claims from several years ago in addition to claims inflation on a few incidents that we have experienced this year. So as I think about our 63.3% operating ratio for the quarter, clearly, that was aided by outsized land sales. However, we were short on revenue from our latest guidance, and we dealt with higher claims expense than what we had been experiencing. And as we move into the fourth quarter, revenue will continue to be challenged, but we are focused on what we can control, and we expect to maintain our cost structure in the $2 billion to $2.1 billion range. I'll hand it back to Mark to wrap it up. Mark George: Thanks, Jason. As you can see, there were a lot of moving parts in the quarter, but as a Thoroughbred team, we are successfully controlling the controllables. Looking ahead, macro environment remains uncertain, and we acknowledge that over the next several quarters, unpredictable demand and unique competitive dynamics will create some abnormal fluctuations in our top line. We are not standing still. Our recent Louisville announcement will create attractive volume growth as it builds out. Additionally, once the merger closes, we can provide attractive solutions for our customers, unlocking faster, more reliable service, streamlined shipping experiences and expanded access across a unified coast-to-coast rail network. These improvements will strengthen our value proposition and help drive long-term growth in our combined railroad through highway conversion. While the regulatory review process is ongoing, we remain laser-focused on maintaining strong safety performance while running a fast and resilient network. That is delivering great service that our customers have now come to expect from us. Meanwhile, we will continue to maintain a sharp focus on optimizing our cost structure. As you saw in John's section, we are making excellent progress on the productivity front and are raising our 2025 efficiency target to roughly $200 million, and this follows the nearly $300 million we achieved in 2024. I am really proud of our team for the work they've done on this. And while revenue in this environment is proving difficult to guide, you can expect that our fourth quarter cost in absolute dollars will be in the $2.0 billion to $2.1 billion range. So with that, let's open the call to questions. Operator? Operator: [Operator Instructions] First, we will hear from Scott Group at Wolfe Research. Scott Group: So Ed, if I heard right, I think you said a 2-point drag in Q3 from some business losses related to the merger. And it sounds like it gets worse going forward. Is this just intermodal? Are you seeing it in any other places? And ultimately, how much business do you think is at risk until we see merger closing? Ed Elkins: Thanks for the question, Scott. We saw that start to really manifest itself toward the tail end of the quarter, call it, September-ish. And so it's going to manifest itself until we wrap around it year-over-year. It's a minority of -- certainly a minority of the business, and it's really focused geographically to this point in the Southeast. We're working really hard to do 2 things. Number one, to make sure that we're providing a fantastic service for everybody that wants to use us. And number two, we're really leveraging the network that we have, the route structure and the terminal structure to bring freight back to Norfolk Southern that may have left for whatever reason. And so I'm pretty confident that, yes, while this is going to be a headwind for a while going forward, over the next couple of bid cycles, you'll see it start to iterate itself back toward what I would call the high-value, low-cost solution, which is Norfolk Southern for the beneficial cargo owners. Mark George: And that's independent of a merger, Scott, yes. Scott Group: And then maybe just, Jason, I think that the $2 billion to $2.1 billion of cost, it's a relatively wide range on a quarterly basis. Any sort of more help in terms of where you think we could be in that range in Q4? I don't know what is -- maybe the right way to think about it is excluding the gains was a 65.5% OR in Q3. Do you think that gets worse in Q4? Just any thoughts there? Jason Zampi: Yes. Thanks, Scott. So when I think about the expense profile going from third quarter to fourth quarter, as you mentioned, you've got to kind of normalize for those outsized land sales that we had in the third quarter. And then historically, as we move from third to fourth quarter, if you look at the 5-year average expenses are up about 1.5%. And that's kind of really what brings us into that $2 billion to $2.1 billion range, so kind of moving with that seasonality. A couple of drivers that I'd point you to. We've talked about headcount in the past, guided you to the fourth quarter 2024 exit rate, which was about [ 19,500. ] We're a little bit below that in third quarter. So that should step up a little bit as we move into the fourth. Depreciation expense always steps up as we move into the fourth quarter just as we get more capital work done and get those projects in service. And then finally, we talked a bit before about what we've done on the technology front, and we've really gone to that managed services model. So you'll see some higher purchase services expense in the fourth quarter that are being driven by that. Eventually, you should see that come out of comp and ben, but it will definitely be a driver in the fourth quarter. Operator: Next question will be from Brandon Oglenski at Barclays. Brandon Oglenski: Maybe this is for Mark or John, but how do you guys think about managing the cost structure in this environment where maybe there's some share loss and obviously some headwinds just given the trade environment, especially as you look out further, if the deal gets approved, then maybe you want to maintain some excess capacity as well. So how do you balance these differing needs as you look out over the near term and medium term? Mark George: Yes. Great question, Brandon. I think you're right. We've got to be really careful how we address this. I mean as you see, we have been trading down a bit and driving some productivity with regard to moving 4% more GTMs this quarter, while we saw headcount kind of drift down 3%. So that's a 7% spread, we're really happy with that outcome, and we're seeing actually better service and better safety performance while we do it. So we're going to be really careful here. And I think, John, maybe you can talk a little bit about the next step of cost reduction. But the other element I'd point you to, Brandon, we continue to focus on fuel efficiency, where we had a 5% gain year-over-year in fuel efficiency from all the initiatives that John has put in place. So we continue to get these mid-single-digit improvements in fuel efficiency. So labor productivity, fuel efficiency, we've been attacking purchase services, although we are making a deliberate shift to outsource some stuff in IT that will yield benefits in comp and ben. So that's why it's a little bit of an odd quarter because you do see zero volume growth on the carload side, but there is actually GTM growth. So that does require resources. And also, remember, 18% growth in autos this quarter year-over-year, huge growth. And that, of course, has some incremental volumetric costs that come with it that you'd see manifest in equipment rents. So those are the kind of things where it's a complex P&L, and we're going to be really mindful of really trying to drive those areas for productivity and efficiency while not undermining our ability to move volume at all. But John, chime in, please. John Orr: Yes. Mark, you're speaking like an operating -- Chief Operating Officer with all the detail, gives me the chance to talk a little high level. So I appreciate that. Let's just start with the fundamentals. We're moving more volume with more yield on our trains, slightly heavier trains with less crews and more overall fluidity. So using that train speed that we're generating to reduce our locomotive fleet, increase our car miles per day, decrease the number of cars it takes to create a load and doing all those fundamental things that show through to the customer and give Ed the chance to sell aggressively in whatever market he's in at the time. So those fundamentals are very sound. We are -- we have restructured a number of things, including how we manage fuel, which is showing through in sequential fuel improvement and flowing through to the bottom line. But it doesn't stop there. We've restructured how we hire people, the speed to and the quality to which they enter the workforce. So that gives us the opportunity to be more responsive, even longer lead resources and assets. So we're ready for those things. And we'll continue to improve locomotive fluidity by revamping our train service plan. I'll just say that our zero-based plan version 3 has just come out. And year-to-date, we've reduced our intermodal crew starts by 14%. Our shipments per crew start have improved by 11%. We've simplified our lean offerings and our blocking complexity. And as a result, we're really energizing how we service that product and delivering it with more resilience and capability. So that's what gives me confidence that we're going to not only stretch ourselves this year and the remainder of the year in that overall cost takeout and that financial improvement from an operating perspective and overall enterprise perspective, but even continuing that momentum into 2026 and stretching ourselves in the range of $600 million cumulative takeout. So it's going to be hard work, which is in our DNA, and we're ready for it. Operator: Next question will be from Jonathan Chappell at Evercore ISI. Jonathan Chappell: Ed, you mentioned in your prepared remarks that the coal RPU was one of the single biggest impacts on revenue. And you also said you expect the headwinds to persist. If we look at export benchmarks and even your Eastern peer last week made it seem like the coal RPU pressure would stop at least sequentially, maybe you were referring to year-over-year. Can you give us any sense to how much that may continue to step down from the third quarter level? And when you think that headwind may begin to stabilize? Ed Elkins: I think you got that right. And thanks for the question, so I can clarify. I think the export met benchmark is something like 175 right now. And I don't necessarily anticipate any material degradation from that. So on a sequential basis, maybe you go sideways, which on a year-over-year basis is still double-digit down. Same is true on the utility side for export, probably going sideways, but still on a year-over-year basis, double-digit down. And I think that's going to persist certainly through the quarter and maybe into early next year before it hopefully starts to climb out. There's a lot of uncertainty around export coal when it comes to both the met and utility side, who's going to get it or who's going to take it and where it will come from. So we're keeping a really close eye on that. Thank you. Jonathan Chappell: Great. So that revenue headwind and mostly volume, we should stop looking for RPU deterioration overall. Mark George: Well, I think persist year-over-year. Ed Elkins: Yes. Year-over-year RPU deterioration will continue. Sequentially, it should be pretty stable. And this quarter, we did start to see volume degradation as a result of the poor pricing environment. Operator: Next question will be from Tom Wadewitz at UBS. Thomas Wadewitz: I wanted to ask a little more on the topic of the competitive responses. I guess the kind of name that comes out and seems most prominent in Intermodal would be J.B. Hunt. And I just want to get a sense if you could help us think about to the extent that BN is going to exert some control here and push more business over to CSX, how much of the business do you think should be sticky to Norfolk? I recall back quite a long time ago, you had some corridor initiatives that I think are differentiated like the Crescent Corridor, just lines that maybe CSX isn't going to serve markets as well. So I just want to see if you have some high-level thoughts on what can make business with JB or Intermodal in general sticky in terms of network differences? And how much kind of risk is there of kind of BN forcing some business over to CSX? Mark George: So I think we talked about it before that more than half of our business with J.B. Hunt originates and terminates here in the East. And we continue to provide a really excellent service product to them, and we feel comfortable and confident with that, retaining that business. I think for the balance and particularly in certain geographies, perhaps in the Southeast, that's really what's at risk right now that Ed can go in and talk about. But I just want to reemphasize that one thing. About 2 decades ago, we started investing hundreds of millions of dollars to build out our intermodal franchise. We built out that premier corridor and a Crescent Corridor. We built terminals, and we have an unrivaled intermodal franchise in the East. And it's a franchise that people want to be on because it provides the fastest route for the major markets and with a terminal footprint where customers want it to be. So with time, cargo owners are going to want that business back on the NS, and we are going to work aggressively to help them get that cargo back on the NS. So Ed, please chime in. Ed Elkins: Well, gosh, I think you pretty much summarized it, but let me say this, there are a number of key lanes where Norfolk Southern offers exceptional value for customers that really can't be replicated anywhere. There's -- I would say this from experience, there's a reason why we have the second largest intermodal franchise in North America, and it's because of the superior route structure that we've built out that Mark just referenced and also a terminal network that gets you with your freight landed closer to the consumer than any other network out there. So there's lots of things that can happen in terms of pushing freight around that what I would call be unnatural. But over time, we're very confident, John and I are that we put our heads together, make sure our service is exceptional, the way it is now. We continue to partner with the right folks, we're going to be in good shape. Thomas Wadewitz: But I guess one component of that as well is just that CSX has had this major construction project and debottlenecking with their Howard Street tunnel. And so that makes them a lot more efficient North, South along the East. Is that -- like is that a significant competitive impact? Or do you think that's not -- that's kind of an impact on a modest portion of your domestic? Ed Elkins: I can't really comment on that project for them. I hope it makes them a lot more competitive with truck. Operator: Next question will be from Brian Ossenbeck at JPMorgan. Brian Ossenbeck: First, just a quick follow-up maybe for Ed. I think you mentioned that, that business -- and we're talking about here, it would come back to the network even without the mergers. Maybe you can just elaborate exactly what would have to change if it's better service or competing more on price. And then just maybe for -- on the ops side for John. When you think about fuel efficiency, I mean we've always heard it was going to be a challenge at Norfolk because of length of haul and mix and a bunch of other things, weight, but it looks like you've clearly broken through. Is that something you feel like you can get to sort of best-in-class levels with your peers? More thoughts on that would be helpful. Ed Elkins: All right. I'll go first before I forget the question. When I think about service from the West Coast into the Southeast, I think about UP and NS utilizing the Meridian Speedway as the fastest, shortest route between those 2 regions, period. There's not a better ride out there when it comes to that kind of freight for intermodal. So that's one thing. The second thing is the exceptional amount of terminal capacity that we have and expertise to back it up, both in the Carolinas, Florida as well as in Georgia, that's just going to be a force multiplier and has been. So we're confident that over time, cargo owners are going to make the right decision about where their freight is routed. I'll hand it off to you, John. John Orr: Well, I'm glad you're noting the hard work the team has done on fuel. And I won't comment on what the art of the possible may have been thought through back then, but I'll tell you right now, and as we go forward, it's a big part of the strategy that includes all of our strategic sourcing and logistics approach, including the assessment of distribution, use and consumption of the product like fuel. And the current efficiency represents a significant dollar value. And if you look at the mosaic of measures that we present to you all, we're balancing speed, locomotive productivity, the fuel burn. And we're looking at it, not how fast can we go just to get faster and to get to point A to point B quicker. We will, if that means we can use a crew at the end of that trip to use them within the yard and save money somewhere else. But as we work through fuel consumption, we want to make sure that how we manage our fuel resources is aligned to what our train service plan is. And we're always looking at that service plan. We're taking more detailed approach on each element of it, what resources we need, how much fuel we need to move the tonnage, how soon we need to get to a customer. So on a product level view, we're satisfying the contractual obligations and elevating our service metrics and how they face the customer. And we're taking that -- the nice thing is we're taking that approach in mechanical, how we service our locomotives, how we maintain our parts inventory, how we're putting stress on our engineering team through Ed Boyle and his great leadership in managing ties, plates, rail, ballast, all of those things. So across all of those things, whether it's fuel and operational resources, we're taking a really hard line approach on it. So I think we've got room to grow on fuel. I don't have any end in sight to the value we can create managing all of those components. But I can tell you, it's the tip of the iceberg as we move forward against all our enterprise resources. Mark George: And I would just add one other thing, Brian, is when I look back 6 years ago when I came in, we had roughly high teens percent of our locomotive fleet that was AC. And through those investments that we've been making every year systematically to upgrade our locomotive fleet from DC to AC, we're now approaching 80% AC. So that is definitely helping, provide more runway for the future that John is extracting, using the method that he's talking about. So that definitely is a driver as well, right? John Orr: Yes. And that gives us the -- just look at 2019, which was one of the bellwether years from a financial and service perspective. And right now, we're running year-to-date 23% less horsepower per ton. When you have that discipline in managing locomotives, the utilization of your power, your crews, you're reducing your stops, you're creating more fluidity, it shows up in fuel and shows up in so many other P&L items. So you're right, Mark, those investments, those wise investments are paying dividends. Mark George: But the discipline you're bringing now for the things you're just talking about is really what's accelerating the benefits and providing more runway into the future. So congratulations on that. Operator: [Operator Instructions] Next, we will hear from Chris Wetherbee at Wells Fargo. Christian Wetherbee: I guess I wanted to sort of ask about what you think is possible from an OR improvement perspective, particularly as we're thinking about 2026. So you came into this year, I think there was a revenue target around 3% with 150 basis points of productivity and then 150 basis points of OR. Obviously, the revenue side has been more challenging because of volume. We'll see how much OR you get this year. But I guess maybe the question as we go into next year, how much sort of OR opportunity do you think there is that you can control and maybe how much is more revenue dependent? So obviously, it's an uncertain environment out there. I want to get a sense of out of the $600 million of productivity, how much do you think can be translated from an operating ratio perspective as we think about next year? Mark George: Chris, thanks for the question. Look, I think what we're going to do, which is very similar to what we're doing this year is we're going to focus really hard on the controllables, in particular, those elements on the cost side. So we're going to maintain a lot of discipline on our employment levels and try to drive labor productivity for sure. We're going to focus on the fuel efficiency in every single line item in the P&L that we can control. Obviously, we get things like claims that surprise us, and Jason has talked a little bit about that and can talk to you some more about that, some of the social inflation we're seeing. But there's a lot we can control, and that's where we're going to put our focus. On the revenue, obviously, we've got some headwinds. And mathematically, that's going to probably put some short-term pressure on the OR that we're going to have to deal with. But Ed and his team are doing a great job fighting every way they can to preserve every single unit that's out there and try to grow every single unit with the value offering that we have, thanks to the great service John is providing. So we're going to do that. But I think at the end of the day, the OR is going to be an output of those 2 elements. Jason, do you want to add anything? Jason Zampi: Yes. And I would just say it's really -- if you look at our -- kind of our cost profile over the last couple of years and think about the inflation that we've taken on and the volumetric expenses, really, and thanks to what John and the team have done from a productivity standpoint, harvesting almost $500 million of productivity. That's what's enabled us to kind of keep that cost profile flat over these last couple of years. So I think you hit it right on, Mark, as we move into next year. I did just want to, for a second, talk about claims because you had mentioned it, Mark. But John, you can maybe jump in and talk a little bit more about what you guys are accomplishing from a safety perspective, which I think is really remarkable progress. But on the cost side, claims is always very volatile, and we see that quarter-to-quarter. But what we're seeing right now is the resolution of some older claims. And while the frequency is going down, we're experiencing higher cost per incident to close out those claims. So over recent years and quarters, we've seen pressure on that claims line as both the insurance rates increase, but also we're facing the same type of social inflation that you're seeing across the transportation sector. But John, maybe a little color on what you guys are doing to mitigate the number of incidents. John Orr: Yes. And we've said it. Our safety from an injury and accident perspective are taking on a really strong momentum. And we're continuing to invest in our safety camps. I've mentioned it before on these calls, our Thoroughbred Academy has got a component of safety and safety leadership. We've processed over 2,500 leaders through that program who have now had a more capable way of approaching our workforce, building the environment and skills that are necessary. And you couple that with the investments we've made in technology and, yes, a great story. We had broken wheel derailment with a train that had come on us for 1 mile. And we, as a leadership team said, there's got to be a better way. And very rapidly through the work we do with Georgia Tech and our portal systems, we created a wheel detection device that gives us -- identifies wheel integrity on all of our trains that pass through those portals. It was so effective that we made a suitcase version, a mobile version, and we're putting it into the ingress and egress of our hump yards and other high-density corridors to give us a good view to insulate ourselves from something that is not ours. Most of it is on foreign cars. And it's been really effective so far. We've -- I would say using my own language that we've prevented over 40 derailments by the detection that we've had with these wheel inspection devices that didn't exist a year ago. That ability to take ideas, understand the business, convert them into actionable items and then put them into field use at scale is a testament to the commitment we've got on safety and how we can really influence line items that you're talking about and solve them at the root cause. Mark George: And Chris, I just want to come back to one other thing as we look to '26. So obviously, we're going to work on controlling the controllables on the cost side. But of paramount importance in 2026 is for us as an enterprise to continue this quest toward improving and preserving a very safe railroad. We cannot have a misstep. Similar to that, we have to maintain outstanding service for our customers. We cannot step back from that. Those are the 2 most important things. We're going to control costs, but those 2 things are of paramount importance. And I would say the other thing is really the preservation of employment and retention because we have to go into this merger with talent to ensure that it succeeds. So that's where our focus is. And like I said, we're going to fight like health for every unit and every dollar that's out there, but let's not lose focus on the safety and service elements, which are high, high priorities for us. Operator: Next question is from Richa Harnain at Deutsche Bank. Richa Harnain: So sorry to beat a dead horse, but I also wanted to talk about the revenue erosion you expect from competitor reactions. First, I wanted to confirm that this was ring-fenced to intermodal. And then I guess, what is really hindering your ability to compete? I know you enhanced your partnerships with UNP in interim, for example. Mark, you just reminded us today about the hundreds of millions of dollars invested in Intermodal over the past 2 decades to make for a very strong product. So I guess I'm just confused on why you would be challenged just because you're pursuing a merger. And then is your competitor winning on price? Or is it something else? I mean you said it's not Howard Street. So maybe just elaborate a little bit more there. Mark George: That's a great question. Ed? Ed Elkins: Sure. Well, let me start with your first question, which is, yes, it is confined to intermodal and specifically to domestic non-premium intermodal. And I can't talk about or address why other entities contracts may or may not allow for certain things to occur. But I can tell you that we're competing vigorously, both from a price perspective in a market that's been down for 40 months, but also from a service perspective. And John and I are laser-focused on the route coming out of L.A. across Shreveport, Meridian Speedway and into the Southeast. And we have a great team operating our 2 terminals in Atlanta, our 1 terminal in Charlotte, our other terminal in Greensboro and the one in Jacksonville that are not only poised to handle the freight we're getting today, but can accept more frankly. So that's the landscape. And again, like I said, I think over the next couple of bid cycles, as those beneficial cargo owners look at the value that they're receiving from the service that they are getting from whoever they're getting from, we're going to offer a very compelling case for them to come back to a network that makes the most sense for them. John, do you have anything to add there? John Orr: I would just emphasize that our customer-facing composite standards are extremely high. We're committed to delivering them. And we've got resources, we've got assets, and we've got a corridor that's poised and ready for growth. And we're going to deliver regardless. Ed Elkins: Yes. For every customer that is able to use Norfolk Southern, we're open for business. Mark George: And look, again, I'll get back to the fact that when we control the relationship entirely with our customer base in our region, we're doing great. But when it's an interline arrangement and the contract may not be specifically through us, that's where we're seeing some of these challenges. So this is really kind of interline only. That's where it's -- that's where we're seeing it. Operator: Next question will be from David Vernon at Bernstein. David Vernon: I guess, Ed, sticking on this topic, can you put a finer number on kind of what the quarterly run rate should be down, assuming nothing else changed in the business from where we're exiting kind of 3Q, just to help us kind of better understand what's in that model. And it sounds like you're saying you guys can go market that against that service and maybe get some of that traffic over time. What's the risk that this gets worse, right? I mean it sounds like you're saying you're going to go back and try to go direct to the BCOs presumably with another IMC to pull back some of that volume. Is there -- do you get worried at all that maybe there's another shoe to drop as far as kind of the volume that's been lost? Ed Elkins: Well, it's a lot like my golf game. It could always be worse. But I would say this, we're working really close with all of our partners, including ones that may be affected with this to make sure that we're offering exceptional value for them in places where we can do that. And there are places across our network that I would argue we offer services that really no other railroad can replicate. Quantifying, it's probably a little bit difficult. You saw what the effect kind of was really on a portion of a quarter. So we'll see from here. And again, it's not like we're in a super healthy truck freight environment where there's a lot of lift right now. So the whole world is struggling when it comes to freight. This is one other -- one more headwind being applied to the portfolio, but we're very confident in the service... Mark George: We should reiterate, it's in the third quarter, it wasn't the majority of the challenge in intermodal. It was on the margin, so therefore this -- this will build in the fourth quarter and in the first quarter. And that's where it will take us like you said, a couple of big cycles, we should end up getting it back. But we're going to feel the pain here for the next handful of quarters, yes. Operator: Next question will be from Stephanie Moore at Jefferies. Stephanie Benjamin Moore: Maybe talking a bit about your plans currently or your strategies to mitigate potentially any integration risks that we should see with the integration of the 2 networks. Clearly, you've made tremendous efforts from a service standpoint over the last several years and UNP, as we all saw earlier today, also at a really strong point. So I wanted to just talk, again, hear your view how to early on mitigate any of that integration risk or network disruption that could come as a result of the merger. Mark George: Yes. I think that's one thing Jim and I are very, very aligned and clear on is that we cannot afford to have any integration hiccup or challenge. So we're going to take our time and do this the right way. We're going to learn from the lessons of the past, and we're going to study that carefully. And we're going to kind of do a lot of benchmarking and leverage the talent we have on both teams to start planning when that's appropriate and observing what it is we can do from a systems perspective, and then even from a technical perspective. We're going to do this very, very deliberately. It's an ultra-high priority for us when we do bring these companies together to ensure that the integration is done right. John? John Orr: Yes. Mark, I've been through these potential mergers before, and I'll let those results speak for themselves. But merger or no merger, leadership matters since early 2004 and through to -- throughout 2025. This team has successfully delivered our PSR 2.0 transformation, which has been building the momentum and producing irrefutable value. And we had to navigate complexity, ambiguity and even adversity. It works in all business environments. And we're going to continue to invest in our generational leaders, elevate our service. We're going to continue to stress the plan, remove waste and deliver more volume with fewer people, fewer locomotives, fewer cars and less fuel. So really, it comes down to the fundamentals. As I said in my prepared remarks, the fundamentals are sound. And from that stability lends the opportunity for the development of an integration [ plan. ] Mark George: Yes. I think, again, it gets back to my response to Chris. We've got to go into this merger, both of us really operating well. And that will certainly ensure a good foundation for integration. And right now, we're both in strong positions in the way our safety and our service metrics are yielding. And that is important to maintain because once we come together, we're coming together from a foundation of strength, we can integrate a lot easier. Operator: Next question will be from Bascome Majors at Susquehanna. Bascome Majors: As you think about the competitive response, what conviction do you have that some of what's happening in intermodal doesn't bleed into the carload side of the business? And maybe aligned with that, 3 months in post announcement, like what conversations are you having with your large industrial carload customers? And do those skew optimistic or cautious? Ed Elkins: I appreciate the question, Bascome. I would categorize it in a couple of different ways. Number one, we've built a firm runway of success here when it comes to our carload service. And of course, that's the #1 thing that our customers are looking for on that side. They want that conveyor belt that moves at the same speed all the time with little variation. And John and his team have done a really good job of building that resiliency back into it. Number two, and I think this is kind of tooting your own horn but I can't help it. We're known for being in a relationship business. We are a relationship company, and we've built strong partnerships across the board with our big industrial customers. They know us, we know them. And I can say hi to them on this call. We -- they know us and they know the way that we do business. And I will tell you that they are curious, of course, to learn more about what's going to happen in the future, but they're confident that with us being a part of the equation that they're in good hands, so to speak. Now in terms of any other erosion, it's a competitive landscape. We'll see what happens. We're competing every day to try to get more, so is everyone else. We'll see where that part goes. But I think that combination of relationships and good service is a very good defense for us. Operator: Next question will be from Jordan Alliger at Goldman Sachs. Jordan Alliger: Just wanted to -- you gave some good color around the coal yields, intermodal. But maybe thinking through sort of like total yields or revenue per carload as we look ahead to the fourth quarter, maybe talk about some of the puts and takes overall, whether it be core price, mix, et cetera. Ed Elkins: I appreciate it. I'm very pleased with where we've landed with our price plan this year so far, and I fully expect that to continue for the rest of the year. So our pricing plan is intact. And I would say that we're in good shape there, particularly versus inflation. When I look at the mix piece, we're going to see more utility. We'll probably see a little bit less on the export side, and then you got erosion in the RPU for the coal piece because of that seaborne price. There's going to be a little bit of a mix headwind. On the merchandise side, we've already highlighted that natural gas liquids, sand, even some metals markets in terms of scrap, that's diluted the RPU some. But I will tell you that probably the biggest challenge we're going to have from where we've come from might be on the automotive side, where we've seen that one big supplier to one of our big customers have an issue. And so we expect that there'll be a little bit of wind taken out of the automotive side, so to speak, when it comes to the volume piece, and that's to go along with everything else. I hope that helps. Operator: And at this time, ladies and gentlemen, I'd like to turn the call back over to Mark George. Mark George: Okay, everyone. Really appreciate you dialing in this evening. Just to summarize, we're running a really good railroad right now despite the uncertain macro environment that's ahead and obviously, the increasing competitive pressures. So our top line may be volatile going forward, but we are absolutely committed to safety, to service and maintaining our cost structure. And we are going to fight like hell over every available unit and dollar rest assured. There's a lot of opportunity on the horizon with our proposed merger with UP, and that's going to yield huge benefits to our customers as well as our country. So we thank you for your time this evening, and take care. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Jean Poitou: Good morning, good afternoon, good evening. I'm Jean Laurent Poitou, the Chief Executive Officer of Ipsos, and I'm delighted to be joined by you in presenting our third quarter results for the year 2025. I'm joined by Dan Levy, our Chief Financial Officer. Over the next 45 minutes or so, I will start by sharing a few observations about what I've seen since joining Ipsos last month. I'll share a little bit about myself, my background, and I'll talk about a few of the beliefs on which we will ground our strategy for the next few years. Dan will present our results, and we will open up, of course, for questions-and-answer session. Let me start with a few observations regarding what I've seen since joining Ipsos and spending time across various geographies with our clients, with our technology and digital partners and most importantly, with our teams. First of all, Ipsos has a unique position as an independent leader in market research. One of the characteristics that struck me most is the global reach and diversity of geographies, of sectors, of services we offer. No other firm have this combination of looking at, in particular, the people as citizens, as patients, as clients or customers who experience the channels and products of the companies we serve. That is combined with a long history. Ipsos is actually celebrating its 50th anniversary this year, which on top of the legacy it gives us, provides us with unmatched depth, breadth and length of data, which is the fuel without which no technology, digital and particularly artificial intelligence-based solution can be trained. The other thing I've been very impressed with is the robustness and diversity of our cadre of close to 20,000 people ranging from sociologists, project managers, researchers, data engineers, data scientists, field interviewers and all the support functions. Ipsos has a unique diversity of talent. I've also been impressed in discussing with clients, also with technology partners, digital solution providers that we work with and leverage with the trust and respect that Ipsos has in our industry. And that trust, particularly the trust from our clients, which materializes in the long-term relationship we have with many of our largest customers, is one of the foundations on which to build our future sustainable profitable growth. And then finally, we have the means to our ambitions. We have the financial profile with growth, and we will talk about that some more as we talk about our results; profits and cash, which are allowing us to have the wiggle room to invest or repurpose some of the existing investments into what we believe is critical to accelerate our organic growth in particular. So we have the means of our ambitions. However, we cannot rely on what got us there. My experience, which I'll talk about in a minute, shows me that it always is critical to be able to change and have the courage to change, in fact, at the moments when we are successful. There's no room for complacency in this rapidly evolving market. And in particular, as I think about the main 2 things I want to focus on, one, while our growth has been steady, the organic component of that growth does need to accelerate. It is absolutely critical. Second, I strongly believe that being a technology-enhanced professional services firm means that we need at this point of inflection in how technology, digital solution, artificial intelligence change the way many industries evolve. We must embrace this even more. There are very solid foundations on which to build, and we need to accelerate. We need to accelerate with speed as the main thing our clients are demanding of us and scientific rigor as the absolute mandatory ingredient. Without which, our clients won't trust the insights that we provide them based on the combination of what we learn from the real-world respondents we interview and mobilize and the data, including synthetic respondent that we leverage. So my beliefs in what will guide our direction moving forward. We will continue to be the diversified firm we are. We will have this unique advantage of leveraging the history of data that we can rely on and the breadth and depth of data so that we can train models and provide insights that are usable and actionable at speed with scientific rigor. And then we will continue to leverage the fundamentals of rigor and discipline, which I'm very clear are needed more than ever to drive the sustainable profitable growth I mentioned. I have the background to deliver on these ambitions. I come from over 3 decades of being a consultant, but more importantly and significantly over 2 decades being a leader in the professional services industry. I have a very international profile and background. I spent some of my youth in the U.S. I was an expatriate in Asia, based in Tokyo over a number of years. I've worked and lived across a variety of European countries. I understand the differences in the markets we serve from the U.S. to China, from Europe to Asia Pacific. I'm also a very growth and innovation-focused leader. And I believe that growth through innovation is, as I just touched on briefly, a key ingredient of what is going to drive Ipsos moving forward. Now I will be able to talk more about how those ingredients materialize in a strategy and financial trajectory for the years ahead. In January as it's pretty clear that with just a month or just over a month, in fact, under my belt at this point, it would be unreasonable to do it right now, even though I have the luck to be leveraging a lot of work that has gone on into building the strategy that I will disclose on January 22. In terms of what I will do over the next few weeks, I just mentioned that finalizing the strategy is absolutely critical. You all want to understand what we will be investing in, how we will continue to leverage mergers, acquisitions, but also partnerships as a way to fuel our growth as Ipsos historically has with over 100 acquisitions throughout its 50 years of history. I will be spending a lot of time, as I've already started to, in the field, meeting with the people, meeting with the clients where the action actually means that I will be able to get the best sense for what is critical in our future success. And then while we work on the long-term strategy, I will be raising the bar on execution on a few areas of rigor and execution discipline where it is absolutely critical that we get it right now and not later. So with that, let me hand it over to Dan, who will present our results for the quarter. Dan? Dan Levy: Thank you very much, Jean Laurent. So Ipsos posted a good performance in Q3 with a total growth in Q3 of 7.6%. And as you can see, an improvement in organic growth, 2.9%, compared to Q1, which was minus 1.8% and Q2, 0.7%. If we look at the first 9 months of the year, we posted a EUR 1.8 billion -- nearly EUR 1.8 billion revenue since the beginning of the year with a total growth of 3.6%, organic growth of 0.7%. Obviously, FX effect with negative impact, which is mainly linked to the depreciation of the dollar and a few other currencies against euro and the scope effect of around 5%, which is mainly coming from the acquisition of BVA of infas that we did since the beginning of the year. The situation is improving in the U.S., where organic growth since the beginning of the year amounts to 0.9%. And the U.S. is still a bit of a tale of 2 cities. Excluding Public Affairs, we are growing organically by 3% since the beginning of the year, and this is on the back of improvement in the pharma sector, good performance with CPG clients. But on the other hand, we do have a tough political context in the U.S., as you all know, with the DOGE at the beginning of the year and the shutdown that has now happened a few weeks ago, and we don't know how long it is going to last. And all of this, obviously, is continuing to impact our Public Affairs business, which is down by 15% since the beginning of the year. We see a good improvement and growth improvement across all regions in the third quarter. I've already spoken about Americas. But if you take EMEA, EMEA is growing by 10% as a total growth on the back of the acquisition of infas and BVA. Organic growth at the end of September is 1.6%, which is a good performance given the tough comparative that we had last year. And only on the third quarter, we are growing by 3.2% in EMEA. We see good performance in Continental Europe but also in Middle East, but this is partly offset by the situation in France, where, as you know, there is a lot of political instability. France is down because of this political instability and Public Affairs by 4%. If we were to strip out the Public Affairs business, France would be in slight positive growth. In Asia Pacific, we see a slight positive growth in China. But again, this is offset by the Public Affairs business in several countries in Asia Pacific, particularly in Australia, New Zealand and India, where there have been, either in '24 and '25, general elections and sometimes tough budget constraints. If we now move to the performance by audience, we see good performance across most audiences, but obviously, the performance is held back by our Public Affairs business. Our service line, which are dedicated to consumers, clients and employees are growing by 2% since the beginning of the year. This performance is driven by our activities relating to ad testing to marketing spending optimization and to mystery shopping. The Doctors & Patients audience is growing and is recovering compared to what we saw last year in 2024. It is growing by 5% since the beginning of the year organically. This is on the back of coming -- recoming innovation on a lot of several of pathologies. But on the other hand, there are risks on these audiences, which are coming from the current discussions in the U.S. on drug pricing and also the slowdown in the drug approvals by the FDA after there has been a few thousand layoffs in the FDA with the DOGE action. As you see, the Citizens business is really driving down the performance, minus 9.2% since the beginning of the year organically. It continues to impact by political instability, and this is the case in the U.S., in France and again, in several countries in Asia. If you strip out the Public Affairs business, our organic growth at the end of September would stand at 2.3% instead of 0.7%. And if we strip it out on the third quarter, we would grow by 4.2%, excluding Public Affairs, which shows how our performance is weighing down by Public Affairs and the rest of the business is doing well. We continue to see very good momentum on Ipsos.Digital. Over the first 9 months of the year, we are growing organically by 28%, mainly on product testing and ad testing. The profitability of Ipsos.Digital is twice the profitability of the group, and we target around EUR 140 million of revenue on Ipsos.Digital for 2025. So at the end of the third quarter, you have understood that the group posted a solid performance among the private sector clients, but the group organic growth is being impacted by our business on Public Affairs on the back of political instabilities, many general elections, budget constraints. And as a consequence, we revised our organic growth target to around 0.7% for 2025. Our operational discipline and financial discipline enables us to maintain and confirm our operating margin at around 13% at constant scope. This is excluding the temporary dilutive effect of the acquisitions of BVA of infas, which are estimated at around 60 basis points for 2025. I thank you for your attention. And now I hand over to Jean Laurent for some concluding remarks. Jean Poitou: Thank you, Dan. And I would like to emphasize what impresses me most in today's discussion, which is the growth trajectory, starting the year with minus 1.8% in the first quarter all the way to 2.9% in the quarter we're announcing today, which is a number that Ipsos hasn't reached in quite a while. And I think it's important to note that. And the other thing that is very important, as we all think about the impact that several disruptions, particularly digital AI and technology disruption may have in our markets. Our private sector activities, the ones where probably the innovation intensity is one of the highest, continues to grow quite significantly with 2.3% year-to-date and most importantly, 4.2% over the quarter we're announcing today. So those are some of my takeaways and things that I wanted to emphasize. Now I have to invite you to the very important Investor Day we intend to hold in January. That was initially scheduled to be in November. But as I alluded to in my introductory comments, it's quite clear that we need a couple of months to actually make this strategy mine and finalize it with the many people who are working on it together with me at the Ipsos management and in the teams. And then there will be the announcement of our annual results on February 25. Let me now open it for questions and answers. Operator: [Operator Instructions] The first question is from Conor O'Shea at Kepler Cheuvreux. Conor O'Shea: A couple of questions from my side. Just in terms of the lower guidance in the fourth quarter, could you give us a little bit more color in terms of the -- is this all Public Affairs related? And if so, in which markets? In particular, is it mainly the U.S. because of the shutdown? Or is it also in the French and U.K. markets? And also a broader question in terms of the sort of below par growth and maybe a bit early for you, Jean Laurent, to say, but do you see any kind of deflationary kind of drag on growth from AI, from generative AI so far? Or is the weaker growth only coming from -- or mainly coming from Public Affairs? Jean Poitou: So maybe on the last question, of course, this is not the time for growth outlook in '26, and we will talk about that some more early '26. But looking back, though, what I mentioned in my closing comments is the fact that in the private sector, where we are seeing probably some of the most intense AI-driven potential disruption, it hasn't been visible in our activity levels or in the deflationary impact you mentioned. That's one thing that I want to observe. Now obviously, we are watching that space and both looking at how our unique positioning in the market with the breadth of data will actually allow us to leverage what you just alluded to rather than be the victims of it. So that I'm very convinced is going to be a very important part of the strategy we announced in January. Now... Dan Levy: Yes. On the guidance, so it's true that we have seen an order book in Q3 and particularly in September, which was lower than expected during the summer. It is mainly coming from Public Affairs. And as you say, it's mainly U.S. and France, plus a few other countries that I mentioned during the presentation in Asia and particularly Australia, New Zealand and India. And not only have we seen lower order book than expected in Q3, but obviously, we also do the consequences on that in Q4 because we can imagine that given the political instability in France, for instance. And given the shutdown in the U.S., this is unlikely to improve significantly in Q4. So at the end of the day, the lower guidance is a consequence of not as good as expected situation on Public Affairs, particularly in the U.S. and France. Operator: The next question is from Marie-Line Fort, Bernstein. Marie-Line Fort: I've got two questions. The first one is about the Public Affairs segment, very naive question. The Public Affairs that still a real future given the increasing budgetary constraints? And how in the future will you deal with the restriction in the budget? The second question is about the BVA integration, how it's going on? And are you still targeting breakeven 2026, 2027? Could you give us an idea about that? Dan Levy: So maybe I can take the one on the Public Affairs. I think we should not be too much focused on the present. It is true that Public Affairs business has been difficult in 2024 and in 2025 for reasons that we clearly understand. There has been a lot of general elections. And we know that when there are general elections, there are patterns of electoral cycle, which tends most of the time to slow down the Public Affairs [ comments ]. On top of that, there has been some political instability in many countries and some budget constraints. It is true. On the other hand, we need also to remind us that Public Affairs started to use market research very late compared to private sector, and there is a catch-up that could keep on going in the next few years. And we are, at Ipsos, probably the only large actor on Public Affairs. Public Affairs tends to be a local market. We are the only large actors. Most of our competitors have divested their Public Affairs business. So there is a case, I mean, for growth in Public Affairs in the future, and we will -- when we will announce our strategy in January, decide whether this is a pillar of our strategy. But I think we should not remain too focused on the last 2 years, which it is true had been tough for Public Affairs, but which doesn't mean that it will be the case in the future. Jean Poitou: Regarding the integration status of the acquisitions, and I'll focus probably on the largest one because it's a large one and the largest one Ipsos has done since 2018, the BVA Family. It is proceeding. I'm coming from a history of having worked with companies that go through M&A transactions, I must say that the speed at which it is happening is a proof of the muscle memory of the ability that Ipsos has to acquire and integrate rapidly, particularly with the strength of its operations and financial and processes that are absolutely the same everywhere, which allows for these integrations to go relatively quickly and smoothly. We are already leveraging synergies. The organizations are aligned. We are also scaling the very important asset of the package testing, PRS IN VIVO, which was one of the key ingredients. And I must say, having been with the BVA teams in France and in Italy with DOA, it's a very cultural integration that is going on at the moment. Of course, it takes a bit of time. We're only 4 months into it. So I believe that it will take the usual 18 to 24 months to completely be less dilutive than it is today. And so we confirm that there is a transitional profitability dilution of around 60 basis points on this year's results. Operator: [Operator Instructions] Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any -- excuse me. We do have one further question from Anna Patrice, Berenberg. Anna Patrice: Yes. Thank you very much for the introduction and all the information provided. Could you comment a little bit more on where you have seen acceleration because you had quite a good performance in Europe and in America in Q3? So a bit more specific, what has been driving this improvement? And why you think it will be accelerating in Q4 apart from Public Affairs? Dan Levy: Yes. So we have seen acceleration in Q3 on the back of a few service lines that I mentioned before, which are the consumers and clients audiences and particularly on things like ad testing and also mystery shopping. And as I said before, the profile of Q3, Q4 is mainly coming and the fact that as a consequence, we might see some slowdown in Q4 as a consequence of the guidance we just revised is again mainly coming from Public Affairs. Anna Patrice: Okay. But then the weight of the [indiscernible] is it more Q4 or Q3 or it's much the same thing? And does it mean that the Public Affairs will further decline. So it is minus 15% year-to-date. Do you expect that it will further decline in Q4? So more than 15%? Dan Levy: Yes. So again, as I said before, we have seen a lower-than-expected order book in the summer, particularly on Public Affairs with some delays in the decision-making, sometimes some cancellation of projects, particularly in the U.S. with the DOGE. And we have also drawn the conclusions in the Q4 forecast to an extent. So we have done very recently a new forecast with our countries to see where we stand when we look towards the end of the year. So the revision of the guidance, again, is coming mainly from lower-than-expected order book in Public Affairs in Q3 and the consequence we draw for Q4, given the fact that it's probably unlikely to improve in Q4. Now I'm not going to give specific numbers, but obviously, the numbers that we see on Public Affairs in Q3 and Q4, and the fact that we are doing good performance on the private sector on the private client sector is consistent with the new guidance of 0.7% organic growth for 2025. Anna Patrice: Okay. Understood. Another question to Dan, please. Before you were also communicating the growth by the client sectors like CPG, telecom, financial services, automotive, et cetera. So can you provide a bit more details how the growth was across the client sectors, please? Dan Levy: Yes, sure. So on the CPG clients, we are growing, and that's a good performance despite the tough comparison that we had last year. On CPG, we grew by 6% last year. I think, again, this reflects the fact that the CPG clients in a very evolving world needs to know a lot about change in consumer behavior, market and pricing optimization, measure of the impact of their advertising campaign. We see also very good performance on IDP, our DIY platform. Obviously, in the CPG, the situation is quite different across the different players. There are players where the growth is high and other players, a few of them, which are implementing currently some cost-saving measures. So this is what we see on the CPG. On the health care, I've already commentated what's going on. Public Affairs, we discussed it quite a lot. Maybe a few words on the big tech clients. On the big tech clients, we see, as you know, a very fierce competition among the different clients, the different big tech clients on AI, which are -- who are investing billions and billions to build new models and to build new apps using generative AI. As a consequence of this, these big tech clients tend to have shifted their market research demand from the marketing use and the marketing teams to the product development teams because they are investing a lot quite ahead of the innovation cycle, and we are clearly adapting to that. We also see, and Jean Laurent has mentioned that, that speed is absolutely key for these big tech clients. They need to have faster insights and they need to have also AI-integrated solutions. And again, a bit like in the CPG client, the situation is quite diverse among the different players. We see very strong growth with some of the big tech clients and lower demand with others. Operator: And the last question is coming from Marie-Line Fort, Bernstein. Marie-Line Fort: I just want to understand what is really missing to Ipsos to deliver stronger organic sales growth. It is a question of mix, technological tools, speed to market, execution. Could you classify what the importance in terms of these topics? Jean Poitou: Yes. Of course, a lot more will be shared as we finalize the strategy and discuss it with you on January 22. But you mentioned some of the key ingredients. Speed is absolutely the thing that clients are demanding of us. And the fact that we have solutions ranging from Ipsos.Digital to some of the solutions we have in, for example, creative or in product innovation are foundations, but we need to continue and accelerate, and that will be a big part of our prioritized investment and focused investments that we will spend more time disclosing in January 22. But we will be leveraging both for the processing chain. Everything from automated scripting to integrated and automated data processing all the way to more interactive and real-time data insights provisioning to our clients through the dashboard and the interactive tools we will put in their hands. So that has a significant impact both on speed and on the richness of usage and actionable insights that can be provided to our clients. And then we will also be using AI a lot more in the years ahead to create differentiated solutions, whether it is to generate more insights in the product innovation space, whether it is to accelerate it in creative or in market research for market and society understanding. So 2 main areas of focus. One is speed through accelerated and automated delivery of our research activities. The second one is a lot more customized and easy to use for our clients, parts of the technology stack on the client-facing activities that we do for them. Operator: Gentlemen, there are no more questions registered at this time. I turn the conference back to you for any closing remarks. Jean Poitou: Thank you very much. Thank you very much for attending today. I will be very happy to spend time with you again on January 22 for our Investor Day and then on February 25 for our annual results. Thank you very much.
Operator: " Christianne Ibañez: " Marco Sparvieri: " Antonio Zamora Galland: " Alejandro Fuchs: " Itaú Corretora de Valores S.A., Research Division Alvaro Garcia: " Banco BTG Pactual S.A., Research Division Axel Giesecke: " Actinver Fernando Froylan Mendez Solther: " JPMorgan Chase & Co, Research Division Operator: Good day, ladies and gentlemen. Thank you for joining Genomma Lab's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this meeting is being recorded and will be available for replay from the Investor Relations section of Genomma's website following the call. I'll now turn the call over to Christianne Ibáñez, Genomma's Head of Investor Relations. Please go ahead. Christianne Ibañez: Thank you, Daniel, and welcome, everyone. On today's call are Marco Sparvieri, Chief Executive Officer; and Antonio Zamora, Chief Financial Officer. Before we get started, I'd like to remind you that the remarks today will include forward-looking statements such as the company's financial guidance and expectations, including long-term objectives and forecasts as well as expectations regarding Genomma's business, assets, products, strategies, demand and markets. These statements are subject to risks and uncertainties that could cause actual results to differ materially. They are also based on assumptions as of today, and the company undertakes no obligation to update them as a result of new information or future events. Let me now turn the call over to Mr. Marco Sparvieri. Marco Sparvieri: Good morning, everyone, and thank you, Chris. I would like to begin today by addressing a clear reality. The company is going through a challenging period, and the results I will present today are not the ones I wish to report nor the ones we are used to delivering as a company. However, I hope that by the end of today's presentation, I can convey the same confidence and reassurance I personally have that our plan to reignite growth is solid, well-structured and entirely focused on rebuilding our top line. My expectation is that after reviewing the next slides, you will share the same confidence that I have. Let me begin with a message of strength. Over the past few years, Genomma Lab has achieved remarkable progress. Sales have grown nearly 70%. EBITDA has more than doubled. Free cash flow has surged 152% and EPS is up 46%. I don't mention this growth only to highlight results, but to demonstrate that we have successfully transformed the company from a deep restructuring phase into high growth, more profitable and more capable organization. We are better than ever positioned to emerge stronger from the current slowdown. This performance is underpinned by 6 strategic assets that we have built over time. Assets that every few -- very few companies possess and which would take any new entrant, decades and hundreds of millions of dollars to replicate. The first is our powerful brand portfolio of over 40 brands, many of which were built during a period when television played a dominant role in influencing consumer purchasing decisions. Today, these brands enjoy exceptionally high awareness and strong positioning in consumers' mind. Brands such as Cicatricure with its medical heritage, Asepxia with its strong dermatological credentials, Goicoechea in leg treatments and OTC leaders like Next, XL-3 and Tukol in Mexico as well as Tafirol in Argentina, where we hold a 40% market share. All these brands form part of this invaluable portfolio. Equally important is our team. Building this leadership structure has taken time and effort of years. Having spent over 20 years at P&G, I can confidently say that our executive and managerial team match and in many cases, exceed those of our multinational competitors. We have also developed an extraordinary distribution network in the highly resilient traditional channel and all the channels across, reaching over 890,000 points of sale across Mexico and Latin America every week. This is a core capability that would take any pharma or personal care competitor decades and a massive capital to replicate. We can launch a product and have it distributed to all the channels and nearly 890,000 points of sales across Latin America simultaneously. This is not only a true competitive advantage, but also a clear growth avenue for the company. In addition, our decision to integrate our own manufacturing facility has proven highly strategic. Despite the complexity of regulatory and operational integration, it now provides us with stronger cost control and greater product quality assurance while allowing for further productivity in the company. Our company culture rooted in speed and agility is also a major asset. While many of our competitors operate with more bureaucracy and slower decision-making, we have a structure that allow us to move faster and respond quicker to consumer needs. Finally, we have established a solid foothold in two key markets with profitable operation, the U.S. Hispanic segment and Brazil. Although current results in the U.S. market warrant review, our presence there represents a valuable long-term asset. Today, our products reach more than 50 million Hispanic households with distribution in major retailers such as Walmart, Walgreens and Amazon, generating close to $100 million in annual sales. Establishing this level of penetration and relationships from scratch would take any company years and significant investment and the same holds true for our footprint in Brazil. All-in-all, this company has penetrated high barriers of entry and is positioned to continue consolidating its position to increase market share in a $3 trillion size industry, the largest in the world, $13 trillion. Let me now turn to the current environment and our plan to return the company to growth. We are operating in a complex consumption environment and navigating a difficult situation, particularly in Mexico, driven by two consecutive failed seasons. A weaker winter season due to unfavorable weather conditions and a summer season that practically did not materialize. These dynamics have affected roughly 50% of our Mexican portfolio, primarily our OTC products during the past winter season and roughly 20% of our portfolio with Suerox during the summer season. Despite these top line headwinds, our EBITDA margin remains resilient with stability around 24%, underscoring the strength of our cost discipline and efficiency programs. I am fully confident that this EBITDA margin level is both solid and sustainable going forward. So what we're doing to offset this slowdown? At a certain point, we were facing two possible path, either we sacrifice margin to invest more aggressively in the business and accelerate the top line or we preserve margins and identify additional resources to fund our growth strategies without compromising profitability. We initially set a productivity target of MXN 1.8 billion in savings by 2027. Given the current top line environment, we challenge ourselves to find additional resources to invest in growth without compromising margins. As a result, we have identified and already secured an additional MXN 1.1 billion in efficiencies, bringing our total accumulated savings to MXN 3 billion by 2026. These resources have been secured and are reinvesting MXN 1.1 billion directly into the business to drive top line growth. Our 2026 investment plan focuses on three pillars: product innovation, go-to-market and distribution and emerging channels. Altogether, we estimate these initiatives could generate up to MXN 5 billion in incremental sales opportunities between 2026 and 2027. While some cannibalization is expected, these projects represent our North Star, a clear road map to reignite growth starting in the first half of 2026. With these actions, I am confident we can restore top line growth to prior levels while maintaining a healthier margin and cash flow structure than ever. Now moving to the third quarter results. On a like-for-like basis, sales declined 2.9%, which is translated to a 12.8% decrease in reported Mexican pesos. Approximately 80% of the impact stems from accumulated noncash hyperinflationary accounting effects in Argentina, following a 53% depreciation of the Argentine peso during the quarter. Our real operating indicator like-for-like performance reflects a 2.9% decline, while EBITDA margins remained strong at 23.7%, consistent with our 24% average target. Adjusted net income, excluding noncash hyperinflation effects declined 3% to MXN 632 million. Free cash flow reached nearly MXN 1.6 billion, down 35%, mainly due to lower net income and three days increase in the cash conversion cycle also related to hyperinflationary accounting effects. As mentioned, we have accelerated our productivity program, delivering the initial MXN 1.8 billion savings by 2025 and adding another MXN 1.1 billion for 2026. These resources are already identified and in execution, not a plan, but a reality. We have already secured resources for our investment projects. We will reinvest MXN 1.1 billion across five strategic areas: product innovation, go-to-market and distribution, communication, e-commerce and pricing. These initiatives represent approximately MXN 5 billion in growth opportunities for 2026 and 2027. While some may overlap and cannibalization is expected, a significant portion will translate into incremental sales and long-term top line expansion. Let me provide a few examples. In innovation, we have a robust pipeline across all key categories. In skin care, we are reformulating and relaunching products with cleaner formulations and more accessible price points. For example, a consumer who today pays MXN 350 in Mexico for a premium hyaluronic acid serum will soon be able to purchase the same product from Teatrical for around MXN 90. In hair care, we are fully relaunching Tio Nacho, strengthening its treatment positioning with second and third routine steps while revitalizing the entire product line with clean formulas, improved packaging, and competitive pricing. In beverages, Suerox will devote a renewed image and expand into new consumption occasions. In OTC, we expect 25 new pharma registration approvals to be launched between 2026 and 2027, allowing us to enter new segments. All of this innovation will be supported by a renewed communication strategy. We are shifting from functional frequency-driven advertising to more emotional storytelling that resonates and engage consumers emotionally. Let me show you an example. [Presentation] The company is entering a completely new communication strategy. We are investing in mass micro influencers, partnerships and brand ambassadors on TikTok and Instagram while driving traffic to e-commerce and direct conversion. Let me show you some user-generated content examples for our Asepxia relaunch. [Presentation] We are also leveraging artificial intelligence to produce high-quality, cost-efficient content. Let me show you an example of advertising spots produced by one person with no actors, no cameras for as little as USD 500 investment. [Presentation] This slide illustrates the depth of our product innovation pipeline, entering new categories, introducing new packaging sizes and formulations, all with clear and ambitious relaunch time lines. On the distribution front, we currently have nearly 3 billion sales operations in the traditional channel, where we plan to expand our coverage from 730,000 to over 1 million points of sales, targeting almost MXN 2 billion in incremental sales over the next two years. Our e-commerce business is set to reach MXN 1.2 billion in sales by 2025. We plan to add MXN 500 million in 2026 and another MXN 500 million in 2027, bringing the channel to MXN 2 billion by 2027, supported by strong communication investments to drive traffic and conversion. In hard discounters and convenience stores, two of the fastest-growing channels in Mexico and Latin America, our MXN 420 million operation is set to coverage from 35,000 to 57,000 points of sales and reaching roughly MXN 1 billion in annual sales by 2027. In summary, Genomma Lab is facing a challenging environment, particularly in Mexico, driven by two consecutive weak consumption seasons. Nevertheless, our EBITDA margin remains resilient. Our resources are secured and our growth plan is clear and fully actionable. We are confident that after weathering the next quarters and by executing this plan, the company will return to growth by the first half of 2026, reaching and potentially exceeding its historical growth rates supported by a stronger, more efficient and more profitable structure. Before turning the call over to Tonio, I would like to thank our investors for their continued trust and the entire Genomma Lab team for their unwavering commitment to driving the company towards its next stage of growth. Tonio, please go ahead. Antonio Zamora Galland: Thank you, Marco, and thank you, everyone, for joining us today. As Marco mentioned, third quarter net sales decreased 12.8%. Results were mainly impacted by ForEx headwinds from a stronger Mexican peso as well as hyperinflationary accounting effects following the Argentine peso depreciation during the quarter. On a like-for-like basis, sales declined only 2.9%, primarily due to the impact of a cooler and rainer summer season in Central Mexico and a softer consumption environment in our country. These effects were partially offset by strong sales growth in Brazil, Chile, Central America and the Andean cluster. Genomma's third quarter EBITDA margin closed at 23.7%, representing a 2 basis point increase year-over-year and reflecting the ongoing benefits from manufacturing cost efficiencies as we deliver our targeted EBITDA margin of around 24%. Pro forma net income for the quarter, excluding noncash FX-related effects decreased 3%, reflecting the strong EBITDA margin performance and lower net interest expenses during the period. Moving on to our regional results, third quarter net sales in Mexico declined 6.4%, mainly due to a weaker summer season that impacted sales performance. This decline was partially offset by strong OTC performance, driven by market share gains in the cough and cold and infant nutrition categories. As you can see in this chart, there is a high correlation between climate and beverage sales in Mexico. Besides this headwind, competition significantly lowered their prices during the quarter, adding more pressure to this particular category. On the right side are the growth initiatives that Marco described earlier. We'll increase our geographical presence to other areas of the country next year, and this effort is expected to drive renewed momentum in 2026. EBITDA margin for Mexico improved by nearly 300 basis points, reaching 27% despite the consumption headwinds and deleveraging pressures previously mentioned. This strong performance reflects the accelerated impact of our company-wide productivity initiatives. Moving on to the U.S. business, the U.S. dollar declined 1.6% versus the Mexican peso compared to the same quarter last year. U.S. sell-in net sales decreased 24% in U.S. dollar terms, reflecting ongoing disruption in the U.S. Hispanic retail market, which continues to weight on sell-in performance. However, sell-out declined only 8%, showing early signs of recovery led by Suerox and Haircare, both of them gaining market share despite the challenging environment. The difference in this quarter between sell-in and sell-out comes from customer returns of some cough and cold products due to the past weak winter season of 2024, 2025, as Marco described earlier. EBITDA margin for the region was 13.6%, down 150 basis points, mainly to the operational deleverage and higher advertising investments during the quarter. Going to Latin America, net sales, excluding Argentina, increased 10.6% for the quarter, driven by strong performance in Brazil, Chile, Central America and the Andean cluster. EBITDA margin, including Argentina, was 21.7%, down approximately 360 basis points, mainly reflecting the impact of hyperinflationary accounting adjustments. However, if we exclude Argentina, EBITDA margin increased by 90 basis points during the quarter. Net sales for Argentina, obviously because of all the hyperinflationary accounting effects, declined 49% in Mexican peso terms, and this is a reflection of a 53% depreciation in the Argentine pesos. However, and this is very important for everybody to know that in local currency terms, sales grew 35% during the quarter in Argentina. This is in line with inflation, actually above inflation and driven by strong unit sales share gains in some of our key brands like IBU 400, Treg, Suerox and among other brands. Just as a reminder of what happened with hyperinflationary accounting, the depreciation of the Argentine peso versus the Mexican peso needs to be taken into account when we report figures in our reporting currency, which is the Mexican peso. Likewise, we also take into account inflation. And while inflation in Argentina has been declining, hyperinflationary accounting is mandatory when cumulative inflation exceeds 100% in the previous 36 months. So we'll have to deal with it for a while. So just to help us understand a little bit better of these IFRS rules, the company's performance in the region has to be reevaluated every quarter. When the difference between accumulated inflation and FX depreciation is negative, this will result in a noncash decrease in accordance with hyperinflationary accounting rules. Last year, however, the effect was a positive 13% difference. But this quarter, we had to cope with a 47% negative delta. Thus, a huge 60% impact on our Argentine results for the quarter and Q1 and Q2. That is what explains, again, what we are reporting. The good news for the future is that historically, high levels of --of inflation tends to follow significant currency devaluations. So we expect this positive effect in the short-term future. Turning back to our financials, cash conversion cycle reached 120 days. And Mexico DSO has been in line with historic averages despite the tough consumer environment that we are facing in 2025. Genomma ended the quarter with a leverage ratio of 1.2x net debt to EBITDA, which is in line with the same quarter last year, and this is notably a historical low in financial leverage, not only for Genomma, but for most companies in the industries where we participate. Free cash flow totaled approximately MXN 1.8 billion over the trailing 12 months, representing a 31% decline, mainly due to lower net income and higher capital expenditures related to our growth projects. It's worth mentioning that during the quarter, we converted 9% of our net sales into free cash flow. Capital allocation during the quarter included our 13th consecutive quarterly dividend payment of MXN 200 million, which is $0.20 per share, and we also repurchased --1.4 million shares. In closing, this quarter highlighted both the challenges and the resilience within Genomma's portfolio as well as our company's strong fundamentals. Over many years, Genomma has been built on a foundation of sustainable growth, and we continue to advance with a long-term perspective. We remain encouraged by the solid fundamentals across our core markets and the traction of our strategic projects that Marco described, and we look forward to capitalizing on opportunities once these challenging conditions ease. With that, let's now turn on to Q&A. Operator: Thank you Marco, Antonio. We will now begin the question and answer session. [Operator Instructions] Our first question comes from Alejandro Fuchs from Itaú. Alejandro please turn on your microphone and proceed with the question. Alejandro Fuchs: Thank you operator. I have 2 very quick ones. First for Marco. I want to see, Marco, if you can maybe walk us through your expectations for next year, right? Maybe a little bit better consumption in Mexico, but we also have some headwinds in terms of now it seems that we have more color on potential taxes for beverage companies. So maybe if you can tell us what do you see and expect for next year in Mexico, that would be very helpful. And then the second one is for Tonio very quickly. In terms of working capital, I saw a big decrease in accounts of days payables -- in days payables this quarter and then an increase in receivables in Mexico. I wanted to see maybe, Tonio, if you can walk us through if there is something unusual that is occurring this quarter, we should expect this to normalize? Or is this just business as usual? Thank you. Marco Sparvieri: Thank you, Alejandro. On Mexico, I would say that my expectation, although I don't have the crystal ball, but I do expect a few more quarters -- difficult few more quarters in a very difficult environment from a consumption point of view. But as I said, regarding of the overall context in the market, categories and competitors, I am very, very confident that the plans that we are currently putting in place, I am presenting the whole plan today, but we have started working and implementing many of these strategies several months ago. So I am very confident that we are going to see a gradual recuperation of the top line at some point in the first half of 2026. And I am very confident that with the investments that we are making in the business, the additional resources that we have secured, the MXN 1.1 billion that I just mentioned, reinvesting that money thoroughly and intentionally in the business to reignite the top line growth. I am very confident that we are going to put this company to grow again at least at the same levels that we have been growing over the past 6, 7, 8 years. You asked also about the EPS. Look, the EPS right now, the way it stands based on all the public information that you all have access to, it's impacting both our competitors, okay, and ourselves. And when I say competitors, I mean all the competitors, isotonic beverages and electrolyte beverages in the same category, okay? But we have an advantage right now because we don't sell our product Suerox with sugar. So the current situation as it stands today based on the public information that we know is that the EPS that will be applicable to Suerox is half of what will be applicable to our competitors in isotonics and electrolytes. So that put us in an advantage. There's two scenarios here that we have fully accounted in the plans for next year is -- one is if our competitors increase prices and do not absorb the EPS, we will follow and the EPS will have no impact in our margins. But if our competitors do not increase prices, we will have to absorb and that impact, it's already in the financials and the plans for 2026. Alejandro Fuchs: Thank you very much Marco. Antonio Zamora Galland: Alejandro, this is Antonio. Thank you for your question regarding working capital. So in terms of days payables, the 93 days that we presented for the Q3 are pretty much in line with the 96 for Q2 or the 94 for Q4 2024. As we all know, when you transition from third-party contracting, the [indiscernible] to our own facilities, the kind of suppliers that we have are different. We are now buying raw materials directly. And so it's a new game. And I would say that this range of around 90-something days for payables at this moment, that's going to be the new normal. Obviously, we are working with suppliers. We're negotiating as they get to know us better and as we can get to better negotiations, we hope that in the future, this is going to improve. But that's part of the reason why in the past, when we were buying finished products, we have better terms. But those products were costlier. I mean that's why the COGS was higher, significantly higher. So I think it's a lot better to have productivity, the kind of productivity in terms of COGS, while we have to work -- we still have to work on payables. But this is going to be around the new normal. And if you see Q4, Q2, Q3, you will see that the numbers are pretty much around mid-90s in terms of DPO. In terms of DSO in Mexico, that's why I presented a chart with the historical DSOs. Yes, in 2024, we were improving our DSO. Obviously, last year, it was a different year. Everything was more optimistic. This year has been more challenging. So there's two reason. One is, obviously, the market is a little bit slower for everybody, and you can see this in most companies in the consumer landscape in Mexico. But also, it's a little bit tricky because it's part of the accounting formula of DSO because you divide the ending balance of receivables by a denominator, which is the past sales from a certain period, whether it's 90 days or 360 days. So if sales have been declining, lately, unfortunately, in the case of Mexico. From a mathematical point of view, that increases artificially the number of days in DSO. If sales start growing faster, it's going to be the opposite. So you will see that effect. So what I can tell you in terms of DSO, I think that considering the very tough consumer environment that we are facing, we are pretty much in line with average and what we should expect this year. Obviously, if for 2026, as you very well pointed out, the expectations for the consumer market is a little bit better. We obviously are going to work to improve that ratio. I don't know if I was able to answer your question, Alex. Alejandro Fuchs: Thank you very much. Operator: Our next question will now be from Álvaro García with BTG Pactual. Alvaro Garcia: One question we've gotten quite a bit is how is it that your EBITDA margin is so stable considering pretty significant sales decline we saw this quarter. So I was wondering if you could kick it off with that one. Marco Sparvieri: Yes. Thank you, Alvaro. This is Marco. It's really the -- a huge amount of efficiencies and productivity that we are generating behind the plan we put in place a few years ago. Most of the impact of the efficiencies we are seeing today of the plans that we implemented like 2 years ago with CapEx, like integrating our packaging, manufacturing and so on. So -- but short answer is its basically that. Alvaro Garcia: Great. And two more. One, bigger picture, just I can't remember a time with so many sort of relaunches sort of renewed images across all your different brands. So I was curious, Marco, how your clients are taking this, especially maybe the larger retailers? How are they sort of digesting all of this? And sort of what's the prospect or what's the outlook for the uplift in sales you'd expect from all of these relaunches? Marco Sparvieri: No, clients, they are like fascinated. I mean they like innovation, and that's what the categories where we compete actually need, not just to drive our growth, but to drive the total category growth. So like the Walmart skin care buyer is really fascinated with all the things that we are doing. And -- so -- and also, you have to remember that this is not just for one distribution channel. When you see like this, all the new sizes and all that, it doesn't necessarily impact just one channel all at the same time. Many of the things that we are doing are some for the traditional channels, some from the modern retail channel, clubs, hard discounters, e-commerce. So it's not that one single customer is going to have to absorb 50 different changes. I don't know if that makes sense. Alvaro Garcia: Yes. That's helpful. And the last one, maybe for Tonio on CapEx. I have seen the uptick sort of year-to-date. I was wondering if you can maybe provide guidance for maybe this year and next year on what that is and what we should expect going forward in the context of free cash flow. Thank you. Marco Sparvieri: Yes. I'm going to take that one, Tonio. I have the numbers pressure. The -- so we have this quarter, the quarter 3, quarter 4 and quarter 1 with some heavy CapEx investments there. We are paying for the new distribution center, which is spectacular. We are taking our levels from $7 million to $10 million and the distribution center is going to bring us savings of around $12 million per year. We are still paying for the second line of Suerox and several other CapEx investments in the plastic plant, okay? So I expect the next 2 quarters to be a little bit heavy on CapEx. But 2026, like overall, based on the current forecast that we have, both in terms of CapEx and operational cash flow, we expect that we are going to return to the levels of free cash flow that we have been reporting in the past few quarters, which is in the round of MXN 2.7 billion, MXN 3 billion per year annually. Operator: Our next question will be from Axel Giesecke from Actinver. Axel Giesecke: Just a quick one regarding the resilience of OTC in Mexico. I just want to know what share gains are you achieving in these categories? And how sustainable are they as we move into 2026 and looking forward? Marco Sparvieri: Thank you, Axel. So first, I mean, OTC in general is very resilient, okay, a lot more resilient than personal care or even beverages, okay? And that is true for not only for Mexico, but also for all the markets. And basically, all the categories or subcategories within OTC. What we are seeing is that, first, from a total sell-out standpoint, regardless of the very difficult environment that we are seeing in general in Mexico from a consumption point of view, we were able to navigate in these categories with a lot more strength, okay? And just to provide a little bit of color in terms of numbers, we are -- recently, it's very early to say, but I think it's important that you guys know that the early signs that we have from the -- both execution and incidents of the cold and flu season for 2025 and 2026, the early signs that we are seeing are very encouraging. We are growing double digits in several of the brands that have to do with cough and cold. And so it remains to be seen what happens. But normally, when a season starts strong, it remains strong, hopefully. But yes. Operator: Our next question will now be from Froylan Mendes from JPMorgan. Fernando Froylan Mendez Solther: Thank you for taking my question. I was hoping you could illustrate on where are the MXN 1.1 billion productivity measures the incremental ones coming from? I'm just curious, I mean, if the weakness in the market is clearly a top-down and even weather-driven, why do you feel the need to invest more in growth levers today if the market is supposed to stabilize at some point? Or am I missing something in any of your markets that will require an extra boost of growth beyond this -- to offset this macro slowdown, maybe some change in competitive dynamics? That's my first question. And secondly, I wanted to understand better the performance in the U.S., the decline of almost 24%. You mentioned something about some returns from -- I guess, from the different channels. But what do you expect these productivity gains being invested in growth to translate into the United States? Should the U.S. react before other countries? Where does the U.S. stand in the recovery path that you foresee? Marco Sparvieri: Yes. Thank you, Froylan. Let me address one by one. Productivity is mainly coming from four key interventions. Number one is a very strong implementation of artificial intelligence across different functions and processes that before required a lot of headcount and now it doesn't. So that's one piece. Second is the strengthening of our COGS reduction original plan. So we had a plan -- a very aggressive plan to reduce COGS, and we strengthened that plan even further. So we stretched all the interventions that we are making even further to get more productivity there. So we expect the COGS to continue to go down. Third, we are eliminating a massive amount of administrative cost that was previously in the P&L. So we are cutting administrative costs by around 30%. And fourth, the fourth pillar is go-to-market spending. And with that, I mean, unproductive spending, okay? So like we made a very thorough analysis of all the money that we were spending in pricing and promotions, point-of-sale execution. We are closing distribution routes that are not profitable. So we made like a very thorough analysis of every spending that we have in that bucket, and we are cutting a huge amount of spending that was unproductive. All that adds up to $1.1 billion. The second question is why investing in the business? And the answer is, well, first, I don't know what's going to happen with the consumption market or environment or context in 2026, and I don't want to wait until the context saves us and we start growing the top line again. So we are deciding to invest a massive amount of money to reignite growth regardless of what's happening out there. And second, we want to be aggressive because we have a very strong portfolio of brands with very strong positioning. We have a very strong pipeline of innovation. And importantly, we have a very strong capabilities to execute, okay? So -- and we have the resources. So we have the pipeline, we have the capabilities, we have the resources, and we want to put this company back to growth. So that's basically the reason. And in terms of the U.S. decline, it's fairly simple. I mean, we -- we -- the sell-out is declining 8%. It's not great, but it's not a massive crisis. We have brands that are relatively healthy in the U.S. like Suerox and Tio Nacho and some of our OTC brands. But unfortunately, we had a very bad winter season across the U.S. as well as in Mexico last year. And what we are seeing now is that we loaded a huge amount of inventory of our winter season brands because we want to play big in the seasons. And the same we did in Mexico with Suerox this year, we loaded big time because who wins is the one with more inventory out there in the stores, and we want to play big and we play big in the U.S. And now after a season that didn't go so well, we are receiving customer returns in those brands that is impacting the top line in sell-in, but the sell-out is not declining as much as the sell-in. I don't know if that provides perspective on the question you asked. Fernando Froylan Mendez Solther: Yes, Mark. Do you think that the channels are, let's say, more balanced today in terms of inventory so that the next season will be, let's say, more correlated to the actual demand? Or how do you see the inventory levels? Marco Sparvieri: It's like moving pieces all the time because it's -- we play a lot in seasons. We play in the winter seasons with OTC and then we play big time in summer with beverages and some of our OTC categories for the summer. So the strategy we follow and has worked really well in the past is that we play very aggressive in terms of both point of sale execution, communication, innovation and also huge inventory at the stores, okay? So we -- it's a bet all the time, it's a bet, okay? And that's how it works. So you load big time upfront and then you expect for the best. And if it works, it's fantastic. And if it doesn't work, then you have to deal with the inventories and the product that you put out there. So for example, you are seeing a strong decline in Suerox this quarter in Mexico, in particular, in sell-in, that doesn't align with the sell-out numbers for the quarter because we had big inventories for the summer season. The summer season didn't work. Now we are not selling a lot of Suerox because customers still have inventory. But at the same time, we are we are playing a big bet for the winter season. And this quarter, we loaded a massive amount of OTC here in Mexico. And we're seeing early signs that this is working and that we are growing market share in some of these categories. And if it works well, we're going to have a great next quarters in OTC behind a good season, and we're all going to be happy. If it doesn't work, we're going to see the same dynamic that we are seeing today in the U.S. and in Mexico with beverages. Fernando Froylan Mendez Solther: Marco, lastly, and thank you for the several questions. When you say that you expect growth to recover into the second half of 2026, do you expect beverage Mexico to come first, then cough and cold U.S. second? What's the timing on the different regions and products that you expect this reignited growth to come? Marco Sparvieri: That's a difficult one. Let me think. I think OTC, we are going to see a better performance in OTC first, beverages second, hopefully, because if we -- if we have a better season in terms of weather next year, which we should because this year, we didn't have a summer, then we're going to sell a lot of Suerox, okay? So with a good winter season that we are starting to see for OTC, that's going to come first, second, Suerox. And third, most of the initiatives that I just presented for skin care and personal care are hitting the market in the second half of 2026. So third will come personal care. That's, I think, the order. Operator: [Operator Instructions] This will conclude our third quarter results conference call. Thank you for your attention.
Operator: " Nikolaj Sørensen: " Frederik Jarrsten: " Edward Kim: " Samir Devani: " Rx Securities Limited, Research Division Klas Palin: " DNB Carnegie Commissioned research Operator: Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Nikolaj Sørensen: Thank you very much, and welcome to this third quarter call for Orexo. It has indeed been a transformative quarter in many ways for the company, in particular, in our R&D departments where we have made very good progress in 2 projects, and I will come back to that a little later. Today, I'm Nikolaj Sorensen, and I will be joined by Fredrik Jarrsten, our CFO; and this time, also Ed Kim, our Chief Medical Officer, who I believe will be new to many of you, but Ed Kim will talk a little bit more about our OX390 project and why we think this is an important project, both for Orexo, but also for the U.S. We will go through the business update. I will take that. And as I said, it will come in the -- on the products under development, focusing on OX390. Fredrik will take us through the financials before I will close out with the legal update and some approach for expansion for where we think we have some future value drivers. Starting with a brief overview of the quarter. As I said in the introduction here, we have made some great progress in our pipeline, in particular, with our GLP-1 agonist or project that we have OX472, where we showed some very promising in vivo data. And also, we received a BARDA fund, which initially is worth $8 million, but could be all the way up to $51 million, where BARDA will finance the majority of our OX390 project. During the quarter, our work with IZIPRY, formerly known as OX124 has proceeded well, and we are now starting the reliability and stability testing that was required by FDA more or less on time. With regards to OX640, we have -- during the quarter, we have manufactured the first batches of AmorphOX powder with epinephrine at commercial scale. And we have continued partner discussions, but we have also, as I wrote in the CEO comments, seen some increased uncertainty around the market in the U.S. We believe that is something that will be solved, and I will come back to that a little later. Looking at the revenues. Clearly, in the Swedish krona, the dollar-Swedish exchange rate has had a strong headwind during the quarter for the company that impacted with nearly SEK 11 million, which is kind of close to 10%. But we have also seen during the quarter that the wholesaler inventory has declined in the U.S., which explains a lot of the development compared to last year. Then on EBITDA, we have a negative EBITDA, which was not entirely according to our plans, but that is very much associated with the increased value of the share price during the quarter where we are reserving for provisions for the -- for taxes and particularly around the social securities in Sweden, which is impacting negatively in the quarter, but not from a cash flow perspective, but from a P&L perspective. Fredrik will come back to that a little later. Looking at the outlook, we reaffirm the 2025 outlook. And what's worth noting is that we still believe that it's possible for us to reach our positive EBITDA number for the full year. Moving into our U.S. commercial update. We are seeing the buprenorphine and naloxone market is picking up a little pace, getting closer to 5%, but 4% growth year-over-year. And also, over the last quarter, we saw a -- a slight increase with 1%. This is particular now which is interesting is behind the scene is that the market has really been driven by the commercial segment, which is now basically on the edge of surpassing Medicaid as the largest segment in the U.S. That is important for us because of 2 reasons. First of all, the commercial segment has a lower rebate, so it's more valuable. Each patient within the commercial segment is worth much more cost than a patient with Medicaid. But also, we have and we maintain into next year unrestricted access to nearly the entire market with 99% of the volume today sitting with payers where we have no limitations in access for Zubsolv. And we have no changes expected for next year. In the public segment, we have seen Medicaid decline. This quarter actually increased a little, but at a much slower pace than the commercial segment. And we have seen in both Medicaid and Medicare that our access is nearly unchanged. There's a small, small [flat] where we've got some restrictions for 2026, but it's not really material for the company. One thing that is interesting in this space is particularly where we see our largest account is with Humana Medicare and Humana Medicare for a Zubsolv perspective, had a significant impact of two reasons. So the one is that we have seen Humana Medicare declining because they had new restrictions for certain part of their patient populations, but also that the rebate increased for that particular account. So we [cannot] -- both at lower prices, but also we saw negative volumes, which have had an impact on the company year-over-year, which is actually the main explanation behind the year-over-year negative development. From a quarter-over-quarter perspective, we're actually from a pure demand perspective, we have no major changes. We are quite stable in both Medicaid and Open and actually grow a little in some of the segments, but we do still have some negative impact from Humana and to a less extent of the UnitedHealth Group. For those of you who are new to the companies, these were the formerly exclusive contracts where Orexo had nearly the entire volumes within these accounts. But after the introduction of generics in 2019, we have seen a steady decline in the two accounts. One thing that I have shown before is a little around the inventory and this because we have a strong expectation of a buildup here in Q4. And to validate that a little, I just want to show some more interesting data here. So one is looking at the sales to pharmacies. That means that the wholesaler sales to the pharmacies is down about 1% compared to last year. Some of that is, of course, pricing when you compare to our net sales in these numbers, we also have a 4% price increase in the start of the year, but that's also something we anticipate would happen next year. From a gross sales perspective, we are also stable despite the volatility you can see here on the dark line. And we're down about 1% year-to-date. And that is despite the destocking we have seen. And I'm just looking a little closer on the inventory levels at wholesalers. This is a new picture for all of you, I believe. You can see these two peaks that are in the picture, they're both in the end of the year 2023 and also 2024. And if you look at the level of inventory when we entered 2025, it was 60% above the inventory that we have today in the end of Q3. But even just looking into the inventory in the end of Q2, it was actually 30% higher than where we are now in the end of Q3. So there has been an inventory decline, and it follows the same pattern that we've seen in previous years. So we are now expecting to see the Q4 that there will be some inventory build, which help us when we reiterate our guidance for the year that we actually believe we can hit the sales numbers that are in here and also overall for the company, hit the positive EBITDA number. Coming in under products under development, first area I will go a little into depth with is we did show some promising data in semaglutide, where we have done a nasal administration. And for most of you should be aware, and I'm sure you're following the pharmaceutical industry that this anti-obesity medications, which kind of a collective name for these GLP-1s is growing substantially. One is within obesity and diabetes, but also looking forward, there are a lot of expectations in more neurodegenerative diseases such as Alzheimer's and Parkinson's. We also see that there are areas within addiction where these have shown promising data. So it's really, you can say in one way, a drug with a very wide range of applications and where we see some of these patient segments would have benefit from a new administration form. On top of that, we also see with our dry powder formulation, we can add a lot of stability to the products. So what are some of the reasons why we believe? It's, of course, compared -- it's a small needle today that you need to take subcutaneous for most of the GLP-1s. Most of them only have an injectable [HQM] pipeline and there are a couple who also have an oral formulation, but with very poor performance in terms of bioavailability. But taking it into the nose, it's quite easy to self-administer. It's, of course, needle-free. It's a noninvasive route of administration. It will bypass the first past metabolism where you would normally, and that's why we see this low bioavailability of GLP-1 medications when they're taken orally in the GI tract. We don't see any need for refrigeration. We have data for 6 months of semaglutide in our formulation. And during those 6 months in 40 degrees heat, we have basically not seen any degradation of the active substance. So we think there are a lot of advantages coming in with the powder formulation, both from a patient perspective, from a stability perspective, and we think that can help also with improved adherence for the patients. With the data that we presented, this is a preclinical in vivo study. So I will say this is very early stage. We think semaglutide is the perfect model substance, but this could probably be applied to other peptides used with GLP-1s. Semaglutide is a very difficult peptide in the sense it's a very large peptide, but we're still showing this quite impressive uptake when we compare to the oral formulation of semaglutide with basically up to about 7x higher bioavailability using the nasal route of administration in the studies. We -- as I said before, we have continued to do stability studies, and we see minimum degradations after 6 months. And what we're doing now is that based on the learnings from this study, we will continue working on the formulation because the study was in 7 milligram --we know that 7-milligram of Rybelsus. We know some of the obesity data that we've seen from Novo Nordisk is up at 25 milligram for obesity. So we probably have to work a little on the formulation to increase the dosing also. The aim is, of course, to take this into a human trial, but we will have to look at the timeline. So it's a little early for us to commit to a timeline, but this is, of course, the ambition that we're working towards is to show that this -- we can replicate the data we've seen in dogs also in humans with improved bioavailability over the oral formulation. Then I will invite Ed into the conference, and Ed will talk a little about our OX390 project and why we think this is so important for the U.S. So Ed, the word is yours. Edward Kim: Okay. Thank you very much, Nikolaj here, and good morning, good afternoon to everybody. For those of you who may not recall, it was in April of 2023 that the White House declared fentanyl xylazine mixtures as an emerging public health threat. So that was about 2.5 years ago. And in the latest DEA National Drug Threat Assessment, which goes back over the past 3 years, the prevalence of xylazine in illicit opioid samples that are confiscated by the DEA has increased over 4x. And it's no longer a problem just in the Northeast, but it's spreading. And certainly, if you look at this heat map, has already reached significant numbers on the West Coast and it's been identified in all 50 states. Now -- it's not just how common it is now. But what we see here is that the deaths due to xylazine fentanyl overdoses continue to rise. This is a paper that analyze CDC data, which currently only goes to 2023. Now if you recall, 2023 was the first year where the total number of overdose deaths started decreasing. What you see here, though, is that in 2023, the number of xylazine fentanyl overdose deaths continued to increase. So we're also -- we're hearing this from market research as well as informal discussions that we have with colleagues and customers in the substance use disorder space that this really is a problem. And in the last 2 to 3 years, there's been emerging animal data suggesting that while xylazine is an FDA-approved veterinary product that is safe and effective when used appropriately in animals, when xylazine and fentanyl is given to these animals, in this case, usually mice or rats, it actually increases and sometimes multiplies the lethality and the opioid-induced respiratory depression. There is a paper published in 2023. It's the title on the left, which identified -- it didn't measure respiration but identified that a moderate dose of xylazine increased the lethality of fentanyl by over 100 times. So it took 1/100th the dose to kill 50% of the animals. So we believe that this is truly a public health threat, and it is growing over time. Now the BARDA partnership that we recently announced is a true partnership with this agency that is part of the Department of Health and Human Services. They're not only contributing a substantial amount of financial support, but BARDA has technical experts in all phases of drug development and public health who are at our disposal to continue to consult with us, advise us and advocate for the continued development of OX390. You heard Nikolaj mentioned that the total value is up $51 million. The current base period is going to be dedicated to the IND-enabling toxicity studies, formulation development and in-house manufacturing capabilities, and that totals $8.5 million. Based on achieving certain regulatory, manufacturing, clinical milestones, there are 4 option periods to continue the development. And these are negotiated with BARDA at each stage so that this is a staged approach to manage the risk of this program because, as you know, drug development always carries some degree of technical risk. The goal is to develop an intranasal rescue medication for use by lay persons or first responders in the community where these overdoses are happening. It will be developed on Orexo's own AmorphOX platform that you know so much about. And it will continue to leverage the existing manufacturing supply chain that we've already developed for OX124 and OX640. Back to you. Nikolaj Sørensen: Thank you very much, Ed. And maybe worth noting also is we received -- the grant was signed in the last 2 days of September, and that's also the last few days of Q2. We have not included any effect of this grant into the Q3 numbers. So you will start to see some effect in the Q4 numbers and of course, continuing into next year. What it is, is it's a cost covering. So we will basically invoice for the expenses running the project and then BARDA will cover the majority of the expenses for the project upon invoice. And the cost coverage will be recognized as other income by the company. So going on to IZIPRY. IZIPRY is, of course, you intimately connected to the same issue Ed was just talking about. Here, we have basically proceeded according to plan with our upscaling of the manufacturing. We have had some good dialogue with FDA also around the nasal device where we can now use the new nasal device without any further studies. We would say that looking at the entire market for naloxone, it's very highly competitive, and that's something we're taking into account when we're looking at the launch strategy. So we are reviewing how we can put this to the market with the least amount of financial risk to the company based on a more competitive market in the U.S. and also the need for financing some of these other projects we just talked about. We do see that the product as such and getting it approved is something that's highly valuable for the entire value chain. Every partner we're talking to is talking about the commercialization. And for those of you in Sweden, have probably seen some of our colleagues in the industry just recently have had issues with manufacturing. So manufacturing is central and I would say, the number one cause of delays of many approval processes. So that we can have a product that has been approved on a supply chain, I think, is immensely valuable for other discussions and other projects. But actually, even also some of the exceptions that we -- unique exceptions we're using for AmorphOX is something with an approved product that is also supportive evidence for some of the other products that we have in pipeline. So in many ways, I think IZIPRY is paving the way for a lot of other products moving forward. And one of them is, of course, OX640. And with OX640, we have continued to do the upscaling. We have manufactured the first batches of powder, which are now being analyzed. We have had some partnering discussions, but I will say that the data we received from the first launch of a nasal product in the U.S. and even in Europe, that launch has gone somewhat slower than some of our partners had anticipated and that have had a negative impact on these discussions where there's a little more -- let's see how the market evolves over the next quarter or two. But from an Orexo perspective, when we look at this market, we see the first product has come out with a strong growth. And we actually see from a financial perspective, some investors are seeing it's performing above expectations. But some of the industry players, maybe based on some early expectations from the company launching the product in the U.S., U.S. pharmaceuticals they find that this is somewhat slower than what they have seen. And when we are looking into this space, we're seeing it's around physicians' hesitance to prescribe before that they see real-world data supporting that a nasal delivery as -- as effective as an injectable. We know that patients in the U.S. who have allergies have quite infrequent interactions with health care. A lot of them don't see an issue in the daily day. So it's the annual meeting with the allergists, which is the time when you can get a new product. But also, from a more market perspective and something pushback is around the first ANDA that was filed in August by Lupin Pharmaceuticals on this product. So that has created some uncertainty. But if you look at the expectations by the investors, we see that the valuations are still significant. Our competitor, AIS Pharmaceuticals, actually according to the Wall Street Journal Markets have a buy rating by all analysts. We have some of the largest investors in AIS Pharmaceuticals have just continued financing with up to $250 million in the launch of neffy in the U.S. So for those who are close to the company, there's clearly an expectation that this market will go through. And from Orexo perspective, we still believe that OX640 has significant opportunity. Looking at the naloxone market, which we know very well, we saw that it didn't really take off before after 18 months. And we saw exactly the same concerns by physicians and patients. But today, I don't think anyone in the U.S. question the benefits of a nasal administration, which is probably a lead for some of the decline we have seen a number of people dying from overdose in the U.S. And we also believe that coming in with OX640, we're actually looking competitively, and we have done some market research. We know some of our potential partners have done some market research and all of that confirms that we have a very competitive product in the U.S. We still have IP until 2044, but to continue understanding the market and to get more evidence, we have started a market research using some external experts running the study in the U.S. that will be concluded during Q4 to ensure that we’re actually focused on the right market differentiating parameters of OX640 when we proceed and to confirm the attractiveness of the market. So OX640, we continue with the development. We have seen some, you can say, delay in the partnering discussions. And also there's a concern from Orexo is the attractiveness with the uncertainty of some of these partnering opportunities where if you go a little further, get more certainty around the market, we see that could be a significant value inflection for a potential partnership. Moving into the financial section, I will invite Fredrik to talk a little bit about our financial results. Frederik Jarrsten: Thanks, Nikolaj. So on Page 22, looking at revenues, if we start looking on the top part of this page, you can see that our total Q3 revenue for the Group was SEK 119 million. And the vast majority of that SEK 114 million or 96% came from Zubsolv in our U.S. commercial business. Now that's down about SEK 17 million year-over-year, mainly driven by negative SEK 11 million FX impact. But we also had lower demand in net revenue terms, primarily from the previously exclusive contracts within UnitedHealth Group and Humana. So that was about a 3% demand reduction year-over-year. Now partly offsetting this, we had a lower destocking effect versus last year that contributed to a positive SEK 2 million. In local currency Zubsolv revenue declined 4.8% year-over-year. Looking at other revenues within HQM pipeline, Abstral royalties were higher, but that's largely because Q3 last year included the negative adjustment to historic reported royalties. Edluar royalties were stable, but Zubsolv ex U.S. revenues were lower, mainly because that didn't have any tablet sales to our partner, Core Healthcare this quarter. That's following the onetime inventory build earlier this year ahead of Accord starting manufacturing in Europe. Now if we switch to the quarter-over-quarter view for Zubsolv revenue, the waterfall chart on the bottom part of the page shows that opposite to the year-over-year trend, reported net revenues in local currency increased slightly in Q3 by approximately 2% versus reported Q2 numbers that though include the nonrecurring rebate payment we had in Q2 of SEK 9 million. In SEK terms, with a negative FX impact of SEK 1.5 million, quarter-over-quarter net revenue shows only a very marginal growth, reflecting a broadly stable demand picture in the quarter, as shown in the first three bars of the chart. And working against the gross growth was also a sizable negative inventory destocking effect of SEK 6 million during the quarter, as Nikolaj previously talked about. Moving on to the next page, the P&L. We already touched on our net revenues total of SEK 990 million. FX effect was a negative SEK 12 million year-over-year. But the weakening of the U.S. dollar year-over-year has, of course, also had a positive effect on our USD-denominated costs, which account for approximately 65% of total expenses. The decline in COGS, as you can see this quarter is driven largely by this favorable FX effect within U.S. Commercial, and that was about SEK 6 million. Also improved production costs for Zubsolv. So as a result, gross margin increased from 85% in Q3 last year to 94%. On operating expenses in Q3, which landed at SEK 133 million, we're pleased to see that's down 4% compared to last year, although about SEK 12 million is coming from the weaker U.S. dollar. But we also saw lower costs from a performance perspective with lower selling expenses in our U.S. operations in relation to staffing as well as lower marketing-related costs for IZIPRY. We also had lower admin costs, mainly from reduced legal fees. R&D costs, on the other hand, though, were higher, mostly related to high costs for OX640 upscaling of manufacturing. And then we had these costs of SEK 13 million for the long-term incentive programs. Mainly related to provision for social security fees following the sharp increase in our share price during the quarter. EBITDA was negative for the quarter by minus SEK 9.8 million. And that, though, include this SEK 13 million negative LTIP impact. So if you would exclude those costs, EBITDA would be positive SEK 3 million instead. If you look at the U.S. business specifically, EBIT was an impressive SEK 38 million for the quarter, and that's up from SEK 25 million a year ago. So that's an EBIT margin of 34% and an improvement from 19% last year. Let's move to next page, cash flow. We reported negative cash flow of negative SEK 15 million for the period. After adjusting for a negative FX effect of SEK 0.8 million that resulted in a decrease in cash and cash equivalents of SEK 16 million in the quarter. Operating cash flow was negative, and that's mainly due to negative operating earnings and interest paid on the bond. Adjustments for noncash items had a positive effect, especially from the provisions related to timing of rebate payments and also from adding back these noncash LTIP-related costs we had this quarter. So by the end of Q3, cash and cash equivalents were approximately SEK 106 million. And just a reminder, at the end of Q3, we still held SEK 20 million in our own bond, which could serve as an additional funding going forward. And then we're looking at the next page, our financial outlook for 2025. These metrics are reaffirmed and specifically, EBITDA guidance remains unchanged, driven by expectations of a positive inventory impact for Zubsolv in Q4 as well as stable demand. Continued strong cost control is also expected to have a positive effect, and then we should probably also see positive impact with the BARDA award and the covering of incurred costs in Q4. However, the EBITDA outlook is related to some increased risk due to impact from non-budgeted onetime items such as the nonrecurring rebate payment we had in Q2 of SEK 9 million. Also provisions we talked about associated with LTIP program and also significant exchange rate fluctuations. With that, back to you. Nikolaj Sørensen: Thank you. Maybe a word also on the BARDA contract and OX390 million is that the -- it's covering also our internal expenses and particularly in the first phases of the project, it's really our existing staff that is working on the project. So we will have covering of salaries that we would otherwise have to finance ourselves. Among others, Ed Kim, part of Ed Kim’s salary that you listened to him earlier today is also covered partly by this award by BARDA. So a short legal update, the one process we still have ongoing, never ending is the Department of Justice, where we have not really any material movement during the quarter. What is worth saying is the U.S. system with U.S. prosecutors, which are the one leading these processes, that's political appointers on the U.S. prosecutors are political appointees. And that process has been going on during the quarter, and that actually was a change of the appointed U.S. prosecutor in the district that we worked with. And they really need to be confirmed before we think we can make any movements here. This is of course a process that is taking unnecessary time and also money, and it's something we would like to resolve, but we would need to have a U.S. prosecutor in place to have that discussion. So looking at the future, we can say we have three buckets that we really focus on. One is our commercial assets where, of course, we have some of the revenue of royalty-generating assets like Abstral, Edluar, which are still there even though on a low level. But the most important is Zubsolv, where we are continuing to work on how can we optimize the value contribution to Zubsolv long-term. On top of that, we, of course, have IZIPRY, which we're now putting into the semi-commercial space here as we are making good progress towards a -- an approval. So where we would then look at what is the right go-to-market strategy, both looking at the market potential and the amount of expenses needed. But really value optimizing those are important to enable the next areas, which is running our own projects, which today consists of 3 projects, one is OX390 that you heard, one is OX472 and GLP-1s and the last one is OX640. On top of that, we have the AmorphOX technology and how we can apply that to other -- in partnerships and to other companies' APIs. And really with the goal to become the partner of choice in nasal powder delivery technology, we believe today, we have the world's leading nasal powder delivery. We think the powder has a lot of advantages over a liquid nasal delivery, and this is something we working to apply together to -- on partners, in particular, in large molecules where we think this can move from injectables to nasal delivery, among others to vaccines, which is in our partnership with Abera. And we also have other nondisclosed partnerships where we're testing on larger molecules using our technology. With that, I will open up for Q&A. Operator: [Operator Instructions] The next question comes from Samir Devani from Rx Securities. Samir Devani: Probably easier if I just give them to you one at a time. So I guess kicking off on a couple of the positive developments that we've seen over the quarter. On OX390, the $8 million initial period, how long will that cover? And can you make any further comment on how 390 will be differentiated from existing rescue medications? I don't think you've disclosed yet the active and maybe when we might hear about that. Nikolaj Sørensen: So I will take the first and then Ed can answer your second question around the differentiation and difference. So, the $8 million is lasting until the first gateway, and that is right now planned to be in the first half of 2027. So this will cover the expenses until the first half of 2027. With regards to the differentiation, Ed, could you give a little comment on how this is different than other naloxone and nalmefene rescue medications? Edward Kim: Sure. Thanks, Nikolaj. Thanks for the question. So what the preclinical evidence shows is that naloxone does not have a beneficial effect on the respiratory depression associated with xylazine. So there is nothing else available. This will be specifically targeted to reverse the toxic negative effects of Xylazine and drugs like it. So it will be a first-in-class. Samir Devani: And when do you think you'll be in a position to tell us what that active is? Edward Kim: I'll leave that to Nikolaj. I think he's going -- we're not prepared certainly today to disclose specifics around the API. Nikolaj Sørensen: So, Samir I think we will do that in relatively soon, but I would say, in the start of next year. It's a little around the supply chain. It's around the IP and others that we want to get control of before we will disclose the details. Samir Devani: Okay. That's totally fair enough. And then just maybe moving on to semaglutide. Obviously, this is a noncore area for you. And I'm just, again, thinking about -- obviously, you've got OX640 on the sort of partnering table. When do you think you'll have enough -- or what further investment do you need to make before you think you could be in a position to partner this? Nikolaj Sørensen: So I think [indiscernible] OX472 or semaglutide is an interesting one because it's -- we see it as a two -- I can say, two-legged opportunity. One is, of course, semaglutide as a product, where that one will -- before you can get to market will be subject to semaglutide API patents, which I believe some of the large market is in the early 30s before they go. So there is an opportunity in semaglutide. And before you get to a partnering around that, I think there could be opportunities short-term, but really to get through human data, I think, will be an important milestone to have the first human data showing that it actually works not only in vivo in animal testing, but also in humans. I think that would be a great value inflection point and I also think the expenses to take us to that level is not that high. On the other leg, which is more other GLP-1s where you know today, Novo Nordisk and Eli Lilly, they have an oral formulation. There are some of the other, but not a lot who have oral formulations, but there are basically a large number of companies who have peptides for GLP-1s, which don't have access to an oral or nasal formulation. And that could give an opportunity which is coming much faster to test whether GLP -- we could have the product tested on that GLP-1, which, of course, then in that end, you would have to decide whether you can run both legs or you will have to decide which one you're going on. But we really think from a partnering with a pharmaceutical company with semaglutide, the real value inflection point is likely to come with the first human study. The other ones could come earlier than that. Samir Devani: Okay. That's great. And then just on my final question, just on IZIPRY. I just wanted to double check that nothing has changed since we last spoke in terms of the likely time line for the FDA filing, which you've said is mid-2026. Just wanted to confirm that's your current expectation. Nikolaj Sørensen: That is still our current expectation. Operator: The next question comes from Klas Palin from DNB Carnegie. Klas Palin: The first one relates to OX390. And I wonder if you are perhaps willing to share some further details about the clinical program needed to get an approval for this, what you have had kind of discussions with the FDA and the scope of such trials perhaps? Nikolaj Sørensen: I will refer that to Ed with keeping the communication line as we have discussed, that we can't go into too much details, but on a high level, Ed, you can maybe answer this. Edward Kim: Sure. Thanks, Nikolaj. Yes, good questions. We are -- because OX390 is a new chemical entity, we are going through the IND-enabling studies currently. So our initial conversations with the FDA are going to be around getting to first in-human. So the clinical program and the pathway to developing this important rescue medication, those conversations need to be had once we're getting closer to our first-in-human studies. Klas Palin: Okay. And just to confirm, the device that you are intend to use there, is this very similar to the one for IZIPRY? Edward Kim: Yes, that's the plan. Klas Palin: Okay. Perfect. And then just jump to OX640. You are sort of downplaying the expectations of a near-term partnership, at least what I'm hearing. And just wonder, is the negotiations on pause awaiting this market research analysis or what's going on? Nikolaj Sørensen: So there's a limit to how much I can go into individual discussions, but we still have ongoing discussions with interested parties. I think some of the opportunities, there's a question mark from us whether the attractiveness of entering a partnership with that market uncertainty is attractive or we would have more value to take this a step further while monitoring the market development. So there's a little on the value that you can get from the product partnering today, but there is still companies interested in the game with different setups. So there are still opportunities for partnership in relatively short-term, but I think the company needs to decide on what level of risk are we willing to take because we think there could be more value taking this a step further if we believe the market development is in line with some of the valuation indications for AIS Pharmaceuticals and some of their larger investors believe how this will evolve. Klas Palin: Great and then my last question is about OX472 then. You talked about perhaps conducting a human trial before partnering. Is it possible to provide some sort of time frame when you perhaps could enter clinical trials with this compound? Nikolaj Sørensen: I think we -- so this has gone very, very fast for us. Of course, we've been working on the formulation and it has been even in the pattern since quite some years back, but the real work started this year. And what we are discussing internally and we are looking into the market opportunities is what is the target profile that we're looking for. For example, is the dosing that you need for obesity is likely to be higher than what you need for some of the other indications. But that also increase the risk in the study if you have to go very high in dose, then that could lead to more frequent dosing through the nose and that comes with some other potential issues that we don't know. So there's a discussion where we're leading and that comes from two sides. One is to understand the market and the clinical profile that we think is desirable. And the other one is purely formulation to say how can we work on excipients and how much can we get into one dose of the nasal spray. So there is some formulation work that we would like to conduct, probably followed up with some in vivo study before we move into humans with what you can say, a targeted formulation. So we will have to wait a little to see where that is going. But it is to run this first exploratory clinical study in humans is not a large study, and it's not something that's going to be quite -- very time consuming. So we could make a decision and we could run it relatively fast. As you might know, we have manufacturing capacity for clinical trial material internally. So we don't have to wait for slot times at a [indiscernible] manufacturer. Klas Palin: Okay thank you so much, that’s what is all for me. Nikolaj Sørensen: Thank you. And I believe we have received some questions on the telephone conference here. So I will go through those here. So have you applied or intend to apply for these FDA vouchers giving the company much shorter time line. So one to two months of approval for drugs of importance for the U.S., for example, OX390 and OX124. For OX124, we have tested to see if we could get accelerated approval. We think we came in a little late because there are other alternatives on the market. So we didn't have that pathway available. For OX390, that could be a possibility. And that, of course, is something we're exploring. What's worth noting here is, as said, BARDA is not only a financing. They are an active part in the development. BARDA is part of the HHS in the U.S., which is under the same department as the FDA. So I think even here, there are opportunities for us to work with BARDA to find the most optimal pathway to approval in the U.S. So that is something we expect. Then there's a question whether OX390 will be a single-agent product or we could combine it with naloxone together with an alpha-2 receptor antagonist. So alpha-2 is the target for xylazine for those of you who don't know that. And the use of a combination product in the U.S. is from FDA perspective, it's a hard sell. It requires quite a lot of data to combine the two products. Often, it will be easier to have some kind of combination package or you will have work with pharmacies to make a combination of the two agents. We will have to see how we would -- what is kind of the emergency steps you would take when you see someone who is potentially overdosed with an – with xylazine or similar agent and then decide what is the best distribution way. But to combine it in one nasal spray, we believe will be a very complicated process from an FDA perspective. Then we have a question here, which is around whether we think inhaled semaglutide would be a better solution than the oral products in clinical trials given -- or production in clinical trials given higher toxicology discontinuations seen in trials such as those led by Viking, which is another company just for those of you who don't know who works with a GLP-1. Do you see interest from new investors, including international investors, given potentially huge market opportunity coming from that product. We think there's a lot of advantages of using a nasal delivery of a GLP-1. Working with inhaled could be, but in my -- and here, I'm not a physician. It is, of course. So Ed, maybe I will take it to you later. But I would just say, in general, I have seen that inhaled products come with more tox stories, at least historically than what we have seen with others because you get it into the lung and the long-term toxicology effect of that is difficult to predict. And I at least have been part of withdrawing a product from the market because of late coming toxic indications when from real-world data. The nasal distribution or nasal, at least with our powder formulation with a 7x higher uptake to the nose without the issues that you have with using an oral tablet, what we've seen with Rybelsus is very low bioavailability and also high variability among the individuals who receive Rybelsus and taking it through the nose, at least in our in vivo study, we saw much more consistent data from the nasal delivery than the oral delivery. So we think there could be a great advantage from a nasal delivery over the oral on the inhaled, I'm not that sure. I don't know, Ed, if you have any thinking around inhaled semaglutide. Edward Kim: Yes, Nikolaj, I think you've stated it all that the inhaled route of administration carries some risks. And what we want to focus on is derisking as much as we can the development of novel formulations. And we believe that the intranasal derisks it the most. Nikolaj Sørensen: And then there was a second part of the question, which is around whether we have seen interest from new investors, including international investors, given potentially huge market opportunity. What I can see is that our share price have increased, even though today it probably came with some disappointment. I can understand from the commentaries, it's a lot of that is related to OX640, where we, of course, also had hoped and had some qualified expectations that we could have come to an agreement this autumn. But I would say that the quarterly data and also the patent litigation that [indiscernible] ended up with came as a surprise to both us and at least the lead potential partner that we have during the summer. But looking at what has happened after the GLP-1 announcement and also OX390, which one of them is driving, it's a little hard, but I actually think they might are very complementary with the GLP-1s having a huge market potential and OX390 actually give us some financial stability in the company by supporting a development program with a lot of the staff that we're working with, we are a small company, of course, the same people who have to work on both the GLP-1s and also on the OX390. And what we have seen is increased, significantly increased volumes. We have seen more block trades in the stock than we have seen recently. Some of the block trades are managed by international banks or banks which are at least a part of the banks not present in Sweden. And that indicates in my view that it's either some very affluent private individuals or more likely it's an institutional investor that is buying the share. We have not seen that in our statistics. And I think that is due to many international investors don't disclose their holdings. So we just see that we have an international custodian bank that hold an additional amount of shares. Then we normally would see that there are -- some of these investors will call us and ask for individual presentations. And I will say that we have had more inbound interest in the company after the GLP-1s from international investors than we have seen for quite a while. So that's maybe different indications that the hypothesis presented here in the question that we have new investors and that there has been an increasing interest is correct. And then we have another question, which is, I think, came before the conference, which is around whether Orexo is involved in Abera's long-term study for its influenza vaccine? What data was presented quite recently, which was quite promising? The short answer is no. We were not part of this long-term study. But I also think looking at how you design these studies, it would be natural for Abera to actually focus on the delivery method with the least noise, and that is probably working with an injectable or the way of delivering the product that they have done for most of their studies. That said, we still have an intimate dialogue with Abera. We have discussions about future studies that we could conduct together. So this is just supportive of Abera's vaccine that they have some great data that they could show. For us, that is very good news because it, of course, help us in the discussion with Abera for where the powder could add value to Abera's vaccine candidate. So -- but we have not been involved in the study. With that, I believe we have no further questions. And I would thank all of you that you listened in. I hope this is a new partner we work with for the conference call from our side. It seems to have been worked very well. I hope it's the same for you. So thank you so much for your time, and you're welcome to reach out to Orexo if you have any further questions. Thank you. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Nikolaj Sørensen: Thank you so much.
Operator: Greetings, and welcome to Valero Energy Corp. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Homer Bhullar, Vice President, Investor Relations and Finance. Thank you. You may begin. Homer Bhullar: Good morning, everyone, and welcome to Valero Energy Corporation's Third Quarter 2025 Earnings Conference Call. I'm joined today by Lane Riggs, Chairman, CEO and President; Jason Fraser, Executive Vice President and CFO; Gary Simmons, Executive Vice President and COO; Rich Walsh, Executive Vice President and General Counsel; as well as several other members of Valero's senior management team. If you have not received a copy of our earnings release, it's available on our website at investorvalero.com. Included with the release are supplemental tables providing detailed financial information for each of our business segments, along with reconciliations and disclosures for any adjusted financial metrics referenced during today's call. If you have any questions after reviewing these materials, please feel free to reach out to our Investor Relations team. Before we begin, I would like to draw your attention to the forward-looking statement disclaimer included in the press release. In summary, it says that statements made in the press release and during this conference call that express the company's or management's expectations or forecasts of future events are forward-looking statements and are intended to be covered by the safe harbor provisions under federal securities laws. Actual results may differ from those expressed or implied due to various factors, which are outlined in our earnings release and filings with the SEC. I'll now turn the call over to Lane for opening remarks. Lane Riggs: Thank you, Homer, and good morning, everyone. We're pleased to report strong financial results for the third quarter, highlighting our long-standing track record of operational and commercial excellence. Our refinery throughput utilization was 97% with the Gulf Coast and North Atlantic region setting new all-time highs for throughput following last quarter's record performance in the Gulf Coast. Refining margins remained well supported by strong global demand and persistently low inventory levels despite high utilization rates. Supply constraints were driven by refinery rationalizations, delayed ramp-ups of new facilities and ongoing geopolitical disruptions. These market dynamics contributed to the margin strength despite relatively narrow sour crude differentials. The Ethanol segment also delivered a strong quarter, achieving record production and solid earnings. Strategically, we continue to make progress on the FCC unit optimization project at our St. Charles refinery. This initiative will enhance our ability to produce high value product yields, including high-octane alkylate. The $230 million project is expected to begin operations in the second half of 2026. Looking ahead, refining fundamentals should remain supported by low inventories and continued supply tightness with planned refinery closures and limited capacity additions beyond 2025. Sour crude differentials are also expected to widen with the increased OPEC+ and Canadian production. In closing, our strong financial results and record operating achievements this quarter are a testament to our commitment to commercial and operational excellence. This, coupled with the strength of our balance sheet should continue to support strong shareholder returns. So with that, Homer, I'll turn the call back over to you. Homer Bhullar: Thanks, Lane. For the third quarter of 2025, net income attributable to Valero stockholders was $1.1 billion or $3.53 per share compared to $364 million or $1.14 per share for the third quarter of 2024. Excluding the adjustments shown in the earnings release tables, adjusted net income attributable to Valero stockholders was $1.1 billion or $3.66 per share for the third quarter of 2025 compared to $371 million or $1.16 per share for the third quarter of 2024. The Refining segment reported $1.6 billion of operating income for the third quarter of 2025 compared to $565 million for the third quarter of 2024. Adjusted operating income was $1.7 billion for the third quarter of 2025 compared to $568 million for the third quarter of 2024. Refining throughput volumes in the third quarter of 2025 averaged 3.1 million barrels per day or 97% throughput capacity utilization. Adjusted Refining cash operating expenses were $4.71 per barrel. The Renewable Diesel segment reported an operating loss of $28 million for the third quarter of 2025 compared to operating income of $35 million for the third quarter of 2024. Renewable Diesel segment sales volumes averaged 2.7 million gallons per day in the third quarter of 2025. The Ethanol segment reported $183 million of operating income for the third quarter of 2025 compared to $153 million for the third quarter of 2024. Ethanol production volumes averaged 4.6 million gallons per day in the third quarter of 2025, achieving record production. For the third quarter of 2025, G&A expenses were $246 million, net interest expense was $139 million and income tax expense was $390 million. Depreciation and amortization expense was $836 million, which includes approximately $100 million of incremental depreciation expense related to our plan to cease refining operations at our Benicia Refinery next year. Net cash provided by operating activities was $1.9 billion in the third quarter of 2025. Included in this amount was a $325 million favorable impact from working capital and $86 million of adjusted net cash used in operating activities associated with the other joint venture member's share of DGD. Excluding these items, adjusted net cash provided by operating activities was $1.6 billion in the third quarter of 2025. Regarding investing activities, we made $409 million of capital investments in the third quarter of 2025, of which $364 million was for sustaining the business, including costs for turnarounds, catalysts and regulatory compliance, and the balance was for growing the business. Excluding capital investments attributable to the other joint venture member's share of DGD and other variable interest entities, capital investments attributable to Valero were $382 million in the third quarter of 2025. Moving to financing activities. We returned $1.3 billion to our stockholders in the third quarter of 2025, of which $351 million was paid as dividends and $931 million was for the purchase of approximately 5.7 million shares of common stock, resulting in a payout ratio of 78% for the quarter. Year-to-date, we have returned over $2.6 billion through dividends and stock buybacks for a payout ratio of 68%. With respect to our balance sheet, we ended the quarter with $8.4 billion of total debt, $2.2 billion of total finance lease obligations and $4.8 billion of cash and cash equivalents. The debt-to-capitalization ratio, net of cash and cash equivalents was 18% as of September 30, 2025. And we ended the quarter well capitalized with $5.3 billion of available liquidity, excluding cash. Turning to guidance. We expect capital investments attributable to Valero for 2025 to be approximately $1.9 billion, which includes expenditures for turnarounds, catalyst, regulatory compliance and joint venture investments. About $1.6 billion of that is allocated to sustaining the business and the balance to growth. For modeling our fourth quarter operations, we expect Refining throughput volumes to fall within the following ranges: Gulf Coast at 1.78 million to 1.83 million barrels per day; Mid-Continent at 420,000 to 440,000 barrels per day; West Coast at 240,000 to 260,000 barrels per day and North Atlantic at 485,000 to 505,000 barrels per day. We expect refining cash operating expenses in the fourth quarter to be approximately $4.80 per barrel. For the Renewable Diesel segment, we expect sales volumes of approximately 258 million gallons in the fourth quarter, reflecting lower production due to economics. Operating expenses should be $0.52 per gallon, including $0.24 per gallon for noncash costs such as depreciation and amortization. Our Ethanol segment is expected to produce 4.6 million gallons per day in the fourth quarter. Operating expenses should average $0.40 per gallon, which includes $0.05 per gallon for noncash costs such as depreciation and amortization. For the fourth quarter, net interest expense should be about $135 million. Total depreciation and amortization expense in the fourth quarter should be approximately $815 million, which includes approximately $100 million of incremental depreciation expense related to our plan to cease refining operations at our Benicia Refinery next year. We expect this incremental depreciation related to the Benicia Refinery to be included in D&A for the next 2 quarters, resulting in a quarterly earnings impact of approximately $0.25 per share based on current shares outstanding. For 2025, we still expect G&A expenses to be approximately $985 million. That concludes our opening remarks. [Operator Instructions] Operator: [Operator Instructions] Our first question today is coming from Sam Margolin of Wells Fargo. Sam Margolin: On -- this is a comment from your opening remarks. As you mentioned, not much of a contribution from heavy crude this quarter on differentials. I guess we're like a year into TMX barrels sort of fully flowing. And I wonder if you could share any insights you have into the differential side as kind of 12 months into TMX and then just on the overall kind of availability picture that's emerging into 2026. Gary Simmons: Yes. So I would tell you, we've been somewhat -- I'll start with TMX, somewhat disappointed that TMX hasn't had as much of an impact on West Coast crude values and it has -- really, ANS didn't come off like we anticipated it would. And most of those barrels are flowing to the Far East. In the broader sense, in terms of quality differentials, we have seen the quality differentials move quite a bit. WCS now trading at a 12% discount to Brent, Maya 14% discount to Brent. Those had been as narrow as 7% previously in the year. On medium sours, we had seen discounts as narrow as 2.5%. That's widened up closer to an 8% discount. So discounts have certainly moved to the point where we are seeing an economic benefit in our system to running medium and heavy sour crudes. Our expectation is you'll continue to see those widen. Although OPEC began unwinding their production cuts in April, much of that volume was offset by an increase in summer power burn. So it wasn't really until September that we saw any meaningful increase in the export volume from OPEC. The pricing signals that are there still suggest that most of that incremental OPEC volume will be directed towards Asia. However, we've been seeing increased offers to the U.S. market, especially for Rocky crude. We'll be processing both Basra and Kirkuk during the fourth quarter in our system. The arbitrage to move Mars into Asia has closed. Additionally, we're starting to see Asia push back on some of the Latin American grades, which ultimately is beginning to pressure medium sours in the Gulf Coast. So all of those effects are things that we're starting to see in October. And as medium sour discounts widen, you'll see heavy sours react to remain competitive with medium sour. So we anticipate that to continue to happen as we move through the fourth quarter. In addition to just OPEC, heavy Canadian production has continued to ramp up as well as some of the deepwater medium sour production in the Gulf, and then you've seen Chinese demand has been very high for medium and heavy sour barrels as they fill their SPR. At some point in time, you'd expect that to be full and they would back off. I think the real wildcard here is with the headlines on ramp-up in Russian sanctions yesterday. In the past, we felt like sanctions were largely ineffective. They just result in a change in trade flows. At least if you see the market reaction today, the market believes this round of sanctions could be successful and result in some Russian oil being taken off the market. On paper, OPEC has the capacity to make up that lost supply, but that certainly could be a headwind to quality differentials. However, it would be very bullish for product cracks. Sam Margolin: Okay. I guess we'll keep it on industry macro for a second, if that's okay. And just on the capacity queue globally next year, we've encountered some feedback about what looks like a fairly heavy schedule of capacity additions next year after a number of years of kind of trailing demand or lagging demand. If you have any insights on to the timing of the capacity additions or what do you think we can expect reliability-wise or just a change in balances, that would be much appreciated. Gary Simmons: Yes. So our numbers would show about 460,000 barrels a day of total light product demand growth next year. Net capacity additions are about 415,000 barrels a day. So those numbers, if you assume somewhere around an 80% total light product yield on crude, you would still have tighter supply-demand balances next year than what you have this year. In addition to that, I think a lot of the forecast you see assume that new capacity that started up is going to run at nameplate. We haven't seen them be able to get up to nameplate yet. And our expectation is a lot of that capacity won't hit nameplate next year. And then Russian capacity is a real wildcard here, also 1.5 million barrels a day of Russian capacity off-line. A lot of the forecasts assume that Russian capacity is up and running beginning of the year. Our expectation is it will take longer to get that up and running as well. So we expect things to be tighter next year as well. Operator: The next question is coming from Manav Gupta of UBS. Manav Gupta: I just quickly wanted to follow-up on that. We are seeing a massive spike in global outages, Russia, Dangote, Dos Bocas. I think over the weekend, there were issues where you had Romania having issues. So what are you seeing in terms of global product markets out there, all these outages and what they are causing for the margins out there? If you could talk a little bit about that. Gary Simmons: Manav, this is Gary. I think we've seen good export demand all year. The fact that we've been unable to restock inventories in the United States is keeping somewhat of a pull into the domestic market, but the export markets are very good, continue to see really good export demand for gasoline into Latin America and South America. On the diesel side, a bigger pull into South America than what we've been seeing. Freight has really been volatile. And so on the export arbs going to Europe, it's kind of been up and down, and it's really just freight that's kind of been what opens and closes that arb. If you look today, that arb is marginally open. And I think you'll start to see a heavier flow going to Europe from the U.S. Gulf Coast on diesel. Manav Gupta: Perfect. My quick follow-up is on the capital returns. A big jump in the buybacks. And should we assume if margins remain well above mid-cycle like they are, then your payout ratio remaining the same, you would continue to buy back your stock as you did in the third quarter. If you could talk a little bit about the capital discipline as well as the return to shareholders. Homer Bhullar: Yes. Manav, it's Homer. Absolutely. I mean we've talked about this for the last several quarters. We've been in this mode where effectively all excess free cash flow goes towards share buybacks, and you saw that this quarter as well. You had a small build in cash, but that was largely because of working capital. But I think you should continue to assume that we stay in that mode where any excess free cash flow goes towards share repurchases. Manav Gupta: Perfect. You have done exactly what you had said that excess cash will go to shareholders though, thank you for that. Thank you, sir. Operator: The next question is coming from Neil Mehta of Goldman Sachs. Neil Mehta: Yes. Lane, there's been a lot of talk about crude that's on the water and in transit and some estimates have it north of 3 million barrels a day, if you look at some of the shipping tracking data. You guys have unique visibility into whether that crude is actually on the water. And so I'd be curious how your commercial team is seeing it. And do you think it's going to land here in OECD or if that moves into China specifically? And I say that in the spirit of -- to your point of crude differentials potentially starting to widen out, do you start to see that as the factor that could be the catalyst? And maybe you could talk about Iraq in particular because that could be a leading indicator. Lane Riggs: Neil, I'm going to sort of pass the ball over to Gary to answer that question. Gary Simmons: Yes, Neil, I kind of alluded to that a little bit previously, but where we see the big change is a lot more Rocky barrels flowing this way. As I mentioned, we have bought Basra. We've also bought Kirkuk, and we see that to be a portion of our diet in the fourth quarter and moving forward is really the big change that we've seen. Most of the other barrels seem to be making their way to Asia. Neil Mehta: All right. We'll keep on watching it. And the other question is just on some of the non-refining businesses did better than expected -- than we expected this quarter. Ethanol continues to perform well. And I guess DGD is getting closer to profitability. So can you talk about both of those businesses and whether we're -- there's sustainability at the ethanol margins and weather post the RVO, we are on a path back to the black in DGD. Eric Fisher: Neil, this is Eric. Ethanol continues to look positive. I think a lot of that is we've had a record corn crop. Ethanol demand has been strong, both domestically and in the export markets. We're seeing the continued interest in countries going from E0 to E10. Canada has gone to E15 in some of the provinces. And you see Brazil and India looking at moving from the E20s to the E30s. And so all of this is creating more ethanol demand in the world. And being the largest exporter of ethanol, that favors our segment pretty well. So cheap feedstock and lots of demand. So ethanol, I think outlook is good and continues to look good in the future. On DGD, you're exactly right. We've seen throughout the year, there's just been a lot of impact from tariffs and policy downturns in the U.S. We've seen fat prices rising for the better part of the year. And I think just most recently, we are seeing enough rationalization in both biodiesel and renewable diesel where fat prices are finally starting to soften. And with that lower fat price, we've seen DGD margins return back to positive EBITDA. So that's a good sign for the fourth quarter. Obviously, with the PTC changing Jan 1 on all foreign feedstocks as well as SAF, that will be a challenge as we start 2026. But I think everyone seems to expect that the RVO will be net positive for renewables. That's a lot of speculation because there is a lot of back and forth on these policies right now. But I think the general view is the number is probably going up and will probably be supportive of renewable diesel. Operator: The next question is coming from Theresa Chen of Barclays. Theresa Chen: I wanted to talk about your PADD III and PADD II assets in light of 2 major product pipeline binding open seasons that have been announced over the recent weeks to move more volumes from these regions into PADD V given ongoing West Coast refinery closures, including your own Benicia facility. So if one of these 200,000 barrels per day plus systems were to be built, how do you anticipate this could reshape flows and margin capture across your Gulf Coast and Mid-Continent assets? And is there any volition, would it make sense for you to be a shipper on one of these pipes? Gary Simmons: Yes, Theresa, this is Gary. We engaged in conversations with both the projects that we think could go forward. In both cases, we'll have to wait and see what the final tariff numbers are. It looks like the tariff would be set such it's competitive versus the Jones Act movement to the West Coast. But we believe we can be more competitive with foreign flag waterborne movements into the West Coast. In addition to that, we like the waterborne movements because, one, the volatility on the West Coast, if you take a position on that pipe, you could be shipping into a closed arb a good portion of the time. And then we like the waterborne option as well because it allows you to source barrels from anywhere in the world and take advantage of international arbs that can be open. So we have connectivity through McKee already to El Paso and into Phoenix. So we have a lot of connectivity as well as space on the pipe from Houston to El Paso. So I don't think you'll see us participate in those projects. Lane Riggs: This is Lane. The second part of that would be, you would expect it to firm up the group in the Gulf Coast as barrels do get committed and move West, assuming those projects go through. Theresa Chen: That's very helpful. And separately, Gary, there's been some noise in the DOEs as of recently. I'd love to get your take on what you're seeing across your domestic distribution channels and your commentary on domestic demand in addition to the color you gave already on exports. Gary Simmons: Sure. If you look at our gasoline demand, I think in our system, we would say year-over-year gasoline demand is flat to slightly down, pretty similar to what's in the DOEs. Third quarter, our volumes were flat year-over-year. It looks to us like vehicle miles traveled are up year-over-year, but probably not enough to offset the more efficient automobile fleet. So again, probably flat to slightly down gasoline demand. As I mentioned, export demand looks good. When you look at gasoline fundamentals in addition to good export demand, the transatlantic arb to ship from Europe into New York Harbor is closed, and it's actually closed on paper all the way through the first quarter. So really for this time of year, gasoline fundamentals look about as constructive as you could hope for. Obviously, we've transitioned out of driving season, producing high RVP winter-grade gasoline, so you wouldn't expect a lot of strength in gasoline cracks in the fourth quarter. Jet demand, we're continuing to see good nominations from the airline. So again, comparing to the DOEs which show about a 4% bump in jet demand. That looks consistent with what we're seeing in the market. And then finally, on diesel. In our system, in the third quarter, year-over-year sales were up 8%. I don't think that's representative of the broader market. DOE data showing about a 2% year-over-year increase in diesel demand is probably close. We've seen good agricultural demand in our system. That continues. Harvest season starting to wind down, but then you'll start heating oil season, which again be a good pop in demand. And as I mentioned, good export demand as well. Freight volatility is hindering that, but the demand is there. Operator: The next question is coming from Doug Leggate of Wolfe Research. Douglas George Blyth Leggate: Lane, your throughput performance has been extraordinary again. My question is kind of a bigger picture. I guess it's kind of an AI machine learning kind of question. And I'm wondering if there's a change going on in how you're running your business, things like planned turnarounds, just in time as opposed to the behavioral once every 4-year kind of deal. If there's anything happening that would lead us to think some of this throughput performance could be sustainable, not just for you but perhaps for the broader industry? Lane Riggs: Yes. Doug, I'm going to have Greg Bram to sort of start off on this question. Greg Bram: Doug, so the journey you're talking about related to how we plan turnarounds. We've embarked on that for, gosh, probably at least a decade. So I wouldn't say there's a shift there, but we definitely have reaped some benefits from the kind of the approach we take now, which aligns with kind of the way you described it. But if you want to talk about AI in general, I'd say that we're probably cautiously optimistic about how that can help us further improve our availability. We're evaluating a number of places where we can use that technology. As you'd expect, focusing on areas where we think we can create some tangible value, and we've deployed that in some of those new techniques and a few applications. But I think one of the key learnings that we picked up as we've embarked on looking at AI machine learning applications is that you really have to have good quality data of your operation to have a successful use of that kind of a tool. And I think it's an advantage for us because we've embarked on an effort to improve that data and gather that data in kind of a consistent way, kind of consistent practices across our system, again, probably 10 or 15 years ago. And so having that data makes it -- makes the opportunity to try to use that to make further improvements more real. And so we start from a good place. You've mentioned the quality of our operation today, good performance to start with. But again, some optimism that AI type techniques can help us make some further improvements. Douglas George Blyth Leggate: I appreciate the answer. I guess we're trying to figure out if we should lift our expectations of mid-cycle throughput for Valero. I guess that was at the root of my question, but I appreciate the insights. My follow-up, and I apologize to Homer specifically because I've had a couple of chances to talk to him this morning about this already. But I'm trying to understand what's going on with cash flow because your tax rate is obviously up a little bit on mix. But if we look at the translation of your earnings to your cash flow, a big beat on earnings didn't show up in cash flow. And we're trying to figure out if there's some transitory issues in there. Don't necessarily go into all the specifics, but is cash tax part of that? Or was there another reason that this might be seen as a transitory quarter from that standpoint? Maybe for Jason. Homer Bhullar: Doug, it's Homer. I mean, you'll see this when you see the Q filed, but part of that is some -- like PTC, for example, you book it within earnings and then obviously, the payment comes in later. So you'll see that as a deduct from net cash flow from operations. So that's one of the big variances. Again, you'll see that when you see the statement of cash flows in the Q. Douglas George Blyth Leggate: So no tax issue, Homer? No temporary tax issues? Homer Bhullar: There might be some small deferred tax items, but nothing that's substantial. Operator: The next question is coming from Ryan Todd of Piper Sandler. Ryan Todd: Maybe one on refining utilization. U.S. refining utilization has been quite strong versus historical norms over the last 6 months. Any thoughts on drivers of this, whether it's an impact of exiting a period of heavy maintenance over the last couple of years? And any thoughts on whether -- like suggestions that this -- that would prevent this from normalizing as we head into next year? Or are there reasons to believe that we can -- the U.S. system can continue to run in -- running this hard? Lane Riggs: Ryan, it's Lane. So you're talking about just the U.S. industry refining utilization has improved over the last few years? Ryan Todd: Yes. I mean it's been very strong this year, like over the last 4 or 5 months. Lane Riggs: Well, I'll start and let Gary or Greg tune me afterwards. I think we started on the journey, I'm going to say, 15 years ago to work extensively on our reliability, and we actually showed that this could be done. I think a lot of the rest of the industry is sort of working on the same things, and they're getting better at it, being more careful in their execution. The systems are getting better, whether -- like the previous question from Doug, how many people are using something that they might call AI. I don't know, but there are systems out there to let you execute turnarounds better, do your maintenance better, have some predictive capabilities with respect to failure mechanism, which all that improves what we actually term is availability, even through even better scheduling, things like this. And I think generally, the industry has done a little better job on this. So that's how I would answer it. Greg Bram: The only thing I might add, Lane -- Ryan, just maybe the only thing I would add, the only thing I think about when I think about this past summer versus some of the previous periods is we didn't really have a lot of extreme weather throughout the summer and refineries run well when you kind of got nice ambient conditions. And so I think we all have been incented to run hard for -- throughout these different periods. It could be maintenance part of it. It could just be that when you're not dealing with a lot of really hot temperatures, you can definitely tune up the operation and eke out that last little bit. So I don't have proof of that. But when I think about how our operation runs, I can see that being a positive impact this past summer. Lane Riggs: Well, that's a great point. Hurricane, we have not had any hurricane activities to speak of in the Gulf. Ryan Todd: Right. Maybe one other, as we think about the fourth quarter here. During the third quarter, there were a number of things that were -- I mean, you had a great quarter, but there are a number of things that were, I would say, like modest headwinds on margin capture, whether it was narrow crude differentials, crude backwardation, some West Coast jet fuel dynamics and secondary products, et cetera. Many of these appear to have reversed or improved here early on in the fourth quarter. Any thoughts on direction of some of these trends that may impact the type of capture of profitability that we see during the fourth quarter and what looks like a pretty strong environment? Greg Bram: Yes, Ryan, it's Greg. It's early for the fourth quarter, right? And you did mention a few of the things that have turned more favorable as we've gotten started out here in October. A couple of things I always think about as we approach the winter season, we'll blend more butane into gasoline as RVP shifts to winter specifications. That tends to be -- create some uplift on margin capture. But I think it's also worth noting while there have been a number of things that have moved favorably, you still have some pretty weak secondary products. Naphtha has turned a bit weaker. Propylene continues to be fairly weak. So there are a few things out there that have not really turned positively yet as we started out in the quarter. Operator: The next question is coming from Paul Cheng of Scotiabank. Paul Cheng: Just before my question, just curious that and have a comment. I was surprised that you guys didn't increase your G&A full year. I thought with the strong earnings that you guys are going to increase your bonus accrual. So I was surprised, maybe that is a part of the cost savings from Lane. Lane Riggs: Yes, that's not one we'd eagerly jump on. Paul Cheng: I told Homer that this is not going to be counted as my question. But anyway... Homer Bhullar: We will count that as a good comment, Paul. Paul Cheng: Okay. My question is actually that in the third quarter, I think part of the issue related to the margin capture is on the octane. Octane value comparing to the second quarter, I think, has come down. Just curious that if you guys will be able to share some insights what happened and then whether you think that will continue that trend? Secondly, I want to go back into not so much about just AI, but also robotic technology and all that. So Lane and the team or Greg, do you guys think that we are seeing all this new technology now available to you is more the evolution or that is going to transform the way how you guys may conduct business, not just in the refining side, but also in your back office in your trading commercial as such that -- I mean we have seen your upstream counterparts, some of them that announced some pretty sizable cost reduction effort because of the new technology. Just wanted to see where we stand for you guys or for the industry. Gary Simmons: So maybe I'll take the naphtha question and let Greg take the second one. So -- or that octane question, sorry. When we look at octane, we tend to view that it trades at an inverse to naphtha. And so what you really had in the last quarter was naphtha got a little bit stronger. And I think there are several reasons for that. You had less naphtha coming out of Russia. You had some of the naphtha from the U.S. Gulf Coast going back to Venezuela as diluent. And then you're seeing a little bit more naphtha pulled to Asia into the pet chem market. So when naphtha's weak, there's a big incentive to try to blend it into gasoline and that takes octane to do it, but when naphtha gets stronger, there's less of an incentive. So although the regrade -- the octane [ regrade ] was a little bit weaker, it probably helped set up stronger gasoline fundamentals. Greg Bram: All right, Paul. And so this is Greg. On the question around robotic automation and AI. I think maybe we don't talk about this a lot, but we've been using those techniques and further expanding the use of those techniques over time as -- again, as they make sense in terms of improving efficiency. And it improves our ability to inspect equipment, certainly to execute some of the work that we do. So that will continue to grow, I suspect, and some of these new techniques will create more opportunity to use those tools going forward, which is kind of back to the answer before. I think there will be some improvement that comes from this -- some of this new technology and these new techniques that are out there. And it will be -- if you start from a really good place like we do, it's going to be harder to find a lot of big opportunities there, but we're certainly focused on trying to find ones that make good sense from a value standpoint. Lane Riggs: And Paul, I'll add to it. The only -- some examples of those things is we, like lot -- many other people in the industry have been using robotics with respect to tank cleaning. I could see where the upstream guys would really -- that would really help them. The other thing that we've used is drones for inspection, like if you go into a -- today, we get into a big structure on an FCC and we can actually just rather than have to get in scaffold up to a particular location that might be problematic, we can put a drone in, flow it up, look at it, understand that situation without having to -- we may have to go back in and put scaffold, but now we understand the scope of work. So there are certainly things like that. And then with -- in our systems, we're always trying to think about ways to consolidate our control rooms and work on being more efficient with the operators that we have and some of which has to do with technology improvement. Operator: The next question is coming from Joe Laetsch of Morgan Stanley. Joseph Laetsch: So I want to start on the refining side. And with the strength in the diesel crack, can you talk about the ability to maintain the strong, I think it was 38% or 39% diesel yield level going forward? And then as part of that, the crude slate got a bit lighter quarter-over-quarter, but the diesel yield also stepped up, which I was hoping you could talk to as well. Greg Bram: So I'll take -- I'll start with the second one, I think. So -- well, actually, I can probably cover both of them. Joe, we've had strong diesel yield. That 38%, 39% is not too far from where we've run in the past. It reflects a mode of operation where we're maximizing diesel production or distillate production over gasoline. Again, as we kind of tuned up the operation and ran very well in the quarter, I think you saw us reach some of the highest levels that I think we can achieve with the current hardware we have. So sustainable, we can probably stick in this range with continued strong operations like we had. Remind me, Joe, what was the second part of that question? Joseph Laetsch: Yes. I was just asking about the crude slate got a bit lighter quarter-over-quarter, but you were able to step up the distillate yield. So just hoping you get a little bit of thoughts on that. Greg Bram: Yes. No, we did get a little bit lighter, but I think in some of the places where we lightened up, we were still able to -- the growth was more on the jet side than on the diesel side, and we were able to kind of drop that back into the naphtha, into the jet, still make a distillate product and had good incentive to do so. So I'm not sure that the slate itself, if I were to try to back in -- and I haven't tried to back into what was the total available distillate yield. But I don't know that it was a big enough shift in some of the places where we got lighter that would have had a material impact on our distillate -- or our yield there. Joseph Laetsch: Great. That's helpful. And then, Eric, I wanted to shift to RD. And then as we wait for clarity on the RVO and the SRE reallocation, can you talk to how you're thinking about the path for D4 RINs here? And then as part of that, is there a level that you think it needs to rise to, to incentivize the marginal producer? Eric Fisher: Yes. I think it's one of those things where there's more variables than knowns. I mean -- so -- but there's any number of combinations of a number, an SRE reallocation and a final number. But any combination of those numbers, the current number is 3.3 billion D4s. I think if you go back and look at the original premise of keeping the BD producer breakeven with a $1 BTC, they've done a lot of work this year with removing ILUC out of the model for soybean oil. They gave a small producer benefit, which I think counts almost every single BD producer. And I think they're around $0.70 to $0.80 versus that $1 last year. So this last $0.20 is probably -- if you took that to a D4 RIN, you probably need RINs to go up something like $0.25 to $0.30 to get BD back to breakeven. So that's kind of how I see -- so any combination of the math that gets to that kind of number essentially satisfies the original design of trying to keep BD operational. What that number translates out to RINs is a number higher than today. Although one of the challenges, I think, is they're trying to figure out this math is '25 D4 RIN production is down versus last year. So we're -- we have a current target of 3.3. If we underperform that number, we will consume the bank early into next year. So depending on how high you set that number, it's very difficult to pick exactly where you'll meet that BD requirement, but not overshoot and then create an impact to overall diesel prices. So I think that's kind of the challenge of how this works. But if I try to anchor on something, I go back to the dollar BTC and where was the BD producer and where are they today. And so I think there's still a gap there. And clearly, with the trade issue with China and soybean oil and soybeans in general, how that plays into this is really difficult to predict. But I think the math is something like that. Joseph Laetsch: Great. I realize there's a lot of moving pieces, but I appreciate your thoughts. Operator: The next question is coming from Phillip Jungwirth of BMO Capital Markets. Phillip Jungwirth: Specific to the heavy sour mix in the Gulf Coast, can you just talk through the moving pieces here with Mexico production declining, the Venezuela uncertainty. I assume that wasn't any help in the quarter and also just Canada TMX capacity. And then also just how fuel imports might be helping replace some of these barrels in your Gulf Coast system? And maybe also just touch on coker margins with high diesel cracks, but also still tight differentials. Gary Simmons: Yes. So overall, yes, we do see declining production from Mexico. Our volumes from Mexico aren't really down much yet, but they continue to forecast that we'll see declining production from Mexico. A lot of that is being made up with additional volumes from Canada as they continue to ramp up production and fill the pipeline capacity coming to the Gulf. So I would say those somewhat offset each other. We do have Venezuelan barrels back in the mix, which is helping. And then the additional OPEC production, as I alluded to, getting the Basra barrels and Kirkuk barrels, all that really, I think you'll see in the fourth quarter a heavier crude diet than what we had in the third quarter, filling out a lot of our conversion capacity. On the high sulfur fuel oil question, actually, high sulfur fuel oil has been pretty strong. And we haven't seen a real strong incentive to buy high sulfur fuel oil to put into coker. So there's been some opportunistic purchases, but for the most part, on paper, those economics haven't been strong. Phillip Jungwirth: Okay. Great. And then on the planned Benicia closure, you did have the charge in the quarter. Recognizing the state would like to keep this open and the official close date is in April, but when do you kind of reach the point of no return here just given preparations needed and the scheduled turnaround? Richard Walsh: This is Rich Walsh. I'll take an effort to answer at least the interaction with the government part of it. I mean we have been in discussions with California, but nothing has materialized out of that. And so as a result, nothing has changed. Our plans are still moving forward as we've shared and as we've informed the state. So I don't see anything changing on that. Operator: Our next question is coming from Matthew Blair of Tudor, Pickering, Holt. Matthew Blair: Could you talk about DGD performance so far in the fourth quarter? I think your indicator is up quite a bit, maybe $0.36 a gallon quarter-over-quarter. Are you realizing that improvement so far? Or are there other factors we need to take into account, like hedging or feedstock lag? Or I think some of the SAF credits changed on October 1. But yes, just any sort of broader commentary on DGDs so far in Q4 would be great. Eric Fisher: Yes. I think most of that, I would say, is tied to lower feedstock prices. I think you're seeing rationalization and feedstock prices starting to come off. And so a lot of that is improving the profitability of DGD. We still have strong SAF benefits both in the U.S. and in the European and U.K. markets. So that's an advantage that DGD has over a lot of other RD producers and SAF has a premium in the base. And so fourth quarter looks good from an overall production rate standpoint as well as just PTC capture and on lower fat prices is really the fourth quarter. I think the question is still going to be as we enter into '26, will you see adequate premiums on SAF to cover the loss of the PTC benefit? And are you going to see, as we were -- we've discussed a couple of times, what is going to be the RVO impact because that will have to be the vehicle to make up any gap in profitability for biodiesel and renewable diesel to comply with wherever the RVO gets set. And so we still have a lot of policy that appears to be in conflict of increased RVO but decreased generation because of foreign feedstocks. Those are all going to be things where you're trying to raise the number, but make it more difficult to generate that usually is going to mean higher RIN prices. And so I think that is the question that everyone's got to get settled on. And I think there's good awareness of how these knobs will affect the overall market. But I think those are the 2 things that will determine whether or not this fourth quarter improved profitability can continue into '26. Matthew Blair: Indeed, a lot of moving parts there. And then if I could follow up on Theresa's question on the new product pipes that are headed west. Could you talk about what this means for the prospects for your Wilmington refinery, I think Los Angeles currently ships about 125 a day of product east out of the market to Phoenix. If one of the proposal goes through, then Los Angeles could actually receive about 200 a day. So that's a pretty big shift on California supply/demand and do you think Wilmington would be able to compete with an extra 200 a day coming into that Los Angeles market? Gary Simmons: Yes, this is Gary. I think when we look at the numbers, if you look at the California market today, it looks like it's being set by import parity. And if you look at the tariffs on those pipes, import parity through the pipeline doesn't look to be significantly different than import parity on the waterborne barrels. So I don't know that you'll see much of a change in the California market as a result of the pipelines. Operator: Our next question is coming from Jason Gabelman of TD Cowen. Jason Gabelman: Hopefully, 2 quick ones. First, just on the Russian refining disruptions. There's a lot of headlines on the Ukraine drone strikes, but it does seem like in many cases, the refineries come back online quickly. So I was wondering if you could provide some numbers around the amount of disruption that you're seeing on Russian product exports and kind of before today, trying to parse out how much of the product strength was driven by actual disruptions versus geopolitical risk premium in the prices? And then my second one is on the Benicia shutdown. Can you talk about your plans to resupply the market? Or are you going to have to kind of import products from Asia in order to meet your contractual obligations? Or do you not have really many outstanding in that market once the plant shuts down? Gary Simmons: Yes, I'll take the first part of that. I think we do think the drone strikes have been pretty effective. It looks like a lot of what's happening in Russia is that they're largely attacking some of the higher complexity refining capacity. And so as that happens, then Russia will go ahead and ramp up some of the lower complexity refining capacity. So you can kind of see that with the fuel exports and some of those things. The second part of your question, I think the spike we're seeing today is not so much due to any kind of disruption from Russia yet. It is just hype in the market on what could happen in the future. But we definitely see exports from -- product exports from Russia falling. Lane Riggs: Jason, this is Lane on the second part. Our intent is to continue to supply our contractual obligations for our wholesale business after we shut down the refinery. Jason Gabelman: Okay. And those would be essentially imports from Asia, presumably? Lane Riggs: It could be from anywhere in the world. This is kind of what Gary alluded to earlier, waterborne allows you to have optionality to try to work arbs into that short versus maybe having a huge commitment on the pipeline. It's -- that's sort of our intent. We're not going to go out and term up barrels from some particular market, we'll figure out how to supply it. Operator: The next question is coming from Nitin Kumar of Mizuho Securities. Nitin Kumar: I really just have one, I'll do a part A and B. You've talked a little bit about the crude spreads widening from here on out. Just maybe some thoughts on what do you see the mid-cycle or sort of at least 12-month view on some of these spreads because you should have at least based on what's going on between Canada, Iraqi barrels you were mentioning, there seems to be a lot of supply of heavier crudes coming at the same time to the market. And then maybe part B is, given your complexity, especially in the Gulf Coast, you have like a buffet of crudes that you could choose from. Is there a specific crude that you think falls to the bottom if it's not discounted appropriately? Gary Simmons: Yes. So I'll take a stab at that. I guess our view is, without getting into a lot of specifics on what we call mid-cycle, I guess we would say where the quality differentials are today, it would be a little inside of what we would view as mid-cycle, and we do see those continuing to widen going forward. In terms of crude we see falling out, I don't really know that I have a view on that, Greg. I don't know if you have one, but... Greg Bram: What I'd probably add, if you look back, and I think the market works its way today as well, the Latin American grades are the ones that tend to be the swing. And so they're probably the one that's kind of moved into fill holes when there was a short in the Gulf Coast. So they're probably the first ones that would back out as some of that supply comes in. Operator: Thank you. At this time, I would like to turn the floor over to Mr. Bhullar for closing comments. Homer Bhullar: Great. Thank you, Donna. We appreciate everyone joining us today. And as always, please feel free to contact the IR team if you have any additional questions. Have a great day, everyone. Thank you. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Laurie Shepard Goodroe: Good morning to all, and thank you for joining this earnings call for the third quarter of 2025. Financial statements were posted with market authorities early this morning, and all materials can be found on our corporate website. Please refer to the disclaimer in this presentation and note that this call is being recorded. Today, we are joined by our Chief Executive Officer, Gloria Ortiz; and Chief Financial Officer, Jacobo Diaz. Gloria Portero: Thank you, Laurie. Good morning to all, and welcome to this third quarter 2025 results presentation. Since we last met in July, many things have happened. The tariff conflict between the European Union and the United States has been resolved. The Israel Gaza conflict seems for now to have reached its end. We learned the results of the BBVA Sabadell takeover bid last Thursday and interest rates have bottomed as the European Central Bank has ended rate cuts with inflation aligned with its targets. Additionally, the EBA stress tests were published on August 1, in which Bankinter is again the listed bank in Spain as well as in the Eurozone with the lowest capital depletion in the hypothetical case of a very adverse economic scenario. We continue to navigate an uncertain and volatile environment. And despite this, I would like to highlight that this quarter's results remain satisfactory following the trend of the previous quarter with very relevant growth and activity across all business and geographies. The third quarter has been another quarter with strong commercial activity translating into a post-tax result of EUR 812 million, 11% above the same period last year. These results are also accompanied by solid management ratios in terms of asset quality, efficiency, profitability and solvency. As reflected in the figures, we continue to report improving results in which, as usual, balanced and diversified growth is key. Credit and loans as well as retail deposits grew 5% with off-balance sheet balances up 20% year-on-year. Net interest income has continued to improve in the quarter. In the second quarter, we reported a contraction of 5% that has been reduced to 3.5% in September. In fact, in quarterly terms, it is the second quarter that we have grown over the previous quarter, reaching levels of the third quarter of 2024. This is thanks to the resilience of the customer margin, which remains at 2.7% this year. On the other hand, fees and commissions continue to perform exceptionally well, maintaining a growth rate of 10.6% despite the fact that each quarter, the comparison with the previous year is more demanding. All this growth has been achieved while keeping our risk appetite intact, which is reflected in the NPL ratio that stands at 2.05%, improving previous quarter ratio as well as the one reported 12 months ago, which was 17 basis points higher. Another key to our business model is efficiency, which stands at 36%, the best cost-to-income ratio in the sector. Diversified growth, asset quality and efficiency are the pillars on which the profitability of our business is based, maintaining a ROTE above 19%. As a result of intense commercial activity, we once again present strong diversified growth in business volumes this period. If we add credit and loans, retail deposits and off-balance sheet volumes, the volumes managed amount to EUR 234 billion at the end of September and grew by EUR 19 billion year-on-year. This is a remarkable growth rate of 9%. Going into detail, lending reached EUR 83 billion at the end of the quarter, which is EUR 5 billion more than in September 2024. Retail deposits closed the quarter at EUR 85 billion, a figure EUR 4 billion higher than in the same period of the previous year. And finally, we added EUR 11 billion to the off-balance sheet business, which stands at EUR 66 billion, showing a strong growth of 20% year-on-year. This year, we have seen a noticeable increase in new client acquisition, particularly through our digital channels. The integration of talent and technology from EVO Banco over the summer has assisted to further strengthen our digital strategy for the group. All geographies are growing at good pace. Spain, which accounts to 87% of business volumes grows 7%, while Portugal with 11% contribution to volumes grows by 12% and Ireland also stands out with 20% growth. New credit production also continues with improving trends as a result of the increased commercial activity. 16% in new mortgages, 6% growth in new business lending and a 3% drop in consumer credit due to the fact that we continue to reduce exposure to riskier segments. On Page 7, for the past 12 months, we have seen increasingly positive trends in sector growth across the geographies in which we operate with close to 3% market growth in Spain, 7% in Portugal and 2% in Ireland. In each of these markets, we continue to gain market share in each of our business lines. In our core markets, Spain, the retail banking loan book increased by 3.4%, 30 bps above the market and our business banking book outperformed by 180 bps, reaching a 4.3% growth rate. With both Bankinter Portugal and Ireland in expansion, we continue to gain significant market share, further diversifying our asset portfolio. Portugal grew 11%, 450 bps above the sector and Ireland, an exceptional 20% growth rate, well above market growth rates in both countries. In terms of revenues, there is a very notable performance of core revenues. This is the sum of net interest income and net fees and commissions, which has reached similar levels to those in the previous year. In quarterly terms, core revenues reached EUR 762 million, the largest in the series. And in fact, they are already growing both compared to the previous quarter by 1.3% and compared to the same quarter of 2024 by 2%. This sustained solid performance quarter after quarter of fees and commissions growing at 10.6% compensates for over 90% of net interest income compression in the year due to the negative impact from the reduction of yield curves. Net interest income fell on a cumulative basis, 3.5%. But in quarterly terms, the upward trend continues. We are already 3% above the last quarter of the previous year and 5% more than in the first quarter, and we also grew 1% over the previous quarter. Going now to the next page. I would like to talk about productivity. We have a scalable and efficient business that is reflected in productivity improvements. The volume of customers managed per employee expands year after year, while the cost per million euros of volumes managed decreases year-on-year. This is thanks to the investments made in technology and in particular, in artificial intelligence projects that are oriented to the improvement of personal activity, commercial efficiency, which relies mainly on algorithms, but also process efficiency and the improvement of the customer experience and the development also of new products. Bankinter culture of applying targeted innovation across products, services and processes continues to deliver measurable results, reinforcing our strategic positioning and driving ongoing improvements in operational scalability. I will now hand over to Jacobo, who will provide you with more additional detail and insights into our financial and commercial results. Jacobo Díaz: Thank you very much, Gloria. Good morning, everybody. We are pleased to share once again another quarter growth and increased revenues and profitability. In operating income, we have grown by 4.7%, thanks to increased volumes, continued strong fee growth and effective margin management. We continue to rebalance operating costs more evenly over quarters with a year-on-year increase declining each quarter to end the year within our guidance. Cost of risk and related provisions declined by 10% compared to the prior year, reflecting a continued positive trend in risk management. Net profit rose 11% to EUR 812 million, gaining momentum to well surpass our initial goal of EUR 1 billion in 2025. Let's move on to review additional details about each line in the following slides. So after the trough in the first quarter of this year, we continue to deliver quarter-on-quarter improvements in net interest income, now recovering levels of the third quarter of last year, reporting EUR 566 million, a 1% increase quarter-on-quarter. Asset yields continued to contract this quarter at 3.49%, down 22 basis points. This quarter reflects a typical low seasonality period where corporate banking activity is relatively lower compared to retail banking activity, which has influenced a bit of a mix change leading to a higher weight of repricing more in line with retail durations than the shorter corporate durations. Given these dynamics and a stable outlook for Euribor 12 months rates, we believe average quarterly asset yields should drop marginally in Q4 to reach stability in the first half of 2026. Average customer margin for the year remained resilient at our 270 basis points, continuing to demonstrate our ability to effectively manage margins. With cost of deposits now at 84 basis points, a material 14 basis points decrease from last quarter, we are optimistic to reach levels around 75 basis points by the end of the year. Our NIM also remains resilient, a direct result of the effective balance sheet management. After sharing the details of the NII results, we wanted to talk about the excellent results we have been seeing quarter-on-quarter related to our digital account strategy that we initiated last year as part of the new digital organization. This growing digital site account deposits in yellow in the graph on the left have aided in reducing and replacing typical long-term deposits with more granular and flexible shorter duration deposits. Between both digital site accounts and private banking or corporate treasury accounts, we now have a significant proportion of our deposits with less than a 3-month duration. This is less than half of the average duration of the term deposits. Not only does this provide us greater agility to adjust deposit rates in line with market rates, but it also has a great source of increased customer activity, either transactional or through AUMs activity, driving additional fee volumes with a scalable operational model at a marginal lower servicing cost base. As you can see on the chart on the right, we have increased our average deposit spread over the past 4 quarters, reaching now close to 130 basis points. We believe these deposit spreads levels are likely to remain quite resilient, possibly with some upside for the coming years given the favorable rate environment as well as a more flexible deposit structure and our deposit gathering capability from our excellent existing and new customer base. Bear in mind that 50% of new customers are acquired through our 100% digital channels. Fees continued to deliver sequential increases quarter-on-quarter even during the seasonally low summer months with an increase of 11% on a year-on-year basis, reaching EUR 196 million this quarter, up 2% on a quarter-on-quarter basis. This continued quarterly growth momentum is mainly attributable to the strong volume growth in fund management and brokerage services that we detail later in the presentation. We are quite optimistic to continue to maintain this growth momentum going forward, given our strong focus and strategy on affluent customer base and increasing flows from on-balance to off-balance sheet activity and customer-centric operating model. It is also quite remarkable the performance of these business lines delivering improved results, notably in the equity method and dividend lines, up 29% on a year-on-year basis. The diversification of sources of revenue is well represented here given our diversified business investment over the past years in areas like our insurance JV partnership, our JV in Portugal with Sonae to deliver consumer finance products as well as our successful strategy with the Bankinter investment franchise, delivering alternative investment vehicles, allowing our customers to invest in real assets. This business line will continue to develop and deliver increased results over the coming years, providing upside risk in nontraditional revenue lines. Regarding cost, we continue to reduce seasonality and balance our expenses over the year, increasing 3% when comparing average 25 quarterly cost to those in 2024. Although cost volumes may increase in Q4, they will be lower on a year-on-year basis when comparing to Q4 of 2024. cost-to-income ratio remains at an exceptionally low level of 36%, and will remain committed to maintaining positive operating jaws in the future. On Page 17, loan loss provisions continue to show improvements versus last year with a cost of risk of 33 basis points. Other provisions also remained under control and performing well at a stable 8 basis points with no signs of deterioration in the market of our portfolio and with a well-managed risk management across the bank, we are optimistic to maintain current levels for the coming quarters. Next page. Net profit achieved record levels once again, reaching EUR 812 million, an exceptional increase of 11% year-to-date. Credit quality, credit and asset quality indicators continue to improve with the group NPL ratio dropping to 2.05%, down 17 basis points from last year. Spain down to 2.3%, Portugal at 1.4% and Ireland at 0.3%, all well below sector average. Moving into capital. As Gloria mentioned, we are very pleased with our EBA's stress test results this quarter, resulting once again in the lowest level of capital depletion among all Spanish and Eurozone listed bank. Even under a severe economic adverse scenario, the potential capital depletion would only be 55 basis points. The prudent risk profile of our activity is differential. This has been a strong quarter for capital generation with the CET1 ratio at 12.94%, with a seasonal mix shift from corporate lending to increased retail lending, therefore, reducing RWA growth this quarter, which we review with the reverse in the following quarter with larger loan growth and density consumption and the annual operational risk capital consumption recorded in the fourth quarter. As we continue to invest in technology and strategic projects, we have also seen an increase in intangibles this quarter due to the software-based solution under deployment, for example, with the new banking IT platform for Ireland or the Portuguese digital transformation program. Moving into Page 22. Commercial activity and trends remain strong with customer volumes up 7% in Spain, 12% in Portugal and 20% in Ireland. Each region contributing at increased levels to the gross operating income of the bank. On Page 23, loan growth, again, strong, up 4% year-on-year, growing both in retail as well as business lending. Retail deposits continued to demonstrate solid growth, increasing by 4% with also strong performance in Wealth Management, reflecting a 19% increase in assets under management, contributing to fee income increases of 11%. Profit before tax, up 6%, reflecting solid contribution for our core Spanish business. On Portugal, continued exceptional performance in lending activity across both business segments, up 11%, strong deposit gathering up 5% as well as increased wealth management and brokerage balances rising 23% on a year-on-year basis. Moving into Ireland. Commercial momentum continues with mortgage loan growth up 23% as well as consumer finance loan growth by 11%. We have also launched our fully digital time deposit in the Irish market with an attractive value proposition that will surely grow deposit volumes over the coming quarters. Profit before tax contribution reached EUR 34 million with strong sequential increases in NII each quarter, up 16%. Moving into corporate and SME banking. Business lending continued to deliver strong performance even with a seasonally low quarter in terms of new loans. Customer lending increased by 5%, well above sector loan growth. International business segment continues to be a key growth catalyst contributing to 1/3 of new credit production with a growth rate at 9% year-on-year. Page 27, Retail Banking asset and deposit trends remain strong with increased new client acquisition driving core salary account balances up by 7%. New mortgage origination up 16% year-on-year with solid market share of new production in Portugal, Spain and Ireland at 6%. Our mortgage back book continues to grow by a strong 5% year-on-year, outperforming sector growth in every region. Regarding Wealth Management, our high-quality customer base typically brings annual net inflows between EUR 5 billion to EUR 7 billion into the bank. However, this year, we have already surpassed this historical range and now reset our ambition to achieve between EUR 8 billion to EUR 10 billion of net new money every year. When taking into consideration the market effect as well, incremental wealth of our customers increased by EUR 20 million or a 16% increase on a year-on-year basis. Moving into off-balance sheet volumes. We continue to grow in assets under management and assets under custody, reaching now EUR 150 billion with assets under management advisory or customer direct execution services in brokerage. Since our differentiation strategy centers around the client and how they prefer to interact with the bank rather than a product strategy, we indistinctively offer Bankinter products as well as third-party products to retain independence in terms of customer advisory services. With a full range of products as well as various servicing models based on customers' preference, we are able to consistently grow these off-balance sheet volumes, a key driver of continued fee growth quarter after quarter. And finally, let me recap our ambitions and targets. Given our solid third quarter financial results, a strong commercial momentum and volume growth trends and with a stable outlook for Euribor 12 months over the coming year around 220%, we remain optimistic in terms of future growth potential. In terms of our specific ambitions for this current year, loan volumes are expected to continue to grow at mid-single-digit rate, similar than deposits with assets under management commercial activity following the same strong performance than previous quarters. As market conditions become more favorable, we are committed to maintaining 2025 average customer margins around 270 basis points to support robust profitability that surpasses our cost of capital. In essence, we will not compromise margin integrity. Regarding NII, we anticipate that the final phase of retail repricing will take place mostly in Q4 and with much lower impact in the beginning of '26. Consequently, while some pressure on asset yields is expected to persist, it should moderate as our corporate portfolio has now been fully repriced in Q3. On the deposit side, we will continue to reduce and manage costs in a balanced manner to support ongoing customer and deposit growth, particularly in the digital site accounts. As a result, we expect a more modest reduction in deposit costs in Q4 compared to Q3 between the range of 5 to 10 basis points. Given these dynamics and our current commercial strategy, NII in Q4 will keep growing quarter-on-quarter again and growing year-on-year again, which may result anyway in a slight slippage in our flattish NII guidance in 2025 that will be compensated by a stronger fee growth. With upside risk in fees, we increased our targets of high single-digit growth target to reach now double-digit growth in fees. With respect to cost management, we continue to allocate and balance cost volumes over the quarters and remain on target for 2025 full year annual cost to grow mid-single digit. We also remain committed to delivering positive operating jaws in 2025, gross revenues above cost. As credit quality continues to improve, we are revising our targets with the expectation of cost of risk to fall below 35 basis points for the entire year. Although we do not provide guidance for the following year until the results presentation in January, we must say that as of today, with the current macro outlook for Spain, Portugal and Ireland, there is no reason why we should not expect similar levels of growth in our loan book as well as resilient client margin in our levels of cost of risk. Efficiency will also remain at the top of our agenda to ensure sustainable levels of return on equity in 2026 and so on. And capital levels are expected to stay strong in coming quarters despite profitable growth expectation. I believe that this has been another high-quality set of results with no surprises, one-offs or extraordinary items, quite predictable that make us feel to be on track to achieve another excellent year in 2026. Gloria, back to you for any closing comments. Gloria Portero: Thank you, Jacobo. Well, as you can see, the results of these first 9 months of the year have once again beaten records of previous years with an 11% growth in net profit, and all this is accompanied by an excellent level of operational efficiency and asset quality, both ratios improving compared to the previous year. All this allows us to continue improving returns on capital, which stands at 18.2%, 30 bps better than in 2024 and continues generating value for our shareholders, both in terms of dividend distribution and the book value of shares. To close the presentation of results for the first 9 months of the year, I would like to highlight that we are once again presenting solid results because of the recurring activity with our customers and the execution of a consistent long-term growth strategy. We are growing steadily in all the businesses and geographies in which we operate, keeping our risk appetite intact, even improving the risk profile of the loan portfolio as reflected in the NPL ratio and the increase in the coverage of the nonperforming loan portfolio. We continue to invest in projects and initiatives that allow us to keep pace with business growth. And despite this, we improved efficiency. All this results delivering a sustained return on the capital of the business, well above the cost of capital. For my part, this is all. Thank you again very much for your attention, and I will pass now on to Laurie. Laurie Shepard Goodroe: Thank you very much, Gloria. Thank you, Jacobo. Let's now move on to the live Q&A session, please. [Operator Instructions] Our first caller is Francisco Riquel from Alantra. Francisco Riquel Correa: My first question is about the fast growth in digital accounts. It's 4x bigger year-on-year. So I wonder if you can comment on the cost of these digital accounts compared to your total cost of deposits and the alternative of time deposits where you are switching. And I wonder if you can also elaborate on the commercial experience with these online customers and cross-selling ratios. You are not exceeding your traditional mid-single-digit growth in loans and deposits. You are growing faster in AUMs, but I wonder if this is coming from these online clients or from your traditional affluent and high net worth clients. And then my second question is about loan growth in Spain, which has slowed down year-on-year a bit, particularly in higher-margin corporates from 6% in Q2 to 4% in Q3. The sector has not. They're still growing by 3% in lower margin retail mortgages. So I wonder if you can comment on competition dynamics and update in terms of loan growth and also in the loan yield, where do you see the trough of this interest rate cycle? Jacobo Díaz: Regarding the loan growth, I think we had another, I think, good quarter comparing year-on-year in terms of the loan book. As I mentioned, the seasonality of the third quarter is -- I mean, typical in Spain, it has a negative seasonality. And the corporate banking activity has been lower as we normally expect. So we do not have any sign of slowing down in that perspective. It's just a matter of seasonality. In fact, we keep expecting similar levels of growth at the end of the year compared to, I don't know, previous quarters. So basically, we do not expect any changes. You mentioned competition. Of course, there is competition in the corporate banking as well in the mortgage activity, but this has been always the case. So there's nothing special to highlight. I would say that the loan growth will continue to show strong results. And regarding the digital accounts, definitely, digital accounts have been a quite relevant strategic commercial move for us in the past months and quarters. So we are delivering excellent results. We are capturing quite large volumes of deposits. We are cross-selling, of course, as you can imagine, plenty of different types of products. I wouldn't say that the largest volumes of AUMs are coming from the new digital accounts because it takes some time to transform and to cross-sell this type of accounts. But definitely, we are quite happy. You were mentioning about the cost. The thing is that these digital accounts have a quite short duration and for us is -- we have the agility and the capacity to change prices within a quarter. So for us, from a commercial strategy, we're quite happy. Gloria Portero: I will add 2 things. I mean the average cost of the digital accounts at present is around 1.6%. Actually, as Jacobo has said, the duration is around 2 months. So -- and we manage centrally, which is different to when it's products that are managed by the branch network, we manage centrally new prices. So it is quite easy and fast to reduce the cost. But on top of this, what I want to mention is that what we have been doing is a substitution effect. So basically, these deposits have been substituting higher tickets from enterprises and corporates. And there has been a reduction in the cost because we have been substituting higher costlier deposits. As Jacobo has said, I mean, looking forward, we expect the cost of funds to retail funds to continue reducing next quarter -- sorry, this quarter and in the order of 5 to 10 bps depending on where the Euribor stands. With respect to competition, here, yes, we have been growing quite nicely in mortgages in Spain so far. But I have to say that the competition is starting to be a little bit irrational, particularly in fixed rate mortgages of long term like 30 years. So you can expect us to be a little bit less active in that segment, although we think that we will continue to grow. Laurie Shepard Goodroe: Let's move on to our next question. Our next question comes from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly is on the NII, if I were to base the Q4 NII of this year and multiply by 4 and add the loan growth, would this make sense from a technical point of view to -- for estimating the 2026 NII? Or would there be any other moving parts? And then my second question would be in Ireland. I think you -- according to press, you launched a deposit of 2.6% rate, if I am correct. I would like to ask if you could provide some details on the growth strategy in Ireland in deposits. Gloria Portero: Regarding Ireland, I mean, what we are doing is just a test for the moment. So it's a friends and family. We are offering this deposit only to our clients and only a certain amount. I mean, initially, we are talking about EUR 50 million. So this is like a welcome deposit, and it's not going to have any impact at all in this year NII, and I don't think in next year either because we are controlling, as you can imagine, the growth in these deposits. With regard to NII, multiplying by 4. Well, it's a little simplistic. It could be near it could be near if Euribor rates stay completely stable around the year. It will be probably better than that than the mere multiplication by 4. Jacobo Díaz: Yes. I think our assumptions are we keep, as we mentioned, estimating that the average -- the client margin for coming quarters should be around 270 basis points and that we will continue to grow in similar -- the similar path that we've been growing in the past quarters. So that will be the main assumptions that you should take into consideration. As Gloria was mentioning, it's not just multiplying by 4. We definitely think it could be a little bit higher than that. Laurie Shepard Goodroe: Our next question comes from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: Just wanted to get a bit of a sense on the capital performance of the quarter, what you just -- Jacobo flagged about reverting the effect of the mix in the quarter in the coming quarters. I mean still 12.9% looks to me like a very high level. Is there any chance that the bank considers changing the 50% payout ratio with the current trend of capital? Second one is on costs. You said in the guidance, if I hear correctly, mid-single-digit growth. Should we expect a slightly more acceleration given the good performance of revenues that you front out a bit of cost for '26 in the fourth quarter beyond the natural seasonality that you have been trying to smooth this year? Or that would be -- or you're going to be very focused in keeping the costs on that limit to avoid slippage in '25? Jacobo Díaz: Ignacio, regarding the capital performance, as I mentioned, we present a quite strong capital ratio this quarter. And I did mention that there is some seasonality impact in this figure. So for the fourth quarter, we do expect a growth or much larger capital consumption from the growth, especially from the corporate banking activity that tends to be quite strong at the end of the year and of course, growth in the retail business and in other geographies as we have done. And additionally, I mentioned that there are some special recordings in the fourth quarter from capital consumption as the operational risk is fully recorded in the fourth quarter. So we do expect a figure probably lower than this one that we have shared today with you, although the results for the fourth quarter are going to be, again, very, very strong. To this means are we -- do we have in mind changing our dividend policy? I would say not for the time being. But of course, if we will see these trends in coming quarters, of course, we will -- we might think about doing whatever in terms of keeping our capital ratio in levels where we feel comfortable. Gloria Portero: Ignacio, with regard to cost, I mean, we are very comfortable with the low mid-single-digit growth, and we will stick to this. I mean we don't see any reason why we cannot meet our target. Laurie Shepard Goodroe: Our next question comes from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: Carlos Peixoto from CaixaBank here. A couple of follow-up questions actually as well. So mostly on NII. So if I understood correctly, you're expecting to see some pressure on asset yields coming through still in the fourth quarter through the repricing mechanism. Then you mentioned deposit costs maintaining roughly the spread to Euribor. And I guess that some volume growth, as you mentioned, fourth quarter tends to be much stronger. So putting all of this together, do you see enough support for NII in the fourth quarter to do materially better than in the third Q? And as you mentioned in the call, to see some -- well, basically that you won't be reaching the stable NII guidance, but I was just wondering whether we could be talking about a small single-digit decline in NII or closer to mid-single digit. Jacobo Díaz: Carlos, we did mention that the cost of deposit in the -- we are expecting next quarter to continue to decline, probably at a lower speed that we saw in previous quarter. And we mentioned somewhere between 5 to 10 basis points decline in the coming quarter. But we also -- we mentioned that we are -- we have come to a much lower speed of loan yield repricing, and we do expect some sort of stabilization or a slight reduction in the fourth quarter. That will mean that we do expect client margin to recover, and we are quite strong optimistic in terms of we will have a good -- at the end of the day, a good final quarter. But indeed, like you mentioned that -- and I did mention there might be a slight or minimum slippage in the overall flattish guidance. But again, it's going to be much more than compensated with fees. So we are good -- I mean, we are quite well optimistic about what's going to happen in the fourth quarter. So there is full repricing in corporate that has already been achieved in the third quarter. Euribor 12 months is behaving quite well around 220. There is a little bit more repricing from the mortgage book in the fourth quarter to come. But again, there is a strong seasonality that we believe will make a good fourth quarter to end up the year. As I mentioned, the fourth quarter is going to be again higher than the third quarter and much higher than the same quarter 1 year ago. So we think we are optimistic about the fourth quarter of this year. And of course, the coming quarters in 2026. We think this 270 client margin is something that we -- is definitely our ambition, and we are definitely managing everything in order to achieve that figure. Laurie Shepard Goodroe: Our next question comes from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: I've got one on the international credit book, which is around 30%, 35% of the total corporate lending book and seems to be growing much faster basically than domestic. So if you can give us some information, some color basically of what is in there and what is the reason is growing faster and what kind of sustainability you see on that? And kind of related to this more on a system basis, from a mortgage growth point of view in Spain, obviously, housing prices going up very fast. It doesn't feel that the shortfall of housing is going to be corrected anytime soon. I mean, is there any risk that the demand actually ends up drying up faster because of, I mean, problems of affordability, I mean, difficulties from people to access housing, et cetera. Do you think actually the pickup of mortgage growth we are seeing in the last year or so has less or there's a risk actually that drives up into the next, say, 6 to 12 months? Gloria Portero: Ignacio, with regard to mortgages, we don't see changes in demand in the very -- in the short term, so this year or next year. It is true what you're saying that prices go up and up and that there could start to be -- particularly in medium salaries, there could be problems of affordability. There are measures like the ICO lines where we are being active. Obviously, we have a little bit more than our market share that basically are trying to tackle this problem because they cover up to 100% of the value of the property. So what we are seeing in mortgages rather is what I've mentioned, which is a competition that is not being very reasonable with regard to long-term fixed rates. And basically, we are not going to enter that war, particularly in those clients. Well, in our clients, we might do because if we know how profitable their relationship with them is okay, but it won't be a measure to acquire new clients definitely. I think that's for mortgages. Jacobo Díaz: Ignacio, I'll take your question on international credit book. I think basically, our corporate banking Spanish clients are much more international than they used to be. They're much more focused on going abroad. And we do provide a quite large menu of products and services with a good technology, et cetera. So we are developing more technology, more, I don't know, supply chain management products, working capital facilities, endorsements, et cetera. So since we have increased our range of products and services to this type of clients, then the volume of activity and the loans and off-balance sheet items are keep growing and growing. So this is some sort of sustainable. This is something that we do expect to keep growing at the same -- at similar levels. So no one-offs in here is quite recurrent. And this is for us a quite relevant source of revenues, in terms of NII, in terms of fees, and it's a quite profitable business. Laurie Shepard Goodroe: Our next question comes from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: I just wanted to follow up on the loan growth. I take the seasonality and one thing, I just was curious, I wanted to double-click on your comments around derisking and the consumer book being down, I think you said 3% quarter-on-quarter. Where are you derisking? What kind of product, what region? And is it a one-off thing? And what should we be looking for in consumer going forward from here in terms of volume growth? And then the second sort of follow-up question to the broader discussion in the call is, how do you think the pricing dynamics in the mortgage, in particular, is going to evolve over the next few quarters? Are you seeing the market being less bad? If it stays as competitive as it is, what's the end game for you in the mortgage market in Spain? Gloria Portero: Alvaro, with regard to the portfolios where we are derisking, it is mainly open market consumer credit in Spain. So we are basically reducing our exposure and reducing also the new production and being more selective. That is on one hand. This portfolio anyway is not very significant in our overall book. And we continue to grow in consumer credit, but in our own clients in Spain and also in Portugal and in open markets, both in Ireland and in Portugal with Universo, the JV we have with Sonae. With regard to mortgages, well, for the moment, we are not seeing any changes in the pricing dynamics. But hopefully, we will be getting to prices where we have some margin with respect to the swap curve. But for the moment, that is not the case. That is why I was mentioning that we will probably decelerate growth, not so much in mortgages with our clients, but rather in the acquisition of new clients with mortgages. Laurie Shepard Goodroe: Our next question comes from Maks Mishyn from JB Capital. Maksym Mishyn: Two questions from me, please. The first one is on your Wealth Management business. Press reported several hirings you did. What kind of AUM growth should we think of for Bankinter in the medium term? And does this mean that fees are also likely to grow above the mid-single digits we have seen historically? And the second question is on capital, a follow-up on what the comfortable level is for you? And if the growth is not there, how can we think of deploying this capital? Jacobo Díaz: Maks, I mean, definitely, the current levels of growth in the Wealth Management business is something that we believe are sustainable. Of course, there are market effects that are not controlled. And this is something we cannot control, neither estimate. But the capacity to keep bringing net new money to the bank, as we've mentioned in the call, is becoming higher and higher. So now our estimation has increased from EUR 5 billion to EUR 7 billion every year to EUR 8 billion to EUR 10 billion every year. And that, of course, means that has an impact on fees. So definitely, we don't know exactly what's going to be the level of fees in -- the recurrent level of fees in the future, but we definitely think it's going to be quite strong and probably stronger that your -- I think you mentioned mid-single digit. So for us, again, the combination of our strategy in commercial activity has a full link in the Wealth Management activity and, of course, in fees. So... Gloria Portero: With respect to capital, I mean, we feel comfortable with a level in the -- between 12 40, 12 60, something that can give us room to continue growing and that doesn't restrict that growth. So this is more or less the average level where we are comfortable. Laurie Shepard Goodroe: Our next question comes from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: Just a follow-up on Ireland on previous comments from Jacobo, you've mentioned the fixed-term deposit proposition in the country. But can you please remind us on the broader ambitions? And what are the next steps in the product road map in the country? And I guess in particular, you mentioned today your new higher ambition around net new money growth. So I was wondering if you were planning to start offering wealth products in Ireland next year. Maybe if I can squeeze in another follow-up on capital. Given your excess capital position and given also current valuation levels, can you just kind of update us on your appetite for inorganic growth from now? Jacobo Díaz: Pablo, regarding Ireland, definitely, the first phase is through the launch of the term deposit that we've mentioned before. Our next ambition is going to be the launch of current accounts at the beginning of 2026. And I think this is going to be the great moment of funding the growth that we are expecting in Ireland with deposits from local in Ireland. So we are targeting to fund whatever growth we have in the loan book in Ireland with the deposit book in Ireland as well. So this is the ambition, and this is the next step. We are not considering for the time being to move into the Wealth Management business in Ireland. I think we have plenty of things to capture and to target before that business. Gloria Portero: And with respect to inorganic growth, well, our appetite is very, very low. As you can imagine, we are an organic grower. We have always grown organically in the different businesses and geographies where we have the capabilities, and this is what we are doing in Ireland, and this is what we will continue to do in the future. Laurie Shepard Goodroe: Our next question comes from Britta Schmidt from Autonomous. Britta Schmidt: I have a follow-up on the consumer exposure, the open market consumer exposure in Spain that you talked about. Could you share with us the volume of that book and what the driver was for the derisking? I mean, have you seen a material change in the cost of risk there? And if so, why? And then on the -- you mentioned the operational risk impact in Q4. I mean, would it be reasonable to assume that it could be up to 20 basis points? Or do you expect something less than that? Gloria Portero: I will answer the consumer credit exposure. This is a very small book. It's like around EUR 1.3 billion. Not all of it is being derisking. The reason mainly here is not the cost of risk, it's an ROE question. So basically, we think there are better businesses where we can allocate our capital, and this is why we have decided to reduce our exposure in this book. Jacobo Díaz: Britta, regarding the operational risk, of course, we don't know the figure right now. As you know, the rules have also changed with Basel IV. So it's probably a little bit ambition for me to give you a good estimation. But it could be somewhere between 10% and 30%. So probably your 20% might be in the middle. Laurie Shepard Goodroe: Our next question comes from Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: I wanted to ask you about fee growth. If you could give a bit more guidance. I think before your guidance didn't assume any performance fees, which you had a lot of them in Q4. So the new guidance of double-digit growth year-on-year, does that include performance fees as well or not? And the second question on the cost of risk. You've improved your guidance a few times this year. The guidance for this year is below what you did in the previous 2 years. And then if we have a bit of slowdown in resi mortgages, does that mean the cost of risk next year could be higher than this year? Your thoughts on that would be very helpful. Jacobo Díaz: Hugo, regarding the fee growth, I think we -- as of today, we are already at the double-digit growth. So just basically, we do expect to continue growing at a similar path that we've done in the past quarters. We don't know yet if there's going to be any success fee. That's why we are not included -- we are not including success fees in those estimations because honestly, we don't know it yet. And regarding cost of risk, I think what we mentioned is that we are expecting to end the year with a cost of risk below 35 basis points. We are currently around 33 basis points as we shared in the presentation. We don't think that next year is going to be a higher figure. There is no reason why we should say that because what we're seeing is that there is quite stable situation. So we are very comfortable with the current situation of cost of risk. We are not perceiving any changes in the levels of delinquency, et cetera. And in fact, as Gloria was mentioning, we are reducing the exposure to some businesses with higher level of risk. So for the next year, we do not expect an increase in the estimation of cost of risk. Laurie Shepard Goodroe: Our next question comes from Fernando Gil de Santivañes from Intesa. Fernando Gil de Santivañes d´Ornellas: Two quick follow-ups, please. Regarding fees, I mean, there has been one transaction in Q3 regarding the renewables, similar to the one you did in the past, but you have not accounted it in Q3. Can you please guide us when this transaction and if there is any potential positive one-off coming in Q4? And is that included in the guidance? This is one. The second one is on costs. In the second quarter, you have the headcount down marginally, but down. Has this anything to do with the growth profile that you have been flagging during this call? Gloria Portero: I will answer the fees. Yes, this quarter, we have made a transaction, the sale of a portfolio of renewables. And we have not accounted for the success fees of this transaction so far because obviously, the contract has to -- how to say -- we have to close the contract exactly. So anyway, the fees that we're talking about are not material. It will be less than EUR 10 million or even a little bit less. So it is not something that is going to move the arrow. With respect to costs and the headcount, we are reducing the headcount in Spain, and we are doing that for several reasons. The first is that we are investing quite heavily in artificial intelligence, and this is allowing us not to replace the employees that go from the bank either voluntarily mainly. And I remind you that we have absorbed EVO Banco this year, and this means that we have 200 more employees Bankinter Spain, and that was enough to absorb the growth in -- needed in the headcount for the year. But anyway, I think that with respect to the headcount, you can expect the headcount in Spain to remain very stable next year or even to reduce a little bit because of all these investments we are making in artificial intelligence. Laurie Shepard Goodroe: Thank you. That ends our Q&A session. I would like to thank you on behalf of the entire Bankinter team, and Felipe and I will be there to support you for any questions post the webcast. Thank you all, and have a wonderful day.
Operator: Good afternoon, and welcome to the Digital Realty Third Quarter 2025 Earnings Call. Please note, this event is being recorded. [Operator Instructions] I would now like to turn the call over to Jordan Sadler, Digital Realty's Senior Vice President of Public and Private Investor Relations. Jordan, please go ahead. Jordan Sadler: Thank you, operator, and welcome, everyone, to Digital Realty's Third Quarter 2025 Earnings Conference Call. Joining me on today's call are President and CEO, Andy Power; and CFO, Matt Mercier. Chief Investment Officer, Greg Wright; Chief Technology Officer, Chris Sharp; and Chief Revenue Officer, Colin McLean, are also on the call and will be available for Q&A. Management will be making forward-looking statements, including guidance and underlying assumptions on today's call. Forward-looking statements are based on expectations that involve risks and uncertainties that could cause actual results to differ materially. For a further discussion of risks related to our business, see our 10-K and subsequent filings with the SEC. This call will contain certain non-GAAP financial information. Reconciliations to the most directly comparable GAAP measure are included in the supplemental package furnished to the SEC and available on our website. Before I turn the call over to Andy, let me offer a few key takeaways from our third quarter results. First, we posted $1.89 in core FFO per share, a quarterly record and 13% higher than the third quarter of last year. Constant currency core FFO per share was $1.85, 11% higher than last year. Other profitability metrics surged as well with AFFO per share and adjusted EBITDA up 16% and 14% year-over-year, respectively. These strong earnings results were comfortably ahead of expectations, resulting in our third quarterly guidance increased so far this year. Second, we have strong visibility to continued growth given our near-record backlog and crisp execution. Our backlog grew to $852 million, with the lion's share slated to commence through the end of next year, while organic growth continues to accelerate as demonstrated by 8% same capital cash NOI growth year-over-year. Third, we continue to execute across the full product spectrum and our footprint, with over $200 million of bookings at 100% share, near record 0-1 megawatt plus interconnection bookings in the quarter with a leading power bank of 5 gigawatts of IT load to support our customers and Digital Realty's future growth. With that, I'd like to turn the call over to our President and CEO, Andy Power. Andrew Power: Thanks, Jordan, and thanks to everyone for joining our call. As digital transformation, cloud and AI continue to grow, our ability to deliver scalable connected infrastructure across key metros worldwide is more critical than ever. PlatformDIGITAL's global reach and full spectrum product offering are key differentiators, enabling us to support the evolving needs of cloud providers, enterprises and service partners around the world. Over the past 2 years, the data center industry has experienced unprecedented demand fueled by the digitization of enterprise business processes, the expansion of cloud and the ongoing proliferation of AI, resulting in complex hybrid IT architectures. Demand for scalable connected infrastructure remains robust across a wide range of customer segments from global cloud platforms to regional service providers and multinational enterprises. Meeting this demand within our markets, however, is becoming increasingly challenging. Power availability, permitting challenges and infrastructure constraints are making it harder to bring new supply online at the pace our customers require. Digital Realty's established presence in the world's leading metros, deep relationships with utilities and local governments and proven development track record give us a distinct advantage in navigating these challenges and delivering capacity efficiently and reliably where and when our customers need it. In an attempt to help frame how we see the abundance of data center infrastructure announcements we are all seeing in the market, I want to make a few comments. It is clear that the world is engaged in a full-scale technology race with a handful of key players aiming to build the most advanced AI models or perhaps even AGI. Three years post launch, ChatGPT holds the title of the fastest-growing app and is already among the most highly used applications in the world with more than 800 million weekly users. Several others, including Meta, Google, Baidu and xAI have also developed AI with meaningful scale. With each passing week, we continue to see massive investment announcements and partnerships aimed at scaling the infrastructure necessary to support the world's most powerful AI training models. Given the scale of these announcements, the ongoing development and proliferation of AI offerings, the opportunity still appears to be in the very early innings. The preponderance of gigawatt campus announcements to date have generally fallen outside of the major metro markets in Digital Realty's strategic footprint as model builders and their providers have urgently sought locations that offer readily available and abundant power, as power is the limiting factor for scaling AI. The anticipated pace and scale of these developments are largely unprecedented. Given our experience and track record in the space, we are intrigued as several new market entrants have launched the development of massive and complex remote campuses, often to support a single use case, workload or customer. These facilities hold the promise of developing life-changing technologies, and we are optimistic about their prospects. Training workloads geared toward developing the AI models can be described as latency tolerant as the development of the AI takes precedent over the utilization of the technology, at least for now. Based on conversations that we are having with our customers and industry participants, Al as well as what we are seeing in our broad portfolio, we are increasingly confident that connectivity will become increasingly important over time as model success drives implementation and usage requiring lower latency, inference-oriented deployments. Digital Realty has landed a meaningful share of AI-oriented deployments over the last 2 years. Since mid-2023, AI has averaged more than 50% of our quarterly bookings, and we continue to expect that the 5 gigawatts of IT load that we have in our power bank will be significantly weighted toward AI workloads over the next several years. Critically, our data center capacity is situated in and around the world's most highly connected cloud zonal markets with the highest concentration of population and GDP, and we currently maintain 5 gigawatts of large contiguous capacity blocks situated across 40 of our strategic metros across the globe. It is harder to build in these locations for a growing list of reasons, and we expect this capacity will continue to be highly sought after as new applications and use cases continue to evolve. Our conviction in our portfolio and in our markets continue to be evidenced through our daily engagement with our 5,000-plus customers. Digital Realty continues to see a robust pipeline of demand from AI-oriented use cases. And even without a record hyperscale lease like the one we signed in March of 2025, 50% of our bookings were related to AI use cases in the third quarter. In Q3, we again delivered strong operational and financial performance, underscored by record interconnection bookings, near-record new logos and the second highest level of bookings ever in our 0-1 megawatt plus interconnection product set. Core FFO per share set a record $1.89, a robust 13% above last year's third quarter. These strong earnings were driven by 10% operating revenue growth and continued expansion of our high-margin fee income, together with disciplined expense management, resulting in the third consecutive guidance increase this year. Bookings in the third quarter were $201 million at 100% share or $162 million at Digital Realty share. Like last quarter, our 0-1 megawatt plus interconnection category was a strong contributor to our leasing strength with $85 million in new leases, along with a healthy $76 million of greater than a megawatt leasing. Leasing was globally diversified, broadly consistent with our existing rent roll with notable activity in Americas, in EMEA and in APAC. We also added a near-record 156 new logos. Interconnection leasing of $20 million marked a second consecutive record quarter, which was 13% higher than the last quarter's record, underscoring the growing recognition of our connectivity-driven value proposition. Interconnection leasing was buoyed by strength in our AI-oriented fiber offering, reflecting the increased demand for high-volume movement of data amongst customers as well as momentum in our ServiceFabric product. Matt will provide more details on our results in a few moments. While there's been significant market focus on large-scale AI deployments, Digital Realty's pool of highly sought-after larger contiguous capacity blocks are slated to come online in late 2026, 2027 and beyond. We remain actively engaged with hyperscale customers on our largest future leasing opportunities, and we continue to see strong momentum in our colocation and connectivity product offering. Enterprise demand for data center infrastructure continues to grow as organizations transition away from traditional on-prem IT environments toward more flexible cloud-connected architectures available within Digital Realty data centers. This shift is driven by the need to improve scalability, reduce costs and enable faster innovation. Enterprises are increasingly deploying workloads in colocation and hybrid environments to gain proximity to cloud platforms, partners and end users, while maintaining control over mission-critical applications and data. Digital Realty's full spectrum product offering, combined with our global footprint, allows us to support this transition, providing the infrastructure and connectivity enterprises need to modernize their IT strategies, accelerate digital transformation and AI implementation. We're seeing these trends play out across our customer base as enterprises increasingly turn to Digital Realty to support their evolving infrastructure needs. Whether it's enabling real-time data exchange across global operations, integrating with multiple cloud platforms or deploying AI workloads at the edge, our customers are leveraging PlatformDIGITAL to solve complex challenges and accelerate their digital transformation. Let me share a few examples that illustrate how our platform is helping enterprises unlock new capabilities and drive meaningful business outcomes. In September, I was honored to join the CEO and CTO of Oxford Quantum Circuits for an important milestone during their recent deployment of New York's first Quantum AI computer in our JFK10 data center. Oxford Quantum Circuits is taking advantage of PlatformDIGITAL's colocation and connectivity capabilities to expand their AI capabilities at scale, solving for efficiency and resource constraints. A leading global technology company chose PlatformDIGITAL to deploy their global presence, taking advantage of liquid cooling capabilities required for their HPC/AI environments. A leading health care analytics and technology solutions company is expanding its geographic presence on PlatformDIGITAL to solve data localization and sovereignty challenges. A leading higher education research institute is taking advantage of PlatformDIGITAL's liquid cooling capabilities required for their HPC and AI deployment. A leading European technology and network provider is expanding on PlatformDIGITAL, deploying a sovereign cloud solution in the U.S. to support their customers' compliance needs. A global payments provider and new logo for Digital Realty chose PlatformDIGITAL to deploy infrastructure in multiple markets to utilize network and cloud ecosystems while solving for scalability and compliance requirements. And a multinational financial services company is expanding on PlatformDIGITAL, taking advantage of Digital Realty's leading financial and network ecosystems. Before I turn it over to Matt, I'd like to briefly highlight our progress on global sustainability. In the third quarter, we received the EcoVadis Gold rating, a prestigious international recognition for business sustainability. This recognition places us in the 97th percentile of all companies assessed, highlighting our position among the top sustainability performers worldwide. We expanded our renewable energy commitment in Illinois by signing additional contracts that support high-impact, local community solar projects being developed by Soltage. These locally sourced solar energy projects will help support local power grids and benefit residents in the communities in and around our data centers. Additionally, in the third quarter, we announced long-term renewable energy agreements with Current Hydro to procure 500 gigawatt hours of clean baseload hydro power from 3 projects along the Ohio River. These agreements highlight our commitment to sourcing new firm 24/7 carbon-free energy in the regions where we operate, enabling us to support our customers' needs. And with that, I'll now turn the call over to our CFO, Matt Mercier. Matt Mercier: Thank you, Andy. For the second consecutive quarter, Digital Realty posted double-digit growth in revenue, adjusted EBITDA and core FFO per share, reflecting the momentum in our business, driven by commencements from our substantial backlog, strong releasing spreads, modest churn and growing fee income. We achieved these record results while reducing our leverage and maintaining significant liquidity to invest in data center projects across our 5 gigawatt runway of buildable IT capacity. In the third quarter, core FFO per share grew by an attractive 13% year-over-year to a new quarterly record, while leasing results were highlighted by their geographic and product breadth as well as continued strength in the 0-1 megawatt plus interconnection category. Looking ahead to the fourth quarter, we increased guidance for the full year once again and expect to begin 2026 with significant momentum in the sizable backlog which extends our runway for long-term growth. As Andy touched on, we signed leases representing $201 million of annualized rent in the third quarter, bringing year-to-date leasing to $776 million at 100% share. At Digital Realty share, we signed $162 million of new leases in the third quarter, which is well distributed across our 3 reasons. Our 0-1 megawatt plus interconnection product set continued to demonstrate the strong momentum we have been highlighting, posting $85 million of new bookings in the quarter, led by record bookings in the Americas and strength in EMEA. We also posted record AI bookings in this segment this past quarter, demonstrating the continued emergence of AI-oriented demand among our enterprise customers. Interconnection bookings also marked a new record, besting last quarter's record by 13%. Pricing in the 0-1 megawatt plus interconnection category was strong, led by leasing in one of our most highly connected facilities in the U.S. Over the past 4 quarters, we've leased a robust $319 million in this product set. We signed $76 million within the greater than a megawatt category at our share, while leasing spread across our regions but notable strength in EMEA. Pricing in the greater than a megawatt product was strong, averaging over $200 per kilowatt in the quarter and reflected activity in our top 3 performing markets: Silicon Valley, Amsterdam and Singapore. Building on our leasing momentum, our backlog at Digital Realty share increased to $852 million at quarter end, with $137 million of commencements more than offset by our new bookings. Looking ahead to the fourth quarter, we expect another $165 million of leases to commence with another $555 million scheduled to commence throughout 2026. Our large backlog provides us with strong visibility and predictability for the next several quarters. During the third quarter, we signed $192 million of renewal leases at a blended 8% increase on a cash basis. Renewals in the third quarter were again heavily weighted toward our 0-1 megawatt category with $138 million of renewals at a 4.2% uplift. Greater than a megawatt renewals of $49 million saw an exceptional 20% cash re-leasing spread, driven by deals in Singapore, Chicago, Northern Virginia and New Jersey. Year-to-date, cash renewals averaged 7%. For the quarter, total churn remained low at 1.6%. As for earnings, we reported record core FFO of $1.89 per share, up 13% year-over-year, reflecting strong upside from commencements and positive re-leasing spreads, continued growth in fee income and an FX benefit versus last year. On a constant currency basis, we reported core FFO per share of $1.85 in the third quarter or 11% growth year-over-year. Data center revenue was up 9% year-over-year, but adjusted EBITDA was even greater at 14% year-over-year, driven by the growth in data center revenue and higher fee income. During the quarter, operating expenses continued to increase, reflecting both the growing scale of our business, rising employment costs and seasonal effects. As we head toward the end of the year, we expect to see the typical seasonal increase in repairs and maintenance expenses along with the seasonal decline in utility expenses and related reimbursements. Same-capital cash NOI growth was strong in the third quarter, increasing by 8% year-over-year, driven by 7.8% growth in data center revenue. On a constant currency basis, same-capital cash NOI rose 5.2% in the quarter. For the 9 months, same-capital cash NOI grew by 4.5% on a constant-currency basis, which prompted us to notch our full year guidance range up to 4.25% to 4.75%. Moving on to our investment activity. During the third quarter, we spent over $900 million on development CapEx when including our partner share and approximately $700 million on a net basis to Digital Realty. During the quarter, we delivered about 50 megawatts of new capacity, 85% of which was pre-leased. While we started about 50 megawatts of net new data center projects leaving 730 megawatts under construction. At quarter end, our gross data center development pipeline stood at $9.7 billion at an 11.6% expected stabilized yield. Our runway for future growth including land, shell and ongoing development stands at roughly 5 gigawatts of sellable IT load. For clarification, IT load difference from the gross utility feed figures being touted by newer entrants to the data center development world as utility feed must also be used to cool a data center and to provide redundancy. During the third quarter, we pruned a few small non-core facilities in Atlanta, Boston and Miami for a total of $90 million. And earlier in October, sold a non-core facility in Dallas for $33 million. We redeployed $67 million of that capital into land in Chicago and Los Angeles to bolster our development capacity. Turning to the balance sheet, leverage fell to 4.9x, well below our long-term target of 5.5x, while balance sheet liquidity remained robust at nearly $7 billion, which excludes the $15 billion of private capital we have arranged to support hyperscale development and investment through our joint ventures and new U.S. hyperscale data center fund. Our next debt maturity is EUR 1.1 billion notes at 2.5% in January 2026. Beyond that, we have a smaller CHF 275 million note at 0.2% that matures in the second half of next year. Looking further out, our maturities remain well laddered through 2035. Let me conclude with our guidance. We are increasing our core FFO guidance range for the full year 2025 by roughly 2% at the midpoint to a new range of $7.32 to $7.38 per share to reflect better-than-expected operating performance and updated FX assumptions for the full year. We are also increasing the midpoint of our constant currency core FFO guidance range by 2% to $7.25 to $7.30 per share. Despite our enthusiasm and outperformance in the quarter, we expect fourth quarter core FFO per share to be tempered by seasonally higher repairs and maintenance expenses, headwinds from a non-core asset sale and lower interest income associated with lower rates and cash balances. The midpoint of our increased core FFO per share guidance represents approximately 10% year-over-year growth, reflecting the momentum in our underlying business and the benefit of the weaker U.S. dollar year-to-date. On a constant currency basis, core FFO per share growth is expected to be over 8% at the midpoint, reflecting a 200-plus basis point improvement from the growth that we forecasted at the beginning of this year. Supporting the bottom line improvements in guidance, we are increasing the midpoint of our revenue and adjusted EBITDA guidance ranges for 2025 by $75 million a piece. We are raising the midpoint of our cash and GAAP re-leasing spread guidance ranges to 6% and 8%, respectively, to reflect the continued strength in market fundamentals. We are also increasing our constant currency same-capital cash NOI growth assumption by 50 basis points at the midpoint to 4.5%. Lastly, we are increasing the midpoint of our G&A assumption by $7.5 million for full year 2025. In summary, we are very proud of our third quarter performance and the continued momentum across our platform. The strength of our 0-1 megawatt plus interconnection product set, combined with disciplined execution across our 5 gigawatt power bank and a growing backlog positions us well to deliver durable growth through the rest of 2025 and 2026. We remain focused on executing our strategy to deliver the capacity that our customers require and to maintain the financial discipline to drive long-term value for our stakeholders. This concludes our prepared remarks. And now we would be pleased to take your questions. Operator, would you please begin the Q&A session? Operator: [Operator Instructions] And your first question today will come from Aryeh Klein with BMO Capital Markets. Aryeh Klein: I guess maybe just with the guidance increase on the core FFO growth of 9.5% this year, I realize you're not providing 2026 guidance and there is some FX benefit. But can you just talk to the puts and takes for next year and the ability to stay or even accelerate from current growth levels while balancing development investment requirements? Andrew Power: Thanks, Aryeh. I'll have Matt hit on that. Matt Mercier: Yes, Aryeh. So look, I think I'd start off with -- obviously, we're proud of the results this year and the beat and raise that we put them now for a few quarters, which is resulting in where we are today on a constant currency basis, which is around 8.5% for the year. And look, looking ahead into 2026, we're on the path to start on a strong footing, looking at continuing to target 10% top line growth. That's supported by our healthy backlog that we've got of over $550 million and the robust fundamentals that continue to support our business. I'd say some of the things to note that are -- you could say are some of the headwinds that we'll see in the first -- very early in 2026, we do have about $1.3 billion of debt maturing in January. That's at roughly 2.5%. We're also planning to contribute the remaining 40% of the $1.5 billion of stabilized assets to our relatively new North America hyperscale fund. And given the expectation for rate cuts into 2026, which you would usually say is going to be a benefit. But for us, we have relatively considerable cash holdings, that's going to result in likely some lower interest income. All that said, we feel like we have been on a great path here in derisking our 2026 plan and feel good about continuing our growth going forward. Operator: And your next question today will come from Jon Petersen with Jefferies. Jonathan Petersen: I was hoping you could talk a little bit more about what you're seeing from hyperscalers in terms of demand in the major metro markets. I think in your prepared remarks, Andy, you mentioned their focus on gigawatt campuses. But are you starting to see examples of any latency-sensitive hyperscaler AI applications coming to DLR markets that you can speak of? Andrew Power: Thanks, Jon. I'll kick this off and then ask Colin to speak to what we're seeing on the customer dialogue with the hyperscalers. So obviously, we're off to a strong start to the year or 3 or 4 quarters. This quarter, on a total share, we're at the fourth largest quarter, north of $200 million of signings. I think what's been unique or great about it is in the major markets where we're supporting their growth, be it cloud computing and AI, we've seen tremendous diversity of demand. So I think the last 7 quarters, our top signing -- single signing was with a different customer. So tremendous diversity of demand. In fact, our 2 largest signings this quarter were 2 customers that hadn't signed big deals with us in a while. We're continuing to ready significant capacity blocks that are coming in the most prized locations and more strategic to our customers' locations. And I'll let Colin speak to some of the dialogue he's having on those capacity blocks. Colin McLean: Thanks, Andy. Yes, Jon, I appreciate the question. Q3 bookings, obviously, diverse in nature across our 3 regions. And in terms of conversations with our hyperscalers, I'd say it's robust dialogue that's leading to the largest pipeline on record for us. So our large contiguous footprint continues to have real value. So they're seeing interest and dialogue for us across our 5 gigawatts that we have across our markets that we identified previously. So our customers are now starting to look really hard into our '26 and '27 deliveries, which are coming online in the near term. And so that's really producing, I think, some real interest to continue discussions really across AI, but also cloud continues to be a consistent dialogue that we're having with our clients. Operator: And your next question today will come from Mike Funk with Bank of America. Michael Funk: Yes. So Andy, can you address the 2026 expirations and how you're thinking about the capacity to increase the re-leasing spreads on those? Andrew Power: Sure. Thanks, Mike. So I think we're continuing to see more of the same what we've seen for now several consecutive quarters. If you kind of cut it into the 2 main categories we, call, discussed the business in, we're continuing to see strong pricing power in the less than a megawatt category. I think our cash mark-to-markets were 4.2% or 4.3% in the quarter or LTM. We think that pricing is going to hold and stay in that territory. And then the bigger stuff, you can see we start to see continued step down, not just 2026, but for a few years, a step down, I think, until about 2029 in our expiring rates. I think they get as low as like 124-ish. And you can see from our new signings in the bigger deal category, we're obviously signing at healthier market rates than that. And listen, I think we're working the way through that and moving customers to market and the value of the capacity blocks we're offering. And that's a product of our portfolio, our value add, but some of that's just a product of the supply-demand dynamics in these markets that are extremely tight. And the backdrop around it is the tightness of these markets feels like it's going to be continuing for some time. Operator: And your next question today will come from Eric Luebchow with Wells Fargo. Eric Luebchow: Andy, just curious on the kind of the large capacity blocks, if you could talk about kind of the diversity of hyperscalers you're talking to. There's a lot of kind of newer entrants, whether it's neo clouds, the model developers, the chip companies or are you kind of focusing on the big 4 or 5 that you have historically? And then maybe if you could also just touch on CapEx. I mean, to the extent you start to win some of these larger requirements, how should we think about funding it between the managed funds between cash on the balance sheet? Could that kind of raise the CapEx expectations above the $3 billion to $3.5 billion level? Andrew Power: Thanks, Eric. So I'll hand the funding piece to Matt, and he can talk to the numerous levers we've now assembled here through our successful hyperscale fund, our joint venture partnerships, the balance sheet liquidity that if you add it all up, it seems to a significant amount of liquidity and dry powder to fund the growth of our platform. But on the customer front, by and large, the bigger the capacity block, the higher the credit quality, the larger the size of the counterparty and the more established the business. We are certainly supporting some of the neo clouds, but I would say our work with them, and it's been not in the big, big deal arena. We support them in, call it, megawatt, 2 megawatt type edge type locations and smaller capacity blocks. So when you think about those, call it, the big and nearest term, the 25s, the 50s, the 100s or even larger, I think the dialogue we're having is with a diverse array of, call it, more traditional hyperscale customers that are called the household names in our top customer roster. Matt Mercier: Yes. And Eric, on the funding, so as you noted, we're -- we guided this year $3 billion to $3.5 billion. We're trending on target with that. And while we haven't given specific guidance for next year, what I can tell you is that I expect our -- in particular, at our growth level, we're going to be spending more in 2026. Now I'd say a broader portion of that is going to be within our private capital groups. But I still expect that when you come down to even our share level that you'll see a slight increase or an increase to what we're spending this year as we start to really hit kind of a sweet spot in terms of projects that we have underway to be able to deliver incremental capacity, especially in the back half of '26 into '27. Operator: And your next question today will come from Michael Rollins with Citi. Michael Rollins: Just off the topic of how much you're putting into the JVs and off-balance sheet partnerships relative to what you're doing on your own, how are you thinking about the mix going forward? And are there opportunities to revisit what the right target leverage should be for digital to take more projects on balance sheet and create that -- more of that accretion for shareholders? Andrew Power: Thanks, Michael. So Matt will speak to target leverage, but I don't think we've changed our stripes on that. And one great thing about, call it, tapping in these sources of private capital, including our oversubscribed $3-plus billion hyperscale fund in the U.S. is we can deploy different leverage quantities at different project levels alongside that private capital to generate the returns suitable for the project. This is -- a reminder, this is, call it, an evolution of our funding model here, right? And we started down the road of joint ventures, one-off stabilized assets and then moved on to development. And then our first inaugural fund is a combination of both. And it's really the beginning of the scaling of our strategic private capital initiatives. And that's in the backdrop of we see a demand landscape that is just quite tremendous, right? You look at the numbers of the gigawatts that are stated to be needed to, call it, continue the growth of digital transformation to continue the rollout of cloud computing and to really even get the off-the-ground AI and built and commercialized. And yet we being an $80-plus billion company, still believe that having that, call it, private capital business, especially dedicated around hyperscaler allows us to fuel our growth for our customers and balance that in terms of generating an accelerating bottom line per share growth for our shareholders at Digital. So I think it's kind of a best of both worlds, allowing us to do more with our platform and fund effectively. Matt Mercier: Yes. Maybe, Michael, I'll just add briefly. Look, I think our target leverage 5.5 is a good place to be in terms of balancing our overall cost of capital and where we are today and where we seek to fund in the future. Maybe I'd also add, look, we're at 4.9 today, and so that gives us some ability to go up and potentially go down when necessary based on the capital market environment so that we can continue to fund what is larger builds going forward and a pretty good demand profile that we have. Operator: And your next question today will come from David Guarino with Green Street. David Guarino: Andy, I just wanted to clarify on the comments you made given these multi-hundred megawatt deals in tertiary markets. Is that something where you'd reconsider chasing that sort of demand, whether it's on balance sheet or through the funds? Or is the playbook to continue sticking the primary markets for Digital Realty? Andrew Power: Thanks, David. So I think the comment was trying to get a few themes that are hopefully apparent, but I want to provide our thoughts on. One, it's certainly showing an incredible conviction for the infrastructure needed to launch this technology. And as you go through these list of announcements, we're still seeing numerous mega announcements that are just talking about training, right, not even really evolving to inference or certainly commercialization and the use of AI use cases. You're also seeing a diversity of players in that arena, which I think is healthy. It's not necessarily single threaded to just only one major player building that infrastructure. When it comes to digital, I think we've had a great success being across the full product spectrum, call it, from supporting our growing enterprise business all the way to our hyperscale customers. We focus on markets where we see not just diversity and robustness of demand, but locational and latency sensitivity to the workload. So the answer to your question is we're certainly keeping our eyes on. I can tell you our team is across a tremendous amount of these opportunities. I think our intersection of that would be much more akin to our strategy. Like I said earlier, these cloud availability zone markets, the Northern Virginias, the Santa Claras, the Frankfurts and around the world, they are tight markets, and they may be tight for a long time. And I think the adjacencies to those markets make the most sense because we want to be investing in infrastructure that we believe in for the really, really long term. And so that's how we're thinking about it today. Operator: And your next question today will come from John Hodulik with UBS. John Hodulik: Andy, a quick question on the power side. Given the constraints you're seeing in terms of accessing the grid, any thought to moving to behind-the-meter power solutions in some of your new projects? Andrew Power: Thanks, John. So it was not that long ago, we made a bigger announcement in -- actually in South Africa, where we're building solar in a market, which is akin to that same concept. And that's obviously a market that is an incredibly fragile grid. So we're able to really extend our moat in that market with our platform in a supplemental power that is essentially behind the meter. I can tell you, we're looking at this in numerous markets and the context is much more in a bridge fashion. We don't -- we're uncertain how long that bridge may be, but we hear from our customers the preference in the long run for utility given the diversity of the power sources, the redundancy of that, but we're happy to help our utility partners with bridge solutions. And you can think about that in some markets that have been challenged with shortages, delays in power sources. Operator: And your next question today will come from Michael Elias with TD Securities. Michael Elias: Just building on that point, I'm curious, when I think of your portfolio, you obviously have very valuable capacity in Northern Virginia at Dulles. Is it feasible for you to bring gas to that site to expedite the delivery of additional buildings? And then maybe as part of that, just on the M&A side, there are a lot of companies out there that may have some facilities leased, but they have some land banks. How are you thinking about the M&A opportunity in this landscape? Andrew Power: So thanks, Michael. So just touching brief, I mean we're thinking about all the markets where there's shortages or delays or frustration around the power infrastructure. So it's not just one site, not just one submarket or market, we're thinking about that trying to make the solution work. And we're trying to do it in a thoughtful manner, right? We want to -- we are long-term committed, have been in these markets for many years. We'll continue to be in these markets. We want to be good stewards to the community, to our customers. But it's not just one in any given market. It's numerous markets where this could be a tool in our toolkit to accelerate infrastructure deployments. I'll turn it over to Greg to kind of give his thoughts on the M&A market. Gregory Wright: Yes. Thanks, Andy. Thanks, Michael. Michael, I'd say our strategy today is consistent with what it has been. And we continue to see what opportunities in the market that's going to provide us with the best risk-adjusted returns. So today, we're looking at buying land and developing. We're looking at buying buildings if strategically significant. And we look at buying companies if they're strategically significant or there's industrial logic to it. So I would say we haven't changed anything in terms of our strategy. And I would say in today's market, we have opportunities across all 3 of those growth prongs, if you will, and we continue to assess them. Operator: And your next question today will come from Irvin Liu with Evercore ISI. Jyhhaw Liu: Andy, I wanted to ask about the 5 gigawatts of future developable capacity. Can you help us understand the timetable or the time line needed for this developable capacity to become available for lease? How much of this is available for lease, if any? And any sort of customer conversations you had related to this capacity? Andrew Power: Sure. Thanks, Irvin. So I'll touch on the most, call it, front of the queue capacity box and then I'll let Colin touch on the customer dialogue. But they do go a little bit kind of together. What we've seen is there is a continuous focus on the here and now. And we saw this as we've navigated our way through 2024 and put up $1 billion plus of new signings, includes some large capacity blocks. And as we got closer and closer to deliveries of power and obviously, our infrastructure and data centers, the interest continued to ratchet up. And we were able to intersect that with a great diversity of customers at attractive rates and ultimately, returns. Given how valuable these locations are, these are strategically important to our customers. These are often the locations where our customers are landing major customers inside of their facilities, be it cloud or other services that are highly profitable to them, and they're unique in that nature. And just like what transpired a year ago, I think the seasonal nature of this as we approach the "late '26 vintage" or the 2027 vintage or 2028 shortly thereafter, the attractiveness becomes more and more attractive to those customers and that ensues in the dialogue Colin will touch on. That is playing out, in Northern Virginia, be it Manassas, Digital Dulles or call it, adjacent to our existing Loudoun campus. That's playing out in Charlotte, in Atlanta, in Dallas and Santa Clara. That's playing out outside the U.S. in the major, call it, flat markets in Europe or in the major Tokyo soccer markets in Asia, and I'm just rattling off a few. So there's numerous markets that have those, call it, the near-term larger contiguous capacity and vintage that the customers are seeking. But go ahead, Colin. Colin McLean: Yes. Thanks, Andy. I think we're very much in that window of prioritization that Andy talked about. This leasing activity for 2026, 2027, 2028 is very much the here and now. I highlighted before the largest pipeline that we've had on record. By the way, that also suggests a lot of momentum on the 0-1 as well, which we saw in our bookings number. But the conversations across this large capacity blocks that Greg secured for us across North American into the flat markets is really becoming a consistent conversation in the core markets, which as Andy talked about, these cloud zonal areas are resilient to having consistent demand pop up. So we're pleased with the conversations and the pipeline that we've generated. Operator: And your next question today will come from David Choe with JPMorgan. Richard Choe: It's Richard. Just wanted to follow up on that. Given that the long lead times in the industry for capacity, both building and demand for it, as we look since most of your 2026 capacity is sold out, as you kind of look for the development deal in 2027, how big can that be relative to '26, given that you've been kind of planning this for a while and seeing the demand pipeline? Andrew Power: These are big capacity blocks. And the concept is the customers really just almost want to get going with the build, right? They don't need to be powered on with the entire 100 megawatts or 200 megawatts and a date certain in 2026 or date 2027. It's just they want the ramping to start commencing, which is a product of power delivery at the site and obviously, our delivery alongside it, which we're trying to time out. So I don't -- this is a sizable amount of that 5 gigawatts when you add it all up. I mean just those markets, I just rattled off across North America and a handful outside the U.S. are call it hundreds and hundreds of megawatts by themselves. And I didn't even really touch on our capabilities in, call it, the Latin America or in South Africa when you add to those numbers. Operator: And your next question today will come from Jim Schneider with Goldman Sachs. James Schneider: Relative to some of the larger capacity hyperscale AI deployments you talked about as prospects for commencements in '26 and '27. Can you maybe talk about some of the technical requirements underpinning those? I think we know that Rubin and generations beyond from NVIDIA are going to require 800-volt architectures plus liquid cooling, and that's I'm assuming is something that's not present in most of your existing capacity today. So how are you thinking about planning both these new facilities for that? And are you thinking about potential for retrofitting any of your prior -- your existing facilities to accommodate those new requirements? Andrew Power: Thanks, Jim. So Chris and I'll tag team that. But Chris, why don't you start off in terms of what we've done so far being, call it, AI ready, liquid cooling ready. And then I mean, if you don't touch I can about just recent anecdotes of we've had churn and customers, we're doing air cooled, [ switch to liquid ] with the next generation just to answer Jim's question. Chris Sharp: Yes. No, I appreciate the question. And I love the way you're thinking about it with like new and old because that's exactly the way that we have different tool sets and different capabilities that we're looking to deploy. But we've been a partner of NVIDIA's for many, many years with their DGX precertified program. We're one of the leading partners there. We continue to work with them on even -- you said it, right, like not the chipset today, but what's going to be out there 2 and 3 years out. And so we're always looking at that. And the power distribution piece for the rest of the people on the call on 800-volt, we've been across that for some time now on different types of electrical distribution capabilities that are going to be required, and that's a lot for the new build. And we're always looking at evolving our modular designs, right? And that modular design is not only in our new footprint, but it's been deployed for many, many years in our existing footprint. So we're always looking at how we bring liquid. And quite frankly, our architecture for these new builds allows us to align to the densification of that chipset in a very granular fashion. And so for a part of the retrofit, we've been talking about for a while called HD colo. And so that HD colo capability is something that we've really been working on, and it's available across 30 metros, 170 facilities, and you can deploy it in roughly 14 weeks. What that allows us to do with our customers is to densify up to 150 kilowatts, and that will support the Rubin. It will support a lot of the Grace Blackwell. So we have a lot of runway in our existing facilities to align when our customers need us to. And so we're always watching exactly how that's going to be coming to market. I think you might have seen some of the press releases and some of the customer announcements around our Digital Realty Innovation lab. Why that was built is to allow us to bring all of our partners together inside of an environment where the data center, unfortunately, today is the point of integration. And so we're trying to pre-engineer and set a bunch of standards so that our customers are able to get outcomes out of this infrastructure as they bring it to market. So as you understand, we've really been ahead of the curve with a lot of these partners and making sure that we can build a repeatable kind of outcome for our customers on a global basis. Operator: And your next question today will come from Frank Louthan with Raymond James. Frank Louthan: Great. Can you walk us through what is your average size deployment that you're seeing for enterprises now? And do you think that you're gaining share in that? And then can you give us an idea of what percentage of your new bookings are for AI inferencing workloads? Andrew Power: Thanks, Frank. So I'll try to tackle this in a few parts. So we -- overall, of our total signings we have, about 50% was AI related. This quarter, in particular, in just the 0-1 megawatt, so predominantly enterprise-oriented. We did see a new high watermark of north of 18% of those signings being, call it, AI-related, so high-performance compute. So -- and that number in that category by itself has probably hovered closer to single digits or high single digits for some time. So we are seeing a pickup in that. You're seeing certain sectors, financial services, manufacturing, certain customer types, I would say, moving closer to proof of concept and evolving. I still believe this word inference is beyond nascency, quite honestly, based on the fact that the adoption of this in a commercialized, call it, corporate private data center data site setting is -- we're not even scratching the surface of what we can do with this technology, right? I believe the B2C applications are way out running what's going to happen on enterprise. So I don't think -- I think our data centers in our markets that are supporting the cloud and enterprise will ultimately be the home for that applications. But I think we still got a good runway towards to get there, especially when people are just putting out press releases that are talking about training today because if it's a press release now, it's not a data center for a good while. On average size, we did see, I'd say, size of deals are catching up or getting a little bit bigger than the enterprise size. They're definitely getting a little more power dense, which is playing into our wheelhouse. And we've been supporting for enterprises, liquid cooling well before we were talking about ChatGPT or GPUs. So we have a lot of experience with that. And then lastly, when it comes to taking market share, the answer is yes, in my opinion. Operator: And your next question today will come from Joe Osha with Guggenheim Partners. Joseph Osha: My question is pretty simple. If I look at the spreads on the 1 megawatt plus side, it's 2 back-to-back quarters now of double digit and the most recent one is almost 20%. And are we just seeing maybe a temporary artifact there? Or is this kind of the new normal with those spreads being at that level going forward? Matt Mercier: Yes. Thanks, Joe. Look, I think you're seeing -- starting to see like what we're expecting as we start to look forward and we see the rates that start to drop down over the next several years, as Andy mentioned earlier. I mean this -- I would say this year was a relative -- or year-to-date, it's been a relatively light year in terms of renewals within the greater than a megawatt. We'll start to see that pick up in '26 and '27 as you look at our expiration schedule. But we've also had this year, even this quarter, in particular, you'll see that the average rate, if you look at this quarter was, I think, north of 180, which reflects the markets that we are in. And despite that, we were still able to get higher rates and robust re-leasing spreads. So I think we're -- again, we're in a robust supply-constrained market. And we think looking forward, our mark-to-market opportunity is in a good position. Operator: And your next question today will come from Cameron McVeigh with Morgan Stanley. Cameron McVeigh: Just wanted to ask about future CapEx spend. And do you envision CapEx spend going forward? Do you expect it to be geared more towards retrofitting existing data centers for denser deployments or maybe expanding new capacity? And then secondly, do you see this incremental CapEx geared to capture more growth in the 0-1 segment or the 1 plus segment going forward? Andrew Power: Thanks, Cameron. So I think Matt touched on this a little bit. I mean, I think just to paraphrase, we believe, given the opportunity and the conversion of our, call it, shells or delivery of our suites under construction, shells in the data centers and colos and land in the shells and ultimately data centers, CapEx is likely to inflect higher on both the total and our share basis. So that's just -- that's based on really success driven. And when it comes to where the money is going, by and large, the dollars are going towards new capacity. The new capacity is well outpacing. We're still doing a great job maintaining, retrofitting where necessary our existing fleet, but the dollars for building a new data center are dwarfing the dollars needed that we need for our portfolio. And when it comes to the types of CapEx, yes, the dollars amounts are certainly bigger when you call it slant towards bigger deals, 50-, 100-, 200-megawatt deals. But we've made this strategically the priority at this company to make sure that we don't go dark for our enterprise colo customers in 50-plus in growing metros around the world. And those enterprises are landing with us with private IT for their digital transformation, hybrid cloud, and they're then connecting to our top cloud customers. So that virtuous cycle, we're building for all the customers that land and expand with digital is part of our value prop. Operator: And your next question today will come from Maher Yaghi with Scotiabank. Maher Yaghi: Great. I wanted to ask you, I mean, since February, you've increased guidance and signed many new contracts. Certainly, we've seen the number of projects in construction in the U.S. overall increased significantly. But when I look at your development CapEx guidance, it has not changed. I'm not suggesting you should spend more, but do you think the drive to build bigger and bigger campuses is moving projects to private developers and reducing your share of what you typically might get? And the second question is, could you qualify maybe the credit quality of the new mega projects that are being built, do you see the returns being commensurate with taking on much bigger projects with a lower customer count that might not have the same cash flow level that your traditional Fortune 500 companies might have currently? Andrew Power: Sure. So a lot to unpack in there for, I think, what's our last question. I'll try to be -- try to hit it. So our development, we're posting about $10 billion in total on the development life cycle. So maybe the dollars going out the door will only, call it, pushing towards the high end of our guidance, which is a decent range in the guidance. But we're definitely leaning towards bigger, and it's not a static thing for us, right? Projects are delivering. We had, I think, record commencements last quarter. We have sizable commencements this quarter, meaning projects are moving off that schedule and new products are getting added to that schedule. We've been intersecting as addressed in a prior question, this primarily in the major markets where we saw diversity of demand from enterprise to hyperscale, where it was also locationally latency-sensitive workloads. We've not necessarily to date chased that out to the one-off locations, but we're very much cognizant of those opportunities and seeing a world where the markets where we're having a distinguished position in are expanding and stretching. And I think that's where you likely see us next to support those types of customers' growth. For us -- I can't speak of others, but for us, when you talk like these large-scale locations, be it in our major markets or otherwise, we're aligned with making sure the counterparty risk that fits the project. So certainly leaning towards the larger, call it, $1 trillion type companies that are investment grade. And that doesn't mean we don't do business with, I would say, the neo clouds, but we've not been involved with major one-off projects to those names to date. Operator: That concludes The Q&A portion of today's call. I would now like to turn the call back over to President and CEO, Andy Power, for his closing remarks. Andy, please go ahead. Andrew Power: Thank you, Nick. Digital Realty delivered another strong quarter, building on our momentum throughout this year. We saw continued strength in our 0-1 megawatt plus IX business with record interconnection bookings, underscoring the strength of our global full spectrum platform. Our backlog grew and now sits at 20% of data center revenue. Our pipeline is at a record level and we are well positioned for better long-term sustainable growth. This is special time in our industry. Demand has never been stronger. We've positioned the company to meet the challenges of this moment with a strong and growing value proposition, enhanced innovation and an evolved funding strategy that enables us to better meet the needs of our customers while improving our overall returns. I'm incredibly proud of our talented and dedicated colleagues who continue to execute at an exceptionally high level, and I thank you all for your hard work. I'm excited by the opportunity that lies ahead and remain focused on delivering for our customers, partners and shareholders. Thank you all for joining us today. Operator: The conference has now concluded. Thank you for joining today's presentation. You may now disconnect.
Brent Arriaga: " Kenneth Neikirk: " Scott Sparks: " Brent Arriaga: " Erik Staffeldt: " Owen Kratz: " Gregory Lewis: " BTIG, LLC, Research Division James Schumm: " TD Cowen, Research Division Connor Jensen: " Raymond James & Associates, Inc., Research Division Joshua Jayne: " Daniel Energy Partners, LLC[ id="-1" name="Operator" /> Ladies and gentlemen, thank you for standing by. Hello. My name is Dustin, and I will be your conference operator today. At this time, I would like to welcome you to the Third Quarter 2025 Helix Energy Solutions Group Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Brent Ariaga. Brent Arriaga: Please go ahead. Good morning, everyone, and thanks for joining us today on our conference call, where we will be reviewing our third quarter 2025 earnings release. Participating on this call for Helix today are Owen Kratz, our CEO; Scotty Sparks, our COO; Erik Staffeldt, our CFO; Ken Neikirk, our General Counsel; Daniel Stewart, our Vice President, Commercial; and myself. Hopefully, you've had an opportunity to review our press release and the related slide presentation released last night. If you do not have a copy of these materials, both can be accessed through the Investor Relations page on our website at www.helixesg.com. The press release and slides can be accessed under the News and Events tab. Before we begin our prepared remarks, Ken Neikirk will make a statement regarding forward-looking information. Ken? Kenneth Neikirk: During this conference call, we anticipate making certain projections and forward-looking statements based on our current expectations and assumptions as of today. Such forward-looking statements may include projections and estimates of future events, business or industry trends or business or financial results. All statements in this conference call or in the associated presentation other than statements of historical fact are forward-looking statements and are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual future results may differ materially from our projections and forward-looking statements due to a number and variety of risks, uncertainties, assumptions and factors, including those set forth in Slide 2 of our presentation and our most recently filed annual report on Form 10-K, our quarterly reports on Form 10-Q and in our other filings with the SEC. You should not place undue reliance on forward-looking statements, and we do not undertake any duty to update any forward-looking statement. We disclaim any written or oral statements made by any third party regarding the subject matter of this conference call. Also during this call, certain non-GAAP financial disclosures may be made. In accordance with SEC rules, the final slides of our presentation provide reconciliations of certain non-GAAP measures to comparable GAAP financial measures. These reconciliations, along with this presentation, the earnings press release, our annual report on Form 10-K and a replay of this broadcast will be available under the -- for the Investors section of our website at www.helixesg.com. Please remember that information on this conference call speaks only as of today, October 23, 2025, and therefore, you are advised that any time-sensitive information may no longer be accurate as of any replay of this call. Scott? Scott Sparks: Thanks, Ken, and good morning, everyone. Thank you for joining our call today, and we hope everybody is doing well. This morning, we will review our third quarter highlights, financial performance and operations. We'll provide our view of the current market and update our guidance for the remainder of 2025. Our teams offshore and onshore safely delivered another well-executed quarter. Our safety statistics continue to remain among our best on record. Moving on to the presentation. Slides 6 and 7 provide a high-level summary of our results and key highlights for the quarter. Our third quarter results were better than expected, producing our highest quarter results since 2014 despite the continued low-cost stacking of the Seawell and the lower utilization of the Q4000 in the Gulf of America. Revenues in the third quarter were $377 million, with a gross profit of $66 million and a net income of $22 million compared to $302 million in revenue, $15 million in gross profit and a net loss of $3 million in Q2. Adjusted EBITDA was $104 million for the quarter, and we had positive operating cash flow of $24 million, resulting in positive free cash flow of $23 million. Year-to-date, we have generated revenues of $957 million, gross profit of $109 million and a net income of $23 million with adjusted EBITDA of $198 million. Our cash and liquidity remains strong with increased cash and cash equivalents of $338 million and increased liquidity of $430 million at quarter end. Highlights for the quarter, Brazil operating 3 vessels with strong utilization, all 6 trenches and all 3 IROV Boulder grabs working in the quarter, improved results in Gulf of America Shelf following a later start to the season, execution of a 3-year contract with a minimum 150-day commitment for the key units in the Gulf of America and our entry into a 4-year agreement with NKT for the installation, operation, project engineering and maintenance of the T3600 designed to be the world's most powerful subsea trencher to be operated from one of our trench and support vessels. Over to Slide 9. Slide 9 provides a more detailed review of our segment results and segment utilization. In the third quarter, we continue to operate globally with minimal operational disruption with operations in Europe, Asia Pacific, Brazil, the Gulf of America and the U.S. East Coast. Slide 10 provides further detail of our Well Intervention segment. The Q5000 achieved high utilization working in the Gulf of America in Q3. The vessel is currently working on a multi-well program for Shell and should be highly utilized for the remainder of 2025. The Q4000 completed a multi-well P&A campaign in the Gulf of America. And then due to gaps in its schedule, we pulled forward the 2026 planned regulatory docking into 2025 to facilitate a cleaner runway in 2026. During this period of a softer Gulf of America market, we are experiencing some gaps within the schedule in Q4 with lower rate ROV decommissioning projects for a good portion of the remainder of the year prior to returning to contracted works at well intervention level rates in January of 2026. In the North Sea, the Well Enhancer had 100% utilization during the quarter, working for 4 customers. Due to the well-known market turmoil in the North Sea, the Seawell remained warm stacked and is expected to remain warm stacked at a low cost base for the remainder of 2025. In Q3, the Q7000 completed work on numerous wells for Shell on the 400-day decommissioning campaign in Brazil with 100% utilization. The SH1 had 98% utilization working for Trident and the vessel has now completed the Trident contract and is currently undergoing inspections and acceptance prior to commencing its 3-year Petrobras contract. ESH II had a very strong quarter with 100% utilization for Petrobras. And the stand-alone 15K IRS system was on hire in Brazil contracted to SLB for the quarter, achieving 100% utilization. Moving to Slide 11. Slide 11 provides further detail of our Robotics business. Robotics had a strong quarter. The business performed at high standards, operating 7 vessels during the quarter, working between trenching, ROV support and site survey work on renewables and oil and gas-related projects globally. Robotics worked 6 vessels on renewables-related projects within the quarter and had strong vessel utilization overall with 3 vessels working on trenching projects and 3 vessels working on site clearance. All 6 trenches and all 3 IROV boulder grabs were utilized. We operated 3 vessel trenching spreads in Europe, including the GCIII and the North Sea Enabler with jet trenches and the JD Assister with the i-Plough. The Glomar Wave and the Trym support vessel were working on renewables site clearance utilizing the IROV boulder grabs in Europe. The Shelia Bordelon completed renewables works on the U.S. East Coast, utilizing our third IROV boulder grab prior to transitioning back to the Gulf of America, where she is currently undertaking ROV support works. Also in renewables, we have the T1400-1 trencher working on a longer-term contract from a third-party client-provided vessel of Taiwan and the T-1400-2 working from a third-party client provided vessel for a longer-term contract in the Mediterranean. The GCII in the Asia Pacific region performed oil and gas support work offshore Thailand during the quarter. Our renewables and trenching outlook remain very robust with numerous sizable contracted works in 2025 and 2026 through to 2030 with a solid pipeline of tender activity as far out as 2032. Slide 12 provides detail of our shallow water abandonment business. In Q3, activity levels increased with 100% utilization for the Hedron heavy lift barge and strong utilization for the die vessels and liftboats. In Q3, we had a higher number of P&A spreads working offshore, totaling 790 days of utilization compared to 614 days in Q2. Whilst 2025 continues to be a soft year on the Gulf of America shelf, we continue to believe in the long-term outlook for this segment as well as our agent customers look to reduce their decommissioning obligations. So in summary, whilst we have seen a softer-than-expected U.K. intervention market and some gaps in the latter half of the year for the Q4000, we are encouraged by our strong Robotics and Brazil segments. We expected Q3 to be a very strong quarter, and it was. We executed it well, producing our highest resulting quarter since 2014. I'd like to thank our employees for their efforts, delivering again safely at a high level of execution and for again securing a further backlog and long-term contracts. I'll now turn the call over to Brent. Brent Arriaga: Thanks, Scotty. Moving to Slide 14. It outlines our debt instruments and key balance sheet metrics as of September 30. At quarter end, we had $338 million of cash and availability under the ABL facility of $94 million with resulting liquidity of $430 million. Our funded debt was $315 million, and we had negative net debt of $31 million at quarter end. Our balance sheet is strong and is expected to strengthen further as we anticipate generating meaningful free cash flow in the fourth quarter and have minimal debt obligations between now and 2029. I'll now turn the call over to Erik for a discussion on our outlook. Erik Staffeldt: Thanks, Brent. Our team performed well in the quarter. It's been a challenging year, but our Q3 results provide a glimpse into our earnings potential even with 2 of our larger assets negatively impacting results. As we enter Q4, we do expect seasonal impacts to our operations, particularly in the North Sea, Gulf of America Shelf and APAC. That said, we are tightening our guidance on certain key financial metrics in our forecast. Revenues of $1.23 billion to $1.29 billion. EBITDA, $240 million to $270 million. We have narrowed our EBITDA guidance. Our new range reflects our year-to-date actual results and the expected variability that comes with the winter season during the fourth quarter. Free cash flow a range of $100 million to $140 million. The range continues to reflect the variability in working capital, specifically timing of accounts receivable with 2 of our blue-chip customers. We expect to have this resolved by early 2026. From capital expenditures, we are maintaining our forecast at $70 million to $80 million. Our spend continues to be a mix of regulatory maintenance on our vessels and fleet renewal of our robotics ROVs. Our spend is committed, but deliveries may slip into 2026. These range involves some key assumptions and estimates and any significant variation from these assumptions and estimates could cause results to fall outside these ranges. As discussed, our fourth quarter results will be impacted by the winter seasonal weather in the Northern Hemisphere. The variability in our fourth quarter guidance range is dependent on the length and extent of operations working into the season, namely in the North Sea well Intervention and Robotics business in our Asia Pac robotics operations and in the Gulf of America shelf. Providing some key assumptions for the remainder of the year by segment and region, starting on Slide 16. In Gulf of America, the Q5000 is contracted through the remainder of the year with expected strong utilization. The Q4000 will have gaps in its schedule as it looks to perform lower revenue ROV support work prior to resuming well intervention work in January. In the U.K. North Sea, the Well Enhancer has work into November with the extent of the season being weather dependent. The Seawell continues in warm stack. In Brazil, the Q7000 continues working for Shell into Q2 2026. The Siem Helix 2 continues working for Petrobras. The Siem Helix 1 completed its work for Trident. The vessel is currently mobilizing for Petrobras with work expected to start this quarter. Moving to our Robotics segment. Our Robotics segment will be affected by seasonality with activity levels in the North Sea and APAC expected to diminish in the winter months. In the APAC region, the Grand Canyon II is providing ROV support and hydraulic stimulation offshore Thailand and Malaysia with expected strong utilization. In the North Sea, the Grand Canyon II and the North Sea Enabler are performing trenching projects and are expected to remain utilized for the remainder of the year. The Glomar Wave is forecasted to remain on-site clearance operations into December. In the U.S., the Shelia Bordelon is back in the Gulf, providing ROV support into November with potential for further work. Moving to production facilities. The HP I is on contract for the balance of '25 with no expected change. We do have expected variability with production as the Drosky field continues to deplete and the Thunder Hawk field is still shut in. Continuing with shallow water abandonment, we expect the business to decline in line with the winter weather arrival in the Gulf of America. Our outlook range includes variability depending on the timing and extent of the winter season. Shelf decommissioning is a call-off business, but given customers' needs and continued reversion of properties through bankruptcies, long term, we believe in the solid foundation for this market. Slide 17, reviewing our balance sheet. Our funded debt stands at $315 million with no significant maturities. Our year-to-date share repurchase spend stands at $30 million, in line with our stated target of minimum 25% of our expected free cash flow with 4.6 million shares acquired. At this time, I'll turn the call back to Owen for a discussion on our outlook beyond 2025 and for closing comments. Owen? Owen Kratz: Thanks, Eric. Let me begin with a few macro observations and thoughts where Helix is positioned in the current market. We all know the oil and gas market is cyclical. It's actually composed of a series of cycles depending on market segment and region. Exploration and drilling cycle is the start of the offshore oil and gas investment cycle, usually beginning at a time of high commodity prices or a perceived supply-demand imbalance. This was our market environment as markets rebounded post COVID. The exploration and drilling cycle is followed by the development cycle during which subsea construction services do well. The development cycle usually starts about 2 years or more after the drilling cycle. This is where I believe we're at now. Drilling is currently showing softness with some support from consolidation, fleet rationalization and a remarkable degree of capital discipline relative to past cycles. The subsea construction market is currently strong. As production from drilling and development comes on and/or commodity prices soften, CapEx budgets typically get cut. Remaining dollars freed up get directed to providing OpEx, well intervention gets added to remediation spending and the production enhancement cycle begins. Without getting into regional differences, we feel the industry is currently in the early but strong development cycle. As a consequence, vessel charter rates and asset values are elevated and production enhancement is flat. Abandonment is almost a separate event and is currently increasing due to regulatory pressure, the mature nature of reserves and excess backlog built up with concern over carried liabilities. Bringing this all together, we believe we're in a trough, but at the cusp of an up cycle. As the market progresses, it will move into the production enhancement cycle where we stand to benefit. As we navigate this trough, we've had 3 challenged areas of our business in 2025. Number one, the U.K. North Sea, driven by government tax and regulatory policy combined with M&A consolidations, most spending in the U.K. North Sea came to an abrupt slowdown in early 2025. While we believe 2026 will be marginally better and allow us to reinstate our second vessel, rates will be competitive and work will still be slow. By 2027, we anticipate significant abandonment work will begin as producers leaving the region will be forced to do the work and remaining producers will seek to lessen liabilities. Number two, the Q4000. In 2026, work visibility in the Gulf of America is better than what occurred going into 2025 as 2025 work was getting deferred into 2026. We do anticipate that deferrals or cancellations could again occur. So we're planning to hedge utilization risk by again considering a West Africa campaign for at least part of 2026 for the Q4000, although we have work already contracted in the Gulf of Mexico for Q1. We -- as Scotty mentioned, we accelerated a drydock that was planned for 2026 forward into the softer market of 2025, which should allow for greater availability and flexibility on where she's deployed. This should improve well ops U.S. results year-over-year. By 2027, we expect Gulf of America demand to increase from both production enhancement and abandonment. Third area, we continue to believe the shallow water abandonment in the Gulf of Mexico will be a large market. For 2025, we rightsized the business and are delivering improved results. It's anticipated that 2026 will be a better year, but still a slow year with more work but at reduced rates as competition for the work remains stiff. Indications are that volume of work from boomerang properties out of the bankruptcies will build into 2027, creating a strong market. The performance of our Robotics group has been a positive this year. We're seeing rates improve modestly and visibility on work remains strong, and we continue to establish ourselves as a global leader in trenching as we also support construction and wind farm projects. Even with all these challenges of 2025, we nonetheless delivered our highest quarter EBITDA since 2014, and we're still on track to deliver meaningful free cash flow. So while we acknowledge our results for 2025 will fall short of our expectations that we had coming into the year, we still see the earnings potential in our business. The challenge for us going into 2026 will be to manage the pressure we're getting from to reduce rates while facing rising supply chain and labor costs. We need to maintain our focus on managing our costs. With strong subsea construction and robotics markets, we're seeing upward pressure on support material and labor costs. Emphasis next year will be on savings in our OpEx and marine costs. We believe there's a meaningful opportunity in this area. In addition, we can expect further improved EBITDA contributions from Q7 if we're successful in keeping it working in Brazil without the noise of another transit from region to region at higher rates. On the downside, next year, we do have both SH vessels in Brazil due for their 5-year special surveys, this out-of service costs will meaningfully impact some of the anticipated improvements. By how much will be determined as we evaluate cost and timing during our budgeting process. Beyond this, we have a strong balance sheet with negative net debt and significant cash. We're in a position to opportunistically consider growth by acquisition. We remain a market leader in intervention, decom and robotics. Through the cycles, we're demonstrating our resilience, our ability to deliver results even in a challenging market environment and our positioning for the future. Back to you, Erik. Erik Staffeldt: Thanks, Owen. Operator, at this time, we'll take any questions.[ id="-1" name="Operator" /> [Operator Instructions] Our first question comes from the line of Greg Lewis from BTIG. Gregory Lewis: Owen, congrats on a great quarter. This was really good to see. It kind of shows the potential with the company. I did have a question around the Q4000. You talked about some of the challenges that it faced in 2025, decisions from customers to defer cancel. You highlighted the good visibility in Q1. What should we be looking forward thinking about in terms of -- I think there's a lot of optimism around the outlook for 2026. But I think one of the concerns is, could we see a little bit of a repeat of customers pushing some work right? So just kind of how are you thinking about maybe mid-'26 in terms of what's going to drive those decisions to get that work going or potentially delaying in another quarter or 2? Owen Kratz: Well, I'll start and let Scotty add some color to it. But there's always a potential that in this volatile market right now, there's always a potential that producers will change their planned spending. Going in through a budgeting process, we speak primarily with the operating groups to identify the work and start to build our schedule for the following year. But during that budgeting process, it's possible that corporate gets involved and modifies those plans. We don't always see that. We got caught short this year, and we're sort of still prepared. We sort of figured that the Gulf of America might be soft in 2025. So we took a contract that was supposed to be a 6-month contract in West Africa. That work actually got shortened a little bit. So we wound up coming back to the Gulf a little earlier only to face the budgeting decisions to defer work out of 2025, and that's what sort of caught us up. We just did -- admittedly, we didn't see it coming. Looking forward into 2026, it's a similar situation, but I think the visibility of the work is stronger in '26 than it was going into 2025. The work has been deferred once. So that sort of lessens the possibility that it would be deferred twice. But as I said in my remarks, you can never rule it out, but that's why we're also looking at hedging that risk by entertaining another campaign to West Africa this year. Scott Sparks: Yes. I'll add to that. Thanks, Owen. We have a sizable contract to kick off in -- very early in January that will get us going for a good start of the year. And then we are at high-level discussions with many operators about works into 2026 in the Gulf of America. One of the reasons we brought forward the regulatory dry docking from '26 into '25 is if we do take a West Africa campaign, it would be very difficult to do the docking in the Africa region. And we're also starting to have discussions about potential works in Guyana as well. So a few other workplaces have opened up for us, and we're looking at regional options as well. And you have to also remember, we're not a rig. You never hear of rigs going off and doing construction or decommissioning support work. We're quite a versatile unit. All those rates are lower, we can go off and do other works if the well intervention work doesn't come to us. Gregory Lewis: Yes, that was super helpful. I did have a follow-up around shallow water abandonment. Clearly, I think we share your views that it's going to be a better market over time. But I did want -- if you could elaborate a little bit. You mentioned that kind of your expectations for '26 is that we are going to see a pickup in activity, but maybe at reduced rates. And just kind of curious if you could maybe elaborate on that comment. Owen Kratz: Yes. 2023 was a better year as Apache really absorbed all of the available capacity in the market. That drove rates and utilization to all-time highs. In '24, when they exited the market, the competition did add capacity. So that sort of exacerbated the situation, and we went into a period where there's actually excess supply over demand. We think that's continued through '25. We didn't adjust well in '24 to it. We were expecting a quicker rebound, but there were provisions allowed for producers to defer their work up to 3 years. So that sort of kept the work from rebounding as quickly as we thought it would. Going into next year, we do -- we are seeing an increase in the volume of work, although the competition has added capacity. So I think 2026 will continue to be a highly competitive year on margin, but utilization should be strong for us. And then going into 2027, that's when the hiatus sort of starts to expire and we see the shallow water abandonment market actually returning to what I would call a normal state following these boomerang properties, so a much stronger market by 2027. Gregory Lewis: Okay. And so just so I understand, it sounded like despite maybe some of the softness in the last year or 2 in SWA, you did have some competitors that maybe -- did they add capacity? Or did they -- was it moved to the U.S.? Or was it just incremental stuff that they built into the market? Owen Kratz: No, it was incremental spreads that were actually fabricated and put into the market. The big bottleneck in that market is actually the people. So whoever has the work sort of gets the people. We came up short in 2024. And because of our competition bidding lower rates, the people sort of moved away from us. Throughout this year, we've been very successful in getting the people to come back to us, and we've increased our utilization, of course, by cutting rates. So I think we're pretty well positioned going into next year to be a strong competitor in the market. [ id="-1" name="Operator" /> Our next question comes from the line of James Schumm from TD Cowen. James Schumm: I was hoping maybe you could help me with the bridge to fourth quarter from third quarter in Subsea Robotics. So I guess it looks like you'll have some Q4 seasonality. But it looks like the vessels will all be utilized in some -- at some level, but maybe the vessel days will be a bit lower. And then if I'm reading your slides correctly, I think you had like all 6 trenchers going in the third quarter, but you only have 4 in the fourth quarter. Is that right? Like how just -- or maybe just speak at a high level, like what kind of a drop we're looking sequentially for Subsea Robotics? Scott Sparks: So we did have 6 trenches working in the third quarter. We will drop down to eventually 4 trenches in the fourth quarter. The trencher that's currently working in Taiwan, that will get seasonal, once the weather kicks in, that will get demobilized. However, we are expecting work in Taiwan again for T1400-1 next year. The North Sea trenches, they should be relatively busy through the quarter. But again, you will start getting affected by seasonal weather, which will bring down rates. And then the i-Plough that was on the JD Assister, that project has come to a close in Q3. So that will not be utilized in Q4. James Schumm: Scotty, when you said it will bring down rates, did you mean bring down utilization? Or do rates also soften in the fourth quarter? Scott Sparks: Generally, when we're trenching, we have an operational full rate and then there's a lower weather rate. We still get paid for weather, but it'll at a lower rates. So there'll be less trenches utilized. And as the weather kicks in, there'll be some lower rate coming in. James Schumm: Understood. Understood. Guys, in the North Sea, I think there were 2 large tenders. Is there an update there? Were you unsuccessful? Or we just haven't heard anything? Or what's the update there? Scott Sparks: We're very active on both of those tenders. One of them, there's a lot of technical clarifications going on. And the other one, I'd say we're in quite a good position for. We're just not in a position yet to bring that out to the market, but it's in a good place. I think that next year will be turning into activating the Seawell again at some point. We don't know if it will be a full year or a partial year, but it's looking more and more likely we will activate the Seawell in 2026. We just don't know for what length of time yet. James Schumm: Okay. Yes. That's -- okay. That's where I was going with that. And just lastly, a quick clarification. The well intervention, the new contract that you announced 150 days minimum. Is that a grand total of 150 days over 3 years? Or is it 150 days annually? Scott Sparks: No, the minimum commitment over the 3 years is 150 days. However, in 2026, we're kicking off with that contract with quite -- that's the sizable work for the kick off for the Q4000. [ id="-1" name="Operator" /> Our next question comes from the line of Connor Jensen from Raymond James. Connor Jensen: Like everyone else had great quarter here. So really strong showing for robotics in 3Q and reading the forward commentary. It looks like that should continue to be solid going forward. Just wondering if you could give a high-level overview next year, what you're thinking about 2026 robotics versus what we saw in 2025? Scott Sparks: I think we should see a strong year in robotics for 2026. It should be at least be on par with what we have for 2025. We're expecting a strong trenching season in the Mediterranean, the North Sea and in Taiwan. The site clearance market is looking quite robust for next year as well. So I expect to at least be on par, if not better, as we go into 2026. Our trenching rates will certainly have some very large contracts in place at better rates in 2025. So it should be another good year for robotics. Connor Jensen: Got it. That's helpful. And then any update on the chemical treatment success for Thunder Hawk? I saw you don't anticipate any revenues in 2025, but wondering if you still expect to receive some benefit in 2026 without having to do an intervention? Owen Kratz: We've seen some positive developments on that front that leads us to question whether or not an intervention will actually be necessary, but it's still early days, and we don't know. We have plans that are already submitted into BSEE for what the various optionality of work going forward to get it back online. Our anticipation, though, is that we should have it back online at least by some point in the first quarter. [ id="-1" name="Operator" /> [Operator Instructions] Our next question comes from the line of Josh Jayne from Daniel Energy Partners. Joshua Jayne: First question, you noted rising supply chain costs moving forward into 2026. Where are you seeing the most pressure? And could you just talk about how you're mitigating those increases? Owen Kratz: We're seeing rising cost pressures across the board actually, it began with labor costs. They went up for this year. I don't see any reprieve from the labor costs, but also on the materials and supply side and delivery through the supply chain, we're seeing escalating costs. So those are areas where we're going to really be focusing on trying to mitigate the cost. And that's just working with our suppliers, maybe consolidating our supplier base and just putting a little pressure on achieving a little bit of a margin gain there. Joshua Jayne: Okay. And then I wanted to talk about pricing for well intervention. So although deepwater rig rates have come down for incremental contracts from where we were sort of last summer, there's still a gap between where your assets can work and sort of seventh gen drilling assets. So I'm curious if you've seen any change in pricing discussions you're having on the intervention side? Or is securing backlog just more at this point about stacking programs on top of one rather than really a price-led discussion? Erik Staffeldt: It is also a price-led discussion. We have seen downward pressure on our rates similar to what the drillers have experienced in the marketplace. Having said that, we are also able to tier our rates. So we have well intervention rates. We have rates for carrying out construction support projects and ROV support projects during times of lower utilization of well intervention and similar, but we have seen downward pressure. Scott Sparks: We do have backlog in Brazil on longer-term contracts and for the Q5000 as well at set rates similar to and better to what we have in this year. And it's also a bit of a regional play. Sort of we might have a softness for the Q4000, the Q5000 is tight, but then the rates in the North Sea will be dependent on whether or not we can activate the second vessel. So you might see a bit of rate pressure there trying to get the second vessel into the market. Joshua Jayne: Understood. And then maybe just lastly, could you just speak in general to the market in Brazil, continue to be highly utilized there? And just maybe your thoughts over the next couple of years about that market and the success that you've been having? Scott Sparks: Yes. I mean we have to see in Helix 1 and 2, both on the Petrobras contracts, they're going to be for 3 years plus options. The Q7000 is on a good contract with Shell. We would hope that there's some extensions there. But then we're also starting to see quite a bit of interest in the Brazil market for the Q7000 with Shell. I would say Brazil in general, not just for us, but for the rigs, is the most buoyant market out there at this time. So we're quite confident of keeping our position. [ id="-1" name="Operator" /> There are no further questions. I will now turn the call back over to Erik Staffeldt for closing remarks. Erik Staffeldt: Thanks for joining us today. We very much appreciate your interest and participation and look forward to having you on our fourth quarter 2025 call in February. Thank you. [ id="-1" name="Operator" /> The meeting has now concluded. Thank you all for joining. You may now disconnect.
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