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Operator: Good afternoon, everyone, and thank you for joining us today for Nagarro SE's Q3 9 Months 2025 Earnings Call. [Operator Instructions] With that, it's my pleasure to hand you over to Michael. Michael Knapp: Great. Thank you, Sami, and good afternoon, everyone. My name is Michael Knapp, and I'm part of the Investor Relations team at Nagarro. If you have not yet received a copy of our Q3 2025 earnings release, you can find it as well as a copy of today's presentation in the Investor Relations section at nagarro.com. Joining me today is Manas Human, our Co-Founder and Custodian of Entrepreneurship. Manas and I will be covering the results and strategic updates for the quarter. Before we begin, please note that some statements made during this call may be forward-looking and are subject to risks and uncertainties as outlined in our earnings release. Additionally, please refer to the release for important information regarding non-IFRS measures. And with that, I'm pleased to hand you over to Manas. Manas Fuloria: Thanks, Michael. Once again, welcome, everyone, and thank you for joining us on this earnings call. We are taking a slightly different approach this quarter and hosting just 1 combined call so that we can expand on our prepared remarks a little and still have time to address your questions. We'll start by briefly highlighting our strong Q3 results, but perhaps even more importantly, underscoring the important and sustained actions we have been taking to address investor concerns, improve corporate governance and enhance our financial reporting and transparency. I also want to discuss how we have set the stage to drive better shareholder returns through improved execution and a disciplined capital allocation strategy. The operational changes we have made are already driving measurable improvements in our results, which perhaps have been overshadowed a bit at this time by a subdued demand environment and FX noise, but we believe we are still at the very early stages of showing the benefits from some of these new initiatives and processes that we have put in place, especially on the sales execution side. I'd also like to talk more about the future and in particular, about our vision of Fluidic Intelligence. We would like to explain that to you. We are promising our clients significant productivity improvements by unlocking the intelligence that already exists within their organizations. We are removing barriers for our clients between their people, their data, their decisions, creating low-friction enterprises that adapt faster and execute with clarity. And I'm excited to say that we're already seeing a very positive response from our clients around this promise, this theme of productivity improvements, and we will present an example of this. And finally, we'll be happy to take your questions. Now we are pleased with our execution in Q3, which demonstrates the strength and resilience of our business model despite all the ongoing macroeconomic challenges. Our teams delivered exceptional service to our clients, and we focused intently on operational discipline. During Q3, our revenue growth accelerated and is tracking to the guidance we provided last quarter. This is a testament to the stability of our customer base and the confidence our loyal customers place in us. Importantly, we're also seeing significant outperformance in profitability. Both our gross margin and adjusted EBITDA margin are ahead of expectations, reflecting the positive impact of the efficiency measures that we have implemented. In fact, the adjusted EBITDA margin of over 17% is the highest level we have seen since 2022. This margin expansion positions us well to generate strong earnings and cash flow moving forward. Over the past few quarters, we have prioritized making fundamental structural improvements to the way we operate. To that end, we have taken a number of decisive actions to improve corporate governance, financial reporting and transparency. We're already seeing tangible improvements in our internal process and operations. I'll talk more about this shortly. But these changes are not simply about meeting regulatory requirements. They're about building a world-class company about strengthening the foundation of trust and operational excellence that will support our growth ambitions for years to come. Our success is directly linked to our client success, and we are intensifying our efforts to deliver quantifiable business impact to help them win in their markets. We are actively showing clients how we drive significant measurable improvements to their businesses. We aren't just selling hours. We are pitching outcomes. And importantly, clients are responding. The quality of our relationships is improving, evidenced by the increase in client satisfaction scores and a strong pipeline of new high-value contracts. This focus on value creation ensures that our services remain essential and deeply embedded in our clients' strategic initiatives. Finally, in line with our disciplined approach to capital allocation, we remain committed to enhancing shareholder returns. We are pleased to announce that we are extinguishing approximately 75% of our treasury shares. We're also buying back EUR 20 million worth of stock. We believe there's a clear disconnect between the current share price and the intrinsic value of our share. The current share price even after today's jump does not reflect our strong financial performance, our expanding margins and improving operational structure. We believe the buyback program is one of several tools we are using to deploy capital, while signaling our confidence in the company's long-term outlook. We are confident that as we continue to execute on our strategy, the market will recognize the sustainable value that Nagarro has been building and in fact, has been building for a couple of decades now. Digging a little deeper into the numbers, we are pleased to report that our Q3 revenue growth reached 9.4% year-over-year at constant currency. This solid performance in a subdued demand environment keeps us on track with the revenue guidance we provided earlier. Turning to profitability. Our focus on operational discipline continues to yield impressive results. Our Q3 gross margins came in at 33.1%, which is over 300 basis points better than the guidance that we have provided. This significant outperformance is a direct consequence of our increased focus on margin expansion through targeted initiatives, including the successful implementation of the margin support program that we have earlier talked about. This program has optimized resource allocation, improved utilization rates and driven efficiencies across our organization. Our Q3 adjusted EBITDA margins were over 17%, which is above the high end of our guidance range. These strong margins are a clear highlight of our quarter and underscore our deliberately improved operational efficiency and our ability to translate top line growth into meaningful bottom line results for our shareholders. And all in all, we are maintaining the guidance we provided last time. But when you look at our tracking to our guidance for 2025, please also keep in mind the significant headwind presented all year by foreign exchange rates, especially the conversion between dollars and euro. To put this in perspective, if we were to adjust our revenue for the full 9 months to account for the foreign exchange impacts from the dollar and euro, our revenue would be approximately EUR 719 million, which would have placed us right near the midpoint of the initial 2025 full year guidance that we had issued back in January '23. Further, as you will see on the next slide, if currency exchange rates have not moved, our adjusted EBITDA would also have been at or above the midpoint of the initial 2025 full year guidance we issued in January. This ability to deliver what we promised at the start of the year despite the highly volatile environment, underscores the fundamental strength of Nagarro's business and the fundamental strength of Nagarro's positioning in the market and the fundamental strength of our relationships with our clients. Beyond these financial metrics, our long-term focus on delivering a superior client experience remains the primary driver of our sustained success, our commitment to our intimate partnership, innovation and measurable outcomes for our clients. By deeply understanding their strategic challenges and exceeding their expectations, we ensure that our services remain indispensable and embedded in the long-term digital transformation road maps. We believe the quality of our client relationships is our most valuable long-term asset. We believe that we can double our revenues well within this decade simply by doing more for the 187 clients we already have today that generate more than EUR 1 million in revenue each with us. Operator: We have lost connection to Manas, please bear with me regaining connection. Manas Fuloria: Coming out of this -- let me just talk again on the slide, and I hope, I'm not repeating my words too much. I want to take a few minutes to provide a clearer view of our underlying profitability. We recognize that our reported adjusted EBITDA figures for recent quarters have been significantly impacted by fluctuations in foreign exchange rates, specifically related to noncash impacts on loans between different companies within the Nagarro Group. Here, I want to highlight what our adjusted EBITDA margins might have looked like for the past 3 quarters, if we had corrected for this FX impact on intercompany loans, the resulting adjusted margins would have been materially higher and more representative of our sustained and resilient operational efficiency. We believe that this adjusted view provides a better picture of the fundamental robust earnings power of our business than the numbers that we have reported. This is also tangible evidence that the margin discipline we have been driving throughout the business is taking hold. We have now started to work similarly to elevate our sales execution. We are confident that as we continue to embed these operational improvements, the strength and stability of our business will shine through regardless of market conditions. Now as you know, we have taken a number of actions over the past several quarters to address investor concerns to improve our corporate governance and enhance our financial reporting and transparency. I want to highlight some of these by putting them all on one page. First, KPMG was appointed as Nagarro's external auditor. KPMG approved the 2024 annual financial statements without qualification, hopefully putting to rest many of the allegations that have been made against the company since we have been public. Working with the Tier 1 auditor has also led to enhanced reporting and disclosures, including how we account for purchase price allocation for deals and a combined management report that aligns to the specific broad topics defined by GAS 20. Then we developed new programs to drive a basic level of profitability across our business units and introduced an expanded bonus component for senior people, linking compensation directly to the company's margin performance. And now we are expanding that incentive linked to growth. Then we added 3 new members to the Supervisory Board with outstanding backgrounds as leaders at global companies. Martin Enderle is an experienced Chairman. Jack Clemens is an excellent Chair for the Audit Committee, and that's having an impact. And then Hans-Paul Bürkner has been an excellent mentor, a sparring partner for me in his role as the Chair of the Strategy Committee, and all of this change has been fantastic. Next, we have outlined a commitment to a disciplined capital allocation policy that included share buybacks, dividends and M&A. We have done all of these. We bought back EUR 52 million worth of stock to date. We intend to buy back another EUR 20 million as we announced this morning. We also paid out a EUR 12.6 million dividend and continue to pursue smaller tuck-in acquisitions. We are on track to announce soon a very small, but meaningful acquisition in the Japan, India tech services corridor. So that's that. And then we have some more good news this week, just a couple of days ago, our sustainability commitment was validated by an EcoVadis Gold Star rating, which is up from bronze that we had. This places our sustainability management system in the top 5% of assessed companies. And I would like to congratulate the Nagarro team that worked on this. We continue to uphold our dedication to becoming a more sustainable organization through ambitious science-aligned climate targets following the science-based target initiative. We have run a CFO search process and should have good news for you soon on that front. And finally, Nagarro has been developed from the first day on strong principles of ethics and full regulatory compliance. But in order to ensure that even in the decades to come, we are continuing to maintain the highest standards of integrity, compliance and operational resilience, we are further enhancing our processes and governance frameworks across the organization. Now our customer diversification across industries continues to provide both growth and stability. But in the meantime, there has been an evolution in our thinking given the tighter market conditions that have now persisted for a couple of years. We are going to be a bit more deliberate about targeted growth and more deliberate about where we place our bets. We're going to give a little extra emphasis in terms of sales efforts, where we have the right to win in those verticals and topics where we feel we can go big. While we do this, we continue to explore meaningfully our big secular growth opportunities that we have outlined in past calls in Japan and for Japan Inc. around the world. German Mittelstand in hardware and IoT and now in a fledgling way in the supply chain. We are developing playbooks around many of these topics and are improving our discipline around these. We see this improved discipline of execution and improved focus on commercial excellence as a new phase in Nagarro's evolutionary journey. Just a few words on our geographies. You know that our diversification extends to geographies as well. The U.S. and Germany remain of top importance for us. The Middle East has been a nice addition to growth in the last few years. We fully expect Japan to play this role in the coming years. Michael, with that, do you want to now discuss the balance sheet and cash flows? Michael Knapp: Absolutely, Manas. Thanks. The chart on the left shows our financial position at September 30, 2025. Financial liabilities were EUR 301.2 million and lease liabilities were EUR 70.8 million. Our cash balance remained strong at EUR 129.4 million, implying net liabilities of EUR 242.6 million, which leads to a net leverage ratio of 1.7x. The company's liquidity position at the end of the 9-month period was comfortable with working capital of EUR 223.5 million. In the interim consolidated statement of cash flows for 9 months of 2025, Nagarro has included the unrealized loss on intra-group loans within the Nagarro Group of EUR 15.8 million that was formerly under other noncash income and expenses into net cash flow from operating activities. And this is leading to a positive impact on it and a corresponding decrease in effects of exchange rate changes in cash and cash equivalents. For Q1 and first half 2025, this reclassification has a positive impact on net cash inflow from operating activities with a corresponding negative impact and effects of exchange rate changes on cash and cash equivalents of EUR 7.4 million and EUR 15.9 million, respectively. The numbers for comparable periods in 2024 are not material. Overall, there's no change in cash and cash equivalents and total changes in cash and cash equivalents in the statement of cash flows for Q1 and the first half of 2025. Cash flow for the 9-month period ended September showed a total cash outflow of EUR 49.2 million versus an inflow of EUR 33.1 million for the comparable period last year. Operating cash flow for the current 9-month period increased to EUR 77.1 million versus EUR 64.9 million for the comparable period last year. This was primarily due to other noncash incomes and expenses of EUR 7.2 million. Days of sales outstanding improved from 88 days at year-end 2024 to 85 days at the end of September. Kindly note that we calculate DSO based on quarterly revenues and include both contract assets and trade receivables. Cash flow from investing activities for the current 9-month period was an outflow of EUR 8.9 million, and CapEx was EUR 6.1 million. That's less than 1% of 9-month revenue, which reflects our asset-light model. Cash outflow from financing activities for the current 9-month period was EUR 117.4 million, mainly due to purchase of treasury shares amounting to EUR 50.1 million, net repayment of bank loans of EUR 24.3 million, lease payments of EUR 16.6 million, interest payments of EUR 13.8 million and the dividend paid during the period amounting to EUR 12.6 million. Turning to our capital allocation initiatives, which are designed to create shareholder value. We bought back a total of 684,000 shares that amounts to EUR 50.1 million. And we are pleased to announce this morning that we're continuing the buyback program and intend to acquire up to EUR 20 million worth of shares. In addition, we plan to redeem approximately 75% of the roughly 1.1 million treasury shares currently held to enable further share buybacks and adjust capital levels to appropriate levels for the company's business needs. We announced and paid a dividend of EUR 1 per share amounting to EUR 12.6 million or 13.1% of 2024 EBIT. This was declared during our AGM in June, and we expect to sustain our dividend policy of distributing between 10% and 20% of our EBIT annually. Our inorganic growth strategy remains highly disciplined, and it's focused on synergistic tuck-in opportunities rather than large transformative M&A. These smaller strategic acquisitions are crucial for filling specific technological, geographical and client-specific gaps. And we believe this measured approach ensures rapid integration, minimizes operational disruption and provides a clear path to immediately enhance our service portfolio and deepen client value. And with that, I'll hand it back to Manas. Manas Fuloria: Thank you, Michael. Now we spent the first half of this call talking about all the good work we have done in the recent past. I would like to shift gears and look towards the future a bit. We believe that in the next few years, every company in every industry will have to find significant double-digit productivity gains. Competition around this will heat up. A company without a clear path to realizing these productivity gains with AI will be lost. It will be a bit like a consumer company without a website in the '90s or 2000s or today, a consumer company without a social media presence. So this productivity movement is a big transformation ahead of us that will cut across each and every industry. Now as you know, Nagarro has been a big proponent of agile, and we have helped a large number of our corporate clients make the move to agile. In the next years, we're going to help them make the move to what we call Fluidic Intelligence. Let me spend a few minutes explaining what we see as Fluidic Intelligence. When we say Fluidic Intelligence at Nagarro, we are describing a fundamental shift in how individuals, technology and enterprises will operate in the age of AI. It's a deep rethinking of how human judgment and machine capability will come together to create step change outcomes. So let's start with individuals and take the example just of engineering and software engineering. So there's a big revolution ongoing in the software front, as you know, where engineers are no longer just writing code. They're orchestrating entire systems alongside AI assistants and agents. They're debugging complex distributed systems faster. They're exploring architectural options that they may not have considered otherwise and shipping micro services in days instead of weeks. But the real shift is that the nature of work has changed. The engineer is now the decision maker, the strategic decision maker setting direction, applying judgment, teaching the AI what good looks like in that project's context. And the result is a seamless and fluid collaboration between the human engineering nutrition and the AI capability. And we believe that this is the way the future will work and all individuals and teams that are not working this way will be simply too slow to compete. And this is what we call Fluidic Intelligence at the individual or small teams level. But if you look then beyond this at technology inside large enterprises, most organizations sit on 10, 20, 50 years of operational knowledge. Much of it is scrapped in systems that only some experts understand or it's in the head of -- heads of managers or experts or buried in some spreadsheets or logs. And when an issue takes place, whether it's a quality issue, supply chain issue or whatever, the disruption just has to trigger teams spending days piecing together this tribal knowledge from here and there to diagnose what's going on. With Fluidic Intelligence, AI can surface the right insight at exactly the right moment by understanding every bit of adjustment, anomaly, recovery pattern that's stored across the enterprise historically. So the real unlock isn't just data, it's the accessible contextualized decision-making knowledge. And this is the technological dimension of Fluidic Intelligence. And it goes beyond technology to the enterprise itself. Most organizations are like cities that grew organically. They are built with a certain old context in mind, the departments that don't talk to each other, they work in silos. They have independent objectives, independent incentives, independent budgets, workflows create friction and information moves slowly. And even a simple change to a simple topic may take weeks or months and may require many changes to many systems. And in this friction-free future enterprise that we see powered by Fluidic Intelligence, that same scenario is intelligently orchestrated end-to-end in minutes or hours, pulling context on the right systems, checking constraints, routing decisions to the right humans, automating everything else. So Fluidic Intelligence for us in some is at one level, human AI collaboration, at one level, the knowledge fluidity across different technology platforms. And the third is like the friction free flow at the enterprise across departments. And we think it's the architecture of how the next generation of intelligent organizations will operate. Now given Nagarro's own context of not only being an agile software engineering company, but trying to build an agile company, given our deep engineering expertise, given our history of engaging with clients on the agile transformations and other complex and challenging cultural topics, I think this is work we are uniquely positioned to deliver. Now in a minute, I'll show an example of what Fluidic Intelligence looks like in practice because it's the best way to understand it is to actually see an example. But first, a few words on how we are going to deliver it using special intellectual property that we have developed. What we are doing is we have, in the past several months, centralized our IT investments that used to exist in the BU silos. We have consolidated them all these AI accelerators and platforms into a portfolio that we call the Fluidic Forge. At a high level, it includes 4 streams of activity broadly. The first is the operational intelligence to run the business where work actually happens. This is a front line with orders and fulfillment and exceptions and incidents, and you want to bring predictability to the messiest part of operations, which is this. The second is more around decision planning intelligence. This is where strategy and map come together to improve the business. The third is around the technology integration and orchestration across the ERP, CRM, order management, warehouse management, finance, HR and whether it's legacy mainframes or the latest data platforms by using agents that work across systems and inside every workflow. And the final pillar is the modernization of the mission-critical core of data across legacy mainframes as well as data platforms. So this vision is about what an organization needs to do to move to this new world. It's not about small pilots in some corner, but rather about transforming the enterprise end-to-end. And we feel that Nagarro is just the right size. We are big enough and embedded enough at our clients to take on such transformational work, but we are also technical enough and agile enough to work on every little piece that needs to come together for this transformation at our clients. Now let's take a real-world example of how this transformation is achieved. And this example is the example of Dublin Airport and of modernizing Dublin Airports operations. And I believe most of us would be frequent travelers, frequent air travelers, so we will be able to relate to this example. Dublin Airport is Ireland's national Gateway and the 12th largest airport in Europe. It handles over 30 million passengers annually. It operates in a highly dynamic system with thousands of different processes with interdependent, airside logistics coordination, retail management, security, ground transportation and so on. And every decision impacts passenger experience, safety and operational agility. Now despite its evidence and the scale of the airport, it has faced frequent disruptions and challenges in decision-making. Data critical decision-making is scattered across silo systems, baggage handling, for example, passenger information, for example, gate management, air traffic control, ground operations and many more. And this fragmentation resulted in delayed awareness, reactive operations and inefficiencies. And a lot of the operational intelligence of the airport was not in the systems, but facet knowledge held by experienced staff insights that were not captured or shared across teams. And to manage this complexity as the airport plan to scale, it needed to evolve into a Fluidic system, where data decisions and intelligence flow seamlessly across teams and technologies. So this is what Nagarro did. We came in, mapped the airport as a single connected system. We revealed the fragmentation across these different operational and decision-making layers. We identified these critical knowledge assets and key friction points that were limiting the agility and cross-functional decision-making such as challenges with operational command visibility and unified control into flight operations, passenger operations, the limited ability to anticipate passenger flows or peak loads or queue congestion and not being able to drive retail and other non-aeronautical revenue and leaving money on the table and not being able to optimize the utilization of pavement and assets stands, taxiways, runway users and so on. And we use the Fluidic Forge AI accelerator that I just talked about to address these friction points, creating this sort of connected intelligence and predictive control and optimization with measurable business outcomes. Now I won't go into the details, but the airport has now much more data streaming, real-time event-driven dashboards, AI models for flow prediction, for congestion alerts. And these are integrating all kinds of data, like weather data or airline schedules or how people are coming through security and so on. There's agent-based modeling for dynamic workforce planning. There's a digital twin of airfield operations, there's AI maintenance schedulers and so on. So -- and the outcomes are, of course, how -- everything is optimized, how airlines use the airport, how the revenue and yield from retail locations is optimized, efficiency and ground handling, better experiences for passengers. And if you think about it, it's also going to drive better regulatory compliance and also agility to respond to things that may happen in the environment, which all comes from this unified data fabric with intelligence sitting on top of it. And this collaboration with Dublin Airport is not a one-off thing. It continues as the airport expands its AI native capabilities from passenger flow forecasting and retail intelligence and so on to sustainability analytics and other new frontiers setting this global benchmark for frictionless airports of the future. So in this example, we talk about how we brought Fluidic Intelligence to this airport, to Dublin Airport. But from the vantage point of where Nagarro sits, we have like hundreds of such clients. We have this opportunity to deliver similar results on data and AI to many great clients across various industries. And as you know, we are privileged to work with some of the world's most recognized and forward-thinking companies, companies that are not just leading their industries today, but actually reimagining what the future will look like across how we live, how we move, how we work, how we bank, how we connect and so on. And these are loyal clients. These are not just one-off partnerships. These are loyal clients who work with us year after year. They include, for example, 3 of the top luxury car manufacturers, 3 of the top 5 global leaders in industrial automation, 5 of the leading global retailers, 2 of the top 3 global hotel groups, 2 of the leading global cities. And then there are these niches like half -- almost half the top banks in the Middle East. 3 of the top 4 management consulting companies and so on. I could just go on and on, right? So there's a huge base of loyal clients where we can bring these capabilities to them. And with these clients, we will work towards the future, we work towards inventing what comes next. And with that sort of like a little bit of framing of where we sit and to speak into how we see Nagarro evolving into the future, maybe we transition to the Q&A. Maybe the operator can switch to Q&A. Operator: Our first audio question comes from Nicolas David from ODDO BHF. Nicolas David: I have a few questions. The first one is regarding the overrun environment. Manas you said that the demand is still soft. But I understand that this comment is more on a 9-month basis because, I mean, you showed a pretty good Q3, both on a year-on-year basis, but also on a quarter-on-quarter trend. So did you see, nevertheless, an improvement in the trend recently? And how do you see Q4? Do you see further improvement? Or are you worried about potential big furlough by the end of the year? So my first question would be around the overall environment. And regarding that, also, could you comment please on the pricing environment. Some of your competitors have been mentioning further pricing pressure be it linked or not to the AI evolution? And my last question is regarding the profitability. So if we take the midrange of your annual guidance, it implies a 14% EBITDA margin. Excluding the write-off of your intercompany loan, it would be like 15.8%. Is this profitable level sustainable for the next years? Or do you need some investment? Or is that something that could push downwards the margin for the next year? Manas Fuloria: Thank you, Nicolas, for these questions, and I'll take them one by one. I think that the demand environment is still soft, but I think the degree of clarity and confidence that now exists about where AI is going to take us, has not been there for a long time. So it's difficult to predict how the quarters will look, but I think the 3-year, 5-year horizon is really bullish now, I would even say bullish because the transformation is here. I think we had this period when the technology had been introduced. There were lots of questions about whether it would be capable enough to bring about changes, how it would impact the IT services sector and so on. I think these questions are by and large, behind us. I think there is a fair amount of tangibility into how the future will look. Q4 is a quarter with fewer working days typically. So there is some of that. And again, I would not want to predict quarters, but I think that in general, the outlook is bullish. In terms of pricing pressure, I think there's pricing pressure in large multiyear deals because there's some doubt about where the productivity improvements will take us. But I think that in general, Nagarro's business is still majority T&M business, and we don't see that much pricing pressure there as maybe in multiyear managed services deals. Finally, in terms of profitability, I think a couple of years ago, we had said that we believe that when we spun off the company, we said that 15% adjusted EBITDA was our target. And a few years later, we said 18% is where we want to gradually get to, I think that's where our target is. I think that we will need to make some more investments, but we also see still a lot of opportunities to rationalize our costs and to pool our resources and make more targeted bets. So I think that we will -- we do expect profitability to keep improving in the years to come. Nicolas David: And if I may, regarding the outlook, you mentioned more the AI visibility driving the demand. It's you really believe that it's really technology and AI, which has been driving up and down. It's even more than the macro itself? Or macro has still an important role to play. And if so, what is your view regarding the macro? Is it really unchanged there or slightly better? Manas Fuloria: That's a great question, Nicolas. I think that there have been periods in this -- in the last few years, where the macro has played a role but in general, I think technology is seen as a must invest, when it becomes critical to competition. And I think we are entering a phase where it will become a must invest when it comes to productivity improvements. That's why I'm very bullish about this. I don't think that companies will pare back their budgets only to spend more money in terms of reduced productivity. So I think the technology changes will prompt the macro. That's my personal reading. Operator: Our next question comes from Fabio Holsch from M.M. Warburg. Fabio Holscher: Starting with maybe can you confirm that the sequential margin improvement now in Q3 was mainly driven by FX in the other operating results compared to Q1 and Q2? And then how we should think about FX revaluation risk going forward? That's my first question. And then second question, can you comment on what drove the decision to redeem the 75% of treasury shares now? And how aggressive you plan to be with the EUR 20 million buyback? Manas Fuloria: Sure. So the margin improvement is -- I mean, it's a secular trend. The underlying margin improvement with the reported adjusted EBITDA margin because we don't correct for this revaluation of intracompany loans, it has shown a weakness in the first 2 quarters, but with the adjustment, you can see that there's a secular trend of being over 15% and now in a 17% range. So I think that the revaluation risk remains because if the dollar drops dramatically to -- against the euro, then the adjusted EBITDA margin that we declare will be affected. On the other hand, if it rises, it will be affected. But I think we're also going to be talking to our auditor about potentially restating our adjusted EBITDA to account for this intracompany loan topic because we think it's not -- we think it's distracting and doesn't fully reflect the operations of the business. So that's that. I think in general, the margin improvement is not predicated on FX. It's actually the underlying effect is really about all the operational efficiency that we're working towards. On the redeeming the 75%, we keep looking at our balance sheet from time to time and monitoring it and seeing what's best. And at the moment, we have I mean, currently, we have decided to redeem 75%. And the share buyback, I think we have certain regulatory, I think how much we can buy on any single day, but we will be trying to buy this EUR 20 million as soon as possible. Fabio Holscher: Okay, perfect. And if I may squeeze in 1 more. Can you elaborate on your growth plans and Fluidic Intelligence, how that is concentrated in the specific verticals or geographies, which ones you maybe prioritize? Manas Fuloria: So we are actually in the middle of a strategic review, and we will have more clarity by the beginning of next year. But in general, we -- if you look back over the last years, we have seen that the U.S. and Germany continue to be our largest market. And we see excitement across the Middle East and Japan. So I think these are the markets where we have the real focus. And outside that, in terms of verticals, we are doing very well in industrial, and we're doing well in retail and CPG, life sciences. So there are a few verticals that we can easily see that are bucking the trend and then there are some verticals which are really big for us and really important, like banking, for example, or automotive, to some extent, even if they are not doing very, very well at this particular moment. So I think that in general, we are -- we have already started to shift away from some of the verticals that we used to report like horizontal tech. I think from -- for the last 5 years, we've been kind of shifting away from that. But there may be a few others that we decide at least not to invest too much in. It's not that we shut down accounts or anything like that. I think it's just that we don't want to be -- we want to be playing in a tight market where we have a very good chance of winning. And that's the philosophy going forward. So the company has been a very entrepreneurially driven company, but we also have the ability, I believe, to be strong and to take decisive decisions centrally to steer it in certain directions, and that's kind of what we have been kind of playing out in the last few months. Operator: [Operator Instructions] And I'd now like to hand over to Michael for text questions. Michael Knapp: Great. Thanks, Sami. So first question, Manas. Congratulations on strong quarterly results and clarity of the presentation, wanted to ask about the recent significant reduction in equity through the cancellation of treasury shares. Can you elaborate on the strategic objective behind this move? And how we should interpret it in the context of your future capital allocation policy? Manas Fuloria: Well, I think it's just -- thanks, Michael. I think it's just an assessment of the levels of capital needed to run the company, and that's the reason for the exhibition of the shares. And our capital allocation policy continues along the lines of what we have described before, we will take a good look at it as the new CFO in place and come out with a fresh update. But at the moment, this is our -- we are on track with our -- we're in line with the current capital allocation policy. I don't see this as a departure. Michael Knapp: Great. Thanks, Manas. The next question is in 2 parts. First is can you please elaborate on your strong expense control, noting that your SG&A declined by EUR 12 million sequentially. And then secondly, can you explain what changes were made to the stock compensation and incentive plan, which was called out as EUR 11.5 million in your quarterly report. Were those related in any way or discrete items? Manas Fuloria: So on the first, I think the main change that we have made is to try to push towards a certain minimum margin in every business unit. And what this has led to has been streamlining of the spend that we have in practices, which are mainly sales and presales oriented. I think that when we spun off in 2020, our target was that we were aim for 15% EBITDA and really invest in practices and capabilities to drive a global footprint across different industries. Because that was the nature of the situation, we found ourselves beautifully placed to ride the wave of digital transformation, and we felt that we should take full advantage of that wave to build out as many footprints as possible across different industries and different verticals, different offerings. And what this is, is a little bit more of a rationalization. It's also a realization and recognition that the AI revolution is going to be a lot more common to different industries. So it's better to invest in a central way than in all these different practices across the BU. So that's the main theme. On the stock compensation and incentive side, my guess is that's coming from just revaluation based on stock options, et cetera, but I'm not totally sure maybe we can reconnect separately and go over that line item. Michael Knapp: Great. Next question is a 3-parter. Do you have any visibility on returning to double-digit growth in 2026? And then what free cash flow conversion target do you have for the coming quarters? And do you have an estimated net debt level by year-end? Manas Fuloria: Sure. So we don't like to predict the short-term future. It's always more difficult and volatile -- but I think that double-digit growth in the medium term is absolutely where we need to be at. And we don't know, when it will come, but the company is just gearing up to ensure that no matter what the market conditions, we are able to deliver that. And that's the first part. It involves a lot of different changes that we are making to the way we run our business units, but also the way we run our different geographies and the way we run key accounts and the playbooks we use and how sales is organized. But that's definitely something in our future. In terms of FCF, we are not -- we don't talk to set targets because the faster you grow, the more your cash flow suffers. So we are really focused more on growth and margins rather than FCF. And in terms of net debt level, we have obviously an outer bound that we have always declared of 3x adjusted EBITDA, but typically, we like to steer at the 2x EBITDA level to keep that as a -- and maybe go up a little bit beyond that. But 3x is the outer bound. We don't expect the net debt level to change. I mean, let me not give a prediction for the year-end, but that's a general approach to stay around the 2x mark. Or rather, actually also a question of how much cash you want to keep. And typically, we're trying to keep between EUR 100 million to EUR 125 million of cash across our different offices. So that's kind of where we kind of end up with the net debt. Michael Knapp: Great. Thanks for that, Manas. Next question would be you're seeing big tax implications that the dividend payment had this year? Are you exploring ways to improve this? Manas Fuloria: Yes, we have been obsolete transferring cash that was at different parts of the organization upstream towards the [ SE ] and there have been some tax implications of that. And yes, we are definitely working on how to reduce those and normalize those in the years to come. Michael Knapp: Okay. The next question is the current narrative for the sector seems to be that AI could disrupt the IT sector, implying clients are focusing most on their budgets, most of their budgets on hyperscalers, meaning that could be less for companies like Nagarro. Could you please share your view on this? Manas Fuloria: No, I don't think that's the right way to think about it personally. I think that if you want to use more compute and do more things with technology, you need to know what you are doing, right? So the challenge is not in -- it's not just a question of harnessing more chips. But as each one of us knows enterprises are horribly complex. And the example of Dublin Airport totally is one example that we all can relate to, but I think we see similar frictions in every experience that we have, whether it's on a hospital chain or insurance or banking or there are all these different frictions that we have or in cities and governments and so on. And I think the opportunity to actually drive change with AI and with what we call Fluidic Intelligence, is going to be dependent a lot on the people who get it done, who have done this many other companies, and they can bring it to you and they can tell you how it's done, what works, what doesn't work, and that can actually design it in a way that doesn't lock you in as a customer, that keeps you flexible to jump on the next wave of innovation that happens. So I don't at all believe that IT services is -- or the IT services sector is going to be depressed. I think it has good room to grow. There's, of course, intermediate adjustments that we have been seeing in the last couple of years. But I don't think that this -- I'm very excited about the medium-term outlook for the sector. Michael Knapp: Okay. The next question is, should we expect the head count to keep on rising in the following quarters? Manas Fuloria: We try to -- again, I'm always very wary of giving predictions. I think we do -- personally, I would say, I guess, head count will keep rising gradually. But it's a lot more about what we do with people than the number of people that are deployed. So there is a big change to retrain, to improve the productivity, the people we already have and then to choose a different kind of person when you are hiring. So for example, in India, our fresher hiring, which we hire the most people fresh from colleges has now moved to the AI business unit so that the people that we are hiring are all AI native. And we see that there is a whole new level of capabilities that people like that can bring. So I think it's a reorientation of how people are added to a company, but I don't think it's an end of people growth. We do expect the growth to be a bit more conservative in the next few quarters, but maybe picking up after that. Michael Knapp: Perfect. Thanks for that. The next question is what impact will the potential higher act in America have on your business? Manas Fuloria: At the moment, we don't expect any significant impact, but we keep waiting and watching. We don't expect any significant impact. Michael Knapp: Okay. And the next question is how much growth is expected to come as a percent of revenues from joint ventures in Japan? And when will we start to see them contributing to revenue? Manas Fuloria: That's an interesting question. So whether it's joint ventures or partnerships, I think we are going to have like double-digit millions next year. And hopefully triple-digit millions by -- in a 2 years, right? So we have a very strong pipeline. It's -- as you know, the Japan is a complicated environment to work in because there are cultural nuances, there are language topics. And that's why the acquisition that I just mentioned briefly is important because it allows us to work with -- work globally with the language trained workforce, for example. So I think we're putting the pieces in place, and we have the pipeline, and we expect it to take off in the next year or 2, but I must say that at this moment, we probably have already a 3-digit number of leads and opportunity for separate projects that we are looking at. Michael Knapp: Great. And the final question is around conversations with your clients for 2026 digital transformation spending, how are those evolving so far? I know it's still early and companies are finalizing their 2026 budgets. But according to conversations so far, they are still conservative? Or do they look more optimistic about ramping up projects next year? Manas Fuloria: I think that in general, it is better than it's unit for the last few years. But I won't say that spring is here and summer can't be far behind. I think that it is definitely a stronger base than we are projecting out than we have had in any of the last few year ends, but let's wait and see. I don't want to be -- go out on the limb and forecast a recovery, but it does look better than it has been in the last years. Michael Knapp: Great. Well, thanks for your feedback on those points, Manas. I want to thank everyone for joining us today. We really appreciate your interest in Nagarro, and we look forward to connecting with you again soon. Manas Fuloria: Thank you very much. Operator: Thank you, everyone. This now concludes Nagarro's Q3 2025 earnings call. You may now disconnect your lines.
Unknown Executive: Welcome to Dentsu FY 2025 Third Quarter Earnings Call, and thank you for joining us today. My name is Morishima. I'm from the Group IR Office, and I will be your conference operator today. Please be reminded that today's call is being recorded. This call will be held in Japanese and English with simultaneous translation for those joining online. Please choose your preferred language from the bottom of the Zoom screen. For those joining on the telephone line, you will only be able to hear the original language spoken. Today's presentation material is available on our website. Joining me today. Global CEO Dentsu, Hiroshi Igarashi. Hiroshi Igarashi: [Foreign Language]. Unknown Executive: Global COO Dentsu and Chairman and Acting CEO Dentsu Americas, Giulio Malegori. Giulio Malegori: Hi, everybody. It's Giulio here. Hi. Unknown Executive: CEO Dentsu Japan and Deputy Global COO Dentsu, Takeshi Sano. Takeshi Sano: [Foreign Language]. Unknown Executive: And Global CFO Dentsu, Shigeki Endo. Shigeki Endo: [Foreign Language]. Unknown Executive: They will be responding to your questions after the presentation. Today's agenda will begin with business and strategic update from Hiroshi Igarashi, followed by a financial update from Shigeki Endo. We will invite you to ask questions after the presentation. Mr. Igarashi, please start your presentation. Hiroshi Igarashi: Thank you very much for joining the third quarter FY 2025 earnings call today. Let me start with the 9-month summary and outlook. The 9 months organic growth rate was 0.3%, in line with our expectations, while the operating margin reached 13.0%, exceeding both the previous corresponding period and our expectations. Based on these 9 months results and the outlook for the fourth quarter, we are upgrading our full year profit guidance. As for the year-end dividend forecast, which is currently undetermined, we will announce that once it is determined, based on profits from business, progress on asset sales and future capital allocation. As we announced in August, to achieve fundamental improvements in our international business, we will continue to explore and implement strategic alternatives, including forming comprehensive and strategic partnerships. Lastly, we will review the current midterm management plan as necessary with the aim of achieving sustainable improvement in corporate value to maximize shareholder value. Let me move on to the highlights of the third quarter and the recent period. We secured a 3-year media count for Vodafone across EMEA. And also won a new Vodafone 3 account in the United Kingdom. We also won Carlsberg Britvic in the United Kingdom, while we continue our global relationship with Carlsberg. In Japan, we have a new client, Zurich Insurance, to which we will offer the integrated solution of media and creative. In the United States, Hy-Vee, a leading supermarket chain, has appointed us as their media agency. This expands upon our existing retail media partnership. In APAC, we have welcomed the fashion brand, COS, as our new clients. In addition, in the creative domain, we have been recognized at various advertising awards this year, including being named MAD STARS Agency of the Year. Additionally, at the MINSKY Awards, one of India's largest AI festivals, Dentsu Global Services was selected as a leading global capability center in the AI innovation category. Next, a business update. The Japan business is performing strongly, driven by growth from existing clients and revenue recognition from new clients. The key to this success is our integrated growth solutions. For example, even when a project starts as a simple media assignment, we identify the core challenge and go beyond addressing it directly. We explore and propose solutions across a broad range of domains that truly support our clients' growth. Our strengths lie not only in advanced marketing powered by AI, data and technology, but also in our broad capabilities spanning BX and DX, combined with our proven execution capabilities. Our track record of accurately capturing clients' needs, proposing optimal solutions, and delivering them to completion builds trust. This contributes to our competitiveness that drives high-pitch win rates. Looking ahead, we will continue to expand our integrated growth solutions to ensure stable growth for our Japan business. As outlined in our midterm management plan, Dentsu is working on advancing our Media++ strategy in our international business. Media++ is a strategy designed to drive clients' business growth by integrating media with CXM, creative and data and technology, while elevating the core value of media services by harnessing the power of AI, data and new insights to deliver greater added value. By incorporating new media such as retail media and social commerce, Media++ aims to deliver a more integrated and performance-driven approach that maximizes clients' marketing return on investment. Media++ has already contributed to a new business win with Dollar General, one of the largest discount retail chains in the United States in the retail media category. In EMEA, we have seen strong traction in major media pitches such as for the Vodafone and BMW, enabling us to secure wins in those pitches. The positive impact is becoming increasingly evident across regions. Looking ahead, we will further accelerate its expansion across markets, including the U.S., the UK, Germany, and China. Media++ will be positioned as a key growth driver of our international business, and we will be focusing our internal investments more intensely in this area going forward. Next, I would like to talk about the progress of our midterm management plan. First, the rebuilding of our business foundation. As of the end of the third quarter, we recorded a cost of approximately JPY 8.6 billion. For the fiscal year, we expect to record approximately JPY 28 billion. While we will continue to book costs from fiscal 2026 onward, we remain on track to achieve the anticipated annual cost reduction in fiscal 2027 that will be needed for us to achieve an operating margin of 16% to 17% in that fiscal year. Next is about our internal investment. After a thorough review, we are now allocating approximately JPY 12 billion this year to internal investment, with a strong focus on enhancing our AI as well as data and technology capabilities. Moreover, we will further sharpen our focus on the Media++ strategy in order to restore our competitive advantage. Now I'll hand over to our Global CFO, Shigeki, to give you an update on our financial results. Shigeki Endo: This is Shigeki Endo. Let me take you through the financial results for the third quarter of fiscal 2025. I will start with our key metrics. The organic growth rate in the first 9 months was 0.3%, which was in line with our guidance disclosed on August 14. For the 3 months of the third quarter, it turned positive at 1.4% year-on-year. Following on from the first and the second quarters, the Japan business continued to perform well in the third quarter, exceeding our August expectations. Meanwhile, the international business showed mixed results by region. The Americas and EMEA were generally in line with expectations, but APAC fell short. While organic growth was positive, the negative impact of exchange rates and other factors led to the group net revenue to JPY 851.3 billion, a 0.8% decrease year-on-year. Subsequently, underlying operating profit was JPY 111.0 billion, a 14.1% increase, and the operating margin increased 170 basis points year-on-year to 13.0%. Operating margin for the 3 months of the third quarter was 15%, higher than 12% for the same quarter the previous year and our August expectations. The year-on-year increase is mainly due to the strong performance of the Japan business. On a statutory basis, an operating loss of JPY 7.4 billion and a net loss of JPY 61.5 billion were recorded. The difference between the underlying operating profit and the statutory operating loss was mainly due to the goodwill impairment loss recorded in the international business in the second quarter. I will now explain the results by region for the first 9 months. Japan, the largest region accounting for 42% of the group's net revenue, continued to perform well in the third quarter, with high organic growth exceeding 5%, as it did in the first and the second quarters. Meanwhile, all regions of the international business recorded negative organic growth rate for both the 3 months of the third quarter and the first 9 months. By market year-to-date, the United States, the United Kingdom, China, and Australia reported negative organic growth, while Spain, Poland, Taiwan, and Thailand saw positive organic growth. Moving on to the detailed explanation of each region. Japan saw organic growth of 6.8% in the first 9 months, with both net revenue and underlying operating profit reaching record highs. It marked the 10th consecutive quarter of positive growth and the 4th fourth consecutive quarter of growth of 5% or more. The 9.9% organic growth rate in the 3 months of the third quarter was due to strong growth in all of the domains, including BX and DX. In particular, internet media led the Japan business, achieving double-digit growth and turnover for the 7th consecutive quarter, driven by business expansion with existing clients, and revenue recognition from new clients won through pitches. Events, such as sports events and turnover of TV media, increasing year-on-year for the first time this fiscal year, also contributed to Japan's performance. In Japan, we have increased staff costs as we continue to enforce talent expansion for future growth, but the increase in net revenue more than offset this, resulting in a high operating margin level of 24.6%, continuing the trend from the first and the second quarters. I will explain in more detail later, but based on the strong performance, we are raising our full year forecast for the Japan business. In the Americas, which accounts for 28% of the group's net revenue, organic growth in the first 9 months was negative 3.4%, which was generally in line with our August expectations. By business domain, CXM is relatively stabilizing as we confirm the sequential improvement by quarter in the organic growth rate. However, given the ongoing uncertainty in the macro and industry environments, we will continue to carefully monitor the situation. On the other hand, as mentioned at the time of second quarter earnings announcement, creative saw reduced client spends and losses, resulting in a low single-digit decline in the first 9 months. Media continued to remain stable, with results broadly at the same level as the previous year. Hence, the top line decline as a result of the SG&A expenses control, the operating margin for the first 9 months improved 220 basis points year-on-year to 22.7%. However, as mentioned earlier, this also included the impact of the allowance of trade receivables recorded in the third quarter of the previous year. EMEA's organic growth in the first 9 months was negative 1.9%, broadly in line with our August expectations. By business domain, CXM and creative were weak, while media remained stable. For the 3 months of the third quarter, the U.K. continued to face challenges in CXM, while Italy showed weakness due to client losses in the previous year. In contrast, Spain recorded positive growth in all domains, maintaining its mid-single-digit organic growth. As for operating margin, it remained at 7.9% for the first 9 months of the year, despite our efforts in controlling the SG&A expenses. APAC's 9-month organic growth rate was negative 10.1%, below our August expectations. By business domain, CXM and creative continued to struggle with double-digit negative growth. Meanwhile, media remained stable. In the 3 months of the third quarter, India and Thailand showed solid performances, with Thailand in particular maintaining favorable momentum with a high market share. Meanwhile, Australia continued to face difficulties. Despite continued efforts to control SG&A expenses, APAC recorded underlying operating loss for the 9-month period, as was the case at the end of the first half-year period. Next, I would like to explain the year-on-year changes in the underlying operating profit. Underlying operating profit for the 9 months increased from JPY 97.2 billion to JPY 111 billion at this fiscal year. Net revenue increased by JPY 22.8 billion in Japan, but decreased by JPY 22.3 billion in international business, excluding currency impact, resulting in a JPY 500 million net revenue increase for the group as a whole. Staff costs increased by JPY 9 billion in Japan, mainly due to talent expansion, but decreased by JPY 12.5 billion in total in the international business, primarily in the Americas and APAC, resulting in a group-wide cost reduction of JPY 2.6 billion for the period. As for operating expenses, Japan recorded a reduction of JPY 1.8 billion and international business a reduction of JPY 9.3 billion. Consequently, the group as a whole registered a decrease of JPY 11.7 billion during the period. This decrease in the international business does include the impact of the allowance for trade receivables recorded last year, as I mentioned earlier in the Americas part. However, even if we exclude this impact, we were still able to reduce operating expenses. Lastly, I would like to go through our guidance for the fiscal year. As explained earlier, consolidated organic growth rate for the 9-month period was in line with the guidance announced in August and with the international business falling short and the Japan business exceeding our expectations. In light of these factors, we have maintained our full year guidance for consolidated organic growth rate at broadly flat. However, we will update our regional forecasts with Japan business revised up from circa 3% to circa 4%, and the international business revised down from circa negative 2% to circa negative 3%. As for the Americas and EMEA, forecasts remain unchanged. As for underlying operating profit, we will upgrade our August guidance of JPY 141.6 billion, to JPY 161.2 billion in reflection of the strong performance of the Japan business, scrutiny of internal investments, and the anticipated realization of some cost reduction effects from our initiative in rebuilding our business foundation. As a consequence, we will upgrade our consolidated operating margin guidance from circa 12% to in the 13% range. With the upgrade of underlying operating profit guidance, we will also upgrade our guidance for statutory numbers with operating loss of JPY 3.5 billion, revised up to operating profit of JPY 17.6 billion. And a net loss attributable to owners or parent of JPY 75.4 billion, revised up to a net loss of JPY 52.9 billion. While these revisions in our guidance primarily reflect improvements in profitability, our international business is still expected to post negative growth for the full fiscal year. As such, we acknowledge that the situation remains to be uncertain. In concluding my presentation, I would like to stress that rebuilding our business foundation that we have been focusing on this year is making steady progress. With a month and a half remaining this fiscal year, we as the management remain fully committed to driving the reform and in achieving the guidance presented today. Thank you for your attention. I will now hand back to the operator. Operator: We will now begin the Q&A session. [Operator Instructions] The first question is from Abe-san of Daiwa Securities. Please state your name and affiliation before asking questions, please. Masayuki Abe: My name is Abe. I'm from Daiwa Securities. I have two questions. One is about Japan business. 10% increase in profit given the TV media business is very difficult. Well, CXM need a good change. And in the next year, can we expect the same level of profitability? My second question has to do with the impact of cost reduction initiative. I think the probability of success is rising. That's my impression. But of the JPY 52 billion cut target, how much will you achieve this fiscal year? And what would be the pace of achieving toward JPY 52 billion next year. So the intention must be to achieve upside through cost reduction next year, but I would like to ask about that. Unknown Executive: Abe-san, thank you for your question. Unknown Executive: Thank you for your questions. Two questions. So your first question regarding Japan business, 10% profit increase in TV media. Given the CXM business, further growth can be expected next fiscal year. So what is the kind of situation we are envisioning for this business next year? Sano-san will respond. So cost reduction of JPY 52 billion must be achieved, it is assumed. And so what is the amount that's achieved this fiscal year and how much is expected next year? Endo-san will respond to that. Okay. First, over to Sano-san. Takeshi Sano: Abe-san, thank you very much for your questions. Yes. 9.9% growth, which was very good this year. What's going to happen next year? Of course, we will see some impact from Fuji TV, but it's not just TV media, but internet media is also growing at a very high level. As I mentioned earlier, business transformation, digital transformation, and AI, these areas are growing. We are receiving lots of orders. So to a certain extent, I think we will be able to achieve a robust growth. However, as was explained earlier, last fiscal year, Q4 was 8.4%. So 5 consecutive quarters, we've been achieving above 5%. So there's pressure to achieve more year-on-year. We cannot promise anything at this moment, but mid-single-digit growth is something that we can expect -- we hope. Thank you. Shigeki Endo: Endo speaking. With the midterm management plan announced in February, JPY 50 billion of expenses to be spent on rebuilding management foundation. So investing that amount and 2027 and onward, a JPY 50 billion of cost reduction impact is to be achieved. This year, we're expecting to invest about JPY 28 billion. And in December, mainly staff, we will see impact in terms of staff in December. So in terms of the effect or the impact next year and onward, I think we are likely to see an impact of over JPY 50 billion. For the numbers this year, we're still examining them at this moment. Operator: The next question is from Mr. Harahata from the Nomura Securities. Ryohei Harahata: My name is Harahata from Nomura Securities. Also I'd like to ask two questions. The first is in regards to international business. I understand that you are considering various alternatives. I think you said that previously and this time as well. What is the most important thing, things that you don't want to change? In terms of your customers, what are things that they don't want to see changes in you? So if you could share that as a hint to understand your course of direction going forward. Second is in regards to cost. My question overlaps some of Abe-san's question that the cost is the key point. That's what I wanted to ask about. And so what is the cost to be achieved next fiscal year for the three years? And were there any changes in terms of internal investment amount? These are my questions. Thank you. Unknown Executive: Thank you very much Mr. Mr. Harahata for your question -- two questions. So in terms of the partnership for the international business, was -- for your first question, we are considering various alternatives. What are things that we don't want to change? Or, from the perspective of the clients, what are things that they don't want to see changed? I think that was your question. And I will answer that question. And the second question was to do with cost. Now this fiscal year, so what are some of the costs that have been kind of delayed in terms of being realized? And how much will there be in the next fiscal year onwards? And Mr. Endo will respond to that question. So please allow me to answer the first question, partnership for the international business. And so this is something that we communicated in August. So in many ways, we have been working on comprehensive and strategic partnership. We've been considering to look into this. Now we have been working on the various initiatives that we are trying to rebuild our business foundation. We are focusing on internal investment as well. And so to ensure strong growth, is something that we are focusing on. And in that regard, we want to work with partners who are able to contribute that. So to be able to secure that element is an absolute necessity. So in what areas are we going to enhance? And where are we able to secure growth? This is what we are currently looking into and reviewing right now. From the clients' perspective, I think they are quite varied. And the clients have entrusted us for many years and the value that we provide. And they have assessed this favorably. And for those customers who have continued to work with us and continued to be partners, to be able to continue, that is probably something that the clients don't want to see changed the most. And the enhancement that we are doing for us to achieve growth and then to raise the expected level of the expectation from the client perspective, that's the kind of partnership that we want to realize. So that's all from me. Endo-san will respond to the second question. Shigeki Endo: This is Endo speaking. And so as I said earlier, the amount of investment this fiscal year is JPY 28 billion, and majority of that is onetime expenses, retirement allowances related to people. So in this regard, now in the third quarter, we've invested about JPY 8.6 billion, and the remainder will occur in the fourth quarter. And as for the total amount, in the midterm management plan, we have already shared the number, and that's JPY 50 billion. And if we see the breakdown, about 80% will be onetime expenses, retirement allowances. The remaining 20% is essentially improving the efficiency, automation and also standardization of business or the expenses related to that. So for that part, the amount of investment has not changed in a significant way. It essentially remains the same. That is all for my response. Ryohei Harahata: And just a follow up. So there were no -- the execution that has been delayed in comparison to the -- in comparison to the previous announcement, the amount has changed, but there is nothing that has been delayed. That's what I wanted to ask. Shigeki Endo: This is Endo speaking. We are making progress in accordance with the plan, but partially for Europe, in particular, in regards to onetime retirement allowance in Europe, we still need to get the acknowledgment of the person in scope. So in that portion, that could potentially be pushed back into the next year, but the amount of reduction, amount that we will realize as a target, remains unchanged. Operator: The next questions will come from Tokai Tokyo Intelligence Lab. Yamada-san, please. Kenzaburou Yamada: Yes, Yamada from Tokai Tokyo. So I would also like to ask two questions. First, I would like to ask about the details of the background to Japan business, which is performing very well. Internet media is growing fast. TV media is robust as well. It seems that Dentsu is doing better than your competitors. So internet media is growing very robustly. What is the background to that? If you could please elaborate? As you said, integrated solutions are being increasingly appreciated by your clients. Is that the case? As a result, you are getting more orders and expanding business? That's my first question. Second question is as follows. This is also about the Japan business. Next fiscal year. Internet media growth expectation. How much growth are you expecting next year? Well, this year, you are performing very well. So the hurdle must be higher for next year. Do you think you will be able to outperform the market's average growth next year? Unknown Executive: Yamada-san, thank you very much for your questions. Two questions. Regarding Japan business. So the background of Japan's well-performing business, it seems that one of the factors behind this strong growth in internet media. Why? So before we were talking about proposals for integrated solutions that had a positive impact, but is that the answer today as well? And second, again, on internet media business, what is the expectation next fiscal year? Do you expect to outperform the market next year? Both questions will be answered by Mr. Sano. Takeshi Sano: Sano speaking. Thank you very much for your questions. And we have recorded and remembered my answer that I gave previously. Thank you. As you mentioned, internet media is a means for clients. The purpose is to improve our marketing ROI. And various medias are combined in our proposals, and we're chosen. As a result, internet media business is outperforming our competition. So as you rightly mentioned, that is the factor behind our success. As I said, business transformation is ongoing, and that is broadening. As a result of that as well, we are performing well. There are some market forecasts that are put out. Compared to this fiscal year, 2025, next year's market growth will be somewhat slower, but it will continue to grow. Is Dentsu going to be able to outperform the market? Sorry for being conservative, but so that we can outperform the market, we would like to further strengthen our integrated solutions, make proposals based on that so that we will be able to outperform the market next year as well. That's all for my answer. Operator: The next question is from Barclays, Julian Roch-san, please. Mr. Roch, can you hear us? Julien Roch: Can you hear me? Operator: We can hear you. Julien Roch: Thank you very much for letting me ask questions. Two, if I may. The first one is, if I put together your three regions outside of Japan, your organic in the first 9 months was a decline of 3.8%. How much of that decline was net new business loss versus how much was existing clients spend declining? And the second question is following up on the strategic review of the international business. In your previous answer this morning, you said you were looking for partners that could help you accelerate growth while continuing to service your existing clients. Can you give us any idea in what areas you believe you would need partners? Media, creative, Merkle, somewhere else? Unknown Executive: Thank you very much, Mr. Roch, for your question. I have received two questions. The three regions other than Japan for the 9-month period, we ended up with a minus 3.8% organic growth. So the loss of the existing client? Or are we losing the new client? In terms of pitch I think you're asking about. So asking as to whether these were the factors behind the minus 3.8%. I would like to ask our Global CEO of Dentsu Group, Giulio, to respond. And for the second question, in regards to us looking at the partnership, what are the partnerships for accelerating growth or what area? I will respond to that question. So I would like to ask Giulio to respond to the first question. Giulio Malegori: Thank you. Thank you, guys. And thank you, Roch, for the question. It depends on the practices, I would say. So your question is, how much is existing client and how much is lost client? Well, when we look at the media practice, it's not there are some losses, but most of it is also decline on spend from existing client, I would say, which is probably 60-40 in that regard. When we look at the Merkle, the CXM business, clearly this is a project-based business, so it's not that much losing, not the loss of client, but it's more the variation on the number of projects for existing clients. So I would say that on the CXM area, there are no major losses of clients. It's just a number of projects by clients that diminished. On the contrary, when we look at the creative practice, which, as you probably know, is the smallest of the international business, there has been a component of lost clients. These are especially in the US. So for the creative practice area, probably I would say that 70% of the decline is lost clients. The net wins have not been able to compensate the loss. There is variability, of course, on the client portfolio, especially in project-based business like creative, but the issue has been that we didn't compensate some of the losses with enough win, and this resulted in a negative. So I hope this answers your question, Roch. Thank you. Hiroshi Igarashi: So this is Igarashi. Please allow me to respond to your second question. In regards to partnership, so partnership for accelerating growth. And so your question was, what we refer to as our practice, our business domain, whether it be media or creative, or is it CXM? In which area are we going to seek partnership to enable acceleration in growth? I understand that was your question. So my response is that we are considering all types of different possibilities in looking at partnership. It's not the case that we are focusing on one particular area. So we are not just looking at a single area. Of course, there are various processes, and we are looking at whether we can make contribution to enabling growth in certain areas. Of course, we will look at all that. But in regard -- so we are not limiting the partnership consideration to a certain area. We want to achieve a comprehensive growth, and we are looking for partners who will contribute to enabling overall growth. This completes my response. Operator: The next question will come from SMBC Nikko Securities. Maeda-san, please go ahead. Eiji Maeda: Yes. Maeda from SMBC Nikko Securities. I also have two questions. First, comprehensive partnerships that you are examining. To pursue them, unless you have the specifics, you will not be able to announce, I would assume. But partner selection, partner negotiations, in terms of those, do you think you are making progress successfully in terms of seeking partnerships? Or do you think that the hurdle is pretty high for identifying a partnership? And what is the timeline? Are you looking for a partner by the end of next year, for example? My second question. The other day, Hakuhodo, their North America consulting business is recovering, they said. And AI transformation type of business is increasing for Hakuhodo. Well, in your case, DX demand has run its circle. It's deteriorating. But with respect to AI transformation, do you think that the business environment is improving for you as well. Going forward, do you think that AI transformation type of business will be a tailwind for you? So global consulting business, especially centering around North America and other adjacent areas. What are your thoughts? Hiroshi Igarashi: Maeda-san, thank you very much for your questions. To address your first question regarding partnerships that we are studying, and is the process of considering partnerships going well? And when are we going to have a conclusion? Is it a plan for next year? That will be answered by Igarashi myself. Your second question regarding North American consulting business is becoming active due to AI transformation need according to Hakuhodo. Well, at one point in the past, it was not very good, but consulting business in North America is now on a recovery track. What is the prospect? That was your question. For that, the Chair of Americas, Giulio, will be answering that question. So to address your first question, partnerships without restricting ourselves to constraints, as I said, we will consider various types of partnerships. So on a broad ranging basis, we are considering a variety of potential partnerships. The process that we envision, is it moving? Well, I would say that we are moving through the process as planned. However, in partnerships, there are counterparties that we have to work with. So frankly speaking, I will not be able to suggest a timeline at this moment. However, this is something that requires speed given the severity of the external environment and the changes happening in the environment. We need to respond to such changes. And we must enhance the value of our proposals to our clients. So in that regard, at the earliest possible stage, we would like to come to a conclusion on a partnership that we're going to have. So I would like to turn to Giulio for the second question. Giulio, please? Giulio Malegori: Thank you very much, Maeda-san, for the question. In the North America business, you know, the DX offer is part of the offer that we ended, the work that we do at Merkle level in CXM, and therefore, is developing and is recovering slightly. When we look at the AI impact on that as an acceleration, this is more centered on the Media++ strategy. I would say that there's been -- in the recent wins that Igarashi-san mentioned at the beginning of the call, there's been clearly a component of the element of the digital transformation for our clients in terms of integration and delivery of different capabilities within the digital offer. And more specifically, the acceleration that we are looking at in AI is once again referred to the deployment on the Media++ strategy. A good example of that is clearly the AI platform of dentsu.Connect, which is helping our client by using generative audiences and enabling AI-driven target setting, consumer profiling, and last but not least, communication planning. And the same is for generative audience, where, again, this helps within the Media++ strategy in the development of the digital transformation. Thank you. Eiji Maeda: May I ask a follow-up question? Just one, please? So Media++ that you talked about and acceleration through the use of AI. At this moment, in the stock market, your international business is having difficulty on its own, and it seems that the views are pessimistic about your international business next year as well. But through such initiatives that you talked about, do you believe that you will be able to bring the business back to organic growth? Excluding the media environment, because of the factors that you have on your own, do you think that you will be able to come to a turnaround point? Hiroshi Igarashi: Thank you for the question. Igarashi speaking. This is a follow-up question for North America. So let me focus on North America. Regarding North America, as Giulio answered, in the area of CXM, just to explain, we have an asset called the Merkle there, and the portion of North America in that business is very large. For many years, the area of CXM has had challenges, and I think that is understood by Maeda-san and other people. Earlier, Endo reported on our Q3 performance. As he said, CXM in North America, the area covered by Merkle, continues to be tough, but negative growth is becoming better and better quarter after quarter. It's improving. Rather than the whole market improving overall. The new management system that we have put in place since February this year has been conducive in addressing client challenges, and that is leading to an increase in the number of leads. We are also looking at reviewing the pipeline. So month after month, we are seeing recovery. I think -- and next year, I'm sure that we will be able to head toward a more positive direction. Now, another point regarding media. One of the topics is the consolidation of the agencies, and the scale merit is very much focused upon. Our Media++ strategy is generating good results because it combines media and retail media and others, as we discussed. So in this area of media, we are expecting strong growth. The value of international business, especially the United States, which commands a high portion, it is essential that we achieve a turnaround in that business, and that is something that we're looking to achieve so that our corporate value will be acknowledged. Thank you. Operator: We are nearing the conclusion time, but we still have many hands up, so we'd like to extend and respond to your questions. The next question is from Mr. Nagao from BofA Securities. Yoshitaka Nagao: This is Nagao from BofA Securities. I have two questions. First, in terms of internal investment, do you plan to invest JPY 12 billion this year? But AI is causing changes in clients and changing the behavior of consumers more than expected initially. So on that basis, is JPY 12 billion sufficient? And so what will be the size of internal investment that you're thinking of next fiscal year? The second question is in regards to the dividend. And the year-end dividend remains to be undetermined at this point in time, but you have the plans. You should be able to anticipate the profit from business in terms of asset sales. I think this will be management revision as to whether you will sell or not. And the plan that you've changed for this year, so the profit attributable to owner of parent still about minus JPY 40 billion. So I don't know whether you're in an environment of having to make a dividend. Given the fact that you have investment for AI as well, I think in terms of capital allocation, you have more important areas of spending money. But if you could explain as to why you have continued to remain undetermined for the year-end dividend? Hiroshi Igarashi: Thank you very much, Nagao-san, for your question. I received two questions. The first question is in regards to internal investment and for AI. Whether it be customers or the consumers, we are seeing significant changes. And so in that regard, you feel that there is a need to make investment into the AI. So the JPY 12 billion of internal investment for this fiscal year is sufficient, particularly given the fact that you need to invest in AI. And also you wanted to ask about the thinking for next fiscal year. This will be responded by myself, Igarashi, and Endo-san will respond if there is addition to make. And in terms of dividend, the business state and asset sales, and looking at the net profit level, if you take all these into consideration, and also the capital allocation perspective as to whether to pay dividend or not, you should be able to come up with a course of direction and what needs to be focused upon given the fact that you have the investment for AI and that you have referred to earlier. Now, that question will be responded by Endo-san. So I'd like to respond to your first question. In terms of internal investment, we are assuming about JPY 20 billion initially. And so we scrutinize the internal investment for this fiscal year. So the amount has been reduced to JPY 12 billion, as I have explained. In particular for AI, is it sufficient or not? So that was your point. Now, in that regard, our thinking regarding AI is that, of course, we will be making investment on AI on a standalone basis ourselves. But a unique initiative that we have is that we have initiatives with various platforms, and we've been ahead of others in this area for quite many years, whether it be data, whether it be the area of content creation. We have been working with the various platforms, and we have moved in this area ahead of others. So how can we use that in responding to the clients' issues? Now, we have many options to choose from, and we are able to combine those to provide the appropriate AI solution. We are in an environment to be able to enhance that. So it's not just the amount of internal investment as to whether our investment is sufficient or not. Is that sufficient in strengthening our solution? That is not only the perspective that should be used as a basis to make your decision. And for next fiscal year as well, I suppose leading initiatives with the platform providers at the center. We have various unique capabilities that we have, which we will work on enhancing. So that's the major course of direction for us going forward. And here, we want to do a sufficient amount of customization with our clients. And for us to engage in this type of initiatives of others, and that is the unique element of our initiatives with the platform providers. So that is my response. The second question will be answered by Mr. Endo. Shigeki Endo: This is Endo. And please allow me to explain from a few perspectives. First, in terms of the capital allocation and how we think about that. Now, from our perspective, what we are working on right now, we are working on rebuilding our business foundation. And over a medium to long-term perspective, we are focusing on achieving growth, and we're making internal investment to realize that. And we also have the dividend aspect. And also, we need thorough communication with the supply side. We want to engage in such communication with the market too. And on that basis, right now, when it comes to dividend, the securing profit that is distributable, and we are focusing on that. So we've been selling the strategic shareholding. And so dividend of returned earnings from subsidiaries. We are also considering the disposal of some real estate as well. But at the year-end forecast. In that regard, at this point in time, as of the third quarter, we have not registered impairment as yet. But the situation overseas remains uncertain. And so I am unable to say that we are completely free of the possibility of having to take impairment this fiscal year. And as I've explained at a previous occasion in regards to impairment, when we look at the forecast for this year, whether it be net revenue or whether it be for revenue, but the medium to long-term growth of our net revenue from next fiscal year onwards, that will be used in calculating the impairment possibilities, interest rate, the foreign exchange rate. These factors also need to be taken into consideration in discussing with the accounting auditor in the end. So at this point in time, as for dividend, so we want to secure a distributable profit as much as possible, and whether it be strategic shareholding sales, but we will do our utmost to be able to secure those amounts. Yoshitaka Nagao: May I ask a follow-up question? So you're going to make maximum effort in terms of management to secure the profit for distribution, but there could be plus or negative of international business impairment. So that is the reason as to why the dividend remains to be undetermined at this point in time. Am I right? Shigeki Endo: Yes, your understanding is correct. Operator: Next, Mr. Russell Pointon from Edison Group. Russell Pointon: Good morning. I have two questions, if that's okay. First of all, there's been a good mix in the account wins of extending existing relationships and new business wins. So are you able to talk about what you think has helped to contribute to those wins from what you've done in your business? And my second question is, I think there's a slower rate of restructuring spend. So does that mean there's a slightly slower rate of profit improvement through to 2027? Hiroshi Igarashi: Mr. Russell Pointon, thank you for your questions. So account wins, regarding that. Existing customers as well as new customer acquisitions. The pitch wins. The mix is pretty good, and you asked about that. The status of current our accounts for existing customers and new client acquisitions. What is our assessment? How do we view that? Well, I would like to respond to that. If there are any additional comments from Endo, I will ask for them later. And the second question that you asked is about the slow speed of restructuring or the slow spend of restructuring. 2027, toward that, the restructuring spend cost, is it progressing as planned? Do we think that we will be able to hit the goal? That will be answered by Endo-san. First, regarding the status of accounts, we have various pitches we're making and the circumstances surrounding that. While talking in particular about our international business, media, creative, and CXM, in all practices, net wins are accumulating. That is where we are overseas. The current pipeline, of course, we have different projects. And 83% of media pitches are offensive. Creative, 74% is offensive pitches. So maintaining existing customers, that is our overriding assumption. Plus, how many new customers can we acquire? We are looking at that. As a result, we're having this pretty good mix, as you pointed out. So first and foremost, that we're focusing on maintaining existing clients, and that will continue into the future. With respect to CXM, this is a long-range business. We have a new business pipeline, and the pipeline is increasing and growing. Therefore, for CXM as well, inclusive of cross-selling to existing clients and acquiring new clients, how to go about doing that is something that we always focus on. I think we're in a pretty good situation in that regard right now. For Japan, pitch wins are pretty high in different areas. Frankly, here in Japan, we're not having losses of existing clients. So the fact that we're having increasing pitch wins of new customers is contributing greatly to our good performance. And so we have to make sure to achieve pitch wins in all practice areas. That is something that we would like to continue to ensure in the future. Regarding restructuring, I would like to turn it to Endo-san for an answer. Shigeki Endo: Endo speaking. The status of restructuring, we announced our midterm management plan in February. Targeting 2027, we have set several KPIs. One of such KPIs is operating margin percentage. That is to be 16% to 17%. That is the target toward 2027 based on that. The cost base right now, with that as a baseline, we would like to achieve a cost reduction of JPY 50 billion. And so that is the target. Well, achieving JPY 50 billion is not the goal per se. Our ultimate goal is to achieve operating margin of 16% to 17%. As a result, vis-a-vis our competition, we would like to ensure good competitiveness on our part. JPY 50 billion, we are confirming where we are every month as to how much progress is being made. And we're spending part of that for retirement allowances. And there are to be paid considerably in December onwards. We will be seeing that impact next year. So at this moment, we are progressing on plan. And of course, we would like to be speedy to work toward the 2027 target. With the target of achieving JPY 50 billion or more, we are taking actions, and we're on plan. That would be all. Operator: With that, we would like to conclude the earnings call. Once again, thank you very much for taking time out of your busy schedules to join us today. Please disconnect. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Carolina Senna: Good afternoon, everyone. I am Carolina Sena, Cemig's IR Superintendent. Welcome to Cemig's Third Quarter 2025 Earnings Video Conference Call. This video conference is being recorded, and it will be available on the company's IR website at ri.cemig.com.br, where you also find the full package on our earnings call. [Operator Instructions] We will now start Cemig's video conference call with Reynaldo Passanezi Filho, CEO; Andrea Marques de Almeida, CFO and IR Officer; Luis Cláudio Correa Villani, Chief Information Officer; Sergio Lopes Cabral, Chief Commercialization Officer; Sérgio Pessoa de Paula Castro, Chief Legal Officer; Carlos Camargo de Colón, Gasmig's CEO; Iuri Araújo de Mendonça, Cemig SIM's CEO. For their initial remarks, I turn the floor over to our CEO, Reynaldo Passanezi Filho. Reynaldo Filho: Good afternoon, everyone. Welcome to our earnings call for the third quarter. It's always an opportunity and a pleasure to be able to bring to you our results and our efforts in another quarter. This is a quarter in which we have more difficult news. Of course, I would like to highlight some important topics that show the strength and the resilience of Cemig's earnings. About specific news on the quarter, we had distribution results that were affected by large clients that left the network. They migrated to the basic network about trading. We tried to decrease some positions. Also, that involves the submarket prices that have affected the results. What's important, and you know that when we look at our net position, it is very favorable in the scenario that we have for pricing today. The same thing happened with generation because of the difference in the GSF and the need to offset that with the spot price. This is what I would like to highlight. And despite of these topics, we moved on with a recurring EBITDA, proving the company's resilience, and we have confirmed the AAA rating by Moody's. We have 2 agencies now guaranteeing us a AAA rating, showing our resilience capacity to any type of scenario. We also had an award by a magazine called Veja Negócios, as the best energy company in Brazil in the top 30 award. And we also had the approval of our health care plan for retired employees. So we finalized a collective agreement with the union and that allows us to look for a positive structural solution that will preserve a positive transition to all of us. Therefore, they can keep their health care plan and also we'll be able to guarantee the company's sustainability. And the final topic, and Andrea is going to go over the details, which is our investment program. We are, once again, making the largest investment program in the company. For this quarter, we have BRL 4.7 billion, a significant increase when compared to last year. I believe we have a very positive message here, and we are maintaining our investment plan. And that means very positive results for the tariff review situation when that comes. So here, we have BRL 3.6 billion in distribution by itself. If we multiply that by the WACC, we know that the results bring additional revenue of a little over BRL 500 million just for that 9 months. So these are very cautious investments in regulated areas that when they get mature and the agency recognizes that we are going to have very positive results for the company. This is what allows us to have resilience today, and this is what allows us to have very positive results in the future, whether by these investments or by a very favorable position in the trading business in the near future. These are my initial remarks. Obviously, we are here to take your questions after the company's presentation. I'll turn the floor to Andrea, but I would like to stress the strength of this company and that we are very confident that we are going to move on with this investment plan and maintain the company's debt levels and the covenants and therefore, to keep on investing, keep on generating value. And this is going to get more mature according to the regulations and tariff regulations as expected. Thank you very much. Andrea de Almeida: Good afternoon, everyone. It's also a pleasure to be here with all of you today, going over our third quarter earnings. Now moving on, talking about our investments, as Reynaldo mentioned, we invested in the 9 months of 2025, BRL 4.7 billion. And this is how they break down BRL 3.6 billion in distribution, focused obviously in substations. This is a milestone and we have some pictures to show you the substations that we had in the quarter, but also 5,349 kilometers of low and medium voltage networks, which are very important to bring good service to Minas Gerais. For generation, we also mentioned our participation in the GSF credit auction with BRL 199 million. That's very nice. It guaranteed the extension of our concession in some of our plants. But also we had investments of BRL 149 million in expansion and maintenance. For transmission, we have our Verona project, around BRL 30 million, and we are still investing in reinforcements and improvements, and we are going to mention some of those and how the allowed annual revenue is performing in transmission. For Gasmig, the centralized project is the most representative one, around BRL 180 million being invested in the project. And for Cemig SIM, the delivery of new photovoltaic plants and 31 megawatts of installed capacity. Moving forward, we have the pictures of the 5 new substations, the ones this quarter, Andrelândia, Coronel Xavier Chaves, João Pinheiro, São Tiago, Fronteira. These are our highlights of new substations for distribution. Now turning to transmission. We see where in our operation we had improvements: Taquaril, Três Marias, São Simão, Itajubá, Volta Grande, Lafaiete. And we were able to add over the year, BRL 32 million of allowed annual revenue in our transmission business. And of course, this brings great results as well. Moving over to the figures. As Reynaldo mentioned, we have BRL 1.5 billion of EBITDA, and we see a drop in our EBITDA in around 16.3% when we analyze the recurring EBITDA, and I will talk about the recurring numbers, and then I'll talk about the nonrecurring events of last year, which were significant. We can talk about them as well. In generation, we already mentioned we had the effects of a lower GSF. We had to buy energy to cover for the GSF. So we had an impact of BRL 54 million. In the trading business, there was an impact here. And we already had the reduction in margin in the trading comparing '24 to '25. And we ended positions. We closed positions and of course, came from our exposure and other positions that were also open. So the closing of these positions and the purchasing of energy and the prices -- the spot prices that we have seen ended up having this impact of BRL 136 million for distribution. In '24, we had a change in the methodology, which was a reversal of our ADA and that reverted how we provisioned our ADA. We didn't have that in 2025. Therefore, there is a negative delta effect in distribution. And you will see that the market also has reduced it. And as Reynaldo mentioned, some clients left and went to the basic network. Therefore, this impacted distribution. Now turning to our net profit, the major investment that we are making has a greater depreciation impact than the funding, the increase of the interest rates, and of course, the increase of leverage of the debt also affects our net profit, the recurring net profit, and we realized that there was this drop of around 30.2%. For nonrecurring effects of last year, just let me remind you, they were very relevant. We had BRL 1.6 billion of the disposal of Aliança last year. Of course, this is not happening this year, and the tariff review for the transmission business of BRL 1.5 billion. These did not show in 2025. That's why we have also this relevant delta here. Let's move on. Here, zooming in, in GSF, when we compare GSF of 2024, we see the performance of July and September. GSF for 2024 going from 0.8 to up to 0.7. So we did have to purchase to deal with the hydrological risk and also the level of the energy price that we see this year. Of course, higher levels than what we have seen last year. Just September of last year, we had higher prices than this year, as you can check in the charts. So this is the impact. Now operating costs and expenses. We are growing below the inflation rate. And outsourced services, which is what draws our attention, we have an increase in areas where distribution has to invest more efforts to guarantee the improvement of services, whether maintaining, installations or in technology, and we still are working on the improvement with smart meters. We have to invest in that. And we have to fund technology. We have to prune trees and also clear the pathway. So that's where we have a higher increase in other expenses. Also, we had the sale of a plot. For personnel, we see a performance -- a good performance here. But here, we have in-sourcing of employees. We are bringing in our own teams so that we can cater to our clients faster in specific regions. And we really want to be more efficient in our service in regions. And we know that Minas Gerais is a largest state. So we want to be quicker serving further away areas. So we have an increase here in personnel in our headcount. Moving on, in line with our capital structure, we, yes, need the debt to fund our investments, but our leverage is at very safe levels. We are at 1.76 or net debt over recurring EBITDA. That's why we have our best rating in history. As Reynaldo mentioned, two AAAs and one AA+, and we are structuring our debt in a way to increase the average tenure. We reached 5.7 with the average term -- as average term. And the cost performance, we see the fact of the high cost of the interest rates, which affect all of us in the market and as well as Cemig, of course. Now for our cash flow. This is how we have been financing our activity, our investments. We start with cash. This is for 9 months, okay? So we start with cash of 2024 at BRL 2.3 billion. We have cash from operations of BRL 3.4 billion. We have the debentures issuance in May of BRL 5.1 billion, the debentures payments, of course, obviously. These are prior debentures of BRL 2.4 billion. Dividends and IOC, BRL 1.7 billion. Our activities for investments of BRL 4.5 billion. Earmarked funds here, BRL 187 million. We have to have this amount aside. So we come to our final cash of BRL 2.3 billion. For Cemig D, everything is more or less explained already. But effectively, we show a drop in EBITDA of 4.7%, especially because of the market reduction, whether it is by economic activity, once it's not that positive and also the temperature that was mild and the market dropped. Once again, the client that has migrated in the second quarter to the basic network. And of course, now in the third quarter, we see the full impact of this migration. In addition to that, we have the reversal of the constitution that I said of the ADA, as I mentioned before. And of course, in the net profit for Cemig D, we see the effect of our fundings and also the interest rates affecting that result. Talking a little bit now about the energy market. We had a drop of 4.4%, and we see the full effect in all the different markets and our distributing company coming from the rural, commercial, industrial, all the effects coming from all the markets. And in fact, here, we see this drop being caused by this client that has migrated for the basic network. Our operating indicators show that our collection is still very strong, focusing in the digital channels and Pix, our payment method is the cheapest. And now we are going to have the auto Pix as well. And we will be able to have campaigns so that people choose this payment mode, which helps us all and also reduces our costs. And this is growing as a good option of payment. And now our ARFA, the receivables collection index is at good, stable levels, and our regulatory OpEx and EBITDA show that we are within the regulatory standards. In terms of regulatory losses, we are also within the standards. There was a change in the criteria which already happened. We are now are integrating the effects of micro and mini generations that are distributed. So we are continuing to work. We have always keep working on losses. We have to install the armored meeting panels. We have to install the smart meters. And all the actions that we have to keep on taking so that this indicator is within the regulatory limits. For Cemig GT, once again, we talked about it. GSF was the main impact. We had to purchase energy to tackle the hydrological risk and the recurring net profit. Here, you can see the results as well. And Cemig GT was the one that had the main nonrecurring effects from 2024. So the major impacts are there represented last year. Therefore, we had a higher EBITDA in 2024 effects that are not replicated in 2025. And Gasmig, that also had impact for EBITDA reduction because there was a drop of 6% in the market and also the clients that migrated to the free market. This, once again, effect on Gasmig. And on this page, we have Cemig's recognitions. Reynaldo already mentioned, and that we are very proud to be recognized as the best energy company in Brazil by Veja Negócios. And there are other recognitions. We are also recognized as the best financial team in the infrastructure and energy sector by FILASA. We also got the transparency award from ANEFAC. We have always room to improve, but it's already great to be recognized by the 19th time by ANEFAC. And there is a new one, the ESG award. Cemig has thousands of awards in sustainability. And we are very proud, and it's always great to have another one. So ESG from ANEFAC in this category, Transformative Internship category. Therefore, I end my presentation, and I turn the floor back to Carol to ask -- to open the Q&A session and take your questions. Carolina Senna: [Operator Instructions] Our first question is from Victor Sousa, Genial Investimentos. Vitor Sousa: Hello, can you hear us? Carolina Senna: Yes, we can hear you, Victor. Go ahead. Vitor Sousa: My question is about Technical Note 53 that changes how you post losses in the distribution sector. I would like to understand if there is a possibility of republishing the level of losses that Cemig had. Now looking backwards here, I would like to understand if this change can end up generating any accounting retroactive effect regarding the application of this technical note if your concerned amount receivables, provisions and other adjustments, or is this just a prospective impact, just an accounting impact? And another question still on this note. How would have been the level of losses for distribution if this technical note did not exist? So in the same comparison base, what would have been the performance of Cemig losses? Would they have increased, decreased, or they would have been the same? I think this is important to understand for the process of assessing the distributing companies. Reynaldo Filho: Thank you, Vitor, for your question. Denis Mollica, our Strategy, Innovation and Sustainability Officer. Please, Dennis. Denis Mollica: Thank you for your question, Vitor. About the method used for calculation of losses. The method, even having it being reviewed, it does not -- it's not applied to past calculations. Even if we were to simulate that in the prior losses and the older losses, we would still be within the limits. So for practical accounting effects, adjustments have done from now on. And as it was said already, we are still within the regulatory losses, both before and after this technical note. So we have major actions to manage and to fight our losses, and they are within the limits with no effects that might affect accounting at all. And of course, yes, we also have here a positive effect on the tariff once we have the recognition of the impacts of the DG in the method of calculating losses. Carolina Senna: [Operator Instructions] Our next question is from Luiza Candiota from Banco Itaú. Luiza Candiota: It is about your trading strategy. Analyzing the changes in the energy balance in this quarter compared to the prior one. I would like to go over the details of the rationale regarding the short exposure when we look at '25, '26 and '28. What could be explaining this change that we see? Reynaldo Filho: Thank you, Luiza. I'll turn the floor to our Chief Trading Officer, Sergio Lopes. Sergio Cabral: First, thank you for your question. We have been doing a great effort to close our positions. Of course, we have some marginal sales that we are executing with clients that are strategic, but our position is not to open more positions. We want to close, as Andrea has mentioned. For this quarter, we could close positions in these past months. And also, we have the impact of gold that ended up making us go to the market to buy energy, but we are not opening positions. We are rather than that closing them. Carolina Senna: There are no further questions. We thank you all very much for your participation. And the superintendents of IR is available to take any other questions you might have. Therefore, we end Cemig's third call -- video conference call. Have a nice afternoon, and thank you very much.
Operator: Good morning, ladies and gentlemen. Welcome to Sigma Lithium 2025 Third Quarter Earnings Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions] I would now like to turn the conference over to Anna Hartley, Vice President of Investor Relations. Please go ahead, Anna. Anna Hartley: I'd like to welcome you to our third quarter earnings conference call. Joining me on the call today is Ana Cabral, CEO of Sigma Lithium. Our third quarter 2025 earnings press release, presentation and corresponding documents are available on our website. I will now turn the call over to Ana Cabral. Ana Cabral Gardner: Good morning, everyone. It's a great pleasure to present Sigma Lithium's Third Quarter 2025 results directly from the Amazon, where COP30, the United Nations Climate Conference is being held. Sigma is here as a member of the Brazilian delegation. We have been engaged in high-level dialogues with other delegations from all over the world, and we are showcasing how we have implemented and executed on every single one of our targets of sustainability set out in 2017 when we made the original investment in the company. Since then, we have managed to build the most sustainable lithium beneficiation plant in the world, digitalized and using algorithms, the employee bots or AI to become more and more efficient in treating the mineralogy of our mines and increasing plant recovery. So our plan is where technology meets metallurgy meets mining and delivers sustainability, doing more with less. Please kindly read the disclaimers. We're going to make quite a number of forward-looking statements and projections and guidances as we go through this presentation. We're very proud of our accomplishments in the third quarter, especially considering the state of the lithium markets throughout the quarter. we have managed to increase the resilience of our business significantly, achieving the following 5 initiatives. First, we substantially increased our net revenues through optimum commercial strategy. We increased revenues by 69% quarter-on-quarter and by 36% if compared to the third quarter of last year. We have generated cash of $31 million, resulting from final price settlements of sales that happened throughout the year. In addition, we expect cash generation from sales of our processing, high-purity, high-grade middlings, which are the result of our sustainable efforts. We have approximately 1 million tons of those dry stacked high-purity materials. We are also in the process of successfully upgrading our mining operations. Our plant has already restarted this week, our mine is expected to resume operations within 2 to 3 weeks, and Sigma will operate the mine with equipment lease directly from the manufacturer. Lastly, we continue to maintain financial discipline, and that's demonstrated by deleveraging on our short-term trade finance debt by 43% this year despite the challenging lithium pricing environment. On this page, we showcased the financial highlights of the third quarter of '25 related to the increased cash margins and the deleveraging of our short-term trade finance debt. Our revenues have increased by 69% if compared to last quarter. More importantly, we increased revenues by 36% versus the third quarter of last year. Our pricing also increased by 33% versus last quarter. So the revenues increase are a result of our efficiency increase. Our margins also increased. The operating margin increased in 42% versus the third quarter, and the net margin increased 67% [Technical Difficulty] quarter of last year. Both margins also increased substantially versus the previous quarter. But by showcasing the increase versus last year, we demonstrate how we increase the resilience and the strength of the business. Our deleveraging is demonstrated by the decrease in trade finance. We managed to pay down export financing, short-term debt in 43% this year. The remaining balance is just $33.8 million as of November 13. Our cash has also increased by 42% versus last quarter, which is a trend very different from our peers, which had burned current cash. Our current cash today is $21 million plus $8 million of incremental trade receivables, all related to sales realized until the third quarter of 2025. On this page, we discuss our stellar record of 0 accidents. We have achieved 787 consecutive days without accidents with lost time injury. It's over 2 years with 0 records. This demonstrates our operational excellence in addition to managing to continuously decrease our costs. So we haven't cut costs at the expense of health and safety. Our TRFIR is 1.79 amongst the lowest in the world. This results in employee engagement and safety processes, a direct connection to the factory floor, which leads us to enhance performance and ideas for cost optimization coming straight from our employees. So it's a self-fulfilling circle where focusing on safety enables us to keep on getting better, both operationally by increasing efficiency, but also cost-wise by gaining ideas directly from employees on how to be lower cost. We're very proud of this. On this page, we're going to start to discuss our financial performance this quarter. On this slide, we demonstrate how Sigma achieved an optimum commercial strategy, which allowed us to price efficiently our material capturing the price cycle despite the price volatility that took over the metals market throughout the period that followed Liberation Day and the tariffs. You can see on this chart in red, the sales on provisional prices and in green, the sales on final prices. And it's visible that we were able to capture a much higher final price as we managed to authorize our clients to resell the products and settle our final prices. These adjustments resulted in incremental cash revenues for this quarter. So a picture is a thousand words. And here is how that translates into cash generation. This commercial success resulted in incremental cash from the final settlement with the trade partners. And you can see that by looking at the initial cash position at the end of the second quarter, the increasing cash from operations on a provisional price basis of $30 million, then the generation of trade receivables booked on sales up until third quarter on provisional prices of $20 million. That got converted into cash as of now, but that refers to sales with a cutoff on the third quarter. In addition to that, we had another incremental increase in trade receivables because of the extra increase in prices that we have been experiencing to date at $1,700 per ton. So that's another $8 million, which means that there were $28 million extra that resulted from our optimum commercial strategy. So when you observe our cash as of today, we have $21 million in the bank plus $8 million of settled trades at current market prices. Now in addition, we have $33 million of potential sale of lithium middlings, which are high-purity middlings or dry stack material that currently sits both at the port and at our plant at current market prices quoted at Shanghai metal markets of $112 per ton, net of transportation costs to port for part of it and to China for the material sitting at the port. So a significant cash boost coming from materials that have already been produced. But more importantly, a direct result of our investment in dry stacking our tailings and recycling and reprocessing and optimizing our lithium Greentech industrial plant. On this page, we show what that cash position enabled us to do. We managed to pay down our short-term trade finance 60% year-to-date to November. If you cut it off as of October, we paid it down 44%. That's a significant debt reduction, especially considering the down markets and the lithium prices volatility we experienced this year. So we had a cash increase, and we decreased our short-term trade finance expensive debt. That's a significant accomplishment in financial results for a year such as these in lithium markets. On this page, we demonstrate how the debt maturity profile will be lengthened further because all that's left now is essentially $10 million that we already paid down, plus $100 million that will be paid down next year in December, which relates to our shareholder debt, whose generosity has allowed us to get here to commission our Greentech plant and to continue to make improvements to achieve the stellar operational performance the plant has been delivering. So we are in a very comfortable debt position as of November 13. And we demonstrate here on this page all the short-term debt that we have managed to pay down or roll. This page demonstrates our low-cost resilience and the fact that we are a source of responsible lithium production in this industry. We have managed to maintain the highest sustainability and ethical sourcing standards throughout market pricing, meaning our resilience is here to stay. Even with the slight decrease in production, which is shown here in the little green over our regular costs, we're still lower than the lowest cost producer for nonintegrated lithium oxide concentrate in Africa. And this location to the very left of the nonintegrated supply curve is exactly where we plan to remain throughout the foreseeable future. On this page, we demonstrate how the lower production levels in September have not really affected our low-cost position. In other words, the slight increase in cost maintained this on guidance for the all-in sustaining cost, and that's demonstrated by the chart to the right, where we show the 9-month all-in sustaining cost versus the full year guidance we provided at the beginning of the year. This all-in sustaining cost includes interest, CapEx, maintenance, all of it, royalties, SG&A, environmental and social that is voluntary. So we're very much on track. We're issuing guidance of this all-in sustaining cost becoming $560, meaning lowering to $560 for 2026 based solely on production from the first plant. Now the increase in CIF cash costs and plant gate costs are easily corrected once we return to full production in the first quarter '26. So our low-cost position is unmatched and unchanged. On this slide, we basically outline the offtake agreements expected for this year. They're basically enabled by the significant commercial leverage and power we achieved by being an ethical producer and one of the lowest cost producers of lithium concentrate globally. Now what we've done, we tailored different types of offtakes to cater for different specific client needs across geographies. So this year, what we have is 3 different kinds of offtakes being discussed with 3 very different kinds of clients. The first kind is what we call the 3-month rolling offtake. They're done at market prices, and these are prepayment of upcoming production until March. The objective is to provide Sigma with low-cost working capital. The second kind of offtake is a 20,000 tons for 3 years for $25 million. It's a small long-term offtake and the use of proceeds will be to pay for the mining equipment that will help us upgrade our mining operations, meaning the larger-scale trucks and overall excavators and mining equipment. The third category is a conventional offtake or prepayment being negotiated with a global European trading company. So the use of proceeds is to deploy towards our expansion plans remaining on track for our growth strategy next year. We are in contract negotiation stages with them. Now for 2026, we still have another 120,000 tons of product uncommitted to be contracted into offtakes. The objective is to strike conventional offtakes for both amounts. The first amount for 80,000 tons will be assigned to a regular end user. And the objective is to repay the long-term shareholder debt that was generously enough offered to Sigma in December 2022 and enabled us to get here to this very strong operational position. We are in contract negotiations for that one. The second offtake is going to be achieved against an agent, meaning a trading company, which again, is going to be a typical conventional offtake, once again deployed towards building and delivering on our growth strategy, meaning building a second plot. And this offtake is under contract negotiation. So we're expecting to announce 3 offtakes still this year and 2 more next year. This page demonstrates our production and cost guidance for the upcoming years, 2026 and 2027. Our cash flow is poised to increase as our production efficiency increases with the execution of our strategic plan. With Plant 1 alone, we're bound to generate an all-in sustaining cost of $560 per tonne, and that includes everything, including interest expenses. Now at the current price levels of $1,000 per tonne, that represents a cash flow -- free cash flow generation of $132 million. Once we complete Plant 2 by the end of next year, we expect to have 550,000 tonnes of production throughout 2027, which will lower our all-in sustaining cost to $500 approximately that at current price points for lithium is expected to generate a free cash flow of approximately $270 million. So this page really demonstrates how by remaining the lowest cost producer globally, we are bound to benefit with excess returns from this relative increase in lithium prices from $700 per ton at mid-third quarter to $1,000 per ton as of November 13. This page demonstrates how our Greentech Plant upgrade into the 3.0 version concluded and executed in November '24 was not accompanied with [Foreign Language] this page demonstrates how the upgrade in our Greentech Plant into a 3.0 version, which was concluded in November of '24 of last year, 1 year ago, was not followed by our mining operations. Here at Sigma, just to recap, we have 2 different operations, which are integrated. We have a mine that delivers raw material to a state-of-the-art industrial lithium beneficiation plant, the Greentech Plant. That is automated, digitalized and run by an algorithm. Throughout the first 9 months of this year, what we could demonstrate is that the plant outperformance was compensating for the mine. You can clearly see that in the chart at the bottom left of the slide, where we had an 11% increase in production in the first 9 months of this year. Now the chart above show and demonstrate the significant upgrade that took place in the Greentech Plant last year when from the beginning of '24 to the end of '24, the production went up 43%. In other words, the plant can produce 300,000 tonnes of lithium concentrate if properly fed with fresh rock, fresh spodumene ore. It processed efficiently because the plant recoveries are 70%. Now that made it clear that a mining upgrade was required. So we reassessed our mining plan and concluded that we needed larger equipment scale to basically ensure higher volumes that would be moved faster. More importantly, that would also ensure that we would maintain our stellar safety and health record at our operations. The chart on the right break down the 2 quarters, the second quarter '25 and the third quarter '25. And it clearly shows that the last month of the third quarter when the mining equipment provider was demobilized was where we had a significant production decrease because they were simply demobilizing and phasing down their efforts in operating and moving material at the expected productivity rates. This page shows what's the way forward. Well, we have mastered dense media separation technology, achieving 70% recovered. Let me go back to the beginning, pause, pause again. This page demonstrates our way forward in our operational plan. Clearly, we have mastered dense media separation technology for lithium processing, achieving 70% recovery rates. That's equivalent to flotation. We have demonstrated also greater efficiency and reliability throughout 2025. And now we're going to match it by upgrading our mining operations. First, our plant. It has already restarted. So it restarted processing high-grade material that's in our current operating site. The target for 2026 is to achieve full plant operational capacity of 300,000 tons of lithium oxide concentrated. We have been recurrently achieving unprecedented recovery levels throughout the year up until the third quarter. So that's where our confidence comes from, from this track record. Now on the feed of the plant. Clearly, a mining upgrade was required and is underway. We reassessed the mining plan and the geometry. So we observed that we have mined about 798,000 tonnes in July and 659,000 tonnes in August. We continue to mine waste and strip in order to optimize geometry, and that is something I talked about during our second quarter '25 announcement. The ore grade has been perfectly aligned with our mine plan with no significant dilutions. So we maintain the cadence of the ore grade fed to the plant. As a result, we're very well positioned to resume our mining operations within 2 to 3 weeks once we're able to mobilize large-scale equipment so that we can increase the volume mined and the operational speed at which we advance the geometry and increase mining volumes. So with those upgrades, we expect to evolve our production capabilities at the plant already in the first quarter '26, reaching 73,000 tonnes of lithium oxide concentrate produced. That's the guidance for the first quarter of '26. This slide demonstrates how by being the low-cost and most sustainable producer at large scale, we have been able to obtain significant support by our clients to execute our -- on our expansion plans. That's financial support and offtake support. We plan to reach 80,000 tons of lithium carbonate equivalent upon completion of our Phase 2 expansion next year. By just adding a third production line, which infrastructure is already on site, we expect it to achieve 120,000 tons of LCE equivalent of production. That is a consequence of Sigma already being a pillar throughout global lithium supply chains. So this underpins the financial support that we receive from our very large clients downstream in the lithium supply chain. So we also conclude by outlining how we're going to continue to deliver on our strategic plan for 2025. First, we're going to conclude our offtake agreements as we have outlined in the presentation. Second, we have achieved financial strength, but we're going to continue to do so by continuing to close final prices on the provisional price sales that we have achieved year-to-date until the third quarter and we'll continue to deliver throughout the fourth quarter. We have deleveraged and we'll continue to delever by basically paying down expensive short-term trade finance debt. We're also going to monetize existing lithium products that are currently sitting in our plant and in a port, taking advantage of the current robust pricing environment where demand for these products become actual. Currently, these products are priced at about $120 per tonne, which could bring the additional revenues of $33 million throughout the fourth quarter. Thirdly, we are going to upgrade our mining operations to increase the Greentech Plant production scale, more feed, more concentrate. So there's another advantage to that, which means we're going to lower the structural costs of this company by lowering the plant gate costs by increasing production volume and by actually decreasing the absolute number of mining costs, which represent 2/3 of our plant gate costs. Four, we're going to continue to partner with our very large clients with very large balance sheets to create commercial strategies that allows us to navigate lithium price seasonality, benefiting from achieving higher prices during the high seasonality. Number five, we're going to continue to increase the scale of our suppliers so that we can obtain working capital support. This is a strategy where we're simply matching or copying with the global leaders in downstream, including battery makers and carmakers receive from their own suppliers in the duration of their account payables. The average of the largest carmakers in the world is from 130 days to 180 days to 210 days. We've been barely doing 30 days of deadlines for suppliers. So we are lengthening that period by leaning on larger suppliers that are as large as us. I want to thank you for the opportunity to present to you our third quarter earnings. And I'm now going to open the floor for the Q&A questions that are going to be submitted to our moderator through the chat function of this Zoom. Operator: [Operator Instructions] Our first question comes from [ Bavida ] from Bloomberg. Thanks for the granularity on the cash balance. Based on Page 9, is current cash balance at USD 29 million plus USD 33 million or only USD 29 million. Ana Cabral Gardner: No. The current cash balance is $29 million. The $33 million are basically bids we received on the current lithium material we already have, and we were mentioning that exists in the port and at the plant. Operator: Our next question comes from [ Leanne Crozier ]. What is the region of lithium middlings from the process circuits? What is their LI 20 grade even as a range? Ana Cabral Gardner: Yes. These are typical materials that are processed through the DMS circuit. They are more valuable because the chemical structure of the particle hasn't been broken. In other words, it's a very different manner of processing lithium ore than the flotation plant. So the lithium grade goes from 1% to 1.3%. There's an official quote for these products at Shanghai Metals Market, which can be validated daily. So in current market environment, where it's actually a search for physical materials to close open positions in Guangzhou, we've been getting bids for these materials, 100,000 of which are at the port already, which makes their cost simply shipping to China, which is $40 a tonne. And then we have another 850,000 tonnes of these materials at the plant, which makes their costs approximately $85. So when we bank on $33 million, it's just pure profit, given that there are costs incurred in transportation. So the number is net of transportation. The current quote for these materials at Shanghai Metals Market is $120 per tonne. They are roughly 11-ish percent of current lithium oxide concentrate prices as of today, which is about $1,070 to $1,080 per tonne. Operator: Our next question comes from [ Armando Wolfrid ]. Could you please provide some more info on the 100 million shareholders credit and the status of your BNDES loan disbursement for Phase 2? Ana Cabral Gardner: Absolutely. Well, we're going to lean on our suppliers -- on our credit clients the same way we have been leaning on them for a number of advancements we've been doing here, including mining upgrade. There are a number of ways to basically disburse the BNDES loan. However, as we discussed earlier, we were awaiting for a quarter of lithium price stability given the highly volatile pricing environment we experienced this year. I mean we were one of the few companies to actually generate cash this year. Our peers were mainly cash burning. So our Board decided to wait for a quarter of stability so that we could basically green light purchasing equipment. Once we do so, it could happen as early as January or late January, given current price environment being very robust. So we're going to utilize the same structures we've been utilizing, which are large customer balance sheet support to basically disburse [Technical Difficulty] what are we doing about expansion is ensure [Technical Difficulty]. Operator: Ms. Ana, your connection just dropped in the middle of the answer, if you can repeat that part, please. Ana Cabral Gardner: Okay. Yes, so regarding the structure for this bus in BNDES, our Board was waiting for at least 1/4 of price stability given the volatility in lithium prices, the market experienced this year. So what we are planning to do if the lithium prices environment continue to be as robust as it is now is probably green light equipment purchasing as early as January, late January of '26. But more importantly, we have already disbursed a certain amount and file that with BNDES. So it's all basically ready to be deployed once we continue on equipment purchases, which is the plant portion of Phase 2. Now the key element in ensuring the timeliness of a potential 2026 commissioning of the plant was adjusting mine geometry so that we could feed the plant with the same geometallurgy that we are feeding our current Plant 1. So feeding Plant 1 and Plant 2 with the same geometallurgy would ensure a shorter ramping up period given that we would have more chemical certainty of the ramp-up. In other words, any ramp-up issues could be only narrowed to processing, which are relatively easy to fix. So the work on mine geometry would continue the same way we carried on geometry work throughout the second quarter despite the lithium prices volatility. Operator: Our next question comes from [ Habbou ]. Will production be fast-tracked if the lithium market tightness and the market price of lithium increase happily? Ana Cabral Gardner: Yes. That's exactly why we're carrying through the mining upgrade. You were spot on, meaning we know what the plant can't do. I mean we have a state-of-the-art Greentech lithium plant that can't do 300,000 tons of lithium oxide concentrate on its own. What we needed to do was to match mine to plant. And this is exactly what we're doing, taking advantage of the relatively muted lithium price environment that we observed on the third [Technical Difficulty] production a year. Operator: Ms. Ana, your connection dropped again. If you can repeat... Ana Cabral Gardner: Okay. So resuming, what we are doing is basically spot on. In other words, we are basically matching -- the reason to decide on the upgrade of the mine was exactly what you asked us. In other words, we know what the plant can do. The plant can deliver 300,000 tonnes of lithium oxide concentrate per year. If properly fed with fresh rock. So by upgrading the plant, by revisiting the mine plan and moving more material, what we're doing is making more product available for the robust lithium price environment that we were expecting in 2026. We took advantage of the muted price environment still in the third quarter to make that decision, and it was the accurate timing to do so because as we enter '26, we will already enter with an upgraded quarterly production, as we indicated, to 73,000 tonnes. Operator: Our next question comes from [ Benson Chen ]. What's your estimated CapEx for bringing Phase 2 and 3 online, respectively? And what could be the risk of further delays. Could you not utilize some credit lines to speed up the expansion and avoid delays? Ana Cabral Gardner: Well, we have a credit signed with BNDES, which is the best possible credit we can get. But to your point, the offtakes, as I outlined on the discussion that we had about them, and it was quite detailed, are meant for that. In other words, we have the conventional offtakes when we declare the use of proceeds is to fund the growth, what they will be doing is essentially closing that gap. As offtakes get closed this year, what we will do is redirect those proceeds for the plant Phase 2, given that the mining upgrade has been fully covered by our current clients. Operator: [Operator Instructions] Our next question comes from Joe Jackson from BMO Capital Markets. Please confirm as of today, how much production Sigma had at the mine in Q4 due far? And how much spodumene inventory there is as of today. Ana Cabral Gardner: Yes. What we are planning to do, Joe, is to issue guidance for fourth and first quarter together. We issued the first quarter guidance, and we're going to issue fourth quarter guidance soon when we show a remobilization plan. What we have, though, is the full cost to upgrade mining operations, which is $25 million, which has been fully covered by our clients. So what we need to do now is to just wrap up what we call the mobilization curve for large tonnage equipment, which is either twice the tonnage of what we got or probably 2.5x the tonnage of what we got. Depending on the mobilization curve, which will be announced promptly, we will be able to perhaps have a surprise for the fourth quarter. And we've given the first quarter guidance and the fourth quarter guidance will be given as soon as we wrap up the mobilization curve for the very large tonnage equipment that's been made available to us by the manufacturer directly. By the way, one more point that's very important. The $25 million are not going to be paid at once. They're going to be paid in very nice soft installments throughout 2 to 3 years at very low rates, SOFR plus under 1% or 1%, again, facilitated by our very supportive clients given that we are the pillars of global downstream supply chains. So you'll be like -- it'll be an offtake like any other. Operator: Our next question comes from [ Ricardo Fernandes ]. Are your volume contracts based on spot price or negotiated? How much of lag is there between spot and realized at prices? Ana Cabral Gardner: Well, it's spot essentially. We closed provisional prices at spot. Today, fortunately, there's a very liquid market for both chemicals and spodumene or we call lithium oxide concentrate. Shanghai Metals Market, Guangzhou, I mean, they're literally moving with significant volumes. I mean, just for example, last night, Guangzhou negotiated over 600,000 tonnes of LCE of open interest contracts. That's a term of global lithium demand. So there's [Technical Difficulty] quite precise pricing. Last night, prices hovered around $1,070 a tonne. So that level of liquidity allows for spot to be quite precise, meaning clients bid and hedge immediately into chemicals. So we believe pricing is becoming more and more efficient, which helps producers like us, given that there's less opacity, more transparency. And again, what we do though is depending on the season, we close at final, or we close at provisional. And what we've done this year, given volatility, we basically closed the provisional pricing. And now we're benefiting from having the clients to lean on and realizing final pricing. Hence, the cash boost we received from sales of the third quarter at the moment, as we explained in detail in our cash from operations section of this presentation. Operator: Our next question comes from Shiva Kumar. Are you getting any premium at all of the green lithium compared to the market price? Ana Cabral Gardner: No, unfortunately not. I'm here at COP30. That's been one of the frustrations. What the advantage is, though, is commercial power, meaning given that global supply chains are being rearranged, what we have is similar battery makers supplying carmakers globally in the West, in the East, all over. So there's a huge focus on traceability, on sustainability, on health and safety. And what we have is essentially a brand that safeguards us from any questions. I mean it's very easy to ascertain the Quintuple Zero advantage. And that's what we have, a commercial advantage, which translates into what we showcased so far. Our ability to negotiate provisionals when we believe it's reasonable to negotiate provisionals, our ability to lean on our clients' balance sheets for support for mining upgrades and so on and so forth. But unfortunately, there is no green premium. And we do not believe there will be a green premium. If -- hopefully, that could be, but it's years ahead. What there is, is a green [Technical Difficulty] commercial advantage. Operator: Our next question comes from David Feng. Ana, this is David from CICC Research, and thanks for the presentation. We can see that there is still over 30 kt of spodumene concentrate inventory by comparing year production and shipments. Just wondering how we expect all these inventories to be sold in 4Q '25? And what would your inventory management strategy if lithium price continues to rise. Ana Cabral Gardner: Yes. Thank you, David. We'll sell it all down. I mean at current prices, the plan is to basically monetize everything we have, including the -- what we call in China middlings, right? And we have high-purity middlings with an intact we call intact spodumene chemical structure because it comes from DMS, and it hasn't been affected chemically by the flotation nor by organic contaminants nor by the chemicals utilized in flotations. Hence, we can get a straight quotation for $120 even for middlings, which is -- which just shows that the current strategy is to monetize all the lithium we currently have. Operator: Our next question comes from [ John Christian ]. Can you quantify in U.S. dollars, how much working capital will be required to restart the mine in the first quarter 2026? And can you bridge the $6 million on third Q ending cash balance to $21 million today, considering your slide show $20 million debt paid down in the 4Q so far. Where did that approximately $35 million came from in the past 6 weeks? Ana Cabral Gardner: Well, no, we discussed that. I mean if you look at lithium price behavior, it came from the final price settlements. I mean the lithium prices have rallied considerably, RMB contracts for LCE and Guangzhou were close to $88,000, $87,000. So we were able to receive the final price settlement adjustment from the sales of product that took place up until the cutoff date of September 30, 2025. So that's where the adjustment comes from, from actual cash from these settlements. And more importantly, there's extra adjustments from the settlements that haven't been closed yet. We started to close settlements at $875, and we kept going until the latest ones, which were $1,035 just last week. But again, these were shipments material in boats in the water. We were literally shipping everything and selling everything. The other question you asked was about the $33 million. That's essentially middlings which are monetized their bids out. We are waiting to work out on logistics. The profit varies significantly on logistics because we have $100,000 at the port. That is simply $40 to China. $120 minus $40, that's net profit, pure profit, no cost associated with it. Then we have 850,000 tonnes of those middlings' high purity with chemical structure intact at the plant. The logistic costs there are different because we need to truck it to port. So what we're working on is to thinking through berthing the biggest ships we can obtain and therefore, lower the shipping cost to perhaps $25, $30, so that $120 minus $70 of logistics back-to-back plant to China. So essentially 2 different costs of logistics. These products are 0 cost to produce because they are middlings or what we call dry stacked high-grade lithium tailings. And that's the sustainability advantage. We are able to monetize it to a net of USD 33 million, which is a considerable sum. It's equivalent to a boat or a bit more actually, pure profit. Operator: [Operator Instructions] Our next question comes from [ Olin Chen ]. Could you please clarify the expected lithium concentrate production volume for the 4Q 2025 based on your current operational plans and the ramp-up schedule. Ana Cabral Gardner: Yes, we're not there yet. I answered a similar question. We issued guidance for the first quarter '26. And as soon as we wrap up the -- what we call the mobilization curve in terms of the scale of the large equipment being made available to us, it could vary from 60-tonne trucks to up to 95-tonne trucks, which is a significant increase from the small [Technical Difficulty] trucks we were [Technical Difficulty] 75-ton truck can move twice much material than a 40-tonne truck, a 60-tonne truck could move 50% more material. A 95 to 120-tonne truck, same access size can move 3x more material. Cost, not that dissimilar because it's diesel, one driver instead of -- I mean, it's 4 drivers per equipment. So we are decreasing the number of men involved, consumption of diesel, not that dissimilar. So overall, structurally lowering the cost of this operation. And this is the guidance that we plan to provide in detail as soon as we wrap up mobilization schedule for the equipment, which is currently taking place. I was in China for 2 weeks, just go back 1.5 days ago. And we're making progress in strides on that front. And we're delighted with the support we received from manufacturers, clients because we're pillars of 3 global supply chains actually, Europe, Asia and China. Operator: Thank you. This does conclude the Q&A section. I'll now return the floor to our CEO, Ana Cabral, for her final remarks. Please, go ahead, Ana. Ana Cabral Gardner: Well, we're very optimistic about 2026. It's been a year where volatility dominated the conversation. It's consensus now where lithium is headed. Now what's important to highlight is lithium is a commodity like any other, meaning prices will be where they are. We're not talking about price spikes. We're talking about prices being at $1,000, $1,100, which for low-cost producers such as Sigma with current plant gate costs of around $350 normalized is a fantastic operating environment. And so the key is to continue to be a low-cost producer. Hence, our efforts in upgrading our mining operations to match the exceptional industrial operations we have achieved throughout this year. So thank you all for listening. Thank you all for being with us on our journey, and we're going to be open for welcoming you all through my colleague, Anna Hartley, who is heading Investor Relations, and we'll be visiting some of you through conference calls in the next couple of days throughout the world. Operator: Thank you. This does conclude the third quarter of 2025 conference call of Sigma Lithium. For further information and details of the company, please visit the company's website at www.sigmalithiumresources.com. You can disconnect from now on and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Bavarian Nordic Third Quarterly Report for the 9-month period ended 30th of September 2025 Conference Call on Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr. Paul Chaplin, CEO. Please go ahead. Paul Chaplin: Thank you, and hello, and welcome, everyone, to Bavarian Nordic's Q3 results. Before I start, I just want to make sure you've seen our forward-looking statements on Slide 2. On Slide 3, on today's call, you have myself, Paul Chaplin, and I will walk through the key highlights of the first 9 months and talk a little bit about the excellent progress that we've been -- that we've made. And then I'll hand over to Henrik Juuel, the CFO, who will walk you through the commercial performance and the financials. So if you go to Slide 4, it really has been a fantastic first 9 months of the year. We've recorded close to DKK 4.8 billion in total revenues, which is a 32% increase compared to this time last year, which is a fantastic result and one that is really due to a strong performance across the whole portfolio, both Travel Health and Public Preparedness, and that has resulted in an EBITDA margin of 31%. We've had probably the strongest quarter for our Travel Health business, which is an endorsement of our strategy. And as I'm sure we have many new investors on today's call, I want to just take a few minutes walking you through the graph on the bottom right-hand corner of Slide 4. This shows the financial performance over the last 5 years. And before 2020, Bavarian Nordic was really an R&D-focused company. We had our government business, which we now call public preparedness, and I'll talk more about that. But essentially, we were a loss-making company coming to our shareholders frequently for capital raises. In 2020, we took the bold step on our growth journey to commercialize the business, and we bought 2 assets our rabies and tick-borne encephalitis vaccines, which started our commercial journey. And despite COVID, which obviously had an impact on travel, on travel vaccines, we were able to grow that business. And in '22, we sold more doses of rabies and TBE than any other previous owner. And that's exactly the strategy that we implemented. We thought that we could purchase what I call unloved assets that weren't performing well in previous owners' hands. And with our dedication and focus, we could turn them around. And that's exactly what we've done with rabies and TBE, and that actually are the golden jewels that are really driving the performance for travel health that we have today. In '23, we also added 3 more assets from another company, which complemented our Travel Health portfolio. And one of those was a chikungunya vaccine in Phase III, which is now approved as Vimkunya, which we're launching this year and is also adding not only to the performance in the first 9 months of this year, but is a key driver for the future growth. On top of this, we also had our Public Preparedness business, and I'll talk more about that in the coming slides. But basically, what we've seen over the last 5 years is a complete transformation of Bavarian Nordic from a loss-making R&D-focused company to a profitable vaccine company that is having a huge impact on the global stage in terms of public health. Before I move on, I also want to take note, and I'll leave more of the details in terms of the guidance to Henrik later. But we have refined our guidance today. And I just want to address one comment that I've already read that this is a lowering of our guidance. This is actually not the fact because at the beginning of the year, when we provided the guidance, we had a range for both revenue and EBITDA. This is related to our public preparedness business. And I'll come back to why there's a range, but essentially, this is government contract business where you either get a contract or you don't. And therefore, we had a range. We refined that range during the year. And today, we are recognizing that with 1.5 months left, we have secured -- we have the business that we've secured, which is DKK 3.1 billion which means together with Travel Health and other income, we're at the DKK 6 billion range. While that's at the lower end of the guidance, it is still within guidance. And I would say DKK 3.1 billion in terms of Public Preparedness, I have to remind you, is DKK 1 billion above our annual -- normal annual base business of DKK 1.5 billion to DKK 2 billion. So it's an exceptional year in terms of Public Preparedness, and we are still standing by our revised and high increased guidance for Travel Health of DKK 2.75 billion. So a very strong first 9 months, and I want to actually take this opportunity to thank all the employees for a tremendous effort. It's really down to their focus and dedication that time and time again, I'm allowed to talk on a quarterly basis of our strong financial performance. If we go to Slide 5. On Travel Health, as I said, it's probably the strongest quarter since we've built up this portfolio. We've seen a 23% increase in sales compared to this time last year. And our 2 flagships, rabies and TBE, as I said, these were purchased back in 2020. We've really turned them around. Rabies has gone from strength to strength. We've seen both an improvement in the growth in the market, but also in terms of market share. In the U.S., we've seen a 4% improvement in market share compared to this time last year. And in Germany, we're really seeing a strong growth, a 53% growth in the first 9 months of this year compared to last, which is an outstanding performance. On TBE, again, we have stopped the decline in market share in key markets like Germany since we bought these assets, and we're actually beginning to now see an improvement in market share, particularly in Germany. So we're incredibly happy with the performance that we're seeing in terms of Travel Health, and we believe there is future growth in the months and years to come. If you go to Slide 6. Within our portfolio of Travel Health, we have a vaccine against chikungunya. And chikungunya is a mosquito-transmitted disease. And until very recently, there were no vaccines or treatments available. The vaccine -- our vaccine was part of an acquisition that we acquired in '23 and was approved earlier this year. And subsequently, we've launched our chikungunya vaccine Vimkunya in 10 different countries. So we have had an aggressive launch plan, and we've stuck to that schedule. And we're beginning to see an uptake in the sales of the vaccine, which is great to see. And we're on target to meet the DKK 75 million in the first launch year, which is a very strong performance in our first launch year. We filed for further approvals in Canada and with Swissmedic in Switzerland, and we expect those approvals to be coming next year. And we've already begun some of the post-marketing commitments for expanding the label, and we have a pediatric study and an efficacy study all in progress, which, as I said, are commitments that we've made to the different regulators in the U.S. and Europe. So chikungunya or Vimkunya really represents a future growth potential. Yes, we have to educate and prepare the market, but we believe that this market has the potential to grow to $500 million annually within the next few years, and that's for travel alone. So a great future business opportunity. We turn to the next slide on Public Preparedness. And I want to spend a little bit of time talking about Public Preparedness and what it actually is and why it is different to Travel Health. And the best way of walking you through that is to talk about the revenue graph that's again on the bottom right-hand corner of this slide. And Public Preparedness is actually one vaccine. It's based on a vaccine against smallpox. Smallpox is a disease that has been eradicated. But unfortunately, there is concerns by many governments that smallpox could either reemerge through deliberate release in a bioterrorism attack. It is also closely related to another emerging disease called mpox, formerly known as monkeypox. And we've had a long-standing collaboration with the U.S. government in the development of our vaccine, which is now approved in many countries around the world. And if you look at the graph at the bottom right-hand corner, in 2020, we really had 2 customers, one major customer, which is the U.S. government, where we've secured more than DKK 2 billion in both development and acquisitions over the number -- over the years and Canada. So we had 2 customers. This changed in '22 when there was the first outbreak of mpox. And here, we really saw, and you can see a spike in activity in '22 and '23, where we supplied more than 15 million doses of our smallpox mpox vaccine. And coming through that first outbreak, we were left with more customers. So we now have the EU, both HERA, which is a new organization, but also other funding mechanisms in the EU, such as rescEU. We had other EU nations like France. So going from 2 customers to a handful of customers. At that point, we said our base business moving forward would be DKK 1.5 billion to DKK 2 billion annually, but we would see these spikes from time to time in revenue due to either future outbreaks of mpox or one-off large orders from different governments. Then in '24, we also had another outbreak or a larger sustained outbreak of mpox in Africa, and that also led to a continued spike, which has flowed over into '25. So in this year, we are guiding to secure DKK 3.1 billion in revenue, which is, as I said, about DKK 1 billion higher than our base business of DKK 1.5 billion to DKK 2 billion. So with Public Preparedness, it is not as easy to guide accurately in terms of growth or the future revenues simply because it's all down to government contracts. Some government contracts can take many years to negotiate. And unfortunately, I've been involved in government contracts, which we thought were coming through that fell down at the very last minute. So it is a little bit more unpredictable than a traditional vaccine sales like with Travel Health. But as I've said, we have since '22, been guiding with a base business of DKK 1.5 billion to DKK 2 billion. But obviously, since '22, we've been recording revenues much higher due to the 2 spikes that I've explained. In terms of where we are, we are obviously secured contracts of DKK 3.1 billion already this year. We're well on our road to securing. In terms of the first 9 months this year, we've exceeded the DKK 2 billion already in the first 9 months, and we're well on track to secure the guidance for the rest of the year. We have secured contracts for next year for a total of DKK 1.1 billion. So we're well on our way to securing our base business of DKK 1.5 billion to DKK 2 billion moving forward. We have ongoing clinical studies that are funded through a collaboration with CEPI, both in a pediatric study, which will hopefully support a label extension to include children in addition to the adolescents and adults that we already have. So if we move on to Slide 8, just to talk a little bit about the pipeline. One area is what we call MVA cell line. This is actually a trial that was initiated a few weeks ago, and this is moving away from the egg-based production that we currently have to a proprietary cell line that we've developed. The trial that has started is comparing the safety and immunogenicity of the vaccine produced in the different processes. And this is really an initiative that we've taken, which will greatly improve our manufacturing capacity so that not only can we deal with an mpox outbreak as we have since '22, but we would, with partnerships, also be able to deal with a much larger global outbreak either of mpox, [indiscernible], even smallpox. And it also makes us much more robust for any competition that may come later down the road. Other activities in the pipeline relate to chikungunya. These are post-marketing commitments that we have with the regulators, pediatric study, expanding the label and also an efficacy study and other activities are either funded through DoD or early stage such as Lyme and EBV, which is still preclinical. And with that, I will hand over the presentation to Henrik Juuel. Henrik Juuel: Thank you very much, Paul. So on Slide #9, just a few more words on the commercial performance for the period. So we delivered for the 3 quarters in Q3 here, we delivered close to DKK 1.8 billion, and that corresponded to an overall revenue growth of 32%. So very significant growth, supported by both our business mix, 50% growth on our Public Preparedness business and 22% on our Travel Health business. If we take the Public Preparedness business, Paul already alluded in detail to this one here. And so that has really been about, first of all, securing orders and executing on these orders this year. So targeting the DKK 3.1 billion for the full year. So strong growth on that front for first 9 months as well compared to prior year. On Travel Health, it is really our Rabies and our TBE business that has been driving the strong growth we have seen both for the quarter but also for 9 months, 22% overall growth, 23% from our Rabies business, 18% from Encepur And I think for both products, I think we can say here, it's driven by both strong market growth, but also strong brand performance and actually market share gains for both products. So very strong performance. Vimkunya, our new vaccine against chikungunya as we launched earlier this year. We are so far very pleased with the performance. We have in a very short time managed to launch in 10 countries, after the Q3 in the Nordic countries, Italy and Spain as well. So we have in record time, I would say, we have actually made quite a wide launch possible. From the start of the year, we guided on Vimkunya DKK 50 million to DKK 100 million, and we are now refining that to the midpoint. That's DKK 75 million, and we have so far delivered DKK 42 million after 9 months. So going very well and in accordance with our expectations. Vivotif, our typhoid vaccine, we are -- on a 9-month basis, we are seeing a positive growth. We have been struggling somewhat with this product, but we are finally starting to see positive growth, and it's being driven by initiatives taken to gain market share. Unfortunately, the typhoid market has been down by approximately 7% these 9 months compared to prior year, but we have actually year-to-date managed to compensate for that market decline by gaining market shares. Third-party products at the end, these are the main driver of that one is our Japanese Encephalitis product that we have a partnership with Valneva that comes to an end by the end of this year and our partnership on hepatitis B vaccine, HEPLISAV-B with Dynavax comes to an end as agreed April next year. So all in all, very strong growth on both parts of our business, 32% for the quarter and actually the same for the full 9 months. So performance that we are very pleased with. On the next slide, we are looking at the full P&L, where we start with the revenue we just talked about DKK 1.8 billion for the quarter. We have a gross margin of 50%, which is significantly up compared to the same quarter last year. This is driven by volume, obviously, the higher volume, the more busy we are in the production area, the more efficient we can be and the easier it is to absorb all the costs to the products being manufactured. But it's also explained by what we call other production costs, which is typically cost -- it could be cost of idle capacity. It could be cost of scrap. It could be caused by less efficient yield coming out of manufacturing. So we have been successful in all these parameters. And therefore, we are seeing a gross margin of the 50% versus 43% last year. R&D cost varies a little from quarter-to-quarter. You will see that we are actually spending less than last year, both for the quarter and for the 9 months. This is mainly due to timing of some of the committed studies we have on chikungunya that is progressing. And on SG&A, you see quite a substantial increase. It's mainly or very largely explained by the launch efforts we are putting behind Vimkunya, the chikungunya vaccine and also by Bavarian Nordic entering into new markets. We have, during the last 12 months, established ourselves a commercial presence in a number of countries, including Canada, it's U.K. and it's France, which, of course, will give us further opportunities to drive growth going forward. If you look further down the P&L, that gives an EBIT of DKK 1.2 billion nearly. Then we have included in that one other operating income of DKK 810 million, which comes from the sale of the priority review voucher that was recognized in the third quarter. Further below, you can see the EBITDA margin, excluding the other operating income, that is DKK 515 million, which corresponds to an EBITDA margin before special items of 29%. So on a 9-month basis, that takes us to an EBITDA, excluding other operating income of nearly DKK 1.5 billion or an EBITDA margin of 31%. So again, strong performance, all in line with what we have communicated previously and in line with our expectations. On the next slide, a quick overview of the cash flow and balance sheet. We saw positive cash flow from operating activities for the 9 months, driven, of course, by the positive profit that the business delivered, but also impacted by the proceeds or the income we earned from the sale of the priority review voucher. Cash flow from investment activities, here, we recognized actually the last milestones that we paid to Emergent BioSolutions and GSK for the acquisitions we did previously. They were recognized here, not all of them paid yet, though. And then finally, cash flow from financing activities is the sum of the share buyback we did previously in the year and then employee warrant exercise that was executed as well. So all in all, a net positive cash flow for the period of DKK 500 million approximately which obviously improves our cash position, which you can see on the table to the right. We do today have a cash position of close to DKK 3 billion. I have to say here, though, that our accounts payable are somewhat inflated at the moment as we still owe DKK 70 million to GSK, and we also owe royalties on the voucher we sold to NIH and taxes to be incurred in connection with the voucher. But a strong cash position of close to DKK 3 billion. Then one slide on our outlook here. As we talked about already, we have refined our outlook. We have confirmed the outlook within the range that was previously communicated. So right now, we are looking at a guidance without an interval as we are so close to the year-end. We do not operate in an interval for the Public Preparedness business any longer, but are expecting DKK 3.1 billion. We confirm the upgraded guidance that we issued in connection with Q2 for the Travel Health business. So that is now DKK 2.750 billion. And then we have some other income adding up to a total of DKK 6 billion. So a confirmation of all previous guidance, but a refinement now being so close to year-end. We are anticipating an EBITDA margin for the full year, excluding the impact from the voucher of 26% and including the voucher, it will be approximately 40%. The 26% is sensitive to how the last 2 months here pans out when it comes to the R&D projects running at the moment. And depending on how they end, there is an upside here that it could be closer to the 27%. But given the current plans, I think we are guiding 26%, and that's most likely where we will end. We have not guided for '26, obviously, but what we have stated here is that we have previously announced an order to BARDA of USD 143 million. Most of that goes into '26. We also announced recently the HERA framework agreement where there is a commitment of 1.1 million doses, where of 750,000 is impacting next year. So if we add the commitments we have so far, we right now have an order book worth DKK 1.1 billion for '26. And we will, of course, keep communicating to the market when there are material orders being added to this order book. The next slide is simply just a slide we brought to sort of round off the process that we have just been through. I don't want to read out every word here, but basically, it has been a longer process with the takeover attempt on Bavarian Nordic. And we just feel it's important to understand that the company was not for sale. We were approached with an offer, which the Board of Directors rejected to start with later in the process, there was an offer where the Board basically judged that now it is at a level where we have to ask the shareholders -- the shareholders has voted. The offer did not succeed. So that is the situation. And we, of course, we acknowledge that and we respect that decision by the shareholders, and we remain an independent listed company, and we continue to execute on the growth strategy that was in place even before this process started. I think we are very pleased to be today to be able to report these numbers here, and we are very grateful to our organization who have actually demonstrated that they have maintained a focus on the business while this process has been running. That has been extremely important to us. We have even seen in our engagement surveys that the company or the employees have really stayed engaged in the company. So thanks to the organization for that. Without that, we wouldn't have been able to deliver these fantastic results that we're seeing here today. And in order to -- to make sure that the market is well informed about the strategy that we talk about, we have called for -- and we call it an investor information meeting on December 11 during the morning. More details will be announced. It will be in Copenhagen. There will be a possibility to attend in person, but it will also be live streamed and recorded. And yes, basically, the agenda will be about give an update on the business and a recap of our growth strategy. But as I said, more details will follow. We will issue a press release once we have the details in place. So with that, I will give the word back to the operator and open up for Q&A. Operator: [Operator Instructions] we are now going to proceed with our first question. The questions come from the line of Romy O'Connor from VLK. Romy O'Connor: I have 2, if I may. The first being on your thinking about reaching the DKK 75 million for Vimkunya. I'm just wondering what steps you're now taking given that there's only 1.5 months left in the year? And also maybe a bit on the launch steps of into Canada? And then secondly, just maybe a little bit of color on the bid outcome. I was just wondering what your thinking is by future business development or M&A? And yes, what's your thinking now in terms of focus on value creation into the coming months? Paul Chaplin: Yes. Thank you for the questions. The first one related to Vimkunya and the projections of DKK 75 million. It's true there's only 1.5 months left for the year, but we only reported to the first 9 months. So we haven't reported some of the months that we've already gone. So we have launched according to plan. We are seeing good traction in a number of countries, slower in others due to some of the national recommendations, but we are confident that with the launches that we've made and the traction that we're seeing that we will be able to meet that target. I think your second question related to the bid outcome and our future growth strategy. I think it's clear, it's important to stress again that our strategy that we put in place back in 2020 was a growth strategy. It was to grow the portfolio of the assets that we purchased over a number of years to grow public preparedness, but it also included additional M&A. I think in my introduction to the presentation today, I tried to highlight the successful history that we've had of not only acquiring assets, but turning these, what I call unloved assets around and also bringing in manufacturing. It's a capability that very few others have demonstrated, and I think it's a key strength. And I think what we want to do is when the opportunity arises is to continue that M&A journey and bring more commercial assets on board. And that's a strategy that we've had in place since 2020. We've been successful at it, and we will continue to execute on it. Operator: We are now going to proceed with our next question. And the questions come from the line of Thomas Bowers from SEB. Thomas Bowers: A couple of questions. So firstly, just on shareholder returns. Can you give us any color on the current plans for any share buybacks now that we are out of this M&A process? So I think that you were talking a little bit about share buyback of excess cash. So anything that could sort of reflect the PRV sale you did here in the summer? And then second question, just on JYNNEOS. So just wondering the delta between the previous guidance range, so looking at that DKK 3.7 billion at the high end of the range. So we have around DKK 600 million delta compared to the DKK 3.1 billion guidance. So I'm just curious, normally, you only guide for something that you are sort of where you are in negotiations with governments or potential customers. So those DKK 600 million, is that something that we should expect could simply or likely move into 2026 and of course, not part of that DKK 1.1 billion? Or is there something else that we need to be aware of in terms of those -- of that delta? And then maybe just a question on Travel Health, super, super strong momentum, surprises me every time. And now looking at your guidance for '25, so you're sticking to that DKK 2.75 billion. Of course, there as you hit up with some of the [ typhoid ] vaccines. But you are now DKK 400 million short of reaching that DKK 2.75 billion. And looking at the numbers, so you're sort of implying that [indiscernible] should be flat or even slightly decreasing for the remainder of the year. So is there anything here that I'm sort of not seeing? Or are you just maybe a little bit conservative given it's normally a weak quarter, of course? And then maybe if I can squeeze in number 4 here, just on the R&D phasing, can you provide any color on the scenarios from Vimkunya? So we know that this outbreak in Thailand is pending or potentially ongoing. So is there any think that indicate that this should shift into '26? And what could be the R&D spend cost reduction range, so to say, for the '25. So you're guiding still for DKK 900 million. So I'm just understanding whether it's going to save you DKK 100 million or where we are here. Yes, I'll stick to that. I can repeat if... Paul Chaplin: Some of them. But let me take the JYNNEOS guidance. And then maybe, Henrik, I'll let you take the other one. So on JYNNEOS guidance, a few years ago, we would only really guide on Public Preparedness on contracts that we had in hand. And that reflected the fact that we had very few customers. So we didn't have the confidence a few years ago to guide broader I would say that has changed over the last number of years that we're guiding, obviously, with contracts that we know we have in hand, plus what we also think that we can secure within the next 12 months. So it's not actually only things that we're negotiating, it's things that we believe that we can secure. I mentioned in the presentation that sometimes, unfortunately, part of the unpredictability of the part of this business is that it's with governments, right? And even though you can be very -- one day, you're incredibly confident that you're going to secure a contract, there may be a change in a political leader or the government may change, and it completely stops overnight. So it is unpredictable. What I would say is where we guided is where we thought the range would be. That's why we gave a range. Already in Q2, we stressed that DKK 3.1 billion was secure, but that we thought we could secure more. You've seen that we have announced an agreement with HERA. That could have come earlier in the year potentially that could have led to more revenues this year, but it's now pushed into next year. Obviously, that doesn't account for the whole DKK 600 million that you're referring to. But I would say what the guidance reflects is that some contracts came later than we anticipated and some contracts were still unsure whether we can secure. I hope that answers that question. And then Henrik, maybe. Henrik Juuel: Yes. Let me try the other 3, Thomas. I think, first of all, on the share buyback thing, I think what we have communicated previously is that our capital allocation policy, priority #1 there is to pay back the milestone payments to GSK and Emergent. That's soon behind us. It is not yet though. We still owe EUR 70 million to GSK, which we expect to be paid early Q1. Number 2 priority, of course, is to invest in the business, and that means R&D, it also means sales and marketing to grow the top line. And then I think third priority would be to look into our M&A strategy and eventually consider returning money to the shareholders. It's very clear we are not a bank, and we are constantly evaluating that situation. So what is the current need? What do we have on the balance sheet? Is that appropriate for the plans we have? If not, then we will return money to the shareholders. At this point in time, so that as this is a continuous evaluation, I cannot give you any more update right now. But of course, we evaluate the situation constantly. On Travel Health for the fourth quarter and our outlook, we are still guiding the DKK 2.750 billion. And here, I think you need to remember that some of our travel vaccines are seasonal vaccines. We sell in all quarters, but some quarters are better than others. So typically, the fourth quarter is not the strongest quarter. So we are still targeting DKK 2.750 billion for the full year. And on the R&D phasing, we are still targeting the DKK 900 million in R&D for the full year to a large extent driven by the Vimkunya committed trials that we have to do. I'm just alluding to that, there could be some of it phased into next year. And typically with the clinical trials, I think a lot of the steps you go through there, the timing can change. So some of it could slip into next year of the R&D spend. If that happens, then, of course, it could impact our EBITDA margin positively this year. But let's see, the plan is still DKK 900 million. And we're only raising this as it's a little out of control with the exactly at what pace these trials they run. Operator: [Operator Instructions] we are now going to proceed with our next question. And the questions come from the line of Lucy Codrington from Jefferies. Lucy-Emma Codrington-Bartlett: Just regarding chikungunya then. In terms of the U.S. launch, I was wondering how important is the MMRW publication when it comes to launching in the U.S.? And then maybe a bit niche, but in similar lines, have you thought about the potential substitute that the New England Journal of Medicine and Public Health Group have talked about replacing the MMRW? And any thoughts on that at all? Paul Chaplin: Yes. Thank you. Yes. So this is a tricky one. So yes, in the U.S., post approval from the FDA, you need an ACIP recommendation, which we're very fortunate that we have for chikungunya. And that recommendation, as you then say, is then published in the MMWR, which is a publication from CDC. And many of the distributors actually want to see the publication, even though it's recommended and it's posted on the website before they will start to purchase. And obviously, the situation where we're in is the MMWR has not been published. And it has, as we said, has slowed down the traction, I would say. The one thing I would also give as another example is that when we launched JYNNEOS in the private market in the U.S., the same situation. We had a recommendation from ACIP, but actual fact, the MMWR was only published earlier this year. And what we did in that situation was that we were able to convince the distributors that they could start to acquire the product before the publication, and that was successful. And I would say we're in that phase right now. We've convinced some already to go ahead with chikungunya, and we're still convincing others. So it has certainly slowed down the traction, but it's something that we've already had experience of with JYNNEOS. And again, one of the main arguments for that is there's always been sometimes a lengthy delay between the recommendation and the publication. And right now, it's very uncertain with ACIP and CDC what would the time will be. And as you say, that is leading to many others talking about alternatives and whatever, but we'll have to just see how that develops. Operator: [Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Thomas Bowers from SEB. Thomas Bowers: Just a quick follow-up here for me. Just on the sales and marketing cost spike you can say here in the third quarter related to mostly Vimkunya, of course. But should we see this as sort of a new baseline going forward? Or is there some one-off expenses in that Q3 S&M number that we should be aware of just to sort of have an indication on how we should model at least going forward? Henrik Juuel: I think that there's certainly an element of one-off in there because typically when you launch a new product, you will be in a launch phase that will require promotional costs for a period of time. So it's for a period of time, but such a launch can easily stretch over like, let's say, 2 years perhaps. And then you will see at least the promotional spend part of it to normalize again. But right now, I think we are spending money establishing the awareness of chikungunya and Vimkunya in particular, in the markets. It's a nonexisting market in most places we go into. So therefore, there is a need to build the awareness. But it will normalize after a couple of years where you can no longer argue you're in a launch phase. Operator: That does conclude the question-and-answer session. I will now hand back to Mr. Paul Chaplin for closing remarks. Paul Chaplin: Thank you, and thanks, everyone, for joining the call and for your interest and the questions. Thanks, and have a great day and a good weekend. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good day.
Operator: Welcome to the NIBE Q3 presentation for 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Eric Lindquist; and CFO, Hans Backman. Please go ahead. Gerteric Lindquist: Thank you very much. Good morning, everyone out there. Hans Backman: Good morning from me as well. Gerteric Lindquist: And just a few things when it comes to the order we are going to introduce, of course, ourselves and some figures afterwards, we have the Q&A sessions, and we will be pleased if there would only be 2 questions per individual and also try to end this Q&A session around 12 because we have other commitments shortly afternoon there. So with that said, once again, welcome to this conference call. And I think that the headline is that we are very proud to be able to present these figures as we are today. We've said several times that the organization that we represent, Hans and I, is very, very strong, very, very proud to have the ability and possibility to lead this organization. So that's the headline. Of course, it's a gradual recovery that we -- as you go through for the group. And of course, when comparing the situation in the world today, compare what it was when we started [Audio Gap] environment like that. And also the increased strength of the Swedish crown from many perspective, is very nice, of course. But when you compare figures, it's a little bit shadowing the real organic growth, which we, therefore, have explained very explicitly when separating it from the currency effects. And we gave a very bold promise from the very beginning of the year that we're going to be back at the intervals of the historic levels for each respective business area. And we are, of course, very proud that as far as we've come, and we are very transparent with where we are as we are with the targets. And of course, those disturbances that I just described, of course, they are causing some hindrances, but we are trying our best to give you some kind of a guidance where we possibly could land at the end of the year. You've seen them. We don't have to dwell so much about it. It's very pleasing, of course, that there is growth there well beyond the 1.2, like 4.6% organic growth. And what's also very pleasing is that we see that the gross margin is going up and the operating margin is moving in the right direction. And of course, moving into the quarter as such, the third quarter, then we see that the gross margin to be improving and the operating margin is now up to 11.3%, which is, of course, what we like when the margin that corresponds well to where we like to be. And if we just continue a little bit about the graphs that we typically look at, I mean we see now that the income is gradually coming back, and that's even more described perhaps in the next graph, where we see the curve is going in the right direction. And when we look at, again, it's an improvement quarter after quarter. And of course, it's a recovery all over, you can say, but in smaller portions, of course, where it's Germany and Sweden and Netherlands, particularly on the residential side, the U.S. remaining stable and also Italy, very much on the commercial side, which is very pleasing to see. We also see that there is a more traditional seasonal pattern, particularly with Stoves and with Climate Solutions. And it is also pleasing to note that all the efforts that we've done during the year despite the action program that we took, R&D remained at the same level and also the sales forces, and that is paying off now, of course. You can't look at things shortsighted. You have to be very determined long term to be successful. And here, we, of course, have now come up to the third quarter when it comes to the margin that is just in the right, can I say, level and the right span. And of course, we are giving a little bit of an indication here on this slide saying that, well, within margin of error, we should be close to the 13%. And that's, of course, again, a very bold statement, but you've been following us. We've been giving you very clearly the intervals. And now with 6 weeks remaining, it's very important we are into a quarter that is typically decent when it comes to invoicing and order intake. So we -- the best thing we can state is exactly what you read there, and that's also stated in the report. We are very cautious not to do anything or mention anything or do any saying here that wouldn't correspond to the report as such. So Hans, of course, is going to dwell a little more on the quarter as such on Climate Solutions. It's a good growth organically, and we've seen that, of course, and the margin here so far just south of 12%, whereas the quarter is coming in above the 13%. So it's a balancing act, a very delicate balancing act for the rest of the year. And coming into Elements, they, of course, at when the whole industry of heat pumps went down all over Europe, and of course, being a main supplier there of components, they also took a dive. They're a little bit behind [Audio Gap] but we also see now that, that is coming along. And electrification in general, of course, and also the rail segment, which is very pleasing to see. Industrial segment is more a reflection of somewhat cautious or subdued market, particularly in Europe. As a comparison, we can say that in general, Europe seems to be a little bit more cautious or subdued compared to the U.S. or the North American market. And if we just look at the same sort of forecast again if we dare to say or what we could offer as far as margin predictions, we say, well, it's going to be some close to the 8%, of course, but we also give a little bit of a buffer for ourselves depending on how the last weeks will look like. And particularly on the Element side, being a supplier or sub-supplier, we know that although the order intake could be good, but for obvious reasons, no customer wants to sit on too large inventories. It's always delicate to do the forecasting for the Element side. But looking at the figures there again, good growth. Operating margin is back at 6.8%. And when we look at the quarter as such, as Hans is going to come back to that. It's again, of course, on the higher level, up to 7.4% for the quarter. Quickly into Stoves. And there, of course, we noticed that had already indicated in the second quarter that, that would be difficult to arrive at the old or the interval of that we have been -- where we've been or where we used to be. So there, we need a few more quarters. And I think that is what we think that is more referred to -- be referred to the overall cautiousness, particularly in the European market. In North America, it's -- the markets are fairly buoyant, but there, we have difficulties with the manufacturing of stoves that's taking place in Canada and then being shipped into the U.S. So there, we take a hit when it comes to the margins. And there, we very consequently say that they're going to take us a few more quarters to come back to the span that we typically talk about between 10% and 13%. And there we see, of course, it's a thin margin and the quarter as such, that is around 3%. So it's not getting any worse. If we were bold enough, we could say that we've seen the bottom of also the stove market with the figures that we've seen during quarter 3 with a margin of 8%, which, of course, is not satisfying, but still is slightly higher than the previous quarter '24. And just a few concepts in here. I mean, Climate, it's a typical graph really on the pie chart here with climate being like 2/3 roughly and then Element and then Stoves. And on the distribution side, profitability, then we see that, of course, Climate Solutions coming out quite dominating here. And then geographically, not that much has happened. North America remains slightly above 30%. The Nordics, slightly below 20% and then Europe, of course, around the 45%. So no dramatic changes really there. So I think with those quick comments, I hand over to Hans, but I have a lot of eager people out there that would like to put questions to us. All right? Hans Backman: All right. Thank you, Eric. Yes, I'll try to be quick, but not rushing it, but to allow for questions, of course. Before we jump into Climate Solutions here, I would just like to mention from the main report, speaking for the tax rate. Some of you might have seen that the tax rate in the quarter is above 30%. And that is not a new normal as we see it. It's rather a matter of timing differences now, very much related to the introduction of the so-called Big Beautiful Bill in the U.S. where the rules and regulations around capitalization of R&D expenses has changed, and that has led to a couple of one-off effects, but that doesn't change anything in the long run really. That's the major reason for that tax rate going up. If we then move into Climate Solutions, I mean, Climate Solutions definitely shows a very robust performance in what still is a challenging world in a way. It's a very strong comeback from the challenges we faced last year and the profitability level at the time. We've been able now to grow sales with some 7% organically, but then, of course, current [Audio Gap] but due to increased sales and also our cost efficiency programs that we have undertaken, profit has improved by close to 50%, coming up from the SEK 1.5 billion to more than SEK 2.3 billion, landing in this operating margin at 11.9%, mentioned. And on a 12-month rolling basis, we are up to roughly that level, 11.8%. In the quarter, sales grew by some 8% and gross margin improved even further, coming up to 35.4%, up from 32.5%. So that's a good achievement as well coming from the volume that we get. And profit grew by another close to 29% or almost 30%, more than 29%, landing in the operating margin there at 14%. So it's a very robust performance and a robust and strong comeback from last year, showing our ability to adapt the cost levels when market conditions change and also to reap the benefits of a good volume that comes in. In terms of split of sales per geography, there is virtually no change at all from last year. It's very stable with Europe, Mainland Europe being 50%, our home turf here up in the Nordics being slightly north of 22% and North America with a solid quarter of total sales. NIBE Element has also shown a very robust in a challenging world. And here, we are really exposed, as you know, to many segments in many parts of the world. Organic growth here was above 6%. But then again, the Swedish currency took away a large portion of that, landing it in then at 2.9%. Gross margin took a jump up here from 19.8% to 21.1%. So that's a nice improvement. And then the profitability itself coming up with more than 30%, landing in on the 6.8%, which leads then to a 12-month rolling that is around that level as well. In Q3, sales actually grew even more organically, that is close to 9%, but again, with a headwind from the Swedish currency. Gross margin continued to improve and profitability again, and we came very close to at least the lower range in the interval for our historical profitability ranges there at 7.5% and a nice step in the right direction. Neither here have we seen any large changes in terms of split of sales per geography. So that's basically how it looked last year with North America being a very strong portion of that business. I would say when it comes to Stoves that despite these very challenging market conditions that they have experienced, first, an overconsumption, you can say, during the COVID period when everyone renovated their homes and then when Putin invaded Ukraine, leading to a lot of people wanting a freestanding and alone off the grid type of heating system. And after that, a period with low energy prices, higher interest rates, low new build. Despite all of those challenges, the business area has defended its position quite well. Despite, I mean, an organic decline there of 8% and more than 11% when you include currency, they have been able to generate a profit here and continue to spend time and money on interesting products and market activities for the future. Here, the -- yes, performance for the last past 12 months is just above 4% and far from where we're used to being, but not that we see that there is any in coming back to a stronger performance as soon as the market returns. And I think we see that a little bit in Q3. Here, sales dropped organically by 1.6%, so much less than before. With currency again, it's obviously a drop there, which is much larger than that. But despite this drop then of 7%, we were able to defend the operating profit from last year. So it remained on the same level, generating a margin there of 3%, which shows the ability also here to take out costs and of course, keeping a portion of them on board or a good portion to be able to meet an expected better demand going forward. In this area, we see a small shift or a clear shift in a way in the distribution of sales in the sense that North America has increased up to 37% from 32% of last year. That's the major change. And that shows that North America has actually, from a sales point of view, been quite decent. What then has hampered the picture for us is, of course, that we have our manufacturing in Canada, and this is where the tariffs have hit us from a profitability point of view. Moving then into the balance sheet. There are no major changes here. We have a fairly stable balance sheet. We've been able to amortize both on intangible and or depreciate rather -- intangible and intangible assets. The investment level has come down a little as well, which we will see on a slide later. On the liability side, you can see that both the interest-bearing -- long-term interest-bearing liabilities and the current interest-bearing liabilities, both have come down, which we also will see the effect of when we look at the net debt figure soon. The performance then and what we have on stock, so to speak, has an effect on the cash flow. We have had a good cash flow from the operating activities of slightly more than SEK 2.9 billion, up from just below SEK 1.8 billion for the corresponding period of last year. Then you see a change in working capital, which is negative with SEK 1 billion. That is solely related to an increase in receivables. It's the exact same situation we actually had -- inventories have been reduced and accounts payables have contributed in a positive way. So it's a result of us invoicing more, and we've not changed any payment terms really. So this should come eventually. And on the next line, you see that the investment in the current operations has decreased by some SEK 500 million, then leading to an operating cash flow, which is plus SEK 420 million rather than minus SEK 450 million of last year. And then we've had some amortization of loans and things affecting the change in liquid assets -- the currency change, we cannot do much about. A few comments here on the key financial figures. The -- we have a fairly decent amount of cash on hand, the unappropriated liquid assets. The number there is actually correct. I mean, the SEK 5,119, which was the exact same. But if you look into the report on Page 13, I think it is, you see that the composition is different. But it's a good portion of cash there. And then interest-bearing liabilities have come down and the net debt is now [Audio Gap] which is very pleasing to see. We typically amortize our loans and liabilities effectively after acquisitions. And what took a little longer this time was, of course, the acquisition of Climate for Life, one of the largest acquisitions we've made and then a market that took a very strong downturn after that. But we're definitely heading there in the right direction. And the equity assets ratio is solid as well, being above 45%. Just a quick comment there on the working capital. If we look upon it, excluding cash, it's also been improved from last year with more than a percentage unit. We are still targeting 20% as an intermediate target. So we still have some work to do imminently moving in the right direction. And moving in the right direction are also these key figures, although they are, of course, not where we want them to be yet, but they are heading there. Return on capital employed, now 9%, up from [indiscernible] return on equity also above 9% there, up from just below 7% and a profit per share that has increased just like equity per share. So things are slowly but surely moving in the right direction. And as always, we don't comment upon the share price, especially not today, I think I think. By that, I'm done. So, if you want to add something before we open up. Gerteric Lindquist: No, I think we open up now. And as we say, about 2 questions per individual and then we take it from there. All right. Operator: [Operator Instructions] The next question comes from Uma Samlin from Bank of America. Uma Samlin: Two for me, please. So first question is on the Nordic market. I was wondering if you could give us a bit more color on the lower growth in the Nordic this quarter. It seems like it's minus 1.5%. So what is the main drivers there? What are the trajectories do you expect in Q4? Gerteric Lindquist: Okay. So we should [Audio Gap] in general or you're referring to Climate Solutions now or you're talking about the whole NIBE group? Uma Samlin: Yes, the whole group is the one that you have reported. Gerteric Lindquist: Yes. Okay. That's fine. Well, I think that, of course, the contraction is substantial, as we said, in the Nordic when it comes to Stoves. That's very obvious. And also, we noticed that the industry as such is not that strong in the Nordic region when it comes to the heating element. And I think what's keeping it up at a decent pace is still the Climate Solution. So I think the consumer -- so cautiousness when it comes to Stoves, that's certainly an observation. Also that the industry in general is not that strong in performance, which is heating element where heat pumps are keeping up fairly decently. Uma Samlin: Okay. That's super. My second question is on your margin guidance. So I guess if you assume that Climate Solutions will reach the corridor of 13% to 15% for the full year with some margin of error, let's say, around 13%, does that indicate, I guess, significant upside in your EBIT margin profile in Q4? Would that be then like trending more close to 15%? So what would you expect to be the drivers of the step-up in Climate Solutions margins in Q4? Gerteric Lindquist: Well, I think that to start with, as we mentioned, the seasonal or the seasonality is back. So here is a little bit weaker and the second half is a little stronger. That's the traditional pattern that we've had prior to pandemic and the -- and those years with crazy, if I may call it, energy prices. So of course, quarter 3 and 4 traditionally should be stronger. And it's very difficult to predict anything, and we try our utmost to give you some kind of an indication that if we now say, as we say, regarding Climate Solution, of course, that is the best hint we can give you. It's impossible to say it's going to be so and so common. I think that's as far as we get -- the Stove side, of course, we saw after Q2 that it would be difficult, very difficult to arrive at within the span. And that's also clearly indicating now. That doesn't mean that we wouldn't have an uptick again. It's just that they came into this downturn a little bit later. First quarter '24 was not bad at all, whereas the other ones were really taking a hit. So it's more a matter of that has staggered a little bit when it comes to sales and profitability. Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: The first one is just a follow-up to the margin here and especially if we think about Climate because historically, the fourth quarter's margin is on average lower than the third one. So if possible, if we take aside the seasonality effect here, I see volume is one thing, but what other drivers do you think could help the margin in the fourth quarter help you approach the full year target that you guide towards? Gerteric Lindquist: Things that are moving in the right direction when you talk about the strengthened productivity. I mean, that continues quarter after quarter. Productivity is one factor and also the ambitious program that we have across the business areas, Element and Climate Solutions. So I mean, there are no magic factors, but there are some factors that we feel will continue to assist the profitability. Karl Bokvist: Understood. Yes. Understood. The second one is on the receivables point that you mentioned, Hans. Historically, the kind of balance between receivables and payables have kind of yielded a net neutral situation. But the last couple of quarters, the receivables have increased more than the payables. So how long do you think this kind of gap will be before they normalize? Hans Backman: That's very hard to predict. I think the result of the increase in the receivables is a consequence of the seasonality kicking in and with us invoicing more, so to speak. And typically, the invoicing takes place in the latter part of each month as well. So it's typically weaker in the beginning and then a lot happens and that you don't collect it until the next period. On the payables side, we have a little bit more deliberately than before, begun reviewing payment terms without treating our suppliers bad in any way, but to make sure we have competitive terms. And when it's going to level out, it's hard to predict. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I'm going to follow up on the working capital side, if I may, and on inventories, 23.9% of last 12 months revenue. I appreciate we're improving quarter-on-quarter, but still above the sort of long-run average. I guess, firstly, do you anticipate a seasonally strong Q4 for inventory? And then longer term, how do we think about the inventory level required to support growth either as a percent of sales or perhaps on an inventory days basis? That's the first one. Gerteric Lindquist: Well, I mean, as Hans mentioned, of course, we like to drive down the inventories. And I think that there's been a little bit of cautiousness here now from sales because we don't like to have any disturbances when it comes to deliveries. We know that everyone is on the tip toes out there. And of course, it's very tempting to say we are -- now we're going to bring down the inventories. And I think that we and our colleagues, we really have to restore our, should I say, reputation in the market by really delivering promptly. And I think that the discipline is coming back. And I think the next step is keeping the discipline and then very diligently moving down inventory levels further. So there is a cautiousness on our side and also our colleagues, I'm sure, that no one wants to sit out there saying that, now we have like so many more weeks of delivery. That is no, no go for us. And I don't think that's -- I think that's pretty much a symbol for the whole industry. And that was my immediate answer... Hans Backman: No, no, absolutely. It's very correct. And if I just may add, I mean, what we are taking down also step by step. It takes a little bit longer, but it's a deliberate work to do it, level of component inventory. We -- as you know, we had delivery issues, so to speak, during COVID because we couldn't get products on board to the extent we needed. And when we could source something, we sourced it to the extent possible. And that inventory, given the strong shortfall that came afterwards, is now being used step by step and being reduced. So -- but without, as Eric is pointing out, disturbing any production that we have throughout the group or deliveries to the customer. Christian Hinderaker: Okay. So just to be clear, the pre-2020 levels is probably an unfair number to think about in the immediate term? Gerteric Lindquist: Well, I think it's the reverse picture. Then there was an enormous demand or if I say, quite a heavy demand. And then we were lagging. And then, of course, the figures turned out to be very nice, perhaps a little bit bigger than -- or better than we really deserved being viewed for or criticized for, evaluated for. And now we come from the other side. Now sales are picking up, we are cautious. So I think that we have to take it step by step and bringing it down perhaps to '20 at least and then take it from there. Christian Hinderaker: My second one is on the action program. In the Q4 presentation last year, you gave a summary of the potential split for those savings by segment. I suppose, firstly, is it fair to assume that the 73% of savings have come in Climate Solutions as was set out in that slide? Or has there been a sort of readjustment as we move through the year? Gerteric Lindquist: No. Hans, you... Hans Backman: Yes. No, I think that the calculations we made at the time and as the program evolved, so to speak, they were pretty accurate. And that's what we see has come in as well. And given that the stretch in the return to normality has dragged out a little, we've undertaken a few more saving actions. But that's all kicking in now, you can say, according to the program. And then -- well, running a business, you always have cost reduction initiatives. So it's -- but it's mainly related to the program, kicking in as we planned. Operator: The next question comes from Johan Sjöberg from Kepler Cheuvreux. Johan Sjöberg: I have a question starting off with the Climate Solutions, Eric, if you could. You talk about sort of demand being back to -- or demand for next year, you're talking about external consultants and they share -- or you share their view upon sort of the growth. There are a lot of reports out there on the heat pump market in Europe, especially. Could you sort of give some sort of ballpark range what is the sort of the underlying assumptions you are looking for or basically the consultants are looking for, which you agree with? Gerteric Lindquist: Well, as you say, there are so many reports out there. And some are very biased and some are more -- I don't know where statistics come from. But I think that you can get reports anything from 5% to a few double digits plus, like anything from 5% to 12%, depending on which report you read. But the common denominator is that no one foresees a decline any longer, but rather growth, but in various sizes or various numbers, whether it's 5% or 7% or 11% or 12%, it's very difficult to predict. But what we take away from all those reports is that we -- the tide has turned. We are back on a market that is getting or growing again, which is very pleasing. Then, of course, it's up to all the colleagues out there, including ourselves to do as much as possible out of those figures. But perhaps, as we said before, we all love when the growth figures are phenomenal, but not necessarily do the customers always benefit from that. I think that we believe that a growth in an orderly fashion is better for everyone because then the installation work is done professionally and the distribution flow works much better. So those figures indicated that I think that would, to us, mean that it's a healthy growth possibility, but still in a way that they're going to make things materialize in a profitable and decent way for us as manufacturers, but also for the installers out there and for the end users. Johan Sjöberg: That's very clear. And also just looking at the different segments in Climate Solutions also. I mean, looking at sort of what is heat pumps and of course, the different segments within the heat pump and also you got the water boilers. Is it a big difference between the growth rates right now between sort of -- if you take sort of the bigger sort of subsegments, not going out to sort of add to water or anything like that, but more sort of between the different bigger segments within Climate Solutions, it's a bigger -- it's a big difference in growth right now? Gerteric Lindquist: Yes. Well, I think that the water heaters, if you talk about them, they have a more modest growth, and that goes for all over, of course. And that's pretty much -- construction is down -- new construction is down, and that's where you typically, you install those and when you build new houses and so forth, although the houses themselves, they might have heat pumps or district heating. But you have those modules there we typically have 1 or 2 of those water heaters. When construction is down, it's also down. So the water heater market is very, very cautious, a few percentage units, but doesn't have the same growth at all as the heat pumps, but stable, decent margin. So it's not something that we should neglect by any means, but the growth pattern is strictly on, you can say, on heat pumps. Johan Sjöberg: Got it. Hans, also a few questions for you, if I may here. You mentioned in the report the impact on sales from the currency. Could you also talk about the impact on EBIT just to get sort of a feeling for the dilution, if any, from FX in the quarter, if that's something you can provide us with? Hans Backman: Yes. It's roughly the same. I mean the margin is not influenced to a large extent. Of course, you can convert less dollars or euro or what have you at a poorer rate, so to speak, or stronger or weaker rate, which has an impact. But in percentage-wise, it doesn't deviate too much from the effect on the sales side either. Johan Sjöberg: Okay. And also your comments on the Stoves business also, the tariff, of course, impacting -- of course, impacting even more now when you have a higher share of sales in the North America coming from Canada. But what are sort of the impact from tariffs in the quarter, if that -- just give us some sort of feeling? And also what are your -- how can you mitigate that? And how long time will it take before you can mitigate these tariffs? Gerteric Lindquist: It is substantial. We won't dwell on any [Audio Gap] of course, partly will be taken like -- in any case, will be taken by price increases. But we -- at the same time, we've said we're never going to put our position on the market in jeopardy by being ridiculous in that. We just have to trim and trim and trim and be more efficient, try to come back to a margin that is decent. So we have taken quite a bit of a hit during Q3 and of course, during the whole year, and we don't expect that to improve, but price increases takes away a little bit. And then we just have to be more efficient and streamlined. Those are the only 2 recipes. And then thirdly, you could possibly -- but that's more of a guess. I mean the American manufacturers might be tempted to increase their prices when they see that's difficult to import from other countries. But that's a speculation. I wouldn't dwell on that. So we are between a rock and a hard spot, as I say, but we're going to come back to a decent margin by streamlining and doing everything possible without jeopardizing our position in the market. That was a long answer to you, but because that is a little bit of a long answer to us. We are, of course, doing our utmost just to keep and increase our position in the U.S. because we are well positioned. And now it's really up to productivity and doing everything we possibly can to combat the difficulties with those tariffs. That was a long answer. That's it. Operator: The next question comes from Anders Roslund from Pareto Securities. Anders Roslund: Yes. I was curious about your thoughts about next year for Europe and heat pumps. I mean this year have been characterized by de-stocking coming to an end, and now it's the true market growth we are looking for. And at least in Germany are sort of coming with some growth into next year. How do you see structurally on Europe for next year? Gerteric Lindquist: No. As I said there, we assume that Europe will grow overall. And of course, Germany is going to be one important contributor to that growth. And then, of course, there are -- it's important to distinguish between those applications and the number of heat pumps really being installed because you have a sort of a period once you have the application in and is approved, you don't necessarily start to install the week after. You have an allowance or is it like how many quarters was it now like -- many months... Hans Backman: Yes, yes, I don't recall exactly. Gerteric Lindquist: And then, of course, the true figure is around 40% -- or well above 40% that's been installed, partly taken from inventories, of course, and partly from producers directly. And we believe strongly that there will be a real organic growth for the manufacturers next year because now we should be out of the inventory, has been dampening things. So the overall picture, I mean, now again, sitting here or standing here on the 14th of November making predictions for '26, but if you ask us, we look at the European market in a fairly positive way because also that the interest rate die or at least they come down, that is also sending a report to consumers or sending a signal to consumers that, okay, now it's more decent. They can start to build homes, which is very important when you start to build homes in a country. That's a driver for the whole economy. So without too many other disturbances, but then you never know about Europe what's going to happen. We believe that it's going to be a stronger year '26 than this year. And then, of course, that is a prediction. I don't know whether I answered your question, but I tried. Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Christian Hinderaker: I boldly went back in the queue, so I'm surprised to be fit in for the follow-up, but I appreciate it nonetheless. Yes, I wanted to ask the Selmo acquisition you made in Italy during the quarter, I guess, interesting in terms of its components, focus, smart thermostats and so forth. How should we think about that transaction and the scope of your broader M&A priorities looking forward? Is that illustrative of the type of deals you're looking at? Or are you still balanced in terms of also reviewing sort of OEM type transactions? Gerteric Lindquist: I think that we have received a number of questions earlier on today in other forums, and we say we're always working on acquisition. Nothing has come down. Of course, '24 was a year when there weren't that many signings carried out. But I think this is a decent acquisition for Element with a turnover around EUR 20 million. It's not gigantic, but it's profitable. It's a company that we've known for a long time. It's a company that we've been working with for a long time. We don't foresee any [Audio Gap] issues if I had to say that because we know the founders and has a very good relationship. So it's one of those add-on acquisitions that we really like to do, family-owned companies, and they remain helping us, it's perfect. I don't know whether I answered that question fully, but we have similar activities within Stoves and within Climate Solutions, ideal partners and that we try to trim and try to bring on board. But everything is timing, just like anything else in life. And this Italian acquisition was something we've been discussing with them for a long time. And then all of a sudden, they say, we are fine. Should we really -- now we really go and then we are ready. An acquisition takes more than a quarter or 2 in our world, we like to come in on a friendly basis, not coming in as an intruder or -- yes, exactly like that. We like to come in as partners, and it takes time to develop that over years. So those are the most successful ones in our book. Okay? Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: I was a little bit late, so apologies if this question has already been asked. But I wanted to come back a little bit on the topic of pricing. I mean we talked about this for roughly 2 years now. And I guess earlier this year, we were talking about inventory reductions amongst the distributors and increased campaigns on the back of elevated inventories. But now we hear, I guess, also from some of your listed peers that pricing environment on the hydronic side seems to have been improving here a little bit towards the latter part of the year. So I just want to hear your view here on sort of pricing in general and maybe if yourself have done any sort of definite price adjustments here in the latest months. Gerteric Lindquist: Well, I think that's one area we've been very cautious that we are one of the leading actors because to sell premium product, you can't devaluate the value because short term, they just deteriorates everything. So coming back again to the overstock situation, we had some of that. We've been very cautious of reducing prices. And therefore, it might have taken a little bit longer to reduce those inventories because you know that if you sort of spoil the market with lower prices, then that is very contaminating. But further on in the distribution chain, and I'm repeating this again, of course, when our distributors or installers have been sitting on inventories, knowing that also might have been refrigerants and stuff like that, they see a new wall coming towards [Audio Gap] well, and they have to be gone. Of course, it's very tempting just to free the capital tied up. And our own method has been sit still in a boat, be very cautious. And as far as price increases are concerned, monitor that very, very cautiously again, being very observant. Of course, we agree what you say. We also see that there is some signs of price increases in the market, which is very natural once it's been stabilized as it's been. And I think no one is the winner in the price war, just like any other war, all are losers. Carl Deijenberg: Fair enough. Then I wanted to ask also a little bit coming back to the balance sheet and sort of gross margin development. I mean, quite a good rebound here in Q3, but still, as you evaluated earlier on, you're still in the situation where inventories -- your own inventories are on the way down. And I just wanted to ask a little bit on the sort of internal production rates for you. Obviously, you've been adding capacity quite dramatically in the last couple of years. But would you say that sort of the shipments you are delivering on right now is the sort of utilization in sort of your base production sort of excluding the capacity expansion, is that fairly much 1:1 right now? Or are you still suffering quite tangibly on the gross margin from some utilization? Gerteric Lindquist: Well, I mean, we can't avoid depreciation. I think that's kicking in, of course. So of course, they're going to be lesser than what we sell. That's very obvious. But at the same time, on the other direction, those new facilities that we have, that's also offering better productivity. So it's not so easy to say that, okay, now we sit with a tremendous depreciation. Of course, it's going up. But they're also built for a reason, not only for volume increase, but also to do things more rational. So that's working in the other direction. I don't know whether I answered your question, but there was... Carl Deijenberg: No, no, no, but -- yes, yes, yes, absolutely. No, but I guess, I mean, my question was a little bit, and I understand there's multiple variable components to it. But I mean, assuming if you would see further volume support next year, it sounds like you could still have some upside on that gross margin development even now when we look at Q3, where you saw quite a good development year-on-year at least. Gerteric Lindquist: I think that we have to give you right there, yes. Correctly, so... Operator: The next question comes from Karl Bokvist from ABG Sundal Collier. Karl Bokvist: But I just wanted to go back to one thing that you've been very good at in the Nordics, which has been kind of heat pump products towards new buildings or new residential buildings. And if we think about both Nordics and Europe potentially seeing a bit of an uptick in new residential construction, how have you worked with that kind of product assortment in other areas than Sweden? Gerteric Lindquist: No, I think that if you talk about the exhaust air heat pumps, we've been working with that as well, but that comes to legislation -- the construction legislation and also preferences for what you can do. And I think that we see very positive view on our next generation of heat pumps where you also can -- like I'm talking about the exhaust air heat pumps now in well-insulated homes, that we also have a cooling capacity. When you come a little bit further south, then there's been a question, could you also possibly cool our facilities in the summertime. And I think that has given us quite a stir in demand. So that's one way of mitigating that. But of course, when you have lower standards, then you have to adapt to that when it comes to building standards. Here, we have a very tough situation up -- for instance, Sweden or that's pretty much the same, in the Nordic markets, you can say that you can only use 40 watt per square meter a year, and that limits your amount of energy of 6,000 kilowatt hours per year in house, and that's including tap water. So of course, that is -- that's quite a challenge. But that's also something we can -- we use when selling that to house manufacturers and customers when we go in other countries, ventilation and heat pumps in Holland or Netherlands, for instance, that's very, very important. So they are tagging along the same lines. And also in Germany, that is pretty much the standard that you have to recapture the ventilation air or the energy in the ventilation air. So the larger heat pumps, they are typically for renovation when you have -- when you're replacing a gas burning boiler or an oil burning boiler with an output of some 16, 20, 18 kW, then, of course, you have to have a larger heat pump and then you talk about a different vehicle or a different animal, but you still supply the same sufficient amount of energy to the radiators. But then you talk about refurbishment. I hope I answered your question. Karl Bokvist: Yes, partly one, I mean it is just that you've built up a strong position in the Nordics. And I mean, as you expand in the other countries, how you work to kind of get close to that level of relationship with the important stakeholders, house builders, et cetera, so that you're in their blueprint, so to say. Gerteric Lindquist: Yes, yes. Of course. And also working with house builders and giving them the upper hand, the advantage of using our products and demonstrating what can be achieved having the Nordic market as references. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Gerteric Lindquist: Well, once again, thank you for the disciplined way you've all times, you would like to have very, very much of a decimal, comma and so forth. And we, of course, couldn't do that. But I hope we've put some flesh on the figures in the report. So once again, thank you for calling in, and we see you, if not earlier, beginning of next year when we report the full year. Thank you again. Hans Backman: Thank you, everyone. Thank you. Bye-bye.
Operator: Good morning or good afternoon. Welcome to Swiss Re's 9 Months 2025 Results Conference Call. Please note that today's conference call is being recorded. At this time, I would like to turn the conference over to Andreas Berger, Group CEO. Please go ahead. Alexander Andreas Berger: Thank you very much, and good morning or good afternoon to all of you. I appreciate that you're taking the time today to listen to us and also to engage into a hopefully very vivid Q&A. Before our Group CFO, Anders Malmstrom, walks you through the details of our 9 months results, I'd like to start with some brief remarks as usual. After another strong quarter with a profit of USD 1.4 billion, we're pleased to report a net income of USD 4 billion for the first 9 months of 2025, corresponding to an annualized return on equity of 22.5%. This puts us very well on track for our full year net income target of more than USD 4.4 billion. We benefited from exceptionally strong P&C results in the third quarter, helped by a low burden of large claims. These amounted to around USD 200 million in the quarter, well below expectations across P&C Re and Corporate Solutions. The result of the second consecutive benign large-loss quarter is that both our P&C units are tracking well ahead of their respective targets. This is the principal reason why we're in such a good position at this point in the year. You've heard me stress our two key priorities, and they are unchanged. Firstly, deliver on the more than USD 4.4 billion group net income targets; and secondly, increase the group's overall resilience to improve long-term delivery. Now on resilience. This journey started with a complete turnaround of Corporate Solutions and the implementation of a new reserving philosophy, which we subsequently extended to P&C Re, 2 years ago. We also successfully addressed P&C Re's in-force U.S. liability reserves last year. This year, we've been focused on further improving the resilience of the third business unit, Life & Health Re. After 3 quarters, Life & Health Re net income stands at USD 1.1 billion, which is actually a quite solid result and a very important contribution to the group's earnings. But Life & Health Res' result has been too noisy. As mentioned at our half year results, we continue to focus on reducing volatility in smaller portfolios, where experience has lagged expectations, thereby producing negative variances to our expected results. These negative variances are unacceptable, even as our largest portfolios, including U.S. mortality, performed in line with expectations. In the third quarter, we, therefore, decided to partially accelerate efforts to strengthen the resilience of the in-force book based on detailed reviews of underperforming portfolios. Some of these are still ongoing and will be completed at the end of this year. We have full confidence in reaching the group's net income target of more than USD 4.4 billion over the year. But given where Life & Health Re stands after 3 quarters and given our focus on resilience, we feel it is prudent to flag that in a base case, we are likely to fall short of the USD 1.6 billion Life & Health Re full year target. We will do what's required to get this business to produce results closer to expectations. At this point, and I emphasize, we do not expect significantly outsized impacts from Life & Health Re in the fourth quarter relative to Q3. So you heard me emphasizing that. We will update you on this on December 5 at our Management Dialogue Event, and we're looking forward to that. Let me also briefly touch on new business CSM generation across our segments. We remain focused on disciplined underwriting as profitability continues to be our priority. To reemphasize again, we don't have a top line target. New business generation remained resilient with a new business CSM of USD 3.9 billion for the first 9 months, slightly down from last year's USD 4.2 billion. The decline versus last year, partially reflects the more challenging pricing environment that we're facing in some lines of business in the P&C business, but also in Corporate Solutions. It also reflects our continued focus on portfolio quality, including the setting of prudent initial loss assumptions. Overall, we're still satisfied with the margins we're able to generate across the businesses. Importantly, we continue to maintain discipline on terms and conditions and attachment points. I look forward to presenting further details on our group priorities at the upcoming Management Dialogue Event on December 5. On that date, we'll also announce our financial targets for 2026. I'll be joined by our Group CFO, Anders Malmstrom, to provide an update on key topics across our businesses followed by then an extended Q&A session. I think with that, I'm happy to hand over to Anders to give you more flavor. Anders Malmstrom: Thank you, Andreas. And again, good afternoon or good morning to everyone on the call. I will make a few remarks on the results we released this morning before we go to the Q&A session. Andreas has taken you through the highlights of our overall strong results for the first 9 months of the year. Let me add a few further details. On revenues, the group's Insurance revenue amounted to USD 32 billion in the first 9 months, down from USD 33.7 billion last year. The USD 1.7 billion decline has a few major drivers, most of which were already highlighted in the first half of the year. At Q2 2025, we had indicated that group revenues in the second half would be around USD 1.5 billion higher than in the first half. In line with this guidance, Q3 revenues were around USD 600 million higher than the average quarterly revenue in the first half of the year, reflecting the increased claims seasonality. While Q4 is also projected to be higher than Q1 and Q2, we now expect revenues in the second half to be slightly below the USD 1.5 billion previous estimate, primarily due to our continued focus on portfolio quality in P&C Re. As you have heard from us by now, we do not manage for top line. Let me move on to the Insurance Service result of our businesses. In P&C Re, you will continue to notice a decline in the CSM release versus last year's period. The USD 2.1 billion release in the first 9 months is down from last year's $2.7 billion. This decrease is driven by the earn-through of prudent initial loss picks, including impact of new business uncertainty allowance and slightly lower margins. Experience variance and other, which captures all variances relative to initial reserving assumptions, contributed positively by USD 549 million in the first 9 months, including $447 million in the third quarter alone. This quarter's positive experience was mainly attributable to large nat cat losses that came in $678 million below expectations, bringing year-to-date favorable nat cat experience to USD 900 million. In addition, P&C Re benefited from a one-off risk adjustment release in the third quarter in the amount of USD 170 million. Against this very favorable backdrop in the third quarter, we selectively added to both current and prior year reserves. Year-to-date, we have added around USD 300 million to our current year reserves in P&C Re. Nominal prior year reserve releases stand at around $150 million for 9 months, which means we added around USD 100 million in the third quarter. Please note that no further actions have been necessary on the U.S. liability portfolio we strengthened, a year ago. On the back of all the pieces I just described, P&C Re reported a very strong combined ratio of 71.3% in the third quarter, resulting in 77.6% for the first 9 months, well below the 85% target we have for the year. Moving on to Corporate Solutions. The 9-month CSM release of USD 668 million is above last year's $628 million, driven by higher in-force margins. Experience, variance and other was positive at USD 111 million. This reflects favorable large loss experience and a positive prior year reserve result, partially offset by an allowance for potential late claims reporting. Large nat cat claims of USD 60 million came in below expectations for the first 9 months, while large man-made claims of $282 million were slightly above, partially offsetting the favorable nat cat experience. Corporate Solutions continues its track record with a 9-month combined ratio of 87.1%, below our target of less than 91% for the full year. Finally, on Life & Health Reinsurance, as Andreas mentioned, we decided to partially accelerate our efforts to strengthen the resilience of the in-force book, following detailed reviews of underperforming portfolios. This resulted in negative assumption updates hitting the P&L in the amount of around USD 400 million for the first 9-months, [ there ] was USD 250 million in the third quarter. The large majority of the third quarter's impact related to selected Health business in the EMEA and ANZ regions. The fact that this hits P&L mostly reflects the onerous nature of these portfolios under IFRS, and this makes it particularly important that we strengthen them sufficiently. We have also seen negative claims and volume developments of approximately USD 250 million year-to-date, primarily in the third quarter. Q3 was mostly driven by the Americas region, which had a relatively poor quarter in terms of experience, driven by volatile large claims. Importantly, over year-to-date claims experience in our largest -- overall year-to-date claims experience in our largest portfolios, which includes the U.S. Mortality, which was strengthened before our transition to IFRS, continues to perform in line with expectations over the first 9-months. Despite all of the actions and impact, Life & Health Re has produced a net income of USD 1.1 billion in the first 9 months with $280 million achieved in the third quarter. While some of these assumptions reviews also affected our CSM balance in addition to the P&L, our CSM overall remained unchanged at USD 17.4 billion compared to year-end 2024, supported by attractive and prudently priced new bases and favorable FX impact. A few words on investments before concluding with SST. We benefited from a strong investment result, with a return on investment of 4.1% ahead of last year's 3.9%, supported by strong recurring income standing at USD 3.0 billion in the first 9-months. We estimate the group's SST ratio at 268% as of 1 of October 2025, 11 points higher from where we started the year. That's where I will leave it for now, and I'm happy to hand over to Thomas to kick off the Q&A. Thomas Bohun: Thanks, Andreas. Thank you, Andres. Hi to you from my side as well. [Operator Instructions]. With that, operator, could we start with the first question, please? Operator: The first question comes from Kamran Hossain from JPMorgan. Kamran Hossain: A couple of questions. The first one was just on the Life side. I think the commentary you've given around like quantum in Q4 versus Q3 is helpful. I just wanted to clarify a few things. So when you say it's not going to be a much larger quantum than Q3, I'm just trying to understand whether you mean the $250 million you flagged or the $450 million negative experience in Q3 stand-alone? Because there's quite a difference between the two numbers. So any kind of clarification on kind of what that comment kind of meant slightly more precisely? And the second question is in terms of like portfolios left to review, can you maybe talk through kind of the proportion you've got left to review, like what proportion is of kind of Life reserves? How meaningful is this? I'm hoping you're going to say a low number, but I just kind of wanted to hear what you say on that. Alexander Andreas Berger: Thanks, Kamran, maybe I should give Anders the first words on the size, and then I might jump in to give you a bit of background then. Anders Malmstrom: So, Kamran just on the -- when we talk about outsized or not outsized impact in Q4, we basically mean the $250 million impact that we saw in Q3. That's what kind of puts it in a box. So it's not much left. There's a few portfolios that we have to go through. We need to finalize that. And yes, by the end of the year, we should be done. Alexander Andreas Berger: Yes. And maybe just to give you the perspective, the bigger picture. So we have three phases that we looked at, and that's exactly why we come to that small number in comparison. So Phase 1 was introduction of IFRS. That's where we addressed the large portfolios, in particular, critical illness in China and U.S. mortality. Then we had, as a second phase, midsized portfolios, that also have been digested. And now we were turning the attention to the remaining smaller portfolios that are distributed across the regions and also lines of businesses. So what we needed to do, is really to address the individual noise in those many small portfolios, they are actually quite modest, but we needed to address the accumulation of this noise. And that's exactly why we took this view now, and that's the background to the question that, or the answer that Anders gave you. On the details of the regions, I think we will give you more details in the management update on the 5 of December. Operator: The next question comes from Andrew Baker, Goldman Sachs. Andrew Baker: First one, just on the Insurance revenues. So I hear what you're saying on you don't manage the top line. But are you able to give a bit more detail on which areas of the business has led for the, I guess, change -- slight change in view in the second half. Obviously, you previously said it was sort of $1.5 billion, you're expecting it to be higher than the first and now it seems like slightly below that. So just any more color there would be really helpful. And then secondly, are you able just to confirm how much of the uncertainty allowance you've added so far this year and what you expect this to be by the end of the year? Alexander Andreas Berger: Okay. Maybe I'll take the first one on the revenues. So maybe just to give you a bit of context again, and I think maybe it's a bit repetition from the first half. But overall, when I talk about $1.7 billion year-over-year lower, $1.5 billion, I think we already told you. First of all, it's the pruning actions on the P&C Re side, which is about $0.5 billion. It's the termination of an external retro transaction on the Life & Health Re side, which is $400 million, it's a nonrenewal of the Irish MedEx business, which is about $400 million, and it's then the sale of the P&C EMEA IptiQ, which is about $200 million. So that explains basically the majority of that. So overall, the remaining piece is then really coming from the P&C side, where we have this NDIC feature that we talked about, the netting of the commission with the -- that we didn't do before that and then just continued management of the business itself. So I think that explains it. I think that should be clear now. Anders Malmstrom: On the uncertainty note, I think this is a prudency measure. We're not quantifying it. Operator: The next question comes from Shanti Kang, Bank of America. Shanti Kang: So it was just mainly on the Life & Health side. So I understand that the L&H miss today won't derail the group net result target. But I think it does raise a couple of questions about the run rate into 2026. So I'm just curious whether or not the adjustments today will adjust the forward view on the run rate of the Life & Health book, i.e., if that's like a structural concern today that we should be thinking about? And then just given the fact over last 6 quarters, we've had a number of assumption updates. I get that you're saying you'll complete that in the full year, this year. But do we need to take some more caution on our assumptions for those into the next year, i.e., can we get a bit more comfortable as you think about there being no more updates or repeats in the future? Alexander Andreas Berger: Maybe let me do the intro and hand over then to Anders. Maybe just to clarify, we could have let the noise continue, that is another option. But -- and then we could have made our targets also in Life & Health. That's the one option. But again, we want all our business units to look healthy across all portfolios. We want all business units to play their role that they play in the portfolio of Swiss Re Group. We'd like to see the diversification benefits come through over time and consistently. Life & Health is decorated to P&C. That's the strength of our portfolio. Within the P&C, CorSo is not so correlated to the P&C Re business because we buy external reinsurance. So we think we've got a pretty clean setup at group level with all 3 business units. That's why we want all units to play their role and also to have a healthy portfolio to play optimal role. Anders Malmstrom: So maybe just to add to what Andreas said, I mean, I think it's really critical that we get that through. And that's the last phase of -- we started with large portfolios and now we're doing the small ones. But then this is done. We're going to give an update on the target and the expected run rate for the next year's -- at the management dialogue. And that's where you can also then expect a bit more details how this will perform going forward. Operator: The next question comes from Ivan Bokhmat from Barclays. Ivan Bokhmat: My first question would be on Life & Health as well. Maybe you could talk in a bit more detail about the underlying reasons for deterioration in those Health portfolios. Maybe there are any common drivers in these markets that developed negatively and what would make them unique compared to the better performing ones? Just to see if there's some trends that we can monitor from our side. And my second question, I mean, Anders, considering you suggested that the Q4 adjustment will be smaller than $250 million and your run rate is still quite comfortably getting you above $4.4 billion. I was just wondering if you consider taking any additional steps to add prudence in Q4 beyond the run rate that you have shown so far? And maybe if you could just highlight a bit more color on the movements in reserves that you have done year-to-date by portfolios. Anders Malmstrom: Okay. So let me start on the Health side. And this is -- I mean, all the actions are really driven on Health portfolios in EMEA and then APAC. And I think one that I can actually highlight is Australia. You might have seen also the press release that we put out, that in Australia, we're actually pausing new business because the environment is just not sustainable, and this is a market issue. This is not a Swiss issue. This is a market issue. That's really driven by the environment that we have higher claims than what we expected, and that's why we paused that business. So that's -- I would say that's the core. We give you more details then at the management dialogue also on the other portfolios, but that's a key element here. And we're not afraid of actually stopping or pausing a new business, if that's necessary because it's not sustainable in the market. I think overall, when you look at the reserve development, I mean, I can reiterate what Andreas just said in the beginning, I think we have two main objectives. One is to meet our financial targets and the other one is to then strengthen the resilience. We've done that already, I think, year-to-date, you can see that clearly. P&C, we talked about. Life & Health, we also -- and P&C, we also used the benefit of having a risk adjustment release in Q3 of $170 million. We immediately kind of re-purposed in that because we also had a very positive development coming from the nat cat. So all that together helped us to put more resilience in the balance sheet. It has nothing to do with the U.S. Casualty. It's completely different to that, but we took the opportunity now, very strong nat cat results, risk adjustment release to strengthen the balance sheet that I mentioned in my opening remarks. Operator: The next question comes from Iain Pearce, BNP Paribas. Iain Pearce: They're all on new business CSM. So when I look at the new business CSM for the non-Life divisions, if I just look at Q3 stand-alone, they're down by 30% to 35%. I'm just wondering if you could run through why there's been such a big move? I know it's not a massive quarter for P&C Re, but for CorSo, it seemingly is quite a big quarter on new business CSM. So why are they down so much in Q3 standalone? And same for the Life business, where clearly, ex-MedEx, it still looked like the new business CSM would be down quite a lot. So just trying to understand that as well. Any comments would be really useful. Alexander Andreas Berger: Just quickly before Anders answers this MedEx that was mentioned here, not Life & Health, that's actually the CorSo MedEx business in Ireland where the minus $400 million was stated. Anders Malmstrom: Yes. So I think CorSo is clear. I think Andreas mentioned it. It's really the MedEx business. On the Life & Health, you -- I mean, it can be a bit lumpy here because Life & Health, obviously, it also depends on the transactions. We didn't have transaction in Q3. So year-over-year, we were slightly down. Actually, compared to Q2, we're up. So I think overall, I think I'm actually pretty pleased with the Life & Health CSM despite having not had transactions. Obviously, when you have transactions, you have additional CSM. And then on the P&C side, I would say it's mainly driven by the property prices that are coming down that we see. I think other than that, we're pretty comfortable with the new business that's coming through. Alexander Andreas Berger: Yes. And let me make a general statement again on this top line growth aspect versus profitability bottom line view, and the reason why we don't put out growth targets because and I repeat myself again, in our industry, there's no problem to grow. If you want to grow, you can grow. And we learned our lessons, by the way, ourselves also in Swiss Re. The importance here to manage volatility and to manage cycles. And this is critical. Our customers, the [indiscernible], but also the corporates and the public entities, they rely on us being resilient even in stressful market cycles and market environments. And that's why we put the emphasis really on the healthy portfolio and also on growing the bottom line, which is that forces us also to find attractive growth pools where we can then go after. So that's the general statement I wanted to make. Operator: The next question comes from James Shuck from Citi. James Shuck: I'm probably going to go over a couple of areas again, if you don't mind. So on Life & Health Re, I think on the call last time, Anders, I was kind of asking you about the outlook for the experience, variances and loss components, which have been negative previously. And obviously, we've got the same thing coming through just now. You previously indicated you expect those to trend to zero. I presume that the actions you're taking today means that, that trend should actually accelerate. So really kind of just getting an insight into that kind of glide path to getting to zero. So should we expect 2026 to be a clean slate in terms of the experience, variance? And I kind of think linked to that, it's kind of the CSM amortization rate is much higher than the 8%, and I think when I asked previously, you suggested that it would come down. It wasn't clear to me why it would come down. And obviously, you've guided 8%, it's running around 10%. So just keen to get an outlook for the amortization, please. And then secondly, it was also actually on the P&C new business CSM, which is obviously down very sharply in the third quarter, as Iain highlighted. I understand what you're saying about not having top line targets. And -- but on the other hand, margins are very good and should be able to deploy capital incrementally. So if I look at your target capital over time in recent years, you haven't actually managed to deploy any incremental capital over the last kind of 2 or 3 years, and I'm kind of wanting to get an insight, particularly on that P&C Re new business CSM, in terms of the outlook there? And I appreciate you might return to this at the Management Dialogues Day, but I think it's an important point to try and get this feel for, are you still able to grow your earnings through a soft cycle? Anders Malmstrom: Yes, sure. So maybe, James, I'll start on the Life & Health side. I think you're absolutely right. I mean the whole objective of what we're doing here is to reduce the experience variance, and it should come to zero. I mean you will always see normal volatility. That's clear over the quarters, but the volatility for the full year should be close to zero, if not actually positive. That's where we're going to go in the long run. So that's why we took these actions. The other reason also, I think when we looked at this portfolio, all assumption changes here went through the -- because it's onerous business. It's even more important that you take these actions upfront because you don't want to have that noise in the P&L. I think that's really the driver. On the CSM release and the CSM amortization, I think we mentioned a couple of times now that we're running higher than the guidance we gave you. I think this is something that we will address at the Management Dialogue. We give you full guidance where we're going to expect that coming forward because we need to make sure that the guidance is what we see, and we saw a higher release than what we guided you to. On the P&C new business CSM, that's down year-to-date. I mean maybe another -- just -- I think you mentioned this before, your colleague mentioned before, we obviously talked now about the smaller portion that was renewed in Q3. That -- because until Q2, the CSM was actually in line with the previous year. Now you see it coming down from a small portion that got renewed, mentioned, of course, it was driven by the prices, also driven by the casualty pruning that we still continue -- that we say continue on a relative basis. I think Casualty overall, I think we're fine now with the market positioning. I mean, look, the outlook, I think we will see. We're very comfortable with the margins that we're writing. Andreas mentioned that before. We're still in a good position, but we manage to margin, and we just don't manage to volumes. And actually, in our view, that's why CSM is a good measure. That's why we're also explaining it to you that way because it talks about value. It doesn't talk about volume, it talks about value. But obviously, it reflects, if you have business mix changes in the business where you basically move to the more profitable ones, and that's exactly what we did. I don't know, Andreas? Alexander Andreas Berger: Yes. And I mean I can maybe just report out quickly from the discussions I have on the renewal side. We're just in the midst of the negotiations. So I don't have any indication to panic. We're still in very healthy territory, and I'm very careful to say, to guide you here because we're in the midst of the discussions. But you can already sense that I'm not pessimistic here about the outcome of the renewal. It's very constructive. And in cases, even, I would say, for me, quite optimistic. So let's see. The teams are working hard. Operator: The next question comes from Vinit Malhotra, Mediobanca. Vinit Malhotra: I mean some of these topics have been addressed. So I will just have maybe one theoretical question really. The fact that we've had 2 good quarters on tax means obviously, the targets are achievable easier, a bit easier. So I would say, was that one of the reasons why this Life & Health review was initiated? Or actually you were -- you would have initiated that even if 2Q and 3Q were normal cat quarters? Because in that instance, it might have been that the targets would have been a bit more difficult to reach. So I'm just curious about that. And also one question, if I can ask on Corporate Solutions, where the price cuts is a bit worse, minus 7% on just a quick check of 3Q. Could you comment on how the inflation or business mix or something else is changing to get good numbers on CorSo? Which obviously are helped by cat, but I understand even the underlying is good. So could you explain a little bit about the margin management at CorSo with minus 7% pricing? Anders Malmstrom: Just maybe quickly on the first one. Yes, of course, I mean, we are doing quite well at group level. And that helped us to take the decision on the Life & Health actions, and this is very clear. And by the way, we're consistent with all the meetings that we had before the call, in the last quarters or months where we continuously were telling that resilience of the group is really one of our two priorities. And should we be in a position to do that and still make our group target, why wouldn't we do this? So I'll bring this what you call theoretical question to a very concrete action now. On CorSo, I think CorSo, like all other companies in that sector have produced very good numbers. They're in a very healthy margin space. If you see slight reductions on rates, that's the same as in reinsurance, we're still very, very healthy in the longterm pricing adequacy as we call it. So I'm not nervous about this. Now the -- what's the focus of CorSo? CorSo doesn't want to play in this very commoditized space where the pricing pressure is really increasing due to increased competition. CorSo wants to play their advantages in the differentiation, international programs and alternative risk transfer. And I think this is a sweet spot because some of the very large corporates take premium out of the market, and manage it via their captives. And there, they need support through alternative risk transfer tools and solutions. The same actually also you can see also in the reinsurance market. The very large players think of taking business, reinsurance premium out of the market and try to find structured solutions, maybe some access to alternative capital solutions, et cetera. And again, here, we are best positioned to give not only advice but also solutions and those also generate revenues. So overall, for us, not a situation to be nervous in, but we're observing, obviously, and we're growing in areas predominantly where they're not correlated with the lines of business that have a stronger decline in rates. Operator: The next question comes from Will Hardcastle from UBS. William Hardcastle: The first one is just coming back to something we discussed a bit, but just trying to verify that $250 million of our outsized comment a bit relative to that. Are you saying there's not much chance that it could escalate further from this $250 million already done or another $250 million? And just to be clear on it, have you moved up on an actuarial margin basis? Or this is still best estimate still? Coming back to the $1.5 billion higher revenue 2H on 1H. FX hasn't really changed too much, and I guess you knew the parameter deviation already. Of the reduced number that you're thinking about now, how much of that's been a bigger NDIC impact and therefore, maybe a combined ratio offset? Or is it purely organic growth driven? Anders Malmstrom: Okay. So just to confirm on what we said -- what we meant is that for Q4 because we continue to clean up the Life & Health, the smaller Life & Health portfolios. You should not expect an impact that is bigger than the impact we saw in Q3. So to your question, to be very precise, this would be on top of the $250 million that we see. It's not more than $250 million in Q4, that's in a way, what I would expect. Now we haven't done it. We're not fully done. So we're going to give you the final update at the Management Dialogue. That's where you should then see much more details, but that's kind of the direction of travel that we're telling you as a floor. On the revenue side, yes, I think once we have the final run rate now, I think we're fully on this new -- with the full adoption of the NDIC methodology that we introduced last year. So you should then see based on that, a smaller revenue just for the same business on a relative basis, which has marginal impact on combined ratio. That's absolutely correct. Operator: The next question comes from Ben Cohen from RBC. Benjamin Cohen: I had two questions, please. Firstly, on the Life & Health side, could you talk a bit more about the areas in where you did see new business CSM growth? I think you flagged U.S. Mortality and Health and Longevity in EMEA. And specifically, I guess, the reasons why you feel confident to kind of grow those business lines, perhaps particularly with regards to Longevity? And my second question was in CorSo and P&C, I think on a 9-month view, the expense ratios rose reasonably materially year-over-year. Were there some one-off features in there? Do you need to do more to address costs because of the top line pressures that you're seeing? Anders Malmstrom: Okay. So maybe I start on the Life & Health side with the new business CSM growth areas. I think you will continue to see new business CSM growth on Mortality, the classical mortality that we write, that's still a big driver. We have a lot of contracts there and there's new business coming in there, which is good. Longevity is, I would say, a new area that for us became quite important, and we saw some traction there during the year. It's something that will develop. I would love to be more in the U.S. on the Longevity side. I think the problem there is just I think people need to start to realize that they actually have an issue because the local RBC framework in the U.S. doesn't really reflect that and you don't have a longevity chart. But I think the discussion we already have with clients is that this is a topic that will come over the next few years. And then still Asia is a growth driver where we will see CSM growth and particularly also on the Health side, after we have fixed all of the issues on the in-force. Alexander Andreas Berger: So maybe on your expense ratio, the increase of expense ratio is not business driven, and the reason why in Q3, we've got 3% year-on-year increase, that's mainly due to restructuring costs. We have restructured parts of the businesses. For instance, in CorSo, we have decided to exit the Aviation business and concentrate the underwriting on the Reinsurance side. So there were costs attached to that, the restructuring costs. Then we have a slight increase in volume-driven commissions. That's due to shift of some of the businesses, in particular, when you go into businesses that are more volume or facility-driven, those have -- and also specialty lines, those have elevated commission levels and then also slightly the lower insurance revenue. I think that I would look at it. Now we don't look at a quarterly basis for the expense management side because overall, we see a very positive trajectory by reducing actually the expenses because the actions that we took now are coming through and we see it in earning [indiscernible] and also. So I actually applaud then CorSo to address these things in a situation where CorSo was really performing very, very well. So that's the moment when we need to address those things. So you will expect the expense ratio going down. So remember, we put out the number bigger than $300 million cost savings target overall, and we are very, very well on track to achieve this. So even alone this year, we are exceeding the $100 million. So we're well on track to achieve this by 2027. Benjamin Cohen: And we will provide details on that management... Alexander Andreas Berger: Yes, absolutely. Operator: There are no more questions from the phone. Thomas Bohun: There seems to be maybe one more. Alexander Andreas Berger: We actually lost him. So he probably decided not to ask the question anymore. Thomas Bohun: Thank you very much for all the questions and your interest. Should there be any questions outstanding, as always, please do not hesitate to contact the IR team. With that, thank you for attending the call, and have a good weekend. Alexander Andreas Berger: Thank you. Operator: Thank you all for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Automotive Properties REIT's 2025 Third Quarter Results Conference Call and Webcast. [Operator Instructions] Please be aware that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the REIT's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking information. For more information on the risks, uncertainties and assumptions relating to forward-looking information, please refer to the REIT's latest MD&A and annual information form, which are available on SEDAR+. Management may also refer to certain non-IFRS financial measures. Although the REIT believes these measures provide useful supplemental information about financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please refer to the REIT's latest MD&A for additional information regarding non-IFRS financial measures. This call is being recorded on November 14, 2025. I would now like to turn the conference over to Milton Lamb. Please go ahead, Mr. Lamb. Milton Lamb: That's great. Thank you, Krista. And good morning, everyone. Thank you for joining us today. On the call with me is Andrew Kalra, our Chief Financial Officer. We had an active period in advancing our strategic initiatives for unitholders, including a distribution increase and completing approximately $151 million of acquisitions. During the quarter, we deployed approximately $93.6 million for acquisitions of 7 automotive properties, including 5 automotive dealership and collision repair centers in the Greater Montreal area, a Rivian tenanted property in Orlando, Florida and subsequent to quarter end, we completed the acquisition of an additional 4 automotive properties in the Greater Montreal area at a combined purchase price of $57.3 million. We expect these property acquisitions to drive continued growth in our AFFO per unit. In addition, we recently completed a bought deal equity offering and concurrent private placement for a combined gross proceeds of approximately $57.1 million. While our results for the third quarter don't yet reflect a full quarter impact of our recent acquisitions, we still generated solid growth in our key performance metrics. Compared to Q3 a year ago, rental revenue increased by 7.9%. Cash NOI is up 6.5%. Same-property cash NOI increased by 2.3% and AFFO per unit diluted increased to $0.252, up from $0.233. Supported by the strong financial performance, the Board of Trustees approved a 2.2% increase to unitholder distributions in the quarter, increasing our annualized distribution per unit from $0.804 to $0.822. We're pleased with our progress in advancing our strategic initiatives for our unitholders, and we look forward to realizing the full impact of our acquisitions in the quarters ahead. I'd now like to turn it over to Andrew Kalra to review our financial results and position in more detail. Andrew? Andrew Kalra: Thanks, Milton, and good morning, everyone. Our property rental revenue for the quarter increased to $25.4 million from $23.5 million in Q3 a year ago, reflecting growth from the properties we acquired subsequent to Q3 last year and contractual annual rent increases, partially offset by the reduction of rent from the sale of our Kennedy Lands property in October 2024. Total cash NOI and same-property cash NOI for the quarter totaled $21 million and $19.6 million, respectively, representing increases of 6.5% and 2.3% compared to Q3 a year ago. Interest expense and other financing charges for the quarter were $6.5 million, a slight decrease from Q3 a year ago due to lower floating rates. Our G&A expenses were $1.7 million for the quarter, an increase of $0.3 million from Q3 last year, in line with our expectations. Net income and other comprehensive income was $10.4 million compared to $1.8 million in Q3 last year. The increase was primarily due to changes in noncash fair value adjustments for interest rate swaps and Class B LP units and unit-based compensation and a foreign currency gain. FFO and AFFO increased by 8.3% and 8.8%, respectively, compared to Q3 last year, reflecting higher rental revenue from acquisitions and contractual rent increases, partially offset from the reduction of rent from the sale of the Kennedy Lands. We paid unitholder distribution of $10.1 million or $0.204 per unit in the quarter, representing an AFFO payout ratio of 81%, down from 86.3% in Q3 last year, reflecting the positive impact of the properties acquired subsequent to Q3 last year and contractual rent increases, partially offset by the reduction of rent from the sale of the Kennedy Lands and the increase to REIT's distribution. The cap rate applicable to our portfolio was essentially flat quarter-over-quarter at 6.7%. The $3.6 million fair value adjustment primarily related to the write-off of closing costs associated with the new acquisitions. We continue to be proactive with our debt to limit our exposure to interest rate fluctuations and enhance our financial flexibility. During the quarter, we renewed and extended just over $29 million of floating to fixed interest rate swaps for the term of 5 to 6 years at rates just under 4.6%. We increased the amount of the non-revolving portion of Facility 2 by $40 million, and the maturity date was extended from January 2028 to March 2029 at the same credit spread. This extension of maturity term is consistent with our strategy and that we've executed on a regular basis for all our credit facilities. Subsequent to quarter end, we renewed a floating to fixed interest rate swap within Facility 2 in the amount of $15 million for a term of 6 years and an interest rate of 4.4%. We increased the amount of the non-revolving portion of Facility 3 by $40 million. We have a well-balanced level of annual maturities with only $63 million of swaps maturing over the next 24 months. We have a weighted average interest rate swap term and mortgages remaining at 4 years. As at November 13, 84% of our debt was fixed through interest rate swaps and mortgages. We have a fixed average effective interest rate through swaps and mortgages of 4.4%, which is comparable to recently completed swap rates. We also completed $57.3 million equity offering, including the exercise of the over-allotment by the underwriters. As a result of the successful completion of the offering and the issuance of $10 million of Class B LP units and the completion of our acquisition of 4 properties subsequent to quarter end, as at November 13, our debt-to-GBV ratio was approximately 45%. We had approximately $7.5 million cash on hand, approximately $9 million of undrawn capacity under our credit facilities and 8 unencumbered properties with an aggregate value of approximately $117 million. I'd like to turn the call back to Milton for closing comments. Thank you very much. Milton Lamb: Thanks, Andrew. This year marks the 10th anniversary since the completion of our initial public offering. And over that period, we've made significant process -- progress in raising our industry profile and diversifying our tenant base, market presence and brand representation while more than tripling the value of our investment properties. We have accelerated this progress over the last 12 months and further strengthened our position for growth through the acquisition of a total of 15 properties for an aggregate purchase price of just over $215 million, including our entry into both the U.S. market and the heavy equipment dealership vertical, both of which broaden our potential acquisition pipeline. Looking ahead, you can expect us to continue to build on these positive factors to drive unitholder value, supported by growing property portfolio featuring essential retail and service properties with 100% retail collection -- sorry, 100% rent collection since our IPO over 10 years ago, prime metropolitan markets anchored by GDP and population growth, high-quality tenants with resilient business models, attractive single-tenant net lease structure and embedded fixed or CPI-adjusted rental growth. That concludes our remarks. I'd now like to open the line for questions. Christy, please go ahead. Operator: [Operator Instructions] And your first question comes from the line of Jonathan Kelcher with TD Cowen. Jonathan Kelcher: I guess over the last 12 months has been one of the most active times since you guys went public and you just reloaded the balance sheet. But what are you seeing now? Traditionally, Q4 is kind of the most active time for dealer M&A. Are you seeing any pickup in activity there? Milton Lamb: When I talked about this about 12 months ago, I was saying I expected the next 18 months to be pretty busy. A lot of the deals that we've completed recently have been previous dealers who have sold their residential -- sorry, sold their real estate after the fact. So it wasn't on the back of M&A. We're still seeing some slight hesitation, a gap on pricing in some of the M&A because of the environment we're in. But the entry into the states, just the activity we've had overall, the fact in an inverse way that interest rates have got to a level where there is a cost of capital for dealers have allowed us a nice place back at the table to be active again. And the pipeline we're seeing the opportunities, especially in the states, it is very positive. I mean in the states, there's more opportunities. There's certainly more competition, we have to pick our spots. But the traditional weighting more towards the back quarter or slightly into the first quarter, I mean, we've got some of that done already. We have always had the mantra mindset. We never wanted to extend the balance sheet where we were not comfortable. So we didn't extend too much before knowing that we're in a place that we are comfortable and able to do the raise that we did. So we're certainly -- I'll reiterate what I said 12 months ago and just extend it a bit further. We're looking forward to the next 18 months. Operator: Your next question comes from the line of Jimmy Chen with RBC Capital Markets. J. Chen: I noticed that there's a footnote that Audi is looking to leave the Vaughan site. And I'm just kind of curious as to what you're planning to do there. Milton Lamb: We just received that notice. It was not a surprise. We have -- and we've talked about it before, looked at this as a high-density residential site. And at the same time, it is a very high-quality either automotive or retail property being right beside Vaughan Mills. So we are now exploring what we're going to do with that, whether it's a short to midterm lease or other. Certainly, the quality of the property, especially compared to the price we bought it at, we feel very good about it. But we're moving on to the next steps as far as what do we do with this as we go forward approximately a year from now. J. Chen: Okay. Sorry, just a follow-up. So what's looking more likely though? Milton Lamb: Sorry? J. Chen: Which one -- which of the 2 options are looking more likely in terms of... Milton Lamb: It's too early to say. Operator: Your next question comes from the line of Zemin Liu with Desjardins. Zemin Liu: Just a quick question on transactions. So after selling the Kennedy Lands in 2024, are there other assets on the list for recycling as we head into next year? Milton Lamb: Jimmy just kind of touched on it a bit. The one that we would have seen as potential would have been 9088, Jane Street. I don't think we're in a rush for that in the current market. We have said before that we are not going to create a development arm and be a developer. That doesn't mean we won't do entitlement and look at taking nice profits as we've done with Kennedy Road and recycling them. But I think it's doing it at the right time and a place. I've always said in real estate, you do very well unless you have to do something. So we are not in a position where we have to do something, but we certainly want to be able to continue to drive AFFO per unit and capital recycling and/or re-leasing at a good rate can both -- can do both of that. Operator: [Operator Instructions] And we have no further questions in our queue at this time. I'm sorry. Your next question comes from the line of Giuliano Thornhill with National Bank. Giuliano Thornhill: I'm just wondering on the distribution policy, if you could kind of outline how you're thinking about that? Was it like AFFO per unit? Was it the transaction? Just to see on that, please? Milton Lamb: I mean it all comes down to AFFO per unit. And we've said before that we don't believe a onetime distribution increase does a lot for either our investors or for the pricing of our unit. So we -- the trustees and management feel very comfortable as we're looking to move forward. Certainly, the recent acquisitions, the levels being able to do them, the levels we've been able to put debt in place driving AFFO, that allows us to have the continued confidence. So I mean, as a policy, you've got to do one before you can do a regular series, but we certainly like the idea with our lease structures that there's the ability to continue to see same-property NOI and therefore, AFFO growth per unit to leave us in a comfortable position. Giuliano Thornhill: And so are you comfortable kind of setting like a target like 1 to 2 or so going forward quite yet? Milton Lamb: You're asking for forward-looking. We certainly can't do that. You've certainly got the ending tones on what we like. We can't project what there will be in a year. But all I can say is that we have consistently said we don't like the idea of doing a one-and-done distribution increase. Operator: Your next question comes from the line of Sairam Srinivas with Cormark Securities. Sairam Srinivas: Congratulations on a good quarter. Milton, looking at your comments for the next 18 months, as you look to be active and looking at the asset stack, you have these longer-term leases right there. I mean if you look at the debt side of things, the cost of capital, I guess, on the debt side is still more short term in terms of lines of credit and credit facilities. And that's -- I know that's essentially how you guys have operated. But is there a thought process to essentially change that debt stack a bit and probably look to more permanent stack of capital there? Milton Lamb: Sorry, to convert it to... Sairam Srinivas: Probably maybe the other forms of debt essentially and put more secured debt or convert... Milton Lamb: I mean at a certain size, you would think we have the ability to do unsecured debt, debentures take advantage of the financing market that's out there on the public side. Mortgages are very -- they remove a lot of flexibility. Our tenants are operating businesses. So we do get a knock on a door to help them with expansions, et cetera. I've been in the business since 1991. Those mortgages sometimes really do handcuff you. We have had on a regular cadence, the ability to and continue to enjoy, as you've just seen, the ability to extend those credit facilities, expand them, contract them, bring properties in, bring properties out, do expansions. There is a lot of for our own flexibility and therefore, as a follow-through, our tenants' operating flexibility, a lot of reasons why a certain part of our balance sheet might be mortgages, but it's not going to be a significant part. We need and like -- and I think the unitholders benefit from that flexibility that we're able to achieve by initially starting out with an unsecured portfolio to be able to put this -- the credit facilities in place. Sairam Srinivas: That makes sense, Milton. And probably my last question is for the Montreal acquisition, which you guys just closed in Dorval. I know you told these assets when you did the property tour, I think, a couple of years back. And at that point in time, we spoke about a lot of the potential in the developments around that area and the broader, I guess, infrastructure development around there. When you've chosen this acquisition, was there a future vision in terms of what you could do here? Or was it just like -- are you currently basically looking at the properties as they are and it makes sense to kind of hold them? Milton Lamb: Yes. The short-term future vision was that they are opening up that DesRosiers REM station. I think it was supposed to be October, so kind of as we speak. That is going to continue to drive density and traffic in that area, which is good for our tenant and certainly good for the land underneath. If you look at that site, including the Mazda that we already have, that becomes an incredibly attractive site. Now the tenant does have renewal options. We certainly think they're going to stay there for a while. And we're not in a rush. We do love the fact that it has underlying ability to either support very successful dealerships or to do mixed-use higher density. It certainly allows us to sleep well at night. But today's market, it's not the time to kind of reach and kind of push just for density. Operator: And that concludes our question-and-answer session. I will now turn the conference back over to Mr. Lamb for closing comments. Milton Lamb: That's great, everyone. After a busy quarter, thank you very much, and we look forward to catching up with you soon. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Omar Al Bayaty: Good evening to all the people connected. Welcome to the 9-month 2025 result presentation. Enel's CEO, Flavio Cattaneo, will open with the key highlights; and our CFO, Stéfano De Angelis will present the economic and financial results of the period. We ask those connected to the webcast to send question only via e-mail at investor.relations@enel.com. Before we start, let me remind you, media is listening both the presentation and the Q&A session. Thank you. And now let me hand over to the CEO. Flavio Cattaneo: Thank you, Omar. Welcome, everybody. Over the past months, we continue to implement our strategy, and our result prove its effectiveness. First of all, EBITDA and net income continued to grow steadily, reaching EUR 17.3 billion and EUR 5.7 billion, respectively. We're improving asset quality and profitability, leveraging on stable geographies with high visibility of returns and a balanced risk profile. Our focus on European countries now representing 75% of group EBITDA and 90% of net income led to an improvement of the EBITDA conversion into net income. We expect this ratio will achieve 30% at the end of this year, 5 percentage point above the 2020-2022 average, also due to our share buyback program, a double benefit of investing in our industrial asset while giving an additional return to our shareholder. This continuous improvement lead to stable growth in EPS and confirming our focus on shareholder remuneration. Furthermore, as usual, we are going to distribute an interim dividend in January equal to the 50% of the guidance floor, even though the final payout in July is confirmed up to 70% of the net ordinary income. As you know, environmental sustainability remains central to our strategy with emission-free production reaching 84% of total generation. Now a brief overview of our 9-month performance across geographies. The results were driven by strong operating delivery in Spain, mainly driven by the integrated position management and in Colombia, mainly due to good water resource availability. A clear example of our attention to process and portfolio optimization is the U.S., where our commitment has led to a positive cash flow for the first time since the beginning of our operation. In addition, the renewables in other countries have been restructured and reshaped in a growth platform. In LatAm, the resilient operation offset currencies dynamics. While Italy continues to face challenges, lower water resource affected the result of our hydroelectric plant. In light of the result presented, we confirm our expectation to close the year with ordinary EBITDA aligned to the guidance and the net income slightly above the top of the guidance range. This is a clear indicator of execution and value creation. Now I leave the floor to our CFO for further details. Stéfano De Angelis: Thank you, Flavio, and good evening to everybody. In the third quarter, the group confirmed positive and consistent economic and financial results. The limited risk exposure and the quality of our earnings are evidenced by the linear trend throughout the quarters with a net income expansion funded on a structural improvement of our asset portfolio profitability. Focusing on the delivery of our strategic pillars, the group profitability continues to be strong with net income up by 5% year-on-year, expanding the 3% growth reported in June, thanks to an improved conversion of the EBITDA, which now stands at 33%. Efficiencies continue to be front-loaded with 80% of the 2027 target already reached. Our efficiency program is part and share the same approach of the capital allocation process, representing our best and cost-free source of funds. Last but not least, on financial sustainability, net debt on EBITDA remained flat at 2.5x despite the EUR 1 billion execution of the share buybacks, which were not included in our guidance for the year. In conclusion, these remarkable results confirm once again the solidness of our business model and our balance sheet flexibility. Before diving into the results, let me show you the delivery on capital allocation. The execution of the industrial plan, I'm on Page 6, presented in November last year is progressively reshaping the asset portfolio of the group, allowing for a substantial improvement of the business performance. This is translating into a better asset quality with reduced volatility exposure and a more balanced risk return profile and an improved asset profitability, which resulted into higher EBITDA conversion into both net income and FFO. Thanks to this growing level of investment deployed in Europe, 75% of EBITDA contribution is now coming from this area. A minority dilution is limited to 9% on the European operations. At the bottom line, this translates into 90% of net income contribution coming from both Italy and Spain. This improvement is driven by coupling new investment guidance and the maximization of the value to be extracted by our asset base. I move to Page 7. Here, I show how the previous investment cycle was focused on growth in renewables capacity in Latin America and U.S. However, lower market visibility and greater market volatility and -- generate a lower-than-expected EBITDA, while the net income conversion was also affected by the higher financial cost and depreciation related to the incremental capital expenditures. On the opposite, the new investment cycle started in 2023 is focused on countries and businesses with secure and visible returns. It is proving to be more efficient and effective, delivering an improved EBITDA contribution, thanks to a more effective and efficient capital allocation and the reinvestment of efficiencies, as I said before, at zero-cost source of funding. This is clearly visible in the stronger results along all the P&L lines, implying an improved conversion of the EBITDA that is set to exceed 30% for the full year when we compare with 25% on the average 2020-'22 period. The first execution of the efficiency plan, the improved conversion efficiencies achieved in the headroom created on the balance sheet that equip us with a significant firepower to implement the share buyback programs already announced that we have on Page 8. The full actionable buybacks plan at group level stands at around EUR 6 billion and includes the total amount of the 3 different programs approved both at Enel SpA and its subsidiaries level by the corresponding AGM. About Enel program approved by the AGM for EUR 3.5 billion, we are on track to complete the EUR 1 billion tranche launched in August. And as of today, we have purchased 63% of this amount. Endesa where the program approved by the AGM amount to EUR 2 billion has already announced EUR 1 billion in 2 different EUR 500 million tranches with the second one already ongoing and having a final date, February 26. As of today, Endesa have purchased EUR 0.5 billion -- have spent EUR 0.5 billion and with an average per share acquisition cost of EUR 26.6 per share that represent 1.9% approximately of the total share capital. Lastly, Enel Américas share buyback was completed and oversubscribed with a total amount of USD 470 million. The partial was financed by the available liquidity. This liquidity is still arising from the sale of Peru from the disposal plan that we executed starting from 2022 until 2024. The operation now that is conclude and will be financially executed -- has been financially executed on the 1st of October will increment the Enel shareholder into the company into the holding Enel Américas from 82.3% to 85.7%. This brings me to say that it's worth to highlight that also the share buyback program at subsidiary level increased the Enel SpA earnings per share, thanks to the higher portion of the consolidated net income post minorities. Then the Investor Relations may make this exercise with you of calculating the percentage point of the increase. Now we are around 1% of net income post minority increase with the execution of this portion of the buybacks. On Page 9, we finally move into the economic and financial results of the quarter. As I said before, the group delivered a solid performance, improving previous quarter's bottom line performance and the trend expectations. It is worth reminding that this year, we face relevant exogenous negative effects, a stronger euro exchange rate compared to our Capital Market Day guidance, the breakout-driven increase in network ancillaries' cost in Spain. And then the program, let me say, curtailment in Brazil that is defined by the regulator without any refund for the generators. Including the impacts of these, let me say, headwinds as we call them, we would have stayed exactly in the expected growth of the budget and the plan that is plus 3%. But the reduced exposure to countries and business where we have this kind of higher volatility and sometimes unnecessary risk profile represented also by the limited contribution to the bottom line allow us to mitigate these headwinds at net income group level. Well, the limited conversion of the EBITDA exposed to these negative impacts smooth this impact that is more than compensated by the better execution, for example, in terms of bad debt and financial expenses. Finally, net income came in at EUR 5.7 billion, up by 5% year-on-year. It is important to remind that as already represented in the previous quarter, at net income level, the adjustment related to different perimeters across 2024 and 2025 includes also the sale of Slovenske that resulted in a negative noncash impact in the reported numbers of 2025 for the release of [ network reserves ] that was booked in the past related to derivatives. Remember that we have the important cash impact of taking back to Italy more than EUR 1 billion of shareholder loan and all the interest that was capitalized in the previous years. Finally, our improved organic results translated also into enhanced cash conversion, enabling us to reduce our net debt by EUR 0.6 billion year-on-year despite an additional EUR 1 billion not included in our business plan allocated to shareholder remuneration through the buyback execution and this maintaining the net debt on EBITDA ratio stable at 2.5x. I will now dive into the key highlights of the business moving to Page 10. We are talking about the grid's delivery, and it's important to highlight, as always, that we deployed a very huge amount of investment in this segment that amount to EUR 4.7 billion with an increase of 14% when we compare the same perimeter of 2025. Italy, that is the unique, I would say, regulatory framework that evolve versus the new needs in terms of network evolution in order to grant the resiliency and the support -- the adequate support to the system network security and contribution to the entire economic environment growth. This is the unique country where we already achieved the most important goal that is having a fair regulatory framework to allow us to invest, and we are ready to invest significant resources if we found other framework like this one. I'm anticipating probably some question about Spain. So it's clear that Italy gained the lion's share. So when we say Europe gained 80% of these shares, we have to also say that 70% of this amount is dedicated to Italy. The huge amount of investment boosted the value of our RAB, which has now reached almost EUR 46 billion, increasing the resiliency also and the visibility of our EBITDA for the coming periods. Finally, it's worth to highlight that as I have been questioned several times, and I don't know if this was part of the communication that you received from the analyst or from the financial market, the WACC in Italy was confirmed at 5.6%. Let's now look at the generation and supply business. In terms of capacity, our renewable asset base grew 3 gigawatt in the last 12 months, supporting the share of the renewables production on total, which remains stable at 72% as of September for the lack of resources in Italy for hydro, approximately in the year-on-year comparison, we have 1.5 terawatt hour less this year. And in Spain for both wind and solar resources and also for the relevant impact in terms of curtailment in Brazil because it's important to highlight that terawatt is not considered also in the production KPIs. We continue to deploy greenfield BESS capacity, reinforcing our leading position in storage, and we add 1 gigawatt in the last 12 months. And if we include our pumping capacity, now the full storage capacity of the group reached almost 12 gigawatt. Continuing on BESS, in the MACSE auction in Italy, we achieved a remarkable result awarding almost 70% of the total battery storage capacity auctioned with 6.7 gigawatt hour out of a total of 10. Moving to the retail segment. In our domestic market, volumes remain pretty stable at around 52 terawatt hour. Other important point, we also underline this, starting from the second part of last year, we complete the reshape of the offer portfolio and now our customer base is more resilient, demonstrated by the strong reduction in churn rate. Furthermore, our offers are now based on a sustainable price level in line with the current market price. I will now move into Page 12, and I will talk about the earnings evolution. As I said at the beginning of my presentation, ordinary net income came in at EUR 5.7 billion with a solid 5% growth that was supported by the mentioned EUR 8 billion CapEx. And this is the result of a strict but simple financial discipline and the value-driven approach that we have bring into the integrated margin management. I will now focus just in some specific topics. D&A increased EUR 100 million versus last year, but this is mainly driven by higher amortization resulting from the increased level of CapEx deployed over the year, but this was fully offset by a very positive result that was the bad debt evolution, especially in Italy that was also connected to the improvement of the -- sorry, on the churn rate, confirming a structural trend that we have observed along all the year. And already in the first half, we have a very positive impact. So the CapEx is doing its job, adding EBITDA, adding D&A. You do not see the impact at EBIT level of this additional D&A because we have the bad debt that is performing very well and reducing EUR 300 million -- sorry, EUR 300 million in Italy and EUR 100 million additionally in Spain, so EUR 400 million in the 9 months that compensate the D&A effects. Another very positive impact is financial expenses that are down by around EUR 300 million, and this is thanks to the reduction in charges on debt driven by the EUR 4.3 billion reduction in gross debt and the lower cost of debt compared to last year. Let's now move to the slide related to the FFO and net debt. I'm on Page 13. The EUR 11.1 billion FFO delivered in the 9 months implies a remarkable 64% cash conversion, which will be confirmed as [ share ] for the full year results. The FFO generated in the 9 months more than covered the deployment of organic CapEx as well as the acquisition of asset, brownfield in Spain with FFO minus CapEx being positive for EUR 2.5 billion. This net cash flow from operation, the net cash related to nonrecurring or accounting adjustment funded a EUR 7 billion shareholders' remuneration that have approximately EUR 6 billion of dividends and the EUR 1 billion approximately related to the buyback. Finally, net debt came in at around EUR 57.5 billion with a remarkable and confirmed ratio of FFO/net debt at 25% that is up by 2 percentage points versus previous year, another sound results proving the quality of our asset and very important for our rating. With this, I end my presentation. Thank you for your attention, and let's now open the Q&A session. Omar Al Bayaty: We thank our CFO. Let's now open the Q&A session. We received a lot of question for the call that we have summarized by topic and will be answered by the CFO. The first one, share buyback program for Enel SpA. Now you are on track to complete the first EUR 1 billion. What's next? Stéfano De Angelis: First of all, it's clear that we have today the balance sheet to execute the entire program, meaning EUR 3.5 billion approved by the AGM. Important to remind that the 18 months that is the difference, for example, from Endesa program, that is the duration of the program is the mandatory maximum duration for the Italian law. So it's not a specific decision underlying the 18 months. Clearly, the buyback is one of the option that we have to use part of the available financial flexibility. But we have to keep in mind that we have other relevant opportunity to expand the industrial asset base in order that is our fundamental goal to ensure stable and long-term earnings accretion. Omar Al Bayaty: Thank you, Stéfano. Let's move to Italy concession extension. In Italy, we are waiting for the final document on concession extension. Any news? Stéfano De Angelis: Not depending where you are, but the last relevant event is the ARERA Resolution in August. So we are currently waiting the decree of the Ministry of Economy. But as of now, in terms of -- you asked about the assumption. Being a decision that is not in our hands, our unique assumption -- for my unique assumption, let's call it this way, about the amount of the lump sum is what we have included in our Capital Market Day in November. And probably some of you remember that we included this amount not having still the opportunity to disclose the ongoing discussion about the scheme of the extension of the concession. Regarding the timing for the cash out, this is based on a step-by-step process whose timing is set by the government bodies because we have different actors that participate into this process that are involved. And this should target, as we always stated, the last quarter of 2026. But let me say about this topic that the value of this concession extension and the related extraordinary CapEx plan has to be considered independently from whenever and whatever will be the lump sum, even if it is a relevant element of the framework because the extension and the new and increased CapEx cap, this is really important as I have the opportunity to share with some of you, will allow us to invest more than EUR 15 billion in the next 3 years in Italy with a dramatic increase in the RAB compared to the past. Don't forget that we will have just in 2026, EUR 1 billion of grant still in our CapEx. But starting from 2027 and in 2028, we will not reduce the CapEx, the gross CapEx for EUR 1 billion, as you see in my number. So you know that the grants do not translate into RAB. So if this is EUR 3 billion or if this is EUR 4 billion, we have 3 year and a new framework that allow us to make an extraordinary level of CapEx, and we have the full firepower to realize a very significant upside in the CapEx that we will transform into RAB. Omar Al Bayaty: Thank you, Stéfano. Let's move to Spain. Can you please update us on the latest news on regulation in Spain? And what's your view? Stéfano De Angelis: We do not expect further updates earlier than the end of November. After that, the regulation will be finalized before year-end. Endesa has already got the access to the file, then they are still, as all the other operators, submit comments as always. We think that the changes proposed by the CMC in the latest documents do not solve the issue of effectively incentivizing the level of investments needed to accelerate the country's electrification and support the energy transition. This means that failing to establish a more predictable and adequate remuneration framework to meet this demand will mean missing a historic opportunity to enhance competitiveness, create jobs and drive economic growth. These are all topics that were part of the program of the government when we start to discuss about this topic. It's not my personal idea of Spain. But to be pragmatic, once the final remuneration framework is approved by year-end, we will be in a position to reassess if there are the condition, and we will assess also the sites for a potential upside in this CapEx plan. So we are talking about an upside. And this will happen ahead of the upcoming Capital Market Day that is scheduled for February 2026. Omar Al Bayaty: Thank you. Next question, if you -- could you please update on hydro concession extension? Stéfano De Angelis: There are several concession in Italy that have already expired by several years. And it's worth to remind that our concession will expire after the end of the next 3 years' industrial plan. So I can say that we expect the process will take longer time to start. It will -- this has to involve regional, national and European authorities. So it should be different from the one of the distribution. This does not mean that -- this is not a negative consideration. Because at the same time, it's a common understanding that in the present macro and geopolitical scenario, the condition that shaped the present regulatory framework need to be currently updated. Finally, what I want to say that we are not in a hurry, and I think it's not the proper time to speed up the process from our side, having the regulatory agenda already full. We were talking about the extension of the grid concession some years before of relevant topics, not just for our company, but the whole industry. Omar Al Bayaty: One more on concession, but Brazilian one. Could you please update us on the process for the concession renewal in Brazil? Stéfano De Angelis: But the process -- there are 3 processes that have different timing. So I will -- about the specific administrative update about the 3 processes that you can share with the -- also with the IR department. The relevant underlying discussion and evidence from our point of view, that is our point of discussion with the authorities are all pointing to the full extension of Enel concession. This is because we -- it's worth to remind that our effort in the country translates into a complete turnaround of the operation, targeting a dramatic improvement of the quality and the effectiveness of our operational processes that is joined with a gain in terms of productivity and efficiency in terms of spending. As an example, we are in-sourcing mission-critical field activities in order to improve the end-to-end management and monitoring of the network, but this is just one of the example. We are strongly increasing -- already increasing the capital expenditure and the OpEx dedicated to this turnaround plan. So despite a complex unfortunate starting point, with this approach, the present scenario drive to a full concession renewal as, I would say, also the unique scenario that we are considering today. Apart the concession topic, let me also update you on the liberalization of the retail market in the country. The government has defined the full liberalization of the retail market with a final deadline within 3 years. This means that our strong leading presence in the country should create a growth platform able to capture an incremental value creation that implying a potential but significant re-rating of our Brazilian operations. Omar Al Bayaty: Thank you, Stéfano. One question on MACSE auction. Could you please elaborate on investments and expected return? Stéfano De Angelis: This is the auction that -- it's in Italy, the counterparty is Terna, the TSO. We were awarded with around 70% market share of the total capacity in the auction. And as I already said in the presentation, 6.7 gigawatt hour, that is the other way of, let me say, measuring the auction level of capacity and megawatt, gigawatt hour as you prefer. The auction was based on a pay-as-bid mechanism. So you see that we have different pricing. So it's very difficult to understand an average point because you have different price for different players and for different plants. What is important is that this auction generated 15 years, 95% regulated revenues that give us full -- also to our shareholders, full visibility of the earnings stream with, let me say, I would say, a very risk profile because we have the construction, but BESS, we are the leading, I think, company. I don't know because nobody was helping me to understand this, but I think that we could be also the leader for sure in Europe and maybe also in some other continent. But I'm not joking that the execution of the construction of the BESS, we already realized approximately 2 gigawatt in Italy. So for us, this is not an element to consider a risky point. So the COD of this capacity and the EBITDA will be 2028 as based in the auction. So you will have full visibility in our next business plan and also positive impact of this CapEx in this auction. Omar Al Bayaty: One more on auction, FER X auction. Deadline for competitive process is at year-end. What's your expectation on the outcome? Stéfano De Angelis: If you look at the press releases that we have from the -- let me say, the administrative bodies, it's already, let me say, quite clear that we are -- first of all, we have 2 different auction. The big one baseline, let me say, auction and then we have another smaller that was dedicated to non-Chinese, let me say, components and agreements. The first one, we already understand, let me say, by the statement, the official statement from the GSE that have been awarded around EUR 60 per megawatt hour, something -- some capacity less, some capacity higher. But you have to consider that this price is adjusted for inflation. There is a full curtailment coverage, and this has generated so we have, let me say, a solar scenario. Solar was the big portion of this auction. And then there is an additional component in the price that is -- that depends from the geography. You have EUR 4, if I'm not wrong, plus in the center of Italy and EUR 10 plus in the north of Italy. This is not adjusted by inflation. So at the end, you have something that is in the range of EUR 65. In some cases, you have more than EUR 70. Again, that for the EUR 60 average of the base auction will be adjusted for inflation. In the other auction, we do not have any statement. We have to expect a price that reflects the spread of the market price against the Chinese prices, something that could be in the range of EUR 5, depending if you have the Indian one or something more. But in the second auction, we do not have the official statements that we have for the first one. Omar Al Bayaty: Thank you, Stéfano. Let's move to CapEx evolution. Do you see opportunity to invest more in renewables? In U.S., in particular, how many megawatts you already lock in? Stéfano De Angelis: Maybe also kilowatt. But again, I think that the market now should start to understand our behavior. It's not just U.S., it's not just Italy, it's not just Germany. It's a question of investing where you have a scenario that have, let me say, a balanced risk rewarding profile. This means that in Italy, we have a different approach than in Spain, for example, it's not just Europe because in Spain, now we are very long in terms of generation. In Italy, we are dramatically short as a country and as Enel. So the approach is different. But at the end of the game, it's the same because in Italy, we could be more aggressive in terms of pricing, let me say, expectation. In Spain, clearly, we have very low expectation because when we look at the market of the PPA with solar, it's not a country where you can imagine today to have a merchant photovoltaic plant to be built in the next months and the next couple of years. Moving to the U.S., it's really an interesting country because it's, first of all, one of the country that is in our scope, and you know that in our scope, you have a country when the -- also the market scenario, the geopolitical scenario and the regulatory scenario is, let me say, visible and let me say, less volatile. The safe harbor discussion, it's important. But at the same time, it's also important to consider that U.S. is a market that is growing. And this growth is visible today, is already visible in the price of the PPAs. It's already visible in the price also of the market, the different markets. And when I say different market, it's more visible in the PJM that in the [ SPP ] or something like this. So the approach remain the same. In U.S., we have a pipeline that should present some interesting safe harbor greenfield opportunity. To transform this opportunity into a positive final investment decision, we are already having discussion about PPAs because it's clear for us that if we are going to build a greenfield plant in the U.S., we will have a signed PPA at the day of the final investment decision. And this is part of the evolution that we are carry on in these months. Omar Al Bayaty: Thank you, Stéfano. Now let's move to guidance. First question regarding EBITDA guidance. Could you please run us through the trend of the last quarter of the year? Stéfano De Angelis: As I -- also last year, I insist, let me say, that utilities should have also, let me say, an annoying trend. And so my annoying answer is that the trend will be the same that we have observed along this quarter. So Europe will have an Italian pro forma that will be, let me say, almost flat year-on-year. And Spain will have a pro forma that will be more or less 5% growth year-on-year. That is exactly the figure that we have in September. It's clear that in South America, we have, let me say, a more, let me say, volatile trend, also considering the FX. So we expect a different -- a recovery, let me say, in LatAm that will be driven by the confirmed positive performance of Colombia, where we have -- is the unique relevant country in the region that do not have a negative FX. And the positive rebound in Brazil, the rebound that will be in the integrated margin will depend on 2 specific point. The first is that the FX impact should reduce because last year, 2024, the euro start to strongly appreciate against real in this period, let me say, in the fourth quarter of the year. So let me say the year-on-year comparison will benefit from a worse 2024 in the last quarter of 2024. But the most important topic because it's a very important industrial change that we will book probably if nothing changed in terms of process in respect expect to the positive impact of the curtailment refund in line with the decree that was approved recently by the Brazilian government. As you know because I read a lot of daily news from the investors, from the analysts, this is not what I would say you were expecting because we were expecting this, it's very difficult to expect that the excess of capacity, it's refunded. When the network operator cut for -- with the programmed cut for security reason. So it's a programmed cut not for a temporary excess of generation, but it's in order to secure the transmission and the network system. In this case, we were expecting strongly to be refunded and the decision is, let me say, positive as again, I [ wrote them ] this is also our position, the generated distribution shouldn't be, let me say, impacted by the definition because it's the reason why we have that kind of congestion in Brazil. So -- but this is something that could be introduced also in the final word of the law when transformed into law. So the impact is not hundreds of millions. It's something that, let me say, bring our performance in line with our expectation because the amount more or less will cover the full impact of the curtailment that is the one generated by the -- let me say, by the programmed cut from the TSO and the other is the real congestion that, in our opinion, is something that is, let me say, a long-term strategy from the -- of this energy system because that kind of evolution in the distributed generation was -- should have been managed some years ago probably. But again, don't move from the positive reaction that we had. So Brazil will driven by these 2 specific FX that will not change, let me say, the trend of the LatAm business dramatically, but we will move from a flat to a low -- no, let me say, to a single-digit growth in the specific fourth quarter results. This is our expectation. Omar Al Bayaty: Thank you. Stéfano, one more on guidance, net income guidance. On net income, you guided slightly above the guidance range. To which extent do you expect to exceed the guidance? Stéfano De Angelis: Let me say, I think that I gave all the elements that have the translation of the EBITDA into the net income. So I will just, let me say, refer to something that is not related to the EBITDA because the mix of the EBITDA will have a negative -- let me say, a slightly negative impact on the minorities. In terms of seasonality, also last year, we had, let me say, a different quarter in terms of economics last year, but you have to consider that there is also a concentration, as always, of the CapEx that you probably remembered also impact. So I probably answered the question of the working capital in this moment that how you expect to recover the working capital because the CapEx concentration, it's a historical that nobody will be able to remove from also all the industries that have this intensity of CapEx. So this will be -- let me say, again, we are a very utility. So the linear trend will continue, excluding this change that we have a higher, let me say, share of depreciation and a slight increase in minorities because -- due to the positive improvement of the LatAm operations. Omar Al Bayaty: Thank you. Let's move to hydro. The hydro production in Italy is down 1.5 terawatt hour year-on-year. What's your expectation for the last quarter? And any visibility on 2026? Stéfano De Angelis: First of all, I think it's very important to keep in mind that 2024 was -- if I'm not here by 20 years, but probably the best year in terms of [ hydraulicity ] in the story of the hydro in Italy. So when you see year-on-year comparison, you not to worry about also our plan because we never make a plan with the historical high. We are always in an average. So we were expecting this trend. In this moment, Italy is not improving. So we will not recover. I will tell you that we will recover the 2024 condition. And to have full visibility, we have to wait still some weeks in order to have, let me say, a first visibility on the first part of 2026. But it's important also the 2026 in the Capital Market Day, industrial plan was defined based on an average hydro resource in Italy as in the other countries. Omar Al Bayaty: Thank you, Stéfano. Let's move to retail. It looks like you recorded a drop into retail clients in Italy and Spain. What is the churn? And what are the main drivers? Stéfano De Angelis: But unfortunately, it's in this quarter, something very strange happened because we talk about churn reduction, and you see the drop of the customer base. The churn is confirmed at the significant lower level compared to last year. And this is what we were expecting because all the -- also repricing that we performed in the last -- until the first part of 2024, this process was completed by the end of first half 2024. And this started to give us improvement of the churn that now is very solid and clear. But another important thing happened in one day that was that in the 1st of July, we have millions of customers moving from one side to another because we lost millions of customers from the regulated base, and we gained in one day approximately 1 million customers. So now we are -- like-for-like this is a change that is real, let me say. The other one also was real because that customer was not in the free portion of our customer base. And this is also important to look at the volumes, let me say, in the reported figures because starting from this quarter, in one day, we lost also the terawatt hour of the -- when you look at the total figure of the terawatt hours sold in Italy, in one day, we lost millions of customers, so some terawatts generated from the so-called [ tutti i lati ] customer base that was in a specific company, and you probably know the story that is not so fantastic... Omar Al Bayaty: Okay. Thank you for your answer. D&A were almost flat year-on-year despite the new investments. Which are the drivers? Stéfano De Angelis: Again that we gave the trend -- the industrial trend of the asset is that we have an increase in the D&A because of the increase in the investment plan. Keep in mind that in the past, you have the figure that was also reporting the disposal plan. So when you see the asset base and the depreciation, when you sell an asset, you sell also the depreciation with the asset base. So now that we are trying to be more stable and comparable, now the pro forma is limited to Peru and Lombardy. When we look at the industrial part of the comparison, we will start to see the increase in the depreciation that is, let me say, organic. But fortunately, as I said before, we have the strong reduction in the bad debt that you will see in the same line, if we don't move into a scheme that have, let me say, an open description of the D&A figures in the simplified P&L. Omar Al Bayaty: One question on data centers. It's a business opportunity for you? Stéfano De Angelis: Yes. As presented 1 year ago, this is part of our additional growth opportunity. As of today, we are working on a specific pipeline of industrial sites through a dedicated full-time organization set at the beginning of last year. The specific business opportunity is represented by the sale of time to market. What does it mean? A value that is embedded in the industrial site where we can offer real estate permitted and ready-to-use energy network connections and facility services on top of a power PPA with a premium above this business model that is different from a spot sale model, we are finalizing the first preliminary agreement in Italy, where we have several potential sites in our pipeline. Omar Al Bayaty: Thank you, Stéfano. Let's move to financial expenses. What is driving the improvement in financial expenses versus plan expectation? Stéfano De Angelis: Because none of you -- I was thinking there is a different -- because already I think I answered through the presentation, and we have also included this EUR 4.3 billion reduction in volume effect. And then we have -- let me say, we have to consider the short-term and long-term part of the debt. But let me say, generally speaking, we have also an important reduction in the cost of debt, also thanks to the new mission of the last, let me say, 24 months. Omar Al Bayaty: Okay. Thanks for the clarification. Stéfano De Angelis: Sorry, before -- somebody that was on the line that I didn't respond about -- I didn't answer about Spain. I just talked about Italy. Spain is a completely different market. I'm referring to the retail churn. In Spain, we have a dramatic churn. What is important that we started to have, let me say, a different approach to different segment of the market on the sales channel. So when you see the positive results that we have in Spain because we don't want to do fight for customers just for an absolute figures of invoices. And the result is negative when you look at customer base, but if you see the trend also comparing us to other peers in the generation supply, let me say that we have a quite -- slight better trend comparing year-on-year. So we expect this to be also something that is an example because the churn in Spain is structurally average churn at 25% that I never seen in my life also in telecommunication sector. For example, that the churn has destroyed also entire groups of companies, but 25% in Spain that have the lower price wholesale in Europe is something that depends on specific behavior on some specific player that it's important not to follow because they are not creating value in that market. This is important to [indiscernible]. Omar Al Bayaty: Thank you, Stéfano. Let's move to working capital. Stéfano De Angelis: I said before that I already answered working capital. It's -- again, the seasonality is always -- last year, I say that we will recover, and we recover. So you have to start to trusting me about working capital. But also because I remember perfectly last year that I said I have the invoice, the visibility, the short-term visibility of our business is very high, very, very high. So the working capital is something that is -- if you have some change because you decide to have some change from the forecasted amounts. So don't worry about the working capital. Omar Al Bayaty: Okay. Thanks, Stéfano. There are no more question. So the Q&A session is over. We cover all the main topics. But if something is missing, the IR team is available for follow-ups after the call. Thanks to everybody. Stéfano De Angelis: Thank you, and see you maybe somewhere before Christmas, different happy Christmas because this time, we will see for the Capital Market Day, not in 2 weeks, but in 3 months. Bye-bye. Omar Al Bayaty: Thank you.
Operator: Good morning. Welcome to Corby Spirit and Wine's Fiscal Year 2026 First Quarter Financial Results Conference Call for the period ended September 30, 2025. Joining me on the call this morning are Nicolas Krantz, President and Chief Executive Officer; and Juan Alonso, Vice President and Chief Financial Officer. Hopefully, you've had the opportunity to review the press release which was issued yesterday. Before we begin, I would like to inform listeners that information provided on today's call may contain forward-looking statements, which can be subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. Risks and uncertainties about the company's business are more fully discussed in Corby's materials, including annual and interim MD&A filed with the securities regulatory authorities in Canada as required. [Operator Instructions] Now I would like to turn the call over to Mr. Krantz. Nicolas Krantz: Thank you very much, and good morning, everyone. I am Nicolas Krantz, and it's a pleasure to connect with you today, joined by Juan Alonso, our CFO, to share Corby's Spirit and Wine Q1 result as we kick off fiscal year 2026. In a few minutes, Juan will walk you through the financials in more detail, but I will begin by highlighting the key drivers behind our strong start to the year in what continues to be a volatile and evolving market environment. Indeed, it's been a good start, strong start with a record high quarterly reported revenue and net earnings growing plus 16% and 9%, respectively, fueled by continued share gain in spirits and the rapid expansion of our RTD business. This marked our third consecutive year of outperforming the overall spirit market, a testament to the strength and resilience of our strategy and diversified brand portfolio. Our RTD strategy continue to deliver, Corby is now position as one of the key players in the Canada fast-growing RTD category. And importantly, we are outpacing category growth as well. Part of the success for the RTD portfolio and our wine portfolio has been successfully capitalizing on the Ontario route-to-market modernization, creating new opportunities for consumer engagement. Now turning to market dynamics. The Canadian spirits landscape is evolving, and we've seen some reduced processing patterns in Ontario as a new channel expense, and we are now lapping the LCBO labor strike from July 2024. So despite these factors, we have delivered consistent profitability margin against a dynamic backdrop, reflecting strong operational execution. Notably, our Q1 performance reflects the excellence of our sales execution with a strong share across the total portfolio and within the context of the U.S. origin products being removed from shelves, also benefiting from favorable order phasing effects expected to normalize in Q2, but more on that to come. Beyond top line growth, we continue to actively manage our portfolio to enhance Corby's growth profile. And during the quarter, we completed the disposal of certain noncore ABG brands, and also Juan will give a bit more detail, allowing us to sharpen our focus our priority categories and accelerate our growth. Finally, from a financial perspective, we delivered strong cash flow generation supporting by attractive capital returns to shareholders. Our balance sheet remains healthy and the net debt to adjusted EBITDA at 1.4% is proving to show our flexibility for our balance sheet. In line with our confidence in the outlook, we maintained our quarterly dividend at $0.23 per share, consistent with our Q4 FY '25 and up 5% relative to the Q1 FY '25, signaling the sustainability of our dividend policy. But before Juan gives a bit more in detail on our financials, let me give you a quick glimpse of the wider market context. As I mentioned, Corby saw an acceleration of our share gains across all category in Q1. And a lot of this is possible towards the excellence of our sales execution as we plan to capture share following the U.S. origin products in removed from shelf. In the rolling 3-month period ending -- end of September, while the Canadian spirits market declined by minus 0.9%, Corby values performance outpaced the market by 6.8 points, delivering a 5.9% growth in value. Our wine portfolio as well delivered a very strong result, achieving plus 20% growth against a fairly flat market at 0.7%. And as I've explained previously, we can specifically highlight the RTD category that continued to be, of course, in good growth. But Corby has firmly established itself as a major player, consistently outperforming the market with 44% growth, which is, of course, an outstanding 27 points for the market. For marques as well, if you look at the first quarter of the year, this has been, of course, a very strong result. But also if you move to the R12, it continues to be also a very resilient market. Effectively, the broader market on the R12, we can see that the spirits market is declining by 3.8%, and we are almost flat, slightly growing. So again, with a strong performance versus the spirit. On the RTD, the market remains in double digits, and we are outperforming as well in the category. And on the wine side, slight decline, and we are also outperforming the category. Now deep diving a bit more on the spirits category. We can see that we continue to outpace the market in almost all spirits category over the last 12 months. And we share gain acceleration in the last 2 quarters as we benefit from this U.S. original product being removed from shelf. And we have, of course, a uniquely a diverse portfolio across every price point in every category across spirits, RTD and wine. And this is very much a competitive advantage of Corby right now that we are leveraging with impact. Turning a bit more on the RTD portfolio, which is very important for us. Corby's RTD growth has accelerated over the last 12 months, with a sustained share gain driven by strong innovation and strategic execution. In Q1, as I mentioned earlier, our RTD portfolio delivered outstanding plus 44% value growth, significantly outpacing the category nationally. And over the last 3 months, the RTD portfolio took share in every region, reinforcing the strength of our brands and the effectiveness of our strategy. Specialized route-to-market now remain a key advantage with ABG proving strategy reached from Ontario, but also new strengthening its presence in Western Canada. In that category, innovation continues to be a core strength and our pipeline is robust. We see now that we have a lot of new brands winning share, allowing Corby to rapidly attacking white space and capture further growth opportunity. In Ontario, we've been capitalizing on the route-to-market modernization since September 2024, leveraging the breadth and depth of our RTD portfolio. And this has translated into growing prominence in grocery store where our brands continue to lead and benefit from the strong consumer demand. Of course, our flagship brand, Cottage Springs is at the forefront of that success and remain the #1 RTD in Ontario. Finally, we've taken the advantage and the strategic step to enhance our RTD portfolio and growth profile. And this quarter, we have also announced that we'll increase our ownership of ABG by adding 5%, bringing our ownership to 95% subsequent to this call option being exercised. I've mentioned before that we have also taken the opportunity to streamline the portfolio from ABG, and we dispose some noncore assets, particularly Ace Hill beer and the Liberty Village Dry Cider. So non-strategy assets has been divested to refocus the portfolio on our core strategic SKU. Finally, before I hand over to Juan, and I don't want to dwell too long on our strategy since it was already well covered on previous pages. But I want to make clear that our goal remains to really focus on market share gain to grow sustainability and also in a profitable way so we can create value for our shareholders. Now with that, I'll hand over to Juan to highlight our Q1 financial results. Juan Alonso: Thank you, Nicolas, and good morning, everyone. I'm Juan Alonso, Corby's CFO. I'm pleased to walk you through our financial results today. Very quickly before we talk about our financial performance, you are going to note that some mentions of adjusted metrics and organic revenue growth. We believe that these non-IFRS financial measures support a better understanding of our underlying business performance and trends. We provided detailed explanations of each of those elements in our Q1 FY '26 MD&A, and I invite you to refer to this document for any questions related to it. So let's start with Q1 results. In the first quarter, Corby delivered strong results with record quarterly revenue and adjusted EBITDA, sustained by the expansion of our RTD business and the acceleration of our spirits market share gain. Corby generated $75.4 million in revenue, a plus 16% increase over Q1 of fiscal 2025. This performance marks Corby's highest quarterly revenue achieved in a challenging retail environment. I will go over the key drivers in more detail shortly. With strategic investments behind key brands and diligent control of expenses, our adjusted EBITDA also reached a record high, totaling $20.3 million up plus 4% and adjusted earnings per share were $0.39, which reported at $0.36, representing a solid plus 9% growth in reported earnings and plus 8% in adjusted earnings. Our cash flow from operating activities totaled $5.6 million, a $1.9 million increase year-over-year. This was supported by earnings growth, disciplined management of costs and working capital favorable. On Wednesday, the Board of Directors declared a dividend at $0.23 per share for the first quarter of FY '26, consistent with the previous quarter, which represented an increase of $0.01 or 5% compared to the first quarter of fiscal year 2025. The Board of Directors assesses the dividend on a quarterly basis. And as a reminder, the quarterly dividend was less increased in Q2 FY '25. Now let's go to the next slide and delve deeper into our year-to-date revenue growth. To reinforce, Corby delivered an all-time high quarterly revenue of $75.4 million in Q1, representing a 16% increase over Q1 of FY '25. And this growth can be attributed to: firstly, domestic case goods performance reached $61.3 million, reflecting a plus 15% growth. This is highlighted by improved shelf prominence of Corby's spirit, capitalizing on the removal of U.S. origin products in key provinces. ABG Brands grew plus 33% with continued strong momentum on new channel expansion in Ontario and Western Canada. Secondly, commission revenue rose to $8.2 million, a growth of plus 7% versus last year, driven by imported RTD staffing into routes-to-market modernization opportunities with the openings of grocery and convenience channels across Ontario. In addition, represented brands lapped the LCBO labor strike impact last year and benefited from favorable LCBO order savings in Q1 this year which is expected to normalize in Q2. Lastly, export revenue increased to $4.9 million or plus 55% reflecting a strong recovery of shipments across all markets, also benefiting from favorable shipment phasing in the U.S. So to summarize our P&L results for Q1, Corby saw strong 16% revenue growth, leading to a record quarterly performance, bolstered by the strength of our portfolio, specifically the accelerating RTD portfolio, tapping into new channel expansion in Ontario and the spirits gaining additional shares in the spirits market. Our total operating expenses increased by 18% to support the continued growth and expansion of our RTD business in addition to strategic investments behind key brands such as the J.P. Wiser's NHL partnership and also disciplined people cost management. As a result, Corby delivered a record quarter adjusted EBITDA, marking 4% increase versus last year, growing at a lower pace than revenue due to an adverse portfolio market and channel mix along with lapping very low marketing spend levels last year to mitigate the business impact of the LCBO strike last year. For the sake of clarity, when we talk about a diverse portfolio mix, it refers to RTDs, growing at a softer pace than the rest of portfolio and notably our more profitable spirits. The diverse market mix refers to a stand-out recovery of our export business across all markets, less profitable on average than our domestic market. Lastly, the adverse channel mix deals with the increase of direct delivery sales of RTD products following the route-to-market modernization in Ontario,that is more costly than the retail channel. Finally, on a per share basis, our adjusted net earnings was $0.39 and reported net earnings was $0.36, reflecting growth of 8% and 9%, respectively, versus last year. Moving to our cash flow performance. In Q1, Corby generated $5.6 million in cash from operating activities, supported by higher net earnings and favorable working capital movements, partially offset by higher interest and tax payments. These working capital benefits were primarily driven by timing of spend. Our free cash flow also improved, increasing by $1.3 million compared to the prior year. As a result, our net debt position was $93 million at the end of the quarter, representing a $16 million improvement versus Q1 FY '25. Our net debt to adjusted EBITDA ratio improved at 1.4x, down from 1.8x last year, demonstrating robust solvencing and reinforcing our financial health. Corby maintained an attractive dividend payout ratio at 55% on a rolling 12-month basis, highlighting the sustainability of the company's quarterly distance. Notably, quarterly dividend payment increased by 5% in Q1 FY '26 compared to Q1 FY '25. These actions have contributed to a high dividend yield over recent years at 6.6% at the end of the quarter, providing consistent returns over FY '24 and FY '25. We are proud of our performance in Q1, and we remain focused on delivering long-term value for our stakeholders and shareholders. With a strong portfolio, disciplined execution and a clear strategy, Corby is well positioned to continue driving growth and shareholder returns. Before I finish, I want to share our outlook and priorities for the remainder of the year. After all you've heard today, you can see that Corby is well positioned to continue outperforming the market in FY '26, even as the environment remains dynamic. Our ambition is to continue to gain market share in spirits despite the challenge of a potential slight market decline. We are going to remain agile and respond appropriately whenever U.S. products are permitted back on shelves. We are confident in our resilience, leveraging leading brands, local footholds, top-tier marketing and advanced tools like AI-based prioritization to stay ahead. Our RTD portfolio remains a major growth engine and we see significant potential to expand across Canada, led by strong traction of strong ABG. In Ontario, we will continue to capitalize on routes to market modernization, meeting evolving consumer preferences with agility and breadth. From a financial perspective, we remain focused on protecting margins, driving profitable growth and generating long-term shareholder. Finally, regarding the outlook for the next quarter and beyond, we expect Q2 results to be softer than Q1 due to the normalization of LCBO orders from Q1 and the impact of BC labor strike that elapsed over September and October. We anticipate that these FX will normalize over time and will not impact Corby's ability to execute on its market-leading strategies. Now I hand over to Nicolas for some closing remarks. Nicolas Krantz: Thank you very much, Juan. Strong financial indeed and good clarity for outlook. Well, I want to leave you with the core reason you should invest in Corby really. And for us, it's really the backbone. Corby remains at the end of the day, the Canada's largest publicly listed multi-beverage alcohol company in Canada with the most diversified portfolio in the market, and that's something we need to anchor. Add to that, our close partnership with Pernod Ricard gives us strategic advantages and of course, access to global brand [ assets ] and the portfolio is, of course, extremely -- the diversity of the portfolio and the strength of the portfolio is supporting us as well. We have a clear strategy, strong execution and a proven ability to outpace the market in value growth. Our innovation pipeline, marketing strength and recent acquisitions continue to drive performance and operational excellence. And finally, we have consistent financials. It means like we have resilient revenue, strong cash flow and a healthy balance sheet that support attractive and growing dividend. Now as you know, we recently announced upcoming leadership changes at Corby. This means that today is my last day of stating our earnings conference call as the President and CEO of Corby. I'm extremely proud of what we've accomplished over the past 5 years and in Corby has been an honor. I will continue to work closely with Florence Tresarrieu, the incoming President and CEO as we transition. I know she will lead Corby with energy, strength and passion, and she is looking forward to connecting with Corby's shareholders. With that, thank you once again for joining us today and for your continued interest and support in Corby. Juan and I, of course, are now happy to take any of your questions. Thank you. Operator: [Operator Instructions] Nicolas Krantz: Okay. So I think we have a question here. Thank you very much regarding the export opportunities. So listen, the export today is a relatively small part of our business. It's an opportunity because at the end of the day, from a small base, it's showing on the regular basis, of course, a good growth. In terms of our, I would say, battleground, we really have 2 types of battleground. The first one, of course, mainly for whiskey business, it's the U.S. The Canadian whiskey category is actually a large category in the U.S. and J.P. Wiser's and the rest of our COVID portfolio is relatively small. So we are showing good trajectory from a small base but this is something which we'll continue to do. The rest is more in Europe where we export J.P. Wiser’s and Lamb’s rum. Lamb’s rum in particularly in the U.K. But also J.P. Wiser's is showing some good traction in a country like Sweden and Central Europe. So that's also something that we are going to do. Now regarding the commercial opportunity for the RTD, for the moment, we think we have plenty of opportunity to scale up the business in Canada. That has been the focus in terms of resource allocation and the team. But listen, there is no doubt that the U.S. is, of course, a large playground as well for RTD. I think for us, it's a matter of timing of maturity and in the long run, of course, the U.S. may also represent a good opportunity for Cottage Springs or for that matter, for any other brand or innovation, what we call new-to-market brands that could be developed for the U.S. market. So in the short term, I would say probably not the focus for the RTD portfolio in the mid- to long term, likely to be also an opportunity for us. Maybe Juan, you're okay to take the questions on the debt and the cash flow? Juan Alonso: Yes, yes. Thanks for that. The question is related to the increase of the cash flow and if the company intends to prioritize debt repayments or other potential uses such as dividend increase. So our idea is continue to amortize our debt straightly -- we have 10 years to pay our intercompany debt with Pernod Ricard that was taken in 2023 for the acquisition of Ace Beverage Group for the amount of $120 million. And we have a 10-year tend to amortize this debt, and we have been amortizing straightly across the years. At the same time, that this enables us flexibility to continue to increase dividend as our earnings from profit increase. So that's both. So continue to repay the debt and continue to assess dividend increase as the business profit grows. Nicolas Krantz: Is there any further question? Operator: There are no questions on the phone lines. Nicolas Krantz: Okay. So with that, again, thank you very much for your attention. I usually close specifically on Friday to say the best way to get to know Corby is to get to know our portfolio and enjoy our brand responsibility, specifically before the weekend. So with that, I wish you a very good day and a very good weekend. Thank you, everyone. Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Thank you to the Plus team and Adrian for that very engaging discussion. So next in our lineup, we're pleased to welcome Nickel Asia Corporation. Presenting on their end will be Mr. Andre Dy, Vice President for Finance and Corporate Planning and Deputy Chief Finance Officer. Joining him in the Q&A will be Mr. Dennis Zamora, President and Chief Executive Officer. Moderating this session will be Mr. [Gab Aguila] from Sun Life. So now as we begin, please turn your attention to the video as we get to know more about Nickel. [Presentation] Andre Mikael Dy: Good afternoon. Good afternoon to the participants of the PSE Star Day. I'm Andre Dy for Nickel Asia Corporation, and I'm happy to be here with you together with our CEO, Mr. Dennis Zamora and our Chief Commercial Officer, Mr. Koichi Ishihara; and Miren Cueto, who is part of the Investor Relations team. We're here to present Nickel Asia Corp's 9 months results. So for the financial highlights, let me go straight here. And if I could -- we could just pay attention to the left-most bar chart on the upper part of the screen, it indicates our top line performance. So for the first 9 months of 2025, revenues have increased a 35% improvement year-on-year to PHP 22.8 billion from PHP 17 billion, and that's because of the favorable nickel ore prices, specifically because of the saprolite ore exports. The bar chart in the center displays our consolidated EBITDA for the period. So that's close to PHP 11 billion. It's a 65% improvement from last year's PHP 6.6 billion. Again, the profitability driven by better ore prices and more efficient mine operations. So we've already surpassed our full year 2024 EBITDA with the 9 months because of the circumstances surrounding the nickel ore price dynamics. Then the rightmost bar chart is our attributable net income. That's -- for the 9 months, it's PHP 5.2 billion. So it's double from last year's PHP 2.6 billion. This puts us about PHP 1.9 billion ahead of the full year 2024 Recurring Net Income performance. So the improvement in net income is due to the higher direct shipping ore prices. These are up 52% year-on-year. And another is our onetime income from the PHP 1800 million generated from the sale of our stake in Coral Bay HPAL plant earlier this year. And then if you refer to the table below, the first row summarizes our gross profit margins. It stood at 63%. So this is up 8 percentage points compared to the same period last year. Second row is our EBITDA margins. These stood at 48% for the first 9 months. That's an improvement of 9 percentage points. So despite OpEx increasing due to more volume, we were still able to achieve high EBITDA margins. The next row indicates our net income margins. These also increased to 32% from 22%. Now moving on to the next slide for the mining highlights. The first set of bar charts on the left shows us the nickel ore sales volumes sold. So green portion presents the saprolite exports, while the orange portion represents the limonite HPAL deliveries. So mining sales volume increased 2%, totaling 13.89 million wet metric tons. Ore exports, which is around 40% of mining sales reached 8.32 million wet metric tons. This is up 3% year-on-year and HPAL deliveries totaled 5.57 million. That's a 2% increase from previous year. The middle bar chart is a change in ore prices. So the significant change is the average prices registered for saprolite, which is $37.52 per wet metric ton. That's a 52% increase from last year's average price of $24 per ton. And then for the limonite HPAL, there was a decrease of 6% in the price to $10.17 from last year's $10.78. This is due to lower nickel LME rates, which is a factor when considering for the price of HPAL delivery. And this is because of the global oversupply for nickel metal. But due to the more favorable saprolite ore export prices, we can see the rightmost bar chart, the combined ore revenue rose by 41%. So that is at PHP 20.96 billion. Table below gives us additional context on nickel prices. The first column indicates the average nickel LME price per pound. So for the first 3 quarters of the year, it amounted to $6.87 per ton. It's lower compared to the $7.75 per wet metric ton last year. Nickel LME are still weak at the moment because of the global oversupply of refined nickel metal. However, the supply of raw nickel ore remains tight and limited, which explains why ore prices remain elevated. Below this, we have a summary of nickel pay factor for our ore exports. So nickel payability for ore exports for the whole 9 months is very high. It's at 27.31% compared to last year's 6.68%. So even with low nickel LME, nickel ore prices remain higher, and that's because of the tightness of ore supply in Indonesia and in the Philippines combined. So in Indonesia, it's due to the mining quota permit issues, while the demand for ore processing remains strong from -- in their country and also in China. Another thing to explain here is the nickel pay factor for the HPAL. You would notice that this year, in the 9 months, it had increased to 9.9% from last year's 9.24%. So despite nickel LME falling down, we've been able to successfully negotiate better prices with our customers who -- the HPAL plant [Technical Difficulty] limonite ore from us. Next slide. Now for the revenue analysis, so we'll show you a waterfall just to dimension where the gains in revenues are from last year. So a big part of that gain is the improved ore export prices. So that's the main contributor. That's almost PHP 6 billion effect. Then the other parts that follow that is the more shipments contributed from Rio Tuba and Manicani, a mine that we just recently opened. And all other Fx are due to slightly lower average Fx, lower limestone deliveries and no TSF activities for the year. Next slide. Then on the cost side, there's an increase in cost, but it also goes with more ore that's been produced. So because of the 3% increase in ore, we also saw some increases in mining costs. There's also contribution from depreciation. And of course, the ramp-up from the new mine, the Manicani operations, and also higher excise tax and royalties because of higher prices of the ore. So really, it's more variable, that's driven the increase in cost and expenses. Next slide. Now for the investment in HPAL equity losses, we completed the sale of our 15.625% equity in Coral Bay. So for this year, we were able to trim our losses in our equity investments. If you look at it year-on-year, it's a 59% improvement or reduction from the same period last year as a result of our divestment in Coral Bay. Next slide. Now for the balance sheet highlights. Our total assets had grown by 10%. We are now at a PHP 67.6 billion asset base from last year's PHP 61.7 billion, primarily driven by a generation of more cash and cash equivalents because of the better ore price. So now that stands at -- net cash stands at PHP 18.9 billion. So that's an increase for -- in our cash, short-term cash investments and cash managed funds. Trade receivables likewise increased by 31% from higher sales. Our liabilities, not so, just an increase of 10%. Notable movements include short-term debt increase 10%. It's a long-term debt that saw a significant increase, 85%, PHP 2.1 billion to PHP 3.8 billion this year. So these are really from the proceeds from bank loans used to fund or construct our solar project in Subic, Cawag. Our equity grew by 10% to PHP 48.6 billion. This is an 8% increase in Equity Attributable to the Parent now at close to PHP 40 billion. And then in terms of gearing ratios, gross-debt ratio is low at 0.28x. And then net-debt ratio, we are actually in a cash position. So that's at 0.0 -- the net debt is at 0.04 -- negative 0.04x. So yes, we are in a net cash position. Next slide. And we just recently announced cash dividends that we declared. It's a special cash div. It's more than the dividend policy of regular payout. So last November 11, we announced and declared a special cash dividend of $0.07 per common share payable on December 15 for shareholders on record of November 28. So this brings total dividends declared by our company to $0.18 per common share. That represents a payout of 80% -- 80% payout of previous year's net income. Now we move on to renewable energy. So our JSI project, our Pioneer project, this is the visual of our operations in Mount Santa Rita situated within the Subic Bay Freeport Zone in Zambales. This is run by Jobin-SQM. So the site has installed an operational capacity of 172 megawatts. It's one of the largest in the country coming from a single solar power generation plant. The table on the left indicates the current offtake profile of Santa Rita. As of the 9 months of 2025, 89% of energy sales mix is from PSAs. The remaining is 11%, is exposed to OSM. Moving forward, the direction is to fully contract the JSI via PSAs. Next, as we move to the financial highlights. For the 9 months 2025, generation is up 2% year-on-year to 171,279 megawatt hours. EBITDA for the 9-month period is at PHP 617 million. It's a decline of 16% year-on-year due to the lower tariff rates. However, because JSI sales are predominantly secured through PSAs, the decline in WESM prices during this period was mitigated by the PSA contracts. Next slide. Now for the pipeline. Here, this is our project that just recently turned on the San Isidro, Leyte project. So this is the first project with Shell Overseas Investments BV under a joint venture company called Greenlight Renewable Holdings, Inc. The Leyte project is divided into 2 phases. Each phase will contribute an additional 120 megawatts or an attributable 72 megawatts capacity to EPI's portfolio. For Phase 1, energization, testing and commissioning already began last October and COD is targeted for the second quarter of next year. For the Phase 2 of Leyte, another 120 megawatts. The notice to proceed has already been issued and the construction of the solar facility started in the first quarter of this year. We anticipate energization to commence in the second quarter of 2026 and COD to take place in the third quarter of next year. This is our San Juan, Botolan, Zambales project. Again, it's in partnership with Shell through Greenlight. So this will add a total capacity of 59 megawatts, so an attributable capacity of 35.4 megawatts for Nickel Asia for EPI. As seen in the photo, the Botolan project is in its early stages, predevelopment activities have already been completed and land possessory rights have been secured. Last October, the notice to proceed was issued. We are targeting energization for both phases to be by the third quarter of 2026 and the commercial operations to begin by fourth quarter of next year. Moving on to the Subic, Cawag project. So this is solely developed and managed by Emerging Power Inc. Here is a visual of the project in Subic, Cawag. We are developing a 145-megawatt facility divided into 2 phases. For the first phase, which is 70 megawatts. As you can see in the picture, construction is currently underway, and we are targeting to test and commission this by end of 2026 and commercial operations to commence by the second quarter of 2027. The construction for Phase 2 or 75 megawatts is expected to commence before the end of this year. Target energization is for third quarter of 2027 and commercial operations will begin by early 2028. This next slide is our project in Nazareno, Bataan. This is a 50-megawatt project that is currently under predevelopment activities with land possessory rights already secured and the EPC bidding already completed. Construction is targeted to commence by second half of 2026. It should also be noted that we are actively assessing the integration of battery energy storage systems to maximize the project value and operational efficiency of the Nazareno project. This marks the first among our RE initiatives to formally incorporate BESS as a component. Next slide is the project capacity buildup of generation assets. From what I mentioned, this slide from those projects that were mentioned prior to this. So by -- we anticipate to reach gross installed capacity of 293 megawatts by 2025 and 542 megawatts by 2026. By 2027, with several projects, as mentioned, already in advanced stage of development, we are targeting a total gross capacity of approximately 1,100 megawatts. Previously, our guidance projected an installed capacity of 1 gigawatt by the end of 2030. So barring any significant delays, we now expect to achieve this milestone by end of 2027. Other updates. So for the CapEx, we've broken down the CapEx for the mining business, for the gold business and also for the renewable energy business. For mining, we spent approximately PHP 1.15 billion during this 9-month period for the year and expect to catch up and invest an additional PHP 0.5 billion by year-end. This year's mining CapEx was primarily focused on refleeting, replacing and upgrading mining equipment for both our existing operations and our new mine in Manicani. We also allocated capital for construction of a new causeway in Dinapigue in Isabella. And looking ahead to next year, we anticipate spending approximately a lower amount at PHP 1.2 billion, with the bulk of this being earmarked for refleeting activities. The big part for our capital expenditures is really in our renewable energy business. CapEx was approximately PHP 4.6 billion during the 9 months, and we forecast to add an additional PHP 6 billion for our projects that are being developed. So these investments are tied to the planned notice to proceed for our Botolan solar project as well as the continued construction progress for both Cawag and Leyte projects. For next year, we anticipate a total CapEx of around PHP 8.7 billion with PHP 5.1 billion allocated to Greenlight projects such as Leyte Phase 2 and Botolan and PHP 3.5 billion earmarked for the ongoing development projects of Cawag and also Nazareno. We also have CapEx allocated for our gold and copper exploration company, Cordillera Exploration Company. For 2025, we are -- mining exploration costs under CEXCI are projected at PHP 127 million. And then for next year, we anticipate allocating around PHP 221 million for gold and copper exploration. The next slide will provide further details on the status of this aspect of the business. So for gold and copper, for CEXCI, our JV with Sumitomo Metal Mining, we are happy to report that we have confirmed the presence of gold-bearing veins and porphyry copper-gold mineralization. So the highlights from the recent drilling program conducted at the San Luis Prospect, which is situated in the southern section of the tenement are as follows. There's a gold-silver intercept, so 4.6 meters grading, 15.5 grams per ton of gold and 85 grams per ton of silver from 69.9 to 74.5 meters in drill hole. And copper gold intercept is 50 meters grading at 0.50 grams per ton of gold and 0.42% copper from 300 to 350 meters. So what this tells us is these results are encouraging and strengthen our confidence in Cordon's project potential and reaffirm our commitment to advance further exploration activities throughout the year-end with the goal of further delineating the gold-bearing veins and defining the depth and extent of mineralization. So that ends our formal presentation, and we'll be happy to open the floor for questions. So I'll hand it over now to Mr. [Gab Aguila] to facilitate the Q&A. Unknown Analyst: Great presentation. It looks like it was a good quarter for you guys. Maybe before we go into the details of the quarterly earnings, maybe some top-level questions first. As we all know, nickel is having a drive in market prices coming in the first quarter and into the second quarter and now with their third quarter results. Maybe you could walk us through the current state of the global nickel market and maybe share your outlook on the pricing trends moving forward. Quite interested to understand how the company would be adapting its strategy to stay competitive and capture the opportunities in this evolving landscape. Andre Mikael Dy: Yes, sure. Thanks for that question. So when considering all nickel metal product types, the market is currently in a state of global oversupply, so which explains why the LME nickel price hovers around $15,000 per wet metric ton. But if you look at our ore export prices, you would see that it's already decoupled. It doesn't follow the nickel LME. So while there is an excess in Class 1 nickel supply and some excess in Class 2 nickel supply, there is a tightness in the raw nickel ore itself, and that's driven really by the Indonesia government regulating the permitting and the supply. So this is where it benefits us in the Philippines and where we see this, this policy will continue. I think they set a clear message that in terms of ore permitting, they're very strict with environmental compliance. So in terms of awarding of permits, they've also been stricter. So in fact, the 3-year quota in Indonesia has been reduced back to a 1-year quota, and that was implemented last October. The way we are responding to the industry shifts is by broadening our renewable energy portfolio. So as we've taken you through the projects that we've mentioned a while ago, these are the things where we are highly focused on. And then in order to -- and as a response also to what's happening, we are also doubling down on our upstream activities. That's why you could see that we've divested from our downstream exposure in the market in Coral Bay, but we are now ramping up in our Manicani mine, which will be the next leg of growth for us. So yes, that is how I think we are responding. And plus, we're excited about our gold and copper prospect. We just hit the gold veins. Now it's -- the next step is to really define the resources and reserves for this asset. So that's something to look forward to. And you know where gold and copper prices are at. It's at very healthy levels. So we're looking forward to take advantage on that. So we need to execute on that project. Unknown Analyst: Now that. Maybe I do want to ask this question that's tied to that, as you mentioned, the Manicani. Any idea you could give us moving forward on the amount and net metric tons that may come from the mine and how that's going to go into the mix of overall right now from where nickel stands? Andre Mikael Dy: Yes, sure. So in the 9 months, you could see that ore exports really drove our earnings. It really moves the meter. So if we're able to export around, I guess, we're on track to do 11 million for the whole year. So Manicani’s contribution this year is barely 0.5 million, maybe 0.5 million only, 0.5 million. So they're doing around 4% to 5% of total volume. But next year, we're targeting to do 3 million tons. And the nickel grade from Manicani will be the highest among Nickel Asia mines. So what that will mean is if our exports stay where they are in terms of volume, 11 million tons, and we do 3 million with Manicani, effectively, we're pushing 30% more -- close to 30% more year-on-year for volume. And then in terms of pricing, if our ASP for exports are at $38 and that's not the highest grade and Manicani would give you a kicker of around 10% -- at least 10% to 15% more in price. Yes, then I guess the -- I'll leave it to the imagination of the analysts of how that -- that they could forecast the revenues for next year. Unknown Analyst: Speaking in particular, away from the metal prices, this year has had quite a year of weather-related disruptions and particularly heavy rainfalls. How has that affected your company so far? And what have you been doing to be able to mitigate these setbacks? Andre Mikael Dy: Yes. Our company has taken a proactive approach to minimize these weather-related risks and logistical risk by really carefully planning our mine production schedules, our ship loading activities. So even with the very challenging weather, you could see that we've been able to deliver on the volumes, and we're on track to reach the target. So -- and then we also maintain advance stockpiles to ensure that we can continue meeting the requirements even during unforeseen disruptions. Unknown Analyst: Yes. Well, related a little bit more to that, just going to take a quick look at the questions on the side. Maybe let's talk about this first. So if you talk about the strategy, competitive strategy and how weather-related disruptions is being addressed. Looking ahead from where you are right now, what would you say that Nickel's top strategic priorities would be over the next 2 to 3 years? Andre Mikael Dy: Yes. Thank you. Thank you for the question. Well, Dennis could add to this as well. But for the strategy, it's really executing the nickel mining business, we will need to add resources and add our tonnage. So growth in nickel, we would like to achieve like double-digit growth in terms of volumes. And our -- and Manicani would be the next big story as we talked about. We think we can do 3 million tons from that, and this is high-grade nickel ore. So look to us to deliver on that. And then for our renewable energy business, look to us to be able to execute on the time lines that we are disclosing in Cawag, in Leyte. So these projects is really going to drive the growth. And then also look to us to press harder from -- for our Cordillera Exploration. We have found the gold. So look for us to drill further and try to define the resource and reserves. And we'll be a completely different company 12 months from now. Hopefully, we'll be reporting tonnages that are more from where we are today, installed capacity of Tuba than where we are today and then a gold and copper prospects of where reserves and resources are already identified. So I guess that's where I see our 3 legs of growth. And if Dennis has anything to add? Unknown Executive: Those are all accurate. And in particular, the -- I mean, to be more specific, the -- so we're very excited about the gold and copper prospect. But usually, these projects take a long time though. So for it to be a mine that would be possibly 2030 or later. But maybe in the next 2 to 3 years, we will be able to firm up the reserves and resources. And hopefully, our target will be to come out with JORC and PMRC certified reserves and resources within maybe 2 to 3 years. And then on the renewable side, it is definitely an area of growth for us. And I think 2 things I want to note here is that we will be looking at other opportunities, not just in the field of solar energy. So we will -- we are mindful of the additional supply in solar in Philippines and the need to diversify our projects into other types of renewable and clean energy. And also, I want to address the CapEx issue for solar and for our -- for EPI. Our intention is to -- for EPI to be able to fund itself in the near future. So this means that EPI will have to do its own fundraising activities for its equity moving forward. And this also means that Nickel Asia can now focus its resources on our other projects of growth -- for growth and of course, to fund future dividends. That's all I have for now. Unknown Analyst: That at least gives us a glimpse of where we see nickel to be going over the next 3 to 5 years. But maybe for now, as I'm flagging some questions here, we could try to look in where we see it in the next few years or quarters, in fact. Interesting that you talked about RE and the growth of that pipeline, the question that we have here is, could you give a glimpse of nickel's contribution mix based on mining versus RE? If you can give a 5- or 10-year time frame, that it looks like it would be appreciated. And from the CapEx schedule, there is some concern that is RE being beefed up in anticipation of mine resource depletion. Unknown Executive: Sure, sure. RE will increase in terms of its share, but it will still not be a huge chunk of our revenues and EBITDA. Our estimate is at most, it would be 1/3 of our revenues in 5 years. And then with respect to the CapEx issue, I just mentioned in my previous statement that although there will be significant CapEx for the power sector, we will use our -- we will project finance 70% of the funding requirement. And then the 30% equity will come from either the internal cash of EPI or from external funding. So that's our goal moving forward. Unknown Analyst: Maybe a little bit more of a technical question when it comes to the RE projects. As you do your planning and you start to execute these RE projects in the pipeline, maybe you can give an idea of what sort of IRRs are you're looking at? And by -- yes, we already have the 2027 outlook on the percentage between the two. But yes, more on the IRR question. Unknown Executive: Yes. For our grid-connected projects -- solar projects, our project IRR target is about 12% or above. And then for our other projects, we're aiming to achieve a higher IRR. But that is our base target, 12% project IRR. Unknown Analyst: There is a question on any updates for the plan to cease the operation of Coral Bay Nickel Corp. Andre Mikael Dy: Yes. Well, we disclosed this before. So we are looking at the operations to close by 2028. But what we would like to highlight is from this moment on, we've already been preparing for a transition period on how to respond and transition the community from the closure of Coral Bay. So as early as this year, this full year, we've been planning for that. So rest assured, we will be able to do it in the way that's expected out of us. After all, we've operated the plant since the early 2000s. So we owe it to the community for a proper transition. Unknown Analyst: And maybe on a forward-looking idea, there is a question asking for an update on the JV with DMCI for a possible development of HPAL. Andre Mikael Dy: Well, I guess for that, we continue to study what would be the -- and a big part of it is the timing as well. As you know, nickel LME is quite depressed. So there will be a right timing as well in order to kick start the joint venture with DMCI. So there are no news as of now. But what -- but we're excited to work with them once we're able to firm up the plans and get the timing. The overall supply in nickel in the near term will remain, but our view is that in another 5 years, the market may change and the market may change sooner. So we'll have to -- we'll be prepared for that. Unknown Analyst: Well, maybe two more questions. I think we're at the 8-minute mark. With all of this talk in mining, sustainability is especially critical in these industries. Where has the company positioned itself as a leader in these responsible practices? Any color you can give on that? Andre Mikael Dy: Yes, I do have some. Well, we are the first company in the Philippines with mining assets to be admitted as a member of the United Nations Global Compact, UNGC. So sustainability road map aligns with global standards and regular materiality assessment. So some of the programs that are part of that is the environmental protection and enhancement program or the EPEP, so which focuses on water and management, land rehabilitation, biodiversity protection. So in 2024, we've invested like PHP 514 million. And we also have the social development and management program, or the SDMP. It's a 5-year plan supporting education, health, infrastructure and livelihood initiatives. We spent PHP 221 million for this in 2024. So we view profitability and ESG compliance as complementary and not really competing with our priorities. So sustainability is embedded in our core operations. Unknown Analyst: Well, it looks from the question, there's been a good questions from the crowd that there's a great following for Nickel, especially now that you're seeing improved prices with a good prospect on the Indonesian ore ban. What message would you like to leave your potential investors about why now would be the right time to invest in Nickel Asia? Andre Mikael Dy: Well, I think the timing couldn't be more perfect. We are at a situation where it really favors the upstream miner. So the nickel ore and the ramp-up in Manicani will definitely provide the nickel growth story. And then we have our renewable energy arm, which will double in capacity soon. So it's accelerating. So our diversification away from the nickel metal is present in Emerging Power Inc. And then to add to that, because of the prospects of gold and copper, and then if we're able to define the resources and reserves soon, now is the best time to invest in Nickel Asia because we are growing the nickel business, our core business, and then we're diversifying away also into other revenue streams. Unknown Analyst: Fielding no more questions. I think all the questions have been answered quite thoroughly with the guidance. Thank you so much to Nickel's management. Great results in the 9 months 2025 so far. Moving forward, we'll continue to track where nickel goes in the future. And thanks for that. We're passing it back now to [Kami] for the next segment. Operator: Thank you very much, sir, Andre, sir Dennis and Gab for sharing valuable insights into the company's quarterly performance. So before we move on to our final 2 presentations of the day, we'll take a short 5-minute break. So feel free to grab a refreshment or take a quick pause, and we'll resume shortly.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to VolitionRx Limited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded today, November 14, 2025. I would now like to turn the conference over to Louise Batchelor, Group Chief Marketing & Communications Officer. Please go ahead. Louise Batchelor Day: Thank you, and welcome, everyone, to today's earnings conference call for VolitionRx Limited. Before we begin, I'd like to remind everyone that some of the information discussed on this conference call will include forward-looking statements covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on our beliefs as well as assumptions we have used based upon information currently available to us. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties and assumptions. Actual future results may vary significantly based on a number of factors that may cause the actual results or events to be materially different from future results, performance or achievements expressed or implied by these statements. We have identified various risk factors associated with our operations in our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and other filings with the Securities and Exchange Commission. We do not undertake an obligation to update any forward-looking statements made during the course of this call. Cameron Reynolds, Group Chief Executive Officer, will open the call providing a business update. Dr. Jake Micallef, our Chief Scientific Officer, will present research highlights from across our product pillars. Terig Hughes, our Chief Financial Officer, will then provide a financial report before handing back to Cameron to close with a discussion of upcoming milestones. We will then open the conference call to a question-and-answer session. And with that, I'll turn the call over to Cameron. Cameron Reynolds: Thanks, Lou, and thank you, everyone, for joining Volition's Third Quarter 2025 Earnings Call today. We very much appreciate your time given the busy earnings season. 2025 efforts for Volition have focused on commercializing our groundbreaking Nu.Q platform in the human diagnostic market, and we were excited this quarter to sign not 1 but 2 agreements, a research license and exclusive commercial option rights agreement for antiphospholipid syndrome, APS, with Werfen and a co-marketing and service agreement with Hologic. Both are multibillion-dollar companies and worldwide leaders in their specialized fields, and we are delighted to report that both have very much hit the ground running. Now taking each in turn. Werfen is a global leader in the field of in vitro diagnostics for hemostasis and thrombosis, among others, where neutrophil extracellular traps, NETs play such an important role. And of course, we have the only approved test to measure NETs. So this agreement fits extremely well into our strategy of leveraging the installed base of machines, specific disease knowledge and customer reach of our partners, combined with our unique NETs platform. Under this agreement, Werfen will gain access to the components of Volition's proprietary Nu.Q H3.1 NETs assay and will investigate its clinical utility in the management of APS patients on its platforms. Werfen also has an option to negotiate terms with Volition for it to launch the product commercially under an exclusive license. We have already successfully transferred the Nu.Q NETs assay to their ACL AcuStar platform. Early results in NET levels detection in APS patients with Nu.Q test are encouraging. Werfen are excited to validate further and complete a clinical utility study to determine the potential role of this marker as a risk indicator of thrombosis in APS patients, allowing a better management of this very complex syndrome. This could open the possibility to enlarge Werfen's portfolio in APS testing. Just to provide a bit of background about the condition as we haven't previously discussed this in detail. APS is a complex disorder of the autoimmune system affecting around 4 million people worldwide. It causes increased risk of blood clots and their associated complications such as stroke, heart attack, pulmonary embolism or deep vein thrombosis. It is also associated with the recurrent miscarriages and pregnancy complications. It is currently diagnosed through a panel of blood tests requiring 2 positive results at least 12 weeks apart and is often a lifelong condition requiring regular monitoring. Emerging evidence suggests increased net formation appears to be a central mechanism in thrombosis in APS and that targeting NET pathways could provide future therapeutic avenues for thrombotic complications. We believe that Volition's Nu.Q NETs test is the first CV -- IVD assay being investigated in APS and could provide not only improved diagnostic information to aid clinical decision-making and personalized care, but also a low-cost test to continue to monitor these patients throughout their lifetimes. APS diagnosis and monitoring represents a total addressable market of approximately $85 million annually. So it is a very good early target for our NET platform. It is exciting to achieve this major milestone with Werfen, and we are already working with them on study design, et cetera. The second agreement we announced this quarter is with Hologic Diagenode for the co-marketing of Volition's Nu.Q Discover service. The Nu.Q Discover service provides drug developers and scientists with a range of state-of-the-art assays for rapid epigenetic profiling in disease model development, preclinical testing and clinical studies from discovery to being market ready. Hologic has extensive experience recording revenues of over $4 billion in 2024 from a large client base and international reach, providing tools to biotech and pharma companies and also to academic and government organizations. We have seen strong growth in interest from our Nu.Q Discover services and believe this partnership with Hologic will further accelerate the expansion of Nu.Q services to a wider base of customers to drive revenue. The inclusion of our nucleosome-based biomarkers in Hologic's portfolio demonstrates a strong validation of their value in clinical development. The Hologic team have really hit the ground running and have already presented the Nu.Q Discover offering at several international conferences, have launched a digital marketing campaign, including e-mails and LinkedIn advertising and have a webinar planned for next quarter. They have also received a lot of inbound interest from existing customers, so definitely an exciting start to what we hope will be a long and fruitful relationship. We are continuing our discussions with around 10 of the world's leading diagnostic and liquid biopsy companies and are at various stages of this process across our different pillars, ranging from due diligence to tech transfer to evaluation of clinical samples to term sheet and contract negotiations. We are very confident of further licensing deals with a range of large companies, and we'll update on progress as they are completed. We believe that our positive emerging clinical evidence supports the broad applicability of our Nu.Q technology in critical areas such as cancer and sepsis, including as a biomarker of interest to epigenetic drug development and expanding area of focus for big pharma. Beyond licensing, as discussed on our previous calls, another prong of our Nu.Q NETs commercialization strategy is to leverage our granted CE Mark approved in the EU for any NETosis-related diseases with the product under valuation in 14 hospitals in 5 European countries. As Dr. Andrew Retter has discussed on previous calls, NETs are implicated in a wide range of diseases. We anticipate the presentation and publication of results regarding the clinical utility of the Nu.Q NETs H3.1 assay across a range of diseases in the coming months and quarters. So please keep an eye out. In fact, we have made significant progress on several publications in recent months and anticipate peer-reviewed publications across all pillars in the coming quarters. One such paper just recently submitted for peer review, concerns our groundbreaking Capture-Seq technology. We believe the ability to concentrate chromatin fragments and therefore, tumor DNA has the potential to be a game changer in the liquid biopsy field. It is an exciting prospect from a licensing perspective, and I am pleased to report that we are currently in active discussions with third parties. But to provide more detail, I'm delighted to pass over to Dr. Jake Micallef, our Chief Scientific Officer, to share a more thorough update on scientific and clinical progress. Jake? Jacob Micallef: Thanks very much, Cameron, and good morning, everyone. I'd like to start by providing a little more color and detail to the Capture-Seq project. We've recently submitted a paper on this describing an entirely new liquid biopsy method to analyze blood samples to find DNA from cancer cells. This is not a new way to target the same cancer-derived DNA targeted by other tests. Instead, we target an entirely new class of cancer-derived DNA. This represents an entirely new class of cancer biomarkers with hundreds or possibly thousands of new targets, all of which are ignored by current methods. We have isolated this previously ignored DNA from blood and removed the background DNA. This is important because background DNA is the single biggest problem in current liquid biopsy methods and nobody has ever previously managed to remove this background; however, our new method isolates just the DNA we are looking at with 180-fold concentration. That's an 18,000% enrichment and removes more than 99.5% or almost all of the background DNA. This is a great result, but it would be easy to throw away the baby with the bathwater. That didn't happen. We retained 48% of the target material for analysis with almost all the background DNA removed. This is the first. It's never previously been achieved in liquid biopsy. Our new Capture-Seq method is extremely exciting, and I personally believe it may become commonly used worldwide, both in the detection of cancer and in cancer patient management. The focus of the paper we've submitted is scientific rather than clinical and showcases what we believe is a revolutionary new liquid biopsy method for detecting cancer DNA in blood. So how is it revolutionary or different to existing biopsy methods? Well, the vast majority of DNA circulates in the blood as nuclear proteins called nucleosomes, and most of this is actually background; however, small amounts of DNA also circulate bound directly to epigenetic regulators called transcription factors. And this DNA, as I say, it's ignored by present methods is our target. Some transcription factors bind to different DNA locations in the genome or DNA sequences in the cells of cancer patients; however, their isolation from blood has never previously been successful. And consequently, the different transcription factor binding that occurs in cancer has never previously been measured in blood samples. We have now succeeded in isolating transcription factors from blood plasma and found hundreds of transcription factor bound DNA sequences in the plasma of cancer patients that are not present in the plasma of healthy people. As I said, these new sequences represent an entirely new class of cancer biomarkers with hundreds or maybe thousands of new targets available to science for the first time, and Capture-Seq is an entirely new way to analyze blood samples to find them. So the next step was then to establish a proof of concept for cancer detection by transcription factor occupancy measurement in blood using Capture-Seq. The technical details will be published in the paper when it comes out, but the transcription factor we've worked on is called CTCF, and we've shown in a small number of patients that a panel of plasma CTCF ChIP-Seq results identified patients with cancer with 100% sensitivity and specificity. In lay terms, we detected all the cancers with no false positives. That was very encouraging, and we have good reason to believe Capture-Seq will be accurate and economic in routine use. Although we focused on one particular transcription factor, CTCF, this may be a pathfinder for many other similar tests using other transcription factors that are important in particular cancers. An easy example would be the estrogen receptor as a transcription factor in breast cancer. And perhaps most importantly, this new transcription factor DNA method may be used alone or in combination with other existing methods to bring multi-omics cancer DNA testing to patients for patient management and for early cancer detection. As Cameron mentioned, we're in many confidential discussions, and this is certainly proving a hot topic. So scientifically, a great step forward and hopefully, one which will translate into real-world clinical benefits for patients. We will, of course, update you more fully once the paper is out. I also wanted to take the opportunity to update you on a few other Q3 activities. I was very fortunate this quarter to visit our key collaborators in our lung cancer product development programs. In August, I met with Professor Chen and his team as well as the screening program leaders at the National Taiwan University Hospital in Taipei. During the visit, the IDS-i10 analyzer, which is the automated platform for our tests, was installed in NTU's laboratory and training was provided by 2 of our team to progress their validation study for lung cancer screening. They've also performed some analysis regarding use of the Nu.Q H3K27 [ TriMethyl ] test in prognostication of diagnosed lung cancer patients in studies similar to our previous collaborative studies in France. I also visited our colleagues in France who are continuing their work using Nu.Q [ H3K27 TriMethyl ] in lung cancer, and they're now expanding into other cancers. The clinical lung cancer patient management results in France are consistently excellent, and we're preparing for the introduction of Nu.Q [ H3K27 TriMethyl ] test in clinical practice in a group of hospitals in France. There will also be quite a few upcoming publications in cancer in the near future. In August, we also published a paper showing the utility and reliability of our Nu.Q NETs assay, and we expect further publications from ourselves and from collaborators over the coming months in NETs. So a lot of activity. And with that, I'll hand over to Terig for the finance. Terig Hughes: Thanks, Jake, for that thorough and exciting update. Now on to the finance report. Revenue for the third quarter grew 32% over the same quarter last year, coming in at $0.6 million. At this early stage of commercialization, revenues remain fairly lumpy and difficult to predict from one quarter to the next. So we will not be providing revenue guidance at this point in time. Operating expenses for the quarter were down 10% year-on-year and down 18% for the first 3 quarters, primarily reflecting lower personnel costs and lower research and development expenses. As a result of strong cost management, net cash used in operating activities was $3.6 million for the quarter, down 33% over the same period prior year. Net loss was down 8% for the quarter and down 20% for the first 3 quarters compared to the prior year. Receipts during this third quarter included $1.2 million from a registered direct offering, which included participation by some of our directors. And subsequent to quarter end, we received net proceeds of approximately $6.1 million from a confidentially marketed public offering, including partial exercise of the underwriters' overallotment option. This raise also included insider participation, demonstrating once more strong managerial commitment. So to summarize the quarter, revenues were higher by 32% versus prior year, total operating costs lower by 10%. Cash used in operations was lower by 33%, net loss improved by 8%. And as Cameron reported at the top of the call, we are excited to have signed our first agreements with Werfen and Hologic. One of our key financial goals is to be cash neutral, meaning income, including licensing receipts, matches expenditure on a cash basis. We have made significant progress on cost reductions. However, to fully realize our ambition, we need to execute several significant licensing agreements in the human space and secure existing milestone payments in the vet space. I'm happy to say we continue to make solid progress against each of these targets. And with that, I will pass back to Cameron for closing remarks. Cameron? Cameron Reynolds: Thanks, Terig. Before summing up, I'll provide a quick update on Nu.Q Vet. Expanding the global reach of our Nu.Q Vet cancer test remains a key priority, enabling veterinarians worldwide to improve canine cancer screening and outcomes. Our supply agreements with leading industry players, including Antech, part of Mars Science and Diagnostics, Fujifilm Vet Systems and IDEXX are instrumental in achieving this. To further accelerate revenue growth and ensure consistent delivery, we are focused on centralized lab automation. At the end of the first quarter, Fujifilm Vet Systems expanded their contract with us to validate and then implement a centralized automated platform using the IDS-i10 analyzer. I am delighted to report that the Fuji team have made great progress this quarter in validating and verifying the Nu.Q Vet cancer test on the automated platform. We believe the automation of centralized labs is crucial to accelerating our growth rate. So this is a particular area of focus for us. We aim to enable all our large customers to be automated so that they can easily and effectively handle the much larger numbers of tests that would result from having our tests in annual pet wellness panels. Putting our tests into wellness panels would greatly increase sales volumes and will be a key target for 2026. Notably, this automated platform is the same technology utilized for our human diagnostic products, Nu.Q Cancer, Nu.Q NETs and Nu.Q Discover, highlighting the inherent synergy and efficiency of our core Nu.Q technology. Terrific work from the Fuji team who continue to see steady growth in the use of the Nu.Q test in Japan. On the research and development front, we continue to make progress towards securing the final milestone payment of the $5 million related to our feline cancer product. In the second quarter, a peer-reviewed paper regarding pre-analytics was published, and we plan to present and submit for publication clinical data in the coming months. In drawing the call to a close, our goal is to secure a wide range of licensing agreements in the human diagnostics space, mirroring our successful strategy in the veterinary market and anticipate similar to the veterinary market, diverse deal structures with potential for upfront and milestone payments and future recurring revenue. We believe we have developed a unique and widely applicable platform that will be a big part of both oncology and NETosis for decades to come for hundreds of millions of people and animals worldwide. Cancer and sepsis diagnostics alone represent a combined total addressable market of approximately $25 billion annually, offering substantial revenue opportunities for Volition and our partners. I believe that these next few quarters will be transformative for our company. Our laser focus is on executing license agreements, and we will update you as they complete. Thank you for joining the call today. We very much appreciate it. We will now take your questions. Operator? Operator: [Operator Instructions] Our first question is from Justin Walsh with JonesTrading. Justin Walsh: Can you provide some additional color on the size of the antiphospholipid syndrome market and how it compares to other potential Nu.Q NET applications you guys are looking at? Cameron Reynolds: Yes, Justin, thanks. That's a good question. So obviously, the NET market is huge. If you -- the big ones are things like sepsis and AKI. And I mean, obviously, they're the biggest of the big. And for us the start of the program, the first cab off the rank, we're very happy that starting with these kind of diseases, which are big worldwide. There are 4 million people who have APS. So it's considerable. It's not one of the biggest markets, but that's a very good one to start with. And the TAM, we've calculated is something in the $85 million to $90 million per year. So autoimmune diseases are obviously very important for a whole lot of reasons and it's something which is very tough to diagnose. So we think this is a great first cab off the rank, something, as I said, $85 million or $90 million market -- sorry, TAM is a very good way -- market size to start with. And currently, the way it's diagnosed is far from ideal, and it is very much NETs related. And as you know, the Revvity is selling our assays in Europe now, and they're analyzing 21 different uses beyond APS. So there's a large range of ones coming up, but that's the size of the first one. And as we said, we strongly expect to see a range of others. Operator: Our next question is from Yi Chen with H.C. Wainwright. Yi Chen: My first question is, could you tell us whether the Werfen partnership has made any contribution to the third quarter revenue? And also, how do you expect the Werfen and the Hologic partnerships to shape the top line revenue trend in 2026? Cameron Reynolds: Yes. So Werfen have not accreted to the revenue. They're in the process of validating it on clinical samples for clinical utility. They absolutely hit the ground running. I think we'll end up with a broader agreement with Werfen. They've got it working on their machine. So -- and the machine is quite -- they're one of the biggest in the autoimmune space in coagulation. So I think they will be a big part of what we have going forward. I think our plan has always been and still remains to be that we will be on a range of different platforms. So these coagulation companies, companies like Werfen, Sysmex, [ Hologic ] are a very good way to start. They're all large multibillion-dollar companies, but are specialists in certain pieces of the NETosis market. So I think Werfen the first off the rank and they've hit the ground running, and I think we'll broaden the relationship. As far as Hologic, actually, I can announce today, they've actually made their first sale. Obviously, it's not in the last quarter's revenue because that's come and gone, but there will be some on this quarter's revenue. We could not be happier with that relationship as well. They've got a very -- well, compared to us, they're a multibillion-dollar company at Hologic, as you know. They're very excited about our epigenetics offerings. They presented at quite a few conferences. They've done a lot of social media and marketing. They've trained their workforce. They've also visited our laboratories in Belgium and in California already to really understand it. And as I heard today, they've made their first sale. So I think both are very important to our growth. I think the great thing with both agreements as well is we are in a lot of other discussions as we -- as you know, it does give everyone else a bit of a nudge to when you make deals with their competitors. So I think it's been transformative in our relationships with our -- the 10 other people we're talking to, have been taken so seriously by such large companies that obviously, they're very excited as well. So overall, I'm very, very happy with both the arrangements with Werfen and Hologic. And as I said a few times on this call, we're very active discussions with a bunch of others. I do believe very much going forward, the NETosis test, the oncology will be something which is taken by a very large number of people worldwide very regularly. And this is the start of that process that we expect to see a lot more in the coming months and quarters. Yi Chen: Got it. And with respect to those ongoing discussions with additional partnerships, how many do you expect to close in 2026? Cameron Reynolds: I guess one thing we've never really been on top of is the timing of which ones will happen when. It's always tough. These are very important deals for us. But if you are the largest company in the world or the largest companies in the world, they can speed up and slow down. But I'd strongly expect we'll have a range more, I do expect that we've got some very active discussions going and some of which are in hopefully, the latter and final stages. But exactly which ones will happen when, it's very hard to say. But I would be very surprised if there wasn't a bunch more through this year and through next year because I think what gives me that confidence, our NETosis test is the only way we know of measuring NETs. NETs are the next big things. They have been associated with dozens and dozens of different conditions and processes. On the oncology side, our basic Nu.Q platform in H3.1 and H3 K27 is the biggest seller in the Vet market. It's making a big splash in the lung market in France and Taiwan and moving to other countries. And as you've heard today, for the first time, again, very, very exciting. Our ovarian -- Dr. Micallef has cracked concentration of chromatin, which is just one of the holy grails in oncology. The issue with all the companies in the liquid biopsy space is a very rare target. So being able to concentrate chromatin fragments, and we started with transcription factors, which are the pinnacle of epigenetics. They are the most important factor and all that is just huge. So I think between all of that, I'm very confident we'll be getting some deals signed with different groups. We have something very special. But as we've said many times, it's bigger than us. There's no way we can commercialize all the different things we're doing. And I think, obviously, the first companies you've seen realize that. And I think it's really starting to pick up with the other companies as well. And the more we sign, the easier they've become to sign because our credibility and track record go up and up and up. Operator: Our next question is from Steven Ralston with Zacks. Steven Ralston: First of all congratulations on the traction you gained on the revenue line in the products and also on the significant reduction of expenses this quarter. And I'd like to dig into both of those. First of all, can you give some sort of breakdown of the product revenues? I know it consists of the Nu.Q Vet test and the Discover kits. In the vet, was there any like stocking for Fuji? Or was there some lumpiness in the Discover side? Terig Hughes: So this is Terig, Steven. Yes, there is still a lot of lumpiness, which makes it a bit difficult to predict and then discover is very project-based. So that's up and down each month and each quarter. What I would say is that, as you can see, both services and product revenue had a very good quarter. And on the pillar side, every pillar made some progress, and we'd expect to continue to make progress through the balance of the year. We don't provide individual growth numbers for the individual pillars. But I do expect that we'll see growth across all the pillars through the full year. Cameron Reynolds: And just one thing, Steven, I think to keep in mind, just to go through them one by one. The vet, obviously, we are the biggest selling oncology test in the veterinary market. But obviously, we'd like it to be much higher in the millions of tests and tens of millions of dollars in revenue. That is not going to happen until it's got a centralized lab machine working. But as you heard, that's something we have actually achieved this month with Fuji validating the i10. So the platform currently is on microtiter plates work fine. But as you can imagine, that's not an easy thing to do hundreds of thousands of tests on plastic plates. So having the i10 working, and it's -- obviously, it's made by Revvity, so a large, again, multibillion-dollar company is a massive breakthrough for us, and we're going to focus next year on trying to get -- getting the big companies to automate. And then there's a real prospect of them putting on this in wellness panels. So if you see them starting to go into wellness panels for the big companies, that means it's finally taking more of a vertical lift off with a steady sort of slow ramp, which we've been having. So we're very excited about that. Nu.Q Discover has actually outperformed what we expected. It's been -- we've had, I think, dozens of clients now for different uses, including all the research uses and the commercialization, the big companies. And Hologic getting their first customer is very exciting for us because they're out there. They've got far more rigs than we could ever have, of course, and they're taking it extremely seriously and very energized by this. And then on the Nu.Q Net side, they're very big companies and the big milestone payments take time. But in the meantime, the prong we have in Europe of all those different hospitals, 14 hospital networks using the system in 5 countries for -- I think it's 23 different net-related uses now. Now they're all just buying them now initially to work out a cutoff for what each use is, but we'd expect them to start the clinical utility in the next year as well. And so they should really start to take off as well and distributed by Revvity. So that makes it much easier. And we do expect the first clinical use of the oncology platform in Europe, in France, as we talked about in Lyon sometime in the next quarter or 2 as well. So everything is getting there. It's been -- it's one of those things. We've got a lot of things going on, and they always take some luck -- aeroplane taking off, sometimes it takes some time to get off the ground and then we're really hoping at least some of those happen in the next few months and quarters. And we can really turbocharge the revenue in the vet space, in the Discover space, in the net space and the lung space. And we're doing everything we can to put those things in place so that it comes from something where we're getting good sort of organic growth to a real lift off, which is what we all want. Does that make sense? Steven Ralston: I'd actually like to pursue the revenue line a little more because as an analyst, I have to do financial modeling, and I'm looking at it by product line and the addressable markets that they have. And I realize it's a very nascent stage in terms of revenue right now and it's -- but thinking about it long term, I mean, right now, 75% of -- well, actually over 80% of the revenues in this quarter were on the product line. And looking at accounting rules and that sort of thing, segments usually break down by when they achieve over 10%. Do you think there will be a time where you'll actually break it down that we'll see product lines like in the vet space and Discovery, each one of your pillars having a separate revenue line or subsegment revenue line? Terig Hughes: Yes. I think as the pillars mature and each revenue line becomes more meaningful, I think it would make sense to then provide that level of detail. At the moment, it's -- each pillar in and of itself is still relatively small and like I said, quite lumpy. And so for the foreseeable future, I think this is how we'll report it. But as soon as I think we get some significant growth. So for example, as Cameron mentioned in the vet space, if that starts -- that gets adopted into the wellness plans and takes off, I think it would be good to split that out and report that pillar separately or likewise, any of the others when they cross certain milestones. But in the meantime, we're happy to give you a bit of color on these calls, but we're not splitting that further at this time. Cameron Reynolds: And to be clear, just to reiterate, on the revenue side, obviously, the product revenue is important in the short term, but we see more of kind of priming the pump proof of concept, proof of product to license. If this is going to be taken up worldwide and if NET is the biggest thing out there, which I think it could well become by 2030 or 2032, this could easily be in the hundreds of millions of tests per year as the TAM for NETosis. That's clearly not going to be us out selling that product, and we don't want that sales force. We don't want the process. So we're out now through our partners and licensees to sort of show that it works. But the bigger it gets, the less we'll end up doing and we'll make the money from the key components and the royalties and licensing revenues rather than the process. So I think if you look into how it fits together, in the short term, it will be more product-based because we're showing it works and these kind of relatively smaller sales. But once it really takes off, and I think I'm very, very excited with the potential in the oncology space and also in NETosis space, that's when it will -- the licensing revenue will drop the product revenue because these big companies have a reach that we're never going to want to have. So does that make sense, Steven? And so it will change from a lot of product revenue to overwhelming licensing revenue if it goes the way we expect. Steven Ralston: Moving on to the expenses. the -- well, actually year-over-year and the sequential improvement was dramatic, much more than I expected. And somehow I had some sort of an indication that like the second quarter relative expenses were like going to be the floor now, but you made such a huge jump here in the third quarter. And actually, it's kind of a prop, it's about like the 1-year anniversary since you announced the cost-cutting program. Do you think you've come to the end of the cost cutting and this is more of the baseline? Or is there still more to come? Terig Hughes: So I would certainly say it gets more difficult to beat the prior year because we started making progress in the third and fourth quarter of last year on the cost savings program. And so you're battling against a tough comparative. But yes, I certainly hope that we can continue to make progress, but it may not be as steep as we made year-to-date. Cameron Reynolds: And Steven, it's a lot been listened to our investors as well. Obviously, we've been having to raise money, and it's a tough market. So we really want to spend and we have -- I think we've developed some of the most remarkable technologies with that money, but we're also aware that the market is horrible at the moment. So we need to save every single penny. So Terig has been extremely good at. But it's a balancing act. You're not going to become a successful company just by cutting. You've got to deliver the deals and products, which we're in the process of doing. So we've drastically cut our workforce and our expenditures. But at the same time, we managed to launch a range of products. And that's a balance we take every day because -- I mean, the cutting has been crucial. We had to listen to the market and had to listen to what's going on. But we also have to deliver. So it's something we thread that needle every day. But yes, so we'll see how that goes on the deals being signed. But the big difference now, I think the value of the company now isn't necessarily from cost cutting. It's from delivering deals and licensing arrangements and sales. So -- but in no situation, are we going to allow the expenses to blow out. We've got to keep it tight. It's very hard to raise capital at the moment and as we all know. So we have to do as much as we can, the little, but we do have to deliver at the same time. So it's a balance. Steven Ralston: And last question, and hopefully, this is a short one. I noticed that in a recent conference, it was mentioned that some preliminary results from the ongoing lung cancer study were presented. Was there any new information there? Cameron Reynolds: No. That's -- there's actually a lot going to be presented at the conference in Chicago in December. North American... Steven Ralston: No, this is the one... Cameron Reynolds: In Chicago, yes. No, they're getting there. So there's a lot of new data being [indiscernible], and we expect it to be in routine use. This will be the first time our test to be in routine use in humans that's coming up in the short term. And the Taiwanese has done a lot of work as well. So expect to see it later this year and early next year, but there's nothing -- I believe nothing new, nothing new in that process. But they are -- that's not a lack of activity. They are in the process of doing a huge amount -- and so that's our basic Nu.Q platform, and then we hope to be able to add on arrangements in the more complicated -- slightly more complicated areas of capture and process, but both are progressing well. Operator: Our next question is from Bruce Jackson with the Benchmark Company. Bruce Jackson: So if we could start with the -- I know the terms of the agreements with Werfen and Hologic were confidential, but just broad brush, were there any upfront payments in those agreements? Cameron Reynolds: Yes, they were in Werfen, not as we've said, we start smaller and we expect them to get bigger and bigger with every deal. But yes, there were upfront payments and ongoing payments from Werfen. So to the earlier question, there were some not product income from them, but Werfen did have some upfront. I can't discuss that too much more. They're confidential, but yes, they were, and they are ongoing. And Hologic, it's a co-marketing, so it's not upfront, but they are very active and have made their first sales, so it will contribute to our revenue in the short term. Bruce Jackson: Okay. And then second question, the milestone for the feline cancer testing, where do you think that might hit? Cameron Reynolds: So it's in the process. So we're just in the final stages of getting the last caps, which has actually taken longer than we thought. Finding caps with cancer isn't an easy process, but we're getting there. So upon that, under the terms of agreement, it will be due on -- I'm not sure it's public. I'm not sure we can say the time scale, but the time scale is in the agreement with Antech. But as soon as the paper is published, that is a process where we can -- do you want to go through that, Terig? What can we say? I'm not sure exactly what that was... Terig Hughes: Well, what I would say is that the conditions to meet the milestone that we need to get a paper published and then the payment follows thereafter depending on, again, either the launch, the first commercial sale of a test or there's also a time line by which they have to pay to us. So what we'd hope that once we've completed the study, got the paper published that shortly after that, we would be looking for that milestone payment to be paid. Cameron Reynolds: It's up to the finishing the paper. And as you know, takes some time sometimes. But I'm very hopeful we are close to getting that across the line. And then yes, then we're in a position to ask for that payment. Bruce Jackson: So publishing the paper triggers the milestone. Is that correct? Cameron Reynolds: That's correct. Bruce Jackson: Then last question. There were some Series A warrants that were out there that were milestone-based. Has that milestone been met with the announcement of the agreements? Or -- what are the conditions for that? Cameron Reynolds: The conditions were an aggregate of milestone payments, which is higher than the milestone payments that we have. So it has not been triggered yet. Operator: There are no further questions. I would like to turn the conference back over to Cameron for closing remarks. Cameron Reynolds: So thank you, everyone, for coming on the call today. I really appreciate your time. There's obviously a lot going on at Volition in all of our pillars. Obviously, it's a very tough market at the moment for our shareholders, and we do understand that. So we're doing everything we can to deliver what's going to make us a very successful company. If we achieve them all, things we are making very strong progress. As said in the vet market, we've got the i10 validated now for centralized labs, which we're hoping will lead to other companies doing centralized labs and wellness tests, which would be transformative for our revenue in the vet space. The Nu.Q NETs, we're making a lot of progress in Europe with our fantastic partners at Revvity, who are selling them to 14 hospital networks now. They're working on the cutoffs in a range of a couple of dozen different uses for NET. We signed our first 2 human deals in the NET space, starting with APS, which, as we said, has like a $90 million-ish -- $85 million, $90 million TAM. So it's a good start, but we do expect a lot more. Jake, as announced, he has submitted for publication on the capture side, which is very exciting. We're making strong progress on the lung cancer side in both France and in Taiwan, and we expect it to be used in the first clinical sense in the short to medium term as well. So a huge amount going on, and I'd like to thank you all for having the interest in the company and keeping track of what we have. Expect to see a lot of news on all those fronts in the coming months as well as we continue to deliver on the commercialization plan. So thank you very much for your time today. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Good morning, and welcome to Vallourec's Q3 2025 presentation hosted by Philippe Guillemot, Chairman of the Board and Chief Executive Officer; and Sascha Bibert, Chief Financial Officer. [Operator Instructions]. And now I would like to hand the call over to Connor Lynagh, Vice President of Investor Relations. Please go ahead, sir. Connor Lynagh: Thank you. Good morning, ladies and gentlemen, and thank you for joining us for Vallourec's Third Quarter 2025 Results Presentation. I'm Connor Lynagh, Vice President of Investor Relations at Vallourec. I'm joined today by Vallourec's Chairman and Chief Executive Officer, Philippe Guillemot; and Vallourec's Chief Financial Officer, Sascha Bibert. Before we begin our presentation, I would like to note that this conference call will be recorded. A replay will be available following the call. You can find the audio webcast on our Investor Relations website. The presentation slides referred to during this call are also available for download here. Today's call will contain forward-looking statements. Future results may differ materially from statements or projections made on today's call. The forward-looking statements and risk factors that could affect those statements are referenced on Slide 2 of today's presentation. These are also included in our universal registration document filed with the French Financial Market regulator, the AMF. This presentation will be followed by a Q&A session. I will now turn the call over to Philippe Guillemot. Philippe Guillemot: Thank you, Connor. Welcome, ladies and gentlemen, and thank you for joining us to discuss Vallourec's third quarter 2025 results. In the third quarter, we delivered solid results once again with group EBITDA margin rising to 23%, the highest level since the first quarter of 2024. With this, we have now maintained our EBITDA margin around the 20% level and generated positive cash flow every quarter for the last 3 years. Our strategic initiatives are paying off, demonstrated this quarter by the closing of the Tubes profitability gap versus our primary peer. You can see today's agenda on Slide 3. I will move to Slide 5 to discuss the highlights of the third quarter. Our third quarter results were in line with our expectations. EBITDA of EUR 210 million was at the midpoint of our guidance range. We recorded very strong net income of EUR 134 million. Our net income has recently been added by the execution of strategic projects, in this case, the sale of Serimax. Group EBITDA margin was 23%, driven by the robust performance in Tubes. Tubes EBITDA per tonne improved by more than 25% sequentially to EUR 621 Total cash generation was positive for the 12th straight quarter. We reduced net debt to EUR 140 million. Looking ahead, we expect fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Our full year outlook confirms the expected second half versus first half EBITDA improvement. We have seen some positive trends in the business despite a volatile macro environment. In the U.S., our fully integrated domestic operation is benefiting from high levels of customer demand. Recent bookings have been strong. In Brazil, we secured a major contract with Petrobras, which will expand our OCTG market share. This contract further demonstrates Vallourec's ability to deliver high-value solutions from our domestic manufacturing base. Meanwhile, in select markets in the Eastern Hemisphere, we have seen delays in some customers' activity. These delays will result in some orders being invoiced in 2026 later than initially planned. This delay is embedded in our fourth quarter outlook. Turning to capital allocation. We further optimized our capital structure in the quarter, redeeming 10% of our 2032 senior notes. In addition, today, we announced a special meeting for holders of Vallourec warrants. The key proposal will be to allow Vallourec to satisfy its warrants obligation with existing or new shares. The current terms of our agreement only allows the delivery of new shares. This will enable maximum flexibility in our capital return options over the next year. Let's move to Slide 6. The 2 goals of the new Vallourec plan were to crisis-proof our business and deliver best-in-class profitability. Today, I am pleased to announce that Vallourec has achieved another major milestone. In the third quarter, we fully closed the margin gap versus our primary peer. This is thanks to our core principle of value over volume and our relentless focus on operational excellence. We also continued our strong trend in return on invested capital in Q3. I assure that our journey will not stop here. We have many initiatives underway to further improve our return on invested capital. Let's turn to the current market environment on Slide 8. We start here with the U.S. OCTG market. While crude prices remain volatile, oil drilling activity bottomed in August. The oil rig count increased modestly through the third quarter. Gas directed drilling has stabilized at a healthier level after rebounding in H1. Recent strength in U.S. gas pricing could drive higher activity. OCTG consumption per rig is also a tailwind. Since 2015, OCTG intensity per rig has increased nearly 5% per year, as shown on the right-hand chart. The drivers are clear. Our customers are drilling longer laterals and rigs are drilling at faster rates. The push towards long laterals has driven strong demand for our high-torque connections. Because of this, one of our return-enhancing initiatives is the construction of our new training line in Ohio, which we announced earlier this week. This line will serve the strong and increasing market demand for high-torque connections with a high return on capital. Let's move to Slide 9. On the left side, you can see the import trend. While recent data is unavailable due to the U.S. government shutdown, we believe imports have started to decrease. This is particularly true for seamless products. Our order intake has been robust in recent months, reflecting healthy demand level and an improvement in our market share. This is likely at the expense of some of these imports. Seamless spot pricing was stable in Q3 with the latest survey showing a slight increase. We have seen divergence in welded versus seamless pricing in some recent industry surveys. This validates the differences in import economics we highlighted last quarter. Let's move to the international OCTG market on Slide 10. Demand, as measured by the rig count remains at a healthy level in most regions. On the left, we highlight that activity trends have not been uniform across key geographies. Middle East activity, particularly offshore, has shown a downward trend over the past several months. This was particularly driven by activity reduction in Saudi Arabia. Our premium portfolio is outperforming the overall market. Still, we have seen some delays in customer activity in select countries, especially in the Middle East and North America region. Meanwhile, activity in other international markets has moderated very slightly. Many of our core markets, such as Brazil, have been stable and look set for further growth. Market prices according to Rystad Energy are consistent with the change in activity. There has been softening in the Middle East relative to offshore markets like North Sea. Our product mix is skewed toward more premium grades and connection that is indexed. Our pricing has remained more stable, including in the Middle East. Looking at the long term, our key international customers continue to advance ambitious capacity growth plans. This will inevitably lead to higher drilling activity and higher OCTG demand well into the future. The structural shift towards increased gas and unconventional fields and the resilient development of deepwater basins is a tailwind. These resources require high-tech solutions, including new fit-for-purpose solution that we are developing today. Before I hand over to Sascha for his last participation to Vallourec's analyst call, I would like to warmly thank him for his contribution next to me to the successful execution of the new Vallourec plan, which I announced in May 2022 and that Sascha will recap in his presentation. We all wish him the best for his future challenge in Germany. Sascha Bibert: Good morning, everyone. Thank you, Philippe. Yes, I'm leaving with a lot of gratitude and also some pride when looking back on what we have achieved as a team. Under your leadership, Philippe, we have executed the new Vallourec plan, including the closure of plants and implemented a change in the business mix towards high value-add products, which allowed us to generate cash consistently. This opened the door for the refinancing and the initiation of shareholder returns. Meanwhile, our shareholder base has transitioned from Apollo and SVP Global towards ArcelorMittal and many global investment funds. Similarly, we have established a new banking group and are now fully transitioning towards an investment-grade balance sheet. In short, the chapter has closed and a new one is opening. The Vallourec team will go towards the next level of efficiency, continuing to further optimize our return on capital. This will offer new opportunities, but will also benefit from new skills and fresh energy. I will join the BASF Group to support them with the carve-out and IPO readiness of the Agricultural Solutions business. It was a fantastic journey with Vallourec, and I thank you all for your support during those years. Let me also highlight important changes in our Investor Relations team. Connor will continue to lead the team until early '26. however, then transition the IR leadership to Daniel Thomson, who recently joined us from Exane BNP Paribas. I think many of you know Dan. Sometime in H1 2026, Connor will then fully concentrate on his new responsibility as Finance Head for our North American operations. Furthermore, we have another addition to the IR team, Igor Le Blan, who brings with him lots of valuable experience from his former Vallourec roles, including for sales in Northern Africa. Let's start with Page 12. This slide shows the impact of the new Vallourec plan. As part of our premiumization strategy, we have changed the business mix and increased prices. We also worked hard on our cost, reducing fixed costs and thereby increasing our resilience to market cycles. The combination of higher prices and higher efficiencies have contributed to an EBITDA margin that is now consistently around 20% for the last 3 years. We additionally focused on the bottom line, both in the P&L and manage for cash. With diligent working capital management, we have improved contractual payment terms with our suppliers, focused on the cash profile of our customer contracts and are continuously optimizing our inventory levels. This has led to a balance sheet with basically 0 net debt and ample liquidity, giving us the flexibility to operate successfully in any market environment and allowing for attractive shareholder returns. On Page 13, you have the group KPIs. Q3 was another quarter that added to the execution track record I just referred to. Our EBITDA came in right at the midpoint of our guidance, though again, we had some foreign exchange headwinds. Let's look at our Tubes segment on Page 14. Tubes volumes increased sequentially and so did the average selling price. We have recently recorded some important customer wins, for example, in Brazil. The new LTA with Petrobras will lead to revenues starting in H2 '26 and then fully from '27 onwards. Tube's profitability is shown on Page 15. In line with our value over volume strategy, based upon a clear selection of where to play while making use of our premium capacity, we also increased profitability in the Tube segment to one of the highest levels in recent quarters. As Philippe outlined, we are now also closing the margin gap with best-in-class peers, though there are many more performance initiatives to come. Over to Page 16. Mine & Forest earnings reduced sequentially, but are still higher than the normal run rate we have guided at our Capital Market Day. Volumes were slightly down sequentially, while the quality of the ore sold remained high. As expected, cost went up slightly, though still leading to an attractive EBITDA margin for the segment of more than 40%. Moving to net income on Page 17. Net income was strong, additionally supported by a capital gain recorded as part of the Serimax disposal and a favorable tax rate. Looking at the right side of the chart, Vallourec has clearly moved away from being a company with a predominant capacity and top line focus towards managing for the bottom line, both in the P&L and in cash. Page 18 shows our cash flow. Total cash generation came in at EUR 67 million despite of a EUR 43 million increase in working capital. Restructuring charges and asset disposals offset each other in the quarter following the disposal of Serimax. Cash conversion was once again high. Page 19. In line with positive cash generation, net debt improved and also gross debt came down following the repurchase of 10% of our outstanding bonds. The reduction in gross debt will continue in the next quarter as accrued interest will then reduce subsequent to the payment of the coupon. Philippe, back to you. Philippe Guillemot: Thank you, Sascha. Let's turn to Slide 21 to discuss our outlook. Starting with our tubes business. In the fourth quarter, we expect volumes to increase slightly sequentially. EBITDA per tonne should remain similar to Q3. For Mine & Forest, we expect production sold to be around 1.4 million tonnes in the fourth quarter. The sequential decline is in line with typical seasonal patterns. We expect full year production of around 6.2 million tonnes. EBITDA in the Mine & Forest segment will be contingent on market prices for iron ore. That said, we have hedged a portion of our production, so our results will not be fully exposed to further price developments from here. At the group level, we expect our fourth quarter EBITDA to range between EUR 195 million and EUR 225 million. Looking at the full year, we confirm our prior year guidance for EBITDA improvement in the second half. Based on our Q4 outlook, full year EBITDA is expected to range between EUR 799 million and EUR 829 million. Let's conclude on Slide 22. We remain focused on improving our profitability and return on invested capital as we drive Vallourec towards operational excellence. We were very pleased to close the profitability gap versus our priority in the third quarter, but we will not stop there. Our vertically integrated U.S. footprint is paying dividend with customer demand remaining strong. Finally, we strive to be one of the most shareholder-friendly companies within our peer group. Today, we announced a key step to improve flexibility in our shareholder returns. By allowing our warrants to be satisfied with existing shares, including treasury shares, we can approach our shareholder return in 2026 in a more holistic way. Thank you again for your attention. Sascha and I are now ready to take your questions. Operator: [Operator Instructions] Now we have a question from Matt Smith from Bank of America. Matthew Smith: A couple, please, both reflecting on some of the prepared remarks. So I mean the first one would be around the international business. You commented on some delays to customer activity, sort of orders from 4Q into '26. I guess I just wondered if your confidence level that this is sort of simply order deferrals. I guess you already have visibility on that, but perhaps that sort of leads into some wider comments on the international business for '26 might be useful if you could, and you could talk to the visibility that you already have there from the order book. I think that would be useful. And then secondly, coming back to the warrants that proposed in those modifications to the terms today. I just wondered if you could talk to sort of the intention and what you would see as the sort of ideal outcome and resolution from all of this, please? Philippe Guillemot: Okay. Thank you for the question. Well, first, as you know, our long-term agreement with customers do not have quarterly volumes commitment. So we make an estimate of our activity levels in certain countries has been -- activities has been slower than forecast. In addition, customers have some control over when we deliver and invoice orders. So we have some highly contributed orders that push out of the year. So it's just a question of time. We have these orders. It's just a question of when customers will need the pipe so we can invoice them. And that's why what we don't invoice as expected in Q4 will be invoiced somewhere in 2026. Overall, about the market we are in, I think we are confident. I think our customers have capacity increase plan they are executing. And so far, we have no reason to think they won't do so, especially as you have seen that OPEC+ is ramping up production. So that's for your first question. As far as the second one is question, as we indicated, as I indicated, we want maximum flexibility in our return to shareholder. And with the change of terms of the agreement with the warrants orders, I think we will open the door, obviously, to potentially buy shares in order to have treasury shares that could be used at the time warrants will be exercised and not only to use new shares. Operator: Now we have a question from Guilherme Levy from Morgan Stanley. Guilherme Levy: Sascha, wish you, of course, all the best in your next steps. I have 2 questions, please. The first one, if I may, you commented on your perception of lower imports into the U.S. recently. So I was just curious to see how quickly you think that inventory levels can fall in order for you to see a more significant increase in terms of prices and margins on the back of the recent import tariffs in the country? And then the second one, thinking about this new investment in the dredging line in Ohio, could you perhaps share with us more examples of small-scale investments that you have in mind that you could make over the coming quarters? And how should we see your maintenance CapEx and also your total CapEx, including these small initiatives over the coming years? Philippe Guillemot: So yes, what we start to see is the impact of the tariff on the U.S. imports as even though there is no statistic available, it looks like imports are decreasing. By the way, one of the European player who used to sell to the U.S. has announced yesterday that they will go from 3 shifts to 2 shifts, so lower volume, which is a first clear indication that importing pipes in the U.S. given the tariff may not be as viable as in the past or as profitable as in the past. So this, as a consequence, favor domestic players. And I remind you that 100% of what we sell on the onshore market in the U.S., we make it in the U.S. from steelmaking to finishing that we are the second player on the seamless pipe OCTG business in the U.S. So as far as inventory is concerned, yes, they were up because of the imports in anticipation of the tariff, but now they are obviously slowly but surely depleted. And we think that we will see even more of this happening in 2026. That's the reason why, as I said, we see strong demand for our product and premium product, as I mentioned earlier. Trading line. So the trading line investment in the U.S., USD 48 million, we announced on Monday, and we had, by the way, a groundbreaking ceremony in Ohio to do so is a clear illustration of what we are doing First, value over volume. Here, we are talking about increasing capacity to deliver high connection to help our customers to generate productivity gains. So we are really at the heart of their success. Second, we invest with, obviously, a state-of-the-art line. But I can guarantee you that this is a good example of an investment that will further improve our return on invested capital. As far as CapEx is concerned, we stay very disciplined. And what we have in mind doesn't mean that we are going to increase CapEx envelope in the next few years. I think we are in the EUR 200 million range, and we have no intent to exceed this amount. By the way, talking about return on invested capital, which is a key metric we are focused on, and we will be even more focused in the next few years. Another example is our investment in Thermotite do Brasil, the thermo insulation business in Brazil. We more than doubled the value we can sell to customers. And I can already tell you that this acquisition, this new plant is already fully loaded for next year to thermization, to thermal insulate Vallourec pipes. So another good example of the investments we are making to further improve our return on invested capital. Sascha Bibert: Just adding one addition to what Philippe said on CapEx. for the current financial year, looking at what we have spent at the 9-month stage and acknowledging there's only the fourth quarter left, I think we will come out quite a bit below the EUR 200 million, i.e., in the Capital Market Day, we have mentioned maybe a long-term average of EUR 175 million. I think we'll be closer to that in this fiscal year. And thanks for your wishes, Guilherme. Operator: Now we have a question from Kevin Roger Kepler Cheuvreux. Kevin Roger: And first of all, Sascha, well done for everything that has been done in terms of financial, but also in terms of communication, frankly, it has been very appreciated by anyone. So good luck also for the next journey, wishing the best. The first question, if I may, just going back on the shifting of the volumes from Q4 to 2026. I was wondering if you can provide a bit of magnitude the impact on Q4 in terms of volumes. Making some math, I'm finding that maybe we are thinking about 30,000 tonnes of tubes that will be missed in Q4 compared to the previous expectations. So maybe some words around that, please? And the second one, sorry for this stupid accounting tax question. But implicitly with the new mechanism on the variant, you are telling us that potentially you would buy back some shares. In the current French tax environment that is evolving every day, can you just try to summarize and of course, I understand that it will be subject to what we have in terms of budget in the coming weeks, but what it would imply for the tax payment on any buyback for you, notably related to difference between the cash payment and the book value, et cetera, please? Philippe Guillemot: So going back to Q4 volume and invoicing. First, I remind you that we will invoice more in Q4 than Q3. And I won't give you any indication of how much we could have invoiced had customers ask to be delivered as we forecasted. And again, it's only a forecast. And every quarter, we have to forecast what customers will ask for. But again, I'm talking about orders we have. As far as warrants are concerned and tax treatment, I remind you that the tax in France is such on share buyback is such that if we don't cancel the shares, so we use them. And as an example, we can use them for management incentive plan. We -- they are not tax -- so we are immune to this. And as far as the amendments that have been voted at the parliament, what I understand is that it's not likely to be in the final budget as it is totally incompatible with European laws and other regulations. Operator: Now we have a question from Guillaume Delaby from Bernstein. Guillaume Delaby: Thank you, Sascha, for all your help over the past few years, especially if I remember between Christmas and New Year Eve a few years ago. Three questions, if I may. The first one is the -- two first ones, in fact, are for Philippe. So I've been impressed by your average selling price, which is up 8% sequentially, while globally OCTG prices have still remained flattish. We didn't have yet an increase in OCTG prices. So what has been your secret sauce during Q3? Is it a question of mix, more connection? If you can elaborate a little bit? That's my first question. My second question is on your 2026 outlook. Many services companies have provided a much more constructive 2026 outlook at the Q3 that what could have been expected. So just curious to see what is your -- whether or not your view on 2026 has evolved. You mentioned probably more drilling at some stage. And the third question is about the warrants. Sorry to be long, just to fully understand. So basically, what is going to happen? So the warrants are going to be exercised. So you are going to get some cash with additional shares. Am I understanding correctly? Or if not, please correct me. Philippe Guillemot: Okay. So our secret sauce, but now I think you start to see it in the numbers, value over volume. We are very serious about it. What we sell is high value-added products, which obviously give us some pricing power. And again, we don't only sell tubes. We sell solutions. We sell tubes and service associated. So this is a combination of all this. And as I've said since I joined, our focus is to develop the right portfolio of customers and markets that are in need of these high value-added products. So yes, definitely, what we sell, and that's what I mentioned when we compare our average selling price to the Hat index, nothing to compare. We are much more stable than what you see on that chart. So it's just an evidence that the strategy and the change of strategy I made when I joined is working. '26, I won't guide for '26. But as I said, U.S. market is good. We see demand -- very strong demand month after month. And so far, no reason to think it won't continue that way. And as far as drilling activity is concerned with some international customers or you see that Petrobras is obviously very active. They're even talking about exploration of the Amazonian area. And in Middle East, I think Aramco has seen some decrease in their rig count, but it may increase next year again. So again, so far, I think demand is still there for our high premium solutions. As far as -- so warrants, the question was... Sascha Bibert: Yes. Guillaume, your principal understanding is correct. Provided that the conditions are satisfied in the summer of '26, the warrants will convert, and this will lead to a capital inflow to the tune of EUR 300 million and a bit to Vallourec. There is no change to that. The change, if any, that we have announced today is that we want to create flexibility in how we serve the warrant holders with shares. The existing documentation allows us to create new shares and new shares only, while after the approval from the warrant holders, we would then also have the opportunity to deliver existing shares. Philippe Guillemot: So again, we stick to our return policy. We said we would return to shareholders between 80% and 100% of the total cash generation of the year before. So as you have noticed, we have year-to-date generated cash and obviously, even more at the end of the year. So all this cash is available and obviously, it is supposed to be returned to shareholders within our policy. So with the warrant agreement terms change, we have the flexibility to use existing shares once warrants will be exercised at the latest end of June next year. And obviously, we may decide to buy back shares in order to have them available in due time. Sascha Bibert: Philippe, when it comes to the secret sauce, maybe you also want to just remind people about the current stage of our North American onshore business, which I think is also doing quite well and added to the ASP development that we have seen. Philippe Guillemot: Yes. On the U.S. market, as you see and when we announced the investment on the [ ITO ] connection, it means that, yes, the mix we are selling in North America is more high value-added than it used to be. And as a consequence, lead to higher average selling price, too. So what we see -- what you see on the overall group average selling price is true in all regions. And same thing for Petrobras. The long-term agreement we have signed with Petrobras that will start to fall in our numbers in the second half of '26 is obviously with mix of products of high value added, including larger diameter, 18-inch and above that we, in the past, were not able to produce in Brazil, but now we are able to produce in Brazil, thanks to the investment, which were part of the new plan. Guillaume Delaby: Maybe just a follow-up on the warrant. It means that practically, you are likely or you have the option or the flexibility to buy back and to reduce some of the dilution which will be caused by warrants. Am I correct? Philippe Guillemot: You are correct. If all warrants are exercised and we deliver only new shares, it's roughly 15% dilution. So if we buy back shares and we use existing shares, obviously, we will reduce the dilution. And that's obviously the option we want to have. Operator: Now we have a question from Paul Redman from BNP Paribas. Paul Redman: I just wanted to delve a little bit down into the shareholder distributions for next year. So you've been paying out dividends for the past couple of years as part of the 80% to 90% -- 80% to 100%, sorry, of total cash generation paid out to shareholders. Is this new buyback possibility part of that 80% to 100%? Or does it go beyond it? And if it's part of the 80% to 100%, do you have a minimum level of dividend you would like to guide us towards and the rest possibly coming through buybacks? And then Sascha, I just wanted to ask you, you've been at the company and the company has changed a lot over the past few years. I wanted to ask, have you got any key highlights that you can say have been your biggest successes over the past few years? Philippe Guillemot: So before I hand over to Sascha, Yes, again, we will stick to our return policy. So we are very disciplined, as you know, in everything we do. So we will stick within the EUR 80 million to EUR 100 million. So we'll see how much total cash will be generated in '25, and we will use this to potentially execute any share buyback to, as I said earlier, reduce dilution at the time of warrant execution. But as you rightly said, we will cash in more than EUR 300 million end of June. And this cash, obviously, will have to be returned to shareholders within the same return policy we -- I stated earlier, 80% to 100% of total cash generation. Sascha, over to you. Sascha Bibert: Yes. Well, thanks for the question. But to be honest, I'm not sure whether I had too many successes. But as a team, we had a lot, and that's what we are proud of. I think ultimately leading to the establishment of a track record and therefore, the recreation of trust, I'd say, with many stakeholders, equity and credit alike. So I think it's the sum of many of the operational initiatives from the team, the refinancing, some work on the financial infrastructure that we have been doing that ultimately led to the stage where we are. But again, we don't get tired of hammering the point home that we have done a lot of good, but there's more to come. Vallourec will go into the next phase of optimization. And this is why, for me, the story is ending, but for Vallourec, it's just the beginning. Philippe Guillemot: Maybe Sascha is too modest, but you remember, we have refinanced our balance sheet in 2024. And it was obviously good to see that we managed to refinance it the way we did. On top, you remember that Fitch has awarded an investment-grade rating, and I hope more to come. So again, for a company that was almost bankrupt in 2021 being where we are today with all the -- obviously, the opportunity we have to further create value through a much higher return on invested capital than our weighted average cost of capital is very rewarding. And again, I thank Sascha for having been next to me to deliver this super performance so far. Operator: We have a question from Baptiste Lebacq from ODDO BHF. Baptiste Lebacq: First, Sascha, congrats for the very impressive job you have done, even if it's a job -- a team job, but very impressed by the way you did it and good luck for the future. One question regarding, let's say, working cap in Q4. You mentioned some delays in terms of deliveries. We have seen some tension in working cap already in Q3. How should we think about, let's say, working cap at the end of the year? And second question regarding your, let's say, optimization of Brazilian assets. Is it now fully on stream? And if I'm not wrong, you could sell some, let's say, lands in this country. How is it evolving? Philippe Guillemot: Well, as far as Q4 working cap, we expect a modest increase. So no big deviation versus where we are. As you know, since the beginning of the new alloy plan, I think we have been very focused on working cap. And as shown by Sascha in one of his slides, I think you can see that the working cap expressed in days sales has steadily decreased over time, and we continue and we see room for further improvement in the future. So you refer to maybe, yes, some -- first, as we are very focused, and this is what's going to drive the next 5 years till 2030, return on investment capital, we challenge every asset in Ball. And so that's the part of the challenge. So the forest, obviously, is an asset, as you know, that doesn't generate EBITDA, but is used to produce veg charcoal. So again, as any asset in Vallourec. And you remember when I said when I joined, there is no room for asset which is not generating cash. So each asset in Vallourec is challenged, and that's what just we do again and again. Operator: Now we have a question from Jean-Luc Romain from CIC Market Solutions. Jean-Luc Romain: Congratulations to Sascha and to Connor for his promotion. My question relates to the second phase of investment in the mine in Brazil. Could you update us on where you are there and when it should start? And what are the benefits you are expecting from this second phase of expansion? Philippe Guillemot: Yes. On the mine, thank you for the question. You remember at the Capital Market Day in September '23, we gave you some numbers on what we were doing and what we were expecting. And I'm glad to tell you that we delivered exactly what we said, even better. especially in H1 where we had the opportunity to extract high-quality iron ore from our mine. So the expansion is well on track, Phase 1, Phase 2, and we expect to deliver the EBITDA we mentioned at that time, so up to EUR 125 million between EUR 100 million and EUR 125 million as we go. So very pleased with the progress of the mine. And on the mine, I insist that we are applying the same secret sauce that we do on the tube business, value over volume, and that's the reason why tonnage may be less, but quality is higher. And the way we operate the mine enable us to extract more iron ore from existing room. So again, another good example of a value over volume strategy impact. Jean-Luc Romain: So as a follow-up, do you have in your mind kind of what do your geologists say better -- enough resources of better quality ore, which can help you continue increasing the value. That's what we should understand? Philippe Guillemot: No, we are -- Yes, obviously, iron ore is what it is in the mine, and it may change from where we export from over time. But the way we process the iron ore, that may lead to higher iron ore content, so salable value at the end of the day. So that's exactly what we are doing. I won't go into the details, but... Sascha Bibert: Jean-Luc just remind that we are externally selling the vast majority of our ore production. Philippe Guillemot: We deliver what we said we would deliver. But again, applying the secret sauce, value over volume, so less tonnage, but same EBITDA. Operator: Now we have a question from Jamie Franklin from Jefferies. Jamie Franklin: So 2 from me. So firstly, you mentioned the divergence between seamless and welded. And looking at the historical data, it actually appears to be the highest point on record, the gap between the 2. Can you maybe talk about whether you see any risk here in terms of substitution of welded for seamless given that the differential is so high? And secondly, if I can just push one more time on the Middle Eastern volumes. So I think previous expectation was that 4Q volumes would be substantially up in the third quarter in order to reach around 1.3 million tonnes in 2025. Now if we assume that 4Q is only slightly better than 3Q, we're going to get closer to 1.2 million for the full year. So can we assume that the entire delta there shifts into 2026? And finally, Sascha, congrats on the great job you've done at Vallourec, wishing you all the very best in your new role. Philippe Guillemot: Yes. I assume when you talk about divergence between seamless versus welded, you talk about the U.S. market. So yes, dynamic is -- again, we illustrated in our last quarterly communication, how these 2 markets diverge. Seamless imports are in proportion less than they are in welded. But at some point, it becomes noneconomical -- with the tariff, it becomes faster, noneconomical to import seamless and welded in a nutshell. And that's why we see in our business, which is only seamless, faster, the impact of the tariff on our business. Substitution, we don't think so because as we said, the market is more and more premium and this [ ITO ] connection are seamless pipes, and they will continue to be seamless pipes. As far as volume are concerned, yes, which -- again, we have a slight increase in volume, maybe not as much as we could have expected, thanks to our forecast. So they are delayed because customers ask us to deliver pipes later in '26. This will happen in '26. So we'll see what the volume will be. But as I said, we see drilling activity being back on the increase with some customers, to name one Aramco as an example, in Middle East. So we will see. But again, it's always a question, every quarter, we have to forecast what -- how much volume customer will call off from the orders we already have. It's a question of just delivering the order to match their needs. Operator: There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Philippe Guillemot: Thank you again for joining us for today's call. We are very pleased with the track record of execution since the launch of the new Vallourec plan in May 2022. We see further room to drive higher returns in our business. We will continue to optimize our capital allocation and capital return framework to deliver maximum value to our shareholders. Thank you again. Operator, you may close the call.
Operator: Good morning, ladies and gentlemen. Welcome to Sigma Lithium 2025 Third Quarter Earnings Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a replay for this call on the company's website. [Operator Instructions] I would now like to turn the conference over to Anna Hartley, Vice President of Investor Relations. Please go ahead, Anna. Anna Hartley: I'd like to welcome you to our third quarter earnings conference call. Joining me on the call today is Ana Cabral, CEO of Sigma Lithium. Our third quarter 2025 earnings press release, presentation and corresponding documents are available on our website. I will now turn the call over to Ana Cabral. Ana Cabral Gardner: Good morning, everyone. It's a great pleasure to present Sigma Lithium's Third Quarter 2025 results directly from the Amazon, where COP30, the United Nations Climate Conference is being held. Sigma is here as a member of the Brazilian delegation. We have been engaged in high-level dialogues with other delegations from all over the world, and we are showcasing how we have implemented and executed on every single one of our targets of sustainability set out in 2017 when we made the original investment in the company. Since then, we have managed to build the most sustainable lithium beneficiation plant in the world, digitalized and using algorithms, the employee bots or AI to become more and more efficient in treating the mineralogy of our mines and increasing plant recovery. So our plan is where technology meets metallurgy meets mining and delivers sustainability, doing more with less. Please kindly read the disclaimers. We're going to make quite a number of forward-looking statements and projections and guidances as we go through this presentation. We're very proud of our accomplishments in the third quarter, especially considering the state of the lithium markets throughout the quarter. we have managed to increase the resilience of our business significantly, achieving the following 5 initiatives. First, we substantially increased our net revenues through optimum commercial strategy. We increased revenues by 69% quarter-on-quarter and by 36% if compared to the third quarter of last year. We have generated cash of $31 million, resulting from final price settlements of sales that happened throughout the year. In addition, we expect cash generation from sales of our processing, high-purity, high-grade middlings, which are the result of our sustainable efforts. We have approximately 1 million tons of those dry stacked high-purity materials. We are also in the process of successfully upgrading our mining operations. Our plant has already restarted this week, our mine is expected to resume operations within 2 to 3 weeks, and Sigma will operate the mine with equipment lease directly from the manufacturer. Lastly, we continue to maintain financial discipline, and that's demonstrated by deleveraging on our short-term trade finance debt by 43% this year despite the challenging lithium pricing environment. On this page, we showcased the financial highlights of the third quarter of '25 related to the increased cash margins and the deleveraging of our short-term trade finance debt. Our revenues have increased by 69% if compared to last quarter. More importantly, we increased revenues by 36% versus the third quarter of last year. Our pricing also increased by 33% versus last quarter. So the revenues increase are a result of our efficiency increase. Our margins also increased. The operating margin increased in 42% versus the third quarter, and the net margin increased 67% [Technical Difficulty] quarter of last year. Both margins also increased substantially versus the previous quarter. But by showcasing the increase versus last year, we demonstrate how we increase the resilience and the strength of the business. Our deleveraging is demonstrated by the decrease in trade finance. We managed to pay down export financing, short-term debt in 43% this year. The remaining balance is just $33.8 million as of November 13. Our cash has also increased by 42% versus last quarter, which is a trend very different from our peers, which had burned current cash. Our current cash today is $21 million plus $8 million of incremental trade receivables, all related to sales realized until the third quarter of 2025. On this page, we discuss our stellar record of 0 accidents. We have achieved 787 consecutive days without accidents with lost time injury. It's over 2 years with 0 records. This demonstrates our operational excellence in addition to managing to continuously decrease our costs. So we haven't cut costs at the expense of health and safety. Our TRFIR is 1.79 amongst the lowest in the world. This results in employee engagement and safety processes, a direct connection to the factory floor, which leads us to enhance performance and ideas for cost optimization coming straight from our employees. So it's a self-fulfilling circle where focusing on safety enables us to keep on getting better, both operationally by increasing efficiency, but also cost-wise by gaining ideas directly from employees on how to be lower cost. We're very proud of this. On this page, we're going to start to discuss our financial performance this quarter. On this slide, we demonstrate how Sigma achieved an optimum commercial strategy, which allowed us to price efficiently our material capturing the price cycle despite the price volatility that took over the metals market throughout the period that followed Liberation Day and the tariffs. You can see on this chart in red, the sales on provisional prices and in green, the sales on final prices. And it's visible that we were able to capture a much higher final price as we managed to authorize our clients to resell the products and settle our final prices. These adjustments resulted in incremental cash revenues for this quarter. So a picture is a thousand words. And here is how that translates into cash generation. This commercial success resulted in incremental cash from the final settlement with the trade partners. And you can see that by looking at the initial cash position at the end of the second quarter, the increasing cash from operations on a provisional price basis of $30 million, then the generation of trade receivables booked on sales up until third quarter on provisional prices of $20 million. That got converted into cash as of now, but that refers to sales with a cutoff on the third quarter. In addition to that, we had another incremental increase in trade receivables because of the extra increase in prices that we have been experiencing to date at $1,700 per ton. So that's another $8 million, which means that there were $28 million extra that resulted from our optimum commercial strategy. So when you observe our cash as of today, we have $21 million in the bank plus $8 million of settled trades at current market prices. Now in addition, we have $33 million of potential sale of lithium middlings, which are high-purity middlings or dry stack material that currently sits both at the port and at our plant at current market prices quoted at Shanghai metal markets of $112 per ton, net of transportation costs to port for part of it and to China for the material sitting at the port. So a significant cash boost coming from materials that have already been produced. But more importantly, a direct result of our investment in dry stacking our tailings and recycling and reprocessing and optimizing our lithium Greentech industrial plant. On this page, we show what that cash position enabled us to do. We managed to pay down our short-term trade finance 60% year-to-date to November. If you cut it off as of October, we paid it down 44%. That's a significant debt reduction, especially considering the down markets and the lithium prices volatility we experienced this year. So we had a cash increase, and we decreased our short-term trade finance expensive debt. That's a significant accomplishment in financial results for a year such as these in lithium markets. On this page, we demonstrate how the debt maturity profile will be lengthened further because all that's left now is essentially $10 million that we already paid down, plus $100 million that will be paid down next year in December, which relates to our shareholder debt, whose generosity has allowed us to get here to commission our Greentech plant and to continue to make improvements to achieve the stellar operational performance the plant has been delivering. So we are in a very comfortable debt position as of November 13. And we demonstrate here on this page all the short-term debt that we have managed to pay down or roll. This page demonstrates our low-cost resilience and the fact that we are a source of responsible lithium production in this industry. We have managed to maintain the highest sustainability and ethical sourcing standards throughout market pricing, meaning our resilience is here to stay. Even with the slight decrease in production, which is shown here in the little green over our regular costs, we're still lower than the lowest cost producer for nonintegrated lithium oxide concentrate in Africa. And this location to the very left of the nonintegrated supply curve is exactly where we plan to remain throughout the foreseeable future. On this page, we demonstrate how the lower production levels in September have not really affected our low-cost position. In other words, the slight increase in cost maintained this on guidance for the all-in sustaining cost, and that's demonstrated by the chart to the right, where we show the 9-month all-in sustaining cost versus the full year guidance we provided at the beginning of the year. This all-in sustaining cost includes interest, CapEx, maintenance, all of it, royalties, SG&A, environmental and social that is voluntary. So we're very much on track. We're issuing guidance of this all-in sustaining cost becoming $560, meaning lowering to $560 for 2026 based solely on production from the first plant. Now the increase in CIF cash costs and plant gate costs are easily corrected once we return to full production in the first quarter '26. So our low-cost position is unmatched and unchanged. On this slide, we basically outline the offtake agreements expected for this year. They're basically enabled by the significant commercial leverage and power we achieved by being an ethical producer and one of the lowest cost producers of lithium concentrate globally. Now what we've done, we tailored different types of offtakes to cater for different specific client needs across geographies. So this year, what we have is 3 different kinds of offtakes being discussed with 3 very different kinds of clients. The first kind is what we call the 3-month rolling offtake. They're done at market prices, and these are prepayment of upcoming production until March. The objective is to provide Sigma with low-cost working capital. The second kind of offtake is a 20,000 tons for 3 years for $25 million. It's a small long-term offtake and the use of proceeds will be to pay for the mining equipment that will help us upgrade our mining operations, meaning the larger-scale trucks and overall excavators and mining equipment. The third category is a conventional offtake or prepayment being negotiated with a global European trading company. So the use of proceeds is to deploy towards our expansion plans remaining on track for our growth strategy next year. We are in contract negotiation stages with them. Now for 2026, we still have another 120,000 tons of product uncommitted to be contracted into offtakes. The objective is to strike conventional offtakes for both amounts. The first amount for 80,000 tons will be assigned to a regular end user. And the objective is to repay the long-term shareholder debt that was generously enough offered to Sigma in December 2022 and enabled us to get here to this very strong operational position. We are in contract negotiations for that one. The second offtake is going to be achieved against an agent, meaning a trading company, which again, is going to be a typical conventional offtake, once again deployed towards building and delivering on our growth strategy, meaning building a second plot. And this offtake is under contract negotiation. So we're expecting to announce 3 offtakes still this year and 2 more next year. This page demonstrates our production and cost guidance for the upcoming years, 2026 and 2027. Our cash flow is poised to increase as our production efficiency increases with the execution of our strategic plan. With Plant 1 alone, we're bound to generate an all-in sustaining cost of $560 per tonne, and that includes everything, including interest expenses. Now at the current price levels of $1,000 per tonne, that represents a cash flow -- free cash flow generation of $132 million. Once we complete Plant 2 by the end of next year, we expect to have 550,000 tonnes of production throughout 2027, which will lower our all-in sustaining cost to $500 approximately that at current price points for lithium is expected to generate a free cash flow of approximately $270 million. So this page really demonstrates how by remaining the lowest cost producer globally, we are bound to benefit with excess returns from this relative increase in lithium prices from $700 per ton at mid-third quarter to $1,000 per ton as of November 13. This page demonstrates how our Greentech Plant upgrade into the 3.0 version concluded and executed in November '24 was not accompanied with [Foreign Language] this page demonstrates how the upgrade in our Greentech Plant into a 3.0 version, which was concluded in November of '24 of last year, 1 year ago, was not followed by our mining operations. Here at Sigma, just to recap, we have 2 different operations, which are integrated. We have a mine that delivers raw material to a state-of-the-art industrial lithium beneficiation plant, the Greentech Plant. That is automated, digitalized and run by an algorithm. Throughout the first 9 months of this year, what we could demonstrate is that the plant outperformance was compensating for the mine. You can clearly see that in the chart at the bottom left of the slide, where we had an 11% increase in production in the first 9 months of this year. Now the chart above show and demonstrate the significant upgrade that took place in the Greentech Plant last year when from the beginning of '24 to the end of '24, the production went up 43%. In other words, the plant can produce 300,000 tonnes of lithium concentrate if properly fed with fresh rock, fresh spodumene ore. It processed efficiently because the plant recoveries are 70%. Now that made it clear that a mining upgrade was required. So we reassessed our mining plan and concluded that we needed larger equipment scale to basically ensure higher volumes that would be moved faster. More importantly, that would also ensure that we would maintain our stellar safety and health record at our operations. The chart on the right break down the 2 quarters, the second quarter '25 and the third quarter '25. And it clearly shows that the last month of the third quarter when the mining equipment provider was demobilized was where we had a significant production decrease because they were simply demobilizing and phasing down their efforts in operating and moving material at the expected productivity rates. This page shows what's the way forward. Well, we have mastered dense media separation technology, achieving 70% recovered. Let me go back to the beginning, pause, pause again. This page demonstrates our way forward in our operational plan. Clearly, we have mastered dense media separation technology for lithium processing, achieving 70% recovery rates. That's equivalent to flotation. We have demonstrated also greater efficiency and reliability throughout 2025. And now we're going to match it by upgrading our mining operations. First, our plant. It has already restarted. So it restarted processing high-grade material that's in our current operating site. The target for 2026 is to achieve full plant operational capacity of 300,000 tons of lithium oxide concentrated. We have been recurrently achieving unprecedented recovery levels throughout the year up until the third quarter. So that's where our confidence comes from, from this track record. Now on the feed of the plant. Clearly, a mining upgrade was required and is underway. We reassessed the mining plan and the geometry. So we observed that we have mined about 798,000 tonnes in July and 659,000 tonnes in August. We continue to mine waste and strip in order to optimize geometry, and that is something I talked about during our second quarter '25 announcement. The ore grade has been perfectly aligned with our mine plan with no significant dilutions. So we maintain the cadence of the ore grade fed to the plant. As a result, we're very well positioned to resume our mining operations within 2 to 3 weeks once we're able to mobilize large-scale equipment so that we can increase the volume mined and the operational speed at which we advance the geometry and increase mining volumes. So with those upgrades, we expect to evolve our production capabilities at the plant already in the first quarter '26, reaching 73,000 tonnes of lithium oxide concentrate produced. That's the guidance for the first quarter of '26. This slide demonstrates how by being the low-cost and most sustainable producer at large scale, we have been able to obtain significant support by our clients to execute our -- on our expansion plans. That's financial support and offtake support. We plan to reach 80,000 tons of lithium carbonate equivalent upon completion of our Phase 2 expansion next year. By just adding a third production line, which infrastructure is already on site, we expect it to achieve 120,000 tons of LCE equivalent of production. That is a consequence of Sigma already being a pillar throughout global lithium supply chains. So this underpins the financial support that we receive from our very large clients downstream in the lithium supply chain. So we also conclude by outlining how we're going to continue to deliver on our strategic plan for 2025. First, we're going to conclude our offtake agreements as we have outlined in the presentation. Second, we have achieved financial strength, but we're going to continue to do so by continuing to close final prices on the provisional price sales that we have achieved year-to-date until the third quarter and we'll continue to deliver throughout the fourth quarter. We have deleveraged and we'll continue to delever by basically paying down expensive short-term trade finance debt. We're also going to monetize existing lithium products that are currently sitting in our plant and in a port, taking advantage of the current robust pricing environment where demand for these products become actual. Currently, these products are priced at about $120 per tonne, which could bring the additional revenues of $33 million throughout the fourth quarter. Thirdly, we are going to upgrade our mining operations to increase the Greentech Plant production scale, more feed, more concentrate. So there's another advantage to that, which means we're going to lower the structural costs of this company by lowering the plant gate costs by increasing production volume and by actually decreasing the absolute number of mining costs, which represent 2/3 of our plant gate costs. Four, we're going to continue to partner with our very large clients with very large balance sheets to create commercial strategies that allows us to navigate lithium price seasonality, benefiting from achieving higher prices during the high seasonality. Number five, we're going to continue to increase the scale of our suppliers so that we can obtain working capital support. This is a strategy where we're simply matching or copying with the global leaders in downstream, including battery makers and carmakers receive from their own suppliers in the duration of their account payables. The average of the largest carmakers in the world is from 130 days to 180 days to 210 days. We've been barely doing 30 days of deadlines for suppliers. So we are lengthening that period by leaning on larger suppliers that are as large as us. I want to thank you for the opportunity to present to you our third quarter earnings. And I'm now going to open the floor for the Q&A questions that are going to be submitted to our moderator through the chat function of this Zoom. Operator: [Operator Instructions] Our first question comes from [ Bavida ] from Bloomberg. Thanks for the granularity on the cash balance. Based on Page 9, is current cash balance at USD 29 million plus USD 33 million or only USD 29 million. Ana Cabral Gardner: No. The current cash balance is $29 million. The $33 million are basically bids we received on the current lithium material we already have, and we were mentioning that exists in the port and at the plant. Operator: Our next question comes from [ Leanne Crozier ]. What is the region of lithium middlings from the process circuits? What is their LI 20 grade even as a range? Ana Cabral Gardner: Yes. These are typical materials that are processed through the DMS circuit. They are more valuable because the chemical structure of the particle hasn't been broken. In other words, it's a very different manner of processing lithium ore than the flotation plant. So the lithium grade goes from 1% to 1.3%. There's an official quote for these products at Shanghai Metals Market, which can be validated daily. So in current market environment, where it's actually a search for physical materials to close open positions in Guangzhou, we've been getting bids for these materials, 100,000 of which are at the port already, which makes their cost simply shipping to China, which is $40 a tonne. And then we have another 850,000 tonnes of these materials at the plant, which makes their costs approximately $85. So when we bank on $33 million, it's just pure profit, given that there are costs incurred in transportation. So the number is net of transportation. The current quote for these materials at Shanghai Metals Market is $120 per tonne. They are roughly 11-ish percent of current lithium oxide concentrate prices as of today, which is about $1,070 to $1,080 per tonne. Operator: Our next question comes from [ Armando Wolfrid ]. Could you please provide some more info on the 100 million shareholders credit and the status of your BNDES loan disbursement for Phase 2? Ana Cabral Gardner: Absolutely. Well, we're going to lean on our suppliers -- on our credit clients the same way we have been leaning on them for a number of advancements we've been doing here, including mining upgrade. There are a number of ways to basically disburse the BNDES loan. However, as we discussed earlier, we were awaiting for a quarter of lithium price stability given the highly volatile pricing environment we experienced this year. I mean we were one of the few companies to actually generate cash this year. Our peers were mainly cash burning. So our Board decided to wait for a quarter of stability so that we could basically green light purchasing equipment. Once we do so, it could happen as early as January or late January, given current price environment being very robust. So we're going to utilize the same structures we've been utilizing, which are large customer balance sheet support to basically disburse [Technical Difficulty] what are we doing about expansion is ensure [Technical Difficulty]. Operator: Ms. Ana, your connection just dropped in the middle of the answer, if you can repeat that part, please. Ana Cabral Gardner: Okay. Yes, so regarding the structure for this bus in BNDES, our Board was waiting for at least 1/4 of price stability given the volatility in lithium prices, the market experienced this year. So what we are planning to do if the lithium prices environment continue to be as robust as it is now is probably green light equipment purchasing as early as January, late January of '26. But more importantly, we have already disbursed a certain amount and file that with BNDES. So it's all basically ready to be deployed once we continue on equipment purchases, which is the plant portion of Phase 2. Now the key element in ensuring the timeliness of a potential 2026 commissioning of the plant was adjusting mine geometry so that we could feed the plant with the same geometallurgy that we are feeding our current Plant 1. So feeding Plant 1 and Plant 2 with the same geometallurgy would ensure a shorter ramping up period given that we would have more chemical certainty of the ramp-up. In other words, any ramp-up issues could be only narrowed to processing, which are relatively easy to fix. So the work on mine geometry would continue the same way we carried on geometry work throughout the second quarter despite the lithium prices volatility. Operator: Our next question comes from [ Habbou ]. Will production be fast-tracked if the lithium market tightness and the market price of lithium increase happily? Ana Cabral Gardner: Yes. That's exactly why we're carrying through the mining upgrade. You were spot on, meaning we know what the plant can't do. I mean we have a state-of-the-art Greentech lithium plant that can't do 300,000 tons of lithium oxide concentrate on its own. What we needed to do was to match mine to plant. And this is exactly what we're doing, taking advantage of the relatively muted lithium price environment that we observed on the third [Technical Difficulty] production a year. Operator: Ms. Ana, your connection dropped again. If you can repeat... Ana Cabral Gardner: Okay. So resuming, what we are doing is basically spot on. In other words, we are basically matching -- the reason to decide on the upgrade of the mine was exactly what you asked us. In other words, we know what the plant can do. The plant can deliver 300,000 tonnes of lithium oxide concentrate per year. If properly fed with fresh rock. So by upgrading the plant, by revisiting the mine plan and moving more material, what we're doing is making more product available for the robust lithium price environment that we were expecting in 2026. We took advantage of the muted price environment still in the third quarter to make that decision, and it was the accurate timing to do so because as we enter '26, we will already enter with an upgraded quarterly production, as we indicated, to 73,000 tonnes. Operator: Our next question comes from [ Benson Chen ]. What's your estimated CapEx for bringing Phase 2 and 3 online, respectively? And what could be the risk of further delays. Could you not utilize some credit lines to speed up the expansion and avoid delays? Ana Cabral Gardner: Well, we have a credit signed with BNDES, which is the best possible credit we can get. But to your point, the offtakes, as I outlined on the discussion that we had about them, and it was quite detailed, are meant for that. In other words, we have the conventional offtakes when we declare the use of proceeds is to fund the growth, what they will be doing is essentially closing that gap. As offtakes get closed this year, what we will do is redirect those proceeds for the plant Phase 2, given that the mining upgrade has been fully covered by our current clients. Operator: [Operator Instructions] Our next question comes from Joe Jackson from BMO Capital Markets. Please confirm as of today, how much production Sigma had at the mine in Q4 due far? And how much spodumene inventory there is as of today. Ana Cabral Gardner: Yes. What we are planning to do, Joe, is to issue guidance for fourth and first quarter together. We issued the first quarter guidance, and we're going to issue fourth quarter guidance soon when we show a remobilization plan. What we have, though, is the full cost to upgrade mining operations, which is $25 million, which has been fully covered by our clients. So what we need to do now is to just wrap up what we call the mobilization curve for large tonnage equipment, which is either twice the tonnage of what we got or probably 2.5x the tonnage of what we got. Depending on the mobilization curve, which will be announced promptly, we will be able to perhaps have a surprise for the fourth quarter. And we've given the first quarter guidance and the fourth quarter guidance will be given as soon as we wrap up the mobilization curve for the very large tonnage equipment that's been made available to us by the manufacturer directly. By the way, one more point that's very important. The $25 million are not going to be paid at once. They're going to be paid in very nice soft installments throughout 2 to 3 years at very low rates, SOFR plus under 1% or 1%, again, facilitated by our very supportive clients given that we are the pillars of global downstream supply chains. So you'll be like -- it'll be an offtake like any other. Operator: Our next question comes from [ Ricardo Fernandes ]. Are your volume contracts based on spot price or negotiated? How much of lag is there between spot and realized at prices? Ana Cabral Gardner: Well, it's spot essentially. We closed provisional prices at spot. Today, fortunately, there's a very liquid market for both chemicals and spodumene or we call lithium oxide concentrate. Shanghai Metals Market, Guangzhou, I mean, they're literally moving with significant volumes. I mean, just for example, last night, Guangzhou negotiated over 600,000 tonnes of LCE of open interest contracts. That's a term of global lithium demand. So there's [Technical Difficulty] quite precise pricing. Last night, prices hovered around $1,070 a tonne. So that level of liquidity allows for spot to be quite precise, meaning clients bid and hedge immediately into chemicals. So we believe pricing is becoming more and more efficient, which helps producers like us, given that there's less opacity, more transparency. And again, what we do though is depending on the season, we close at final, or we close at provisional. And what we've done this year, given volatility, we basically closed the provisional pricing. And now we're benefiting from having the clients to lean on and realizing final pricing. Hence, the cash boost we received from sales of the third quarter at the moment, as we explained in detail in our cash from operations section of this presentation. Operator: Our next question comes from Shiva Kumar. Are you getting any premium at all of the green lithium compared to the market price? Ana Cabral Gardner: No, unfortunately not. I'm here at COP30. That's been one of the frustrations. What the advantage is, though, is commercial power, meaning given that global supply chains are being rearranged, what we have is similar battery makers supplying carmakers globally in the West, in the East, all over. So there's a huge focus on traceability, on sustainability, on health and safety. And what we have is essentially a brand that safeguards us from any questions. I mean it's very easy to ascertain the Quintuple Zero advantage. And that's what we have, a commercial advantage, which translates into what we showcased so far. Our ability to negotiate provisionals when we believe it's reasonable to negotiate provisionals, our ability to lean on our clients' balance sheets for support for mining upgrades and so on and so forth. But unfortunately, there is no green premium. And we do not believe there will be a green premium. If -- hopefully, that could be, but it's years ahead. What there is, is a green [Technical Difficulty] commercial advantage. Operator: Our next question comes from David Feng. Ana, this is David from CICC Research, and thanks for the presentation. We can see that there is still over 30 kt of spodumene concentrate inventory by comparing year production and shipments. Just wondering how we expect all these inventories to be sold in 4Q '25? And what would your inventory management strategy if lithium price continues to rise. Ana Cabral Gardner: Yes. Thank you, David. We'll sell it all down. I mean at current prices, the plan is to basically monetize everything we have, including the -- what we call in China middlings, right? And we have high-purity middlings with an intact we call intact spodumene chemical structure because it comes from DMS, and it hasn't been affected chemically by the flotation nor by organic contaminants nor by the chemicals utilized in flotations. Hence, we can get a straight quotation for $120 even for middlings, which is -- which just shows that the current strategy is to monetize all the lithium we currently have. Operator: Our next question comes from [ John Christian ]. Can you quantify in U.S. dollars, how much working capital will be required to restart the mine in the first quarter 2026? And can you bridge the $6 million on third Q ending cash balance to $21 million today, considering your slide show $20 million debt paid down in the 4Q so far. Where did that approximately $35 million came from in the past 6 weeks? Ana Cabral Gardner: Well, no, we discussed that. I mean if you look at lithium price behavior, it came from the final price settlements. I mean the lithium prices have rallied considerably, RMB contracts for LCE and Guangzhou were close to $88,000, $87,000. So we were able to receive the final price settlement adjustment from the sales of product that took place up until the cutoff date of September 30, 2025. So that's where the adjustment comes from, from actual cash from these settlements. And more importantly, there's extra adjustments from the settlements that haven't been closed yet. We started to close settlements at $875, and we kept going until the latest ones, which were $1,035 just last week. But again, these were shipments material in boats in the water. We were literally shipping everything and selling everything. The other question you asked was about the $33 million. That's essentially middlings which are monetized their bids out. We are waiting to work out on logistics. The profit varies significantly on logistics because we have $100,000 at the port. That is simply $40 to China. $120 minus $40, that's net profit, pure profit, no cost associated with it. Then we have 850,000 tonnes of those middlings' high purity with chemical structure intact at the plant. The logistic costs there are different because we need to truck it to port. So what we're working on is to thinking through berthing the biggest ships we can obtain and therefore, lower the shipping cost to perhaps $25, $30, so that $120 minus $70 of logistics back-to-back plant to China. So essentially 2 different costs of logistics. These products are 0 cost to produce because they are middlings or what we call dry stacked high-grade lithium tailings. And that's the sustainability advantage. We are able to monetize it to a net of USD 33 million, which is a considerable sum. It's equivalent to a boat or a bit more actually, pure profit. Operator: [Operator Instructions] Our next question comes from [ Olin Chen ]. Could you please clarify the expected lithium concentrate production volume for the 4Q 2025 based on your current operational plans and the ramp-up schedule. Ana Cabral Gardner: Yes, we're not there yet. I answered a similar question. We issued guidance for the first quarter '26. And as soon as we wrap up the -- what we call the mobilization curve in terms of the scale of the large equipment being made available to us, it could vary from 60-tonne trucks to up to 95-tonne trucks, which is a significant increase from the small [Technical Difficulty] trucks we were [Technical Difficulty] 75-ton truck can move twice much material than a 40-tonne truck, a 60-tonne truck could move 50% more material. A 95 to 120-tonne truck, same access size can move 3x more material. Cost, not that dissimilar because it's diesel, one driver instead of -- I mean, it's 4 drivers per equipment. So we are decreasing the number of men involved, consumption of diesel, not that dissimilar. So overall, structurally lowering the cost of this operation. And this is the guidance that we plan to provide in detail as soon as we wrap up mobilization schedule for the equipment, which is currently taking place. I was in China for 2 weeks, just go back 1.5 days ago. And we're making progress in strides on that front. And we're delighted with the support we received from manufacturers, clients because we're pillars of 3 global supply chains actually, Europe, Asia and China. Operator: Thank you. This does conclude the Q&A section. I'll now return the floor to our CEO, Ana Cabral, for her final remarks. Please, go ahead, Ana. Ana Cabral Gardner: Well, we're very optimistic about 2026. It's been a year where volatility dominated the conversation. It's consensus now where lithium is headed. Now what's important to highlight is lithium is a commodity like any other, meaning prices will be where they are. We're not talking about price spikes. We're talking about prices being at $1,000, $1,100, which for low-cost producers such as Sigma with current plant gate costs of around $350 normalized is a fantastic operating environment. And so the key is to continue to be a low-cost producer. Hence, our efforts in upgrading our mining operations to match the exceptional industrial operations we have achieved throughout this year. So thank you all for listening. Thank you all for being with us on our journey, and we're going to be open for welcoming you all through my colleague, Anna Hartley, who is heading Investor Relations, and we'll be visiting some of you through conference calls in the next couple of days throughout the world. Operator: Thank you. This does conclude the third quarter of 2025 conference call of Sigma Lithium. For further information and details of the company, please visit the company's website at www.sigmalithiumresources.com. You can disconnect from now on and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Freehold Royalties Third Quarter 2025 Webcast. [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, David Spyker, President and CEO. Please go ahead. David Spyker: Good morning, everyone, and thank you for joining us today. On the call with me is Rob King, our COO; Shaina Morihira, our CFO; and Todd McBride, our Manager of Investor Relations. So before we get started, I just want to advise everyone that certain statements on this call are considered as forward-looking information, and we caution the listener to review the advisory on forward-looking statements in the news release and MD&A found on our website. So for the quarter, we achieved production of 16,054 BOE a day with a liquids weighting of 65%. This represents a production increase of 10% from Q3 2024, reflecting the contribution from our Permian Basin acquisition in late 2024, in addition to continued drilling activity across our asset base. With the acquisition work, we have shifted to a much more balanced portfolio where 45% of our production in the first 9 months of 2025 is from the U.S., now representing 53% of our revenue. This is a material shift from the first 9 months of 2024, where 36% of our production was in the U.S. This balanced approach allows us to take advantage of stronger U.S. pricing with a realized oil price of $93.25 a barrel for the first 9 months of the year compared to $79.03 a barrel for our Canadian oil. It is a similar story on the natural gas side, where U.S. realized pricing was $2.72 an Mcf over the same period, twice that of our Canadian gas price of $1.34 an Mcf. So with a liquids-weighted North American portfolio, we're delivering best-in-class operating margins. In Canada, our heavy oil production grew 13% compared to the same quarter last year as producers continue to actively develop our lands in the Mannville heavy oil and Clearwater plays. Drilling activity in Canada picked up after spring breakup with 83 wells drilled this quarter. In addition to the heavy oil drilling, we are seeing an uptick in drilling activity related to the Belly River, Cardium and the light oil and liquids-rich Mannville section in Western Alberta. A number of our operators are having success in these plays with horizontal drilling applications. On the gas side, we see production down 6% compared to the third quarter of 2024, as the weaker gas pricing in Canada, it was $0.63 an Mcf AECO in the third quarter has kept gas-directed drilling rigs on the sidelines. As we head into winter with a stronger Canadian gas price outlook, we are seeing licensing activity and drilling activity pick up. Drilling activity on our U.S. lands continues to be concentrated in the Permian Basin with 92% of the quarter's activity focused there. Activity has been steady year-over-year as our large investment-grade payers such as ExxonMobil continue to execute their capital programs. ExxonMobil plans to grow their Permian production from about 1.6 million oil equivalent barrels daily to 2.3 million by 2030. Given Freehold's mineral title position in the Permian, this would reflect approximately 800 BOE per day growth from our ExxonMobil-operated lands, which is approximately a 20% increase from our current overall Permian production levels. This quarter, we have 4 large well pads, 63 gross wells in total on those 4 pads drilled in the Permian and all currently in various stages of completion. These large pads are operated by investment-grade operators and are a good reminder of the scale and scope of drilling and completion operations in the Permian. In the Eagle Ford Basin, as we've seen in previous years, production was lower quarter-over-quarter due to timing of drilling activity from our largest payer, ConocoPhillips. Exciting things that is going on in the U.S. right now is that we're seeing considerable infrastructure build-out underway to improve gas takeaway capacity out of the Permian Basin to feed the rapidly expanding Gulf Coast LNG export capacity and data center growth. Gas production from the Permian is growing at a faster pace than any other U.S. basin with the next phase of pipeline expansion expected to be in service late next year. Freehold has 11 million cubic feet a day of gas production in the U.S. and is well positioned to participate in the ramp-up of gas required to feed LNG demand and the data center power requirements. In support of the strong leasing activity we've seen year-to-date, particularly in the U.S., we just had a 4-well pad permitted on one of those leases, targeting the deeper Barnett Shale in the Permian, as operators continue to look to unlock the multiple reservoir benches in this resource-rich basin. Both sides of the border, we're seeing operators focusing on optimizing well placement in the reservoir, advancing drilling efficiencies and lateral lengths and enhancing completion designs. We continue to see a shift to longer horizontal wells in the U.S. with our average horizontal well length increasing 12% year-over-year. In 2025, almost 40% of the wells drilled on Freehold's lands in the Midland Basin are 3 miles or longer compared to only 30% in 2024. These continued improvements in accessing the reservoir have resulted in a 15% improvement on average production rates when compared to last year's averages. Similarly, in Canada, average well performance is up 25% compared to 2024 across our lands. So turning to our financial results. We generated $59 million of funds from operations in Q3 2025 or $0.36 a share. With this funds flow, we paid $44 million in dividends to our shareholders, we reduced our long-term debt by $9 million and we invested $5.8 million in acquisitions focused on purchasing undeveloped lands in the Permian Basin and select Western Canadian operating areas. Freehold continues to advance its ground game strategy of acquiring mineral title lands in the U.S. ahead of the drill bit. This approach enables us to acquire lands that are held in perpetuity in areas that have significant undeveloped resource and drilling inventory. On the Canadian side, we continue to partner with talented technical teams to fund their drilling programs in exchange for a royalty and a drilling commitment. So our portfolio offers investors exposure to the premier oil and gas basins across North America, including our growing heavy oil segment in Northern Alberta, the lighter oil plays in Southeast Saskatchewan, exposure to Gulf Coast pricing with our Eagle Ford assets and the growing light oil and natural gas production contribution from the Permian. Our U.S. portfolio is driving 33% higher pricing when compared to our Canadian asset base, benefiting from light sweet oil production, close to markets and strong U.S. natural gas pricing supported by the aforementioned LNG build-out and growing demand for natural gas-fired power generation to feed data centers. We continue to deliver a monthly dividend of $0.09 per share with a payout ratio of 72% through the first 9 months of 2025 and sustainable to prolonged USD 50 WTI price levels. So with that, we're pleased to take your questions. Thank you. Operator: [Operator Instructions] And I have a question. Our first question will be coming from Jamie Kubik of CIBC. James Kubik: I just had a couple of questions for you on the U.S. business. It looked like net drilling was down year-on-year despite the increase in asset heft, I suppose, after the acquisition that you completed last year. Can you just talk about some of the nuances in that? And then can you also talk about the NGL volumes in the U.S., what you're seeing on that side? It looked like a pretty big number again this quarter. Robert King: Jamie, it's Rob here. I'll answer the first part, and Shaina will answer the second part. So on our U.S. drilling in Q3, I think a lot of it was probably more related to our Eagle Ford asset. When we look at our Permian drilling, which was clearly the key focus of our acquisition activity in 2024, that we've sort of certainly seen the expectation in the drilling results sort of in line with, say, what our expectations were. On the Eagle Ford side, that's probably more of a timing issue that we've observed with our key payer in the Eagle Ford being ConocoPhillips in that activity that we expected to see in Q3 looks like it's been pushed into Q4. And then on the NGL question, Shaina will touch on that. Shaina Morihira: It's Shaina. So just a little more color around the NGL volumes that we are seeing. So we have seen an increase in the NGL yields that we're recognizing on some of those 2024 acquisitions. The challenge is the timing of when we get recognized by some of our operators for those assets. So there is a bit of a lag in the U.S. compared to what we would see here in Canada. So we did have some adjustments that came through tied to those higher NGL yields. We're not expecting that to continue going forward, as we trued up a lot of those balances in the third quarter. James Kubik: Okay. And then maybe a bit of a different question here. But can you just talk about the capacity increase in your credit facility? What you look to do with the increased capacity, and how you're thinking about capital allocation here? Shaina Morihira: Sure. So I can take that one, Jamie. So yes, we did increase our existing credit facility to $500 million from $450 million, just to provide greater financial flexibility. We still plan to live within cash flow, but I think having that extra capacity makes sense for Freehold. We also extended the credit facility by a year to a tenure to November of 2028. So I feel that it gives us options, and as I said, that additional kind of financial flexibility going forward. James Kubik: Okay. And then maybe last one from me is just on the NCIB. I didn't see any activity from Freehold in the quarter. How are you thinking about that capital allocation option going ahead? Shaina Morihira: Sure. I could take that one as well. So I think, first and foremost, we are -- we remain committed to our current dividend. And so we see that as being sustainable kind of through a prolonged USD 50-barrel environment. So with the lower commodity prices, we have increased our payout ratio, so sitting around 72% year-to-date. So that does exceed our target dividend payout ratio of 60%. However, we still believe kind of under mid-cycle pricing, 60% remains competitive. So in terms of alternate uses of capital for the available funds from operations, we continue to be excited about our Permian ground game and other Canadian opportunities where we can get kind of high-teen, low-20 return. So in terms of the NCIB, it continues to remain in place as an option, but it is a tool available to us, not something we've initiated on at this point. Operator: And I'm showing no further questions at this time. I would like to turn the call back to Dave for closing remarks. David Spyker: Okay. Well, thank you all for joining our call today and allowing us to share with you our enthusiasm for business and all the things that we have going on in our business today. So thanks again, and have a good weekend. Operator: And this concludes today's program. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to H&R Real Estate Investment Trust 2025 Third Quarter Earnings Conference Call. Before beginning the call, H&R would like to remind listeners that certain statements, which may include predictions, conclusions, forecasts or projections and the remarks that follow may contain forward-looking information, which reflect the current expectations of management regarding future events and performance and speak only as of today's date. Forward-looking information requires management to make assumptions or rely on certain material factors and is subject to inherent risks and uncertainties, and actual results could differ materially from the statements in the forward-looking information. In discussing H&R's financial and operating performance and in responding to your questions, we may reference certain financial measures, which do not have a meaning recognized or standardized under IFRS or Canadian generally accepted accounting principles and are therefore unlikely to be comparable to similar measures presented by other reporting issuers. Non-GAAP measures should not be considered as alternatives to net income or comparable metrics determined in accordance with IFRS as indicators of H&R's performance, liquidity, cash flows and profitability. H&R's management uses these measures to aid in assessing the REIT's underlying performance and provides these additional measures so that investors can do the same. Additional information about the material factors, assumptions, risks and uncertainties that could cause actual results to differ materially from the statements in the forward-looking information and the material factors or assumptions that may have been applied in making such statements together with details on H&R's use of non-GAAP financial measures are described in more detail in H&R's public filings, which can be found on H&R's website and www.sedarplus.com. I would now like to introduce Mr. Tom Hofstedter, Chief Executive Officer of H&R REIT. Please go ahead, Mr. Hofstedter. Thomas Hofstedter: Thank you, and good morning, everyone. With me today are Larry Froom, our CFO; Emily Watson, President of Lantower Residential. We get a lot to talk about today. So I think I'll just jump in and hand it over to Larry, followed by Emily and then Q&A. Larry? Larry Froom: Thank you, Tom, and good morning, everyone. As at September 30, 2025, the value of our real estate assets broken down between our segments are as follows: Residential is our largest segment at 50%; industrial 19%; office, 16%; and retail 15%. By geography, 71% of our real estate assets by value are now located in the United States. Overall, given the headwinds we faced with multifamily supply concerns, a weak office market, the tariff war creating general market uncertainty and a weaker Canadian economy, we are very pleased with our results and in particular, the 2.1% growth in same-property net operating income on a cash basis for the 9 months ended September 30, 2025, compared to the same period last year. For the 9 months ended September 30, 2025, FFO was $0.90, same as the 9-month period ending September 30, 2024. An amazing result considering net property sales of approximately $500 million over the 21-month period from January 1, 2024 to September 30, 2025. Breaking down our same-property net operating income on a cash basis between the segments, Residential was down 3.4% for Q3 2025 versus Q3 last year and was up 1.2% for the 9 months 2025 versus the same period last year. Emily will provide more details on Lantower's results shortly. Our Office segment same-property net operating income on a cash basis increased 0.5% for Q3 versus Q3 last year and was up 1.5% for the 9 months 2025 versus the same period last year, primarily due to the strengthening of the U.S. dollar. Our office occupancy at September 30, 2025, was 96.9% with an average remaining lease term of 5.3 years. Our Office portfolio now consists of 15 properties and comprised 16% of our total portfolio. Retail segment same-property net operating income cash basis increased 5.3% for Q3 2025 versus Q3 last year and was up 7.3% for the 9 months 2025 versus same period last year due to occupancy gains at River Landing and [ ForEx ]. Industrial segment same-property net operating income decreased 7.5% for Q3 2025 versus Q3 last year and was down 1.9% for the 9 months 2025 versus the same period last year. Industrial occupancy decreased from 98.9% at December 31, 2024, to 89.9% at September 30, 2025. During the quarter, we leased our newly constructed 122,000 square foot industrial property at 6900 Maritz Road. This lease will commence in December 2025. In addition, a further 108,000 square feet of vacant industrial space was leased with these leases commencing in Q4 this year and Q1 next year. Our FFO payout ratio was a healthy 50% for the 9 months ended September 30, 2025, and our AFFO payout ratio was also healthy at 61.3%. Our balance sheet remains strong. Debt to total assets at the REIT's proportionate share at September 30, 2025, was 47.3% and debt-to-EBITDA was 9.3x. Our unencumbered property pool totaled approximately $4.1 billion. With that, I'll turn the call over to Emily for an update on the Lantower Residential segment. Emily, please go ahead. Emily Watson: Good morning, everyone, and thank you for joining us. I'll begin with an overview of our third quarter performance and the operating environment across our multifamily platform before turning to market trends and development progress. While the broader economy continues to navigate a mixed landscape, including slower job growth, rising tariffs and fiscal uncertainty, our portfolio once again demonstrated its resilience. Occupancy, collections and resident retention remained solid through the quarter, and we saw steady leasing momentum even as pricing power moderated across many sunbelt markets. The quarter underscored the strength of our operating fundamentals. Our residents remain gainfully employed, wage growth has held firm around 4% and affordability remains a competitive advantage. With average rent-to-income ratios around 20%, that positioning gives us access to a wider and financially stable space, supporting consistent collections and healthy renewal trends. We are seeing early signs that the most supply-heavy markets are beginning to rebalance. Deliveries of new competitive units are declining each quarter and forward-looking forecasts show an expected reduction of roughly 54% or about 79,000 units in 2026 compared with 2025 levels. As the pace of completion eases and job growth normalizes, we anticipate regaining pricing traction and achieving more balanced fundamentals across our footprint. Our diversified presence across high-growth markets, combined with a deliberate focus on expense discipline and technology adoption continues to support performance through the cycle. Even in areas where lease-up activity remains elevated, we've taken proactive steps to preserve occupancy and mitigate revenue drag through targeted concessions and digital leasing efficiency. From a long-term perspective, we remain confident in the structural underpinning of our business. Housing affordability challenges continue to steer demand toward quality rental housing and with less than 10% of move-outs tied to home purchases, retention remains high. Taken together, we believe the ingredients are in place for a gradual reacceleration in revenue growth through 2026 and beyond. Our operating results reflect both resilience and realism. Some same-property NOI from residential properties in U.S. dollars decreased 4.6% on a cash basis for the 3 months ending September 30, 2025, primarily due to the decrease in rental income in H&R's sunbelt properties, including higher concessions being offered to tenants and higher operating expenses, including repairs and maintenance, leasing and marketing and utility expenses, which were partially offset by lower property taxes and insurance expenses. Same asset occupancy ended the quarter at 94.6%, an improvement of 50 basis points from prior year and 90 basis points from Q2. Same-asset sunbelt occupancy closed at 93.8%, up 40 basis points quarter-over-quarter, supported by steady renewal demand and moderating new deliveries. Same-store blended lease trade-outs were negative 1.6% in Q3 with new lease trade-outs negative 8.9% and renewal lease spread at 4.4%. October trends improved further to a blend of negative 1.2% with new lease negative 9.6% and renewal at 4.7%. While industry broadly continues to experience slower rent growth, our fundamentals remain intact. Demand is underpinned by population inflows, resilient employment and the enduring affordability gap between renting and owning, which today sits near all-time highs in favor of renting. These conditions reinforce our conviction the durability of multifamily performance even amid softer near-term pricing. Innovation continues to be a differentiator for us. Our AI-driven leasing platform ensures 100% coverage of calls, e-mails and text as nearly 1/3 of all inquiries are initiated outside of traditional office hours. Our centralized platform has allowed the days between application to lease sign dates to be cut in half and the time from lease approval to lease execution has decreased to 3%. At the same time, rigorous identity and income verification protocols have reduced bad debt in half post centralization. These tools allow our teams to focus on higher impact relationships and revenue-generating activities, effectively amplifying our workforce productivity. We also continue to make headway on portfolio-wide WiFi initiatives, which improve both resident satisfaction and margin potential. We have one community scheduled to go live with property-wide WiFi by year-end with an additional 6 installations planned through 2026 that are projected to deliver an estimated 86% return on investment. Our sunbelt portfolio fair market value is supported by a third-party appraisal and recent market transactions, thereby maintaining a weighted capitalization rate of approximately 4.97%. This level remains consistent with Q2 and reflects our ongoing institutional confidence in the sector. High-quality multifamily assets across the sunbelt continue to trade at cap rates, driven by the region's compelling long-term fundamentals, including robust population, employment growth, business-friendly environments and durable migration patterns that underpin lasting value creation. Turning to development. Our new Dallas assets continue to progress well. Lantower West Love is 83% leased and is expected to stabilize by April 2026 as supply pressures ease in the market. Lantower Midtown is 82% leased on track to stabilize in early Q1 of 2026. Both communities are outperforming competitive market absorption, averaging 21 leases per month versus industry averages of roughly 14 per month since initial move-ins. Each was completed on time and on budget, underscoring the discipline of our development execution. Our REDT projects remain on budget. We are on schedule to receive first move-ins at Lantower Bayside in Tampa in March of 2026 and first move-ins at Lantower Sunrise in Orlando in April, with completion expected in mid-2026 for both assets. In addition, Lantower currently has 9 sunbelt developments in the pipeline totaling approximately 2,900 suites at H&R's ownership interest. Multiple sites are fully permitted and ready for construction, and we are advancing design, drawing and permitting on the remainder. These projects reflect our conviction in the long-term growth of sunbelt markets and our ability to capitalize on favorable land positions as construction costs stabilize. In summary, our third quarter results highlight a portfolio that remains fundamentally sound, operationally agile. We've maintained stable occupancy and record high collections and continue to invest in technology and innovation that expands margins and strengthens resident loyalty. While near-term market conditions remain mixed, the long-term setup for multifamily housing is compelling, moderating new supply, favorable demographics and strong affordability advantages relative to homeownership. We expect these factors, coupled with disciplined execution and our culture of innovation to drive sustained growth in NOI and value creation as we move into 2026. Finally, I want to recognize our exceptional Lantower team. Their focus, adaptability and commitment to excellence continue to be the foundation of our success and our ability to navigate evolving market conditions with confidence. And with that, I'll turn the conversation back to Tom. Thomas Hofstedter: Thank you, Emily. Operator, please open the call for questions.. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. And the first question comes from Sam Damiani at TD Cowen. Sam Damiani: Obviously, a disappointing outcome. I wonder if you could talk about the stages of the various sale transactions that aggregate $2.6 billion, the difference between the assets that are held for sale and the assets that are not. Thomas Hofstedter: So I guess it's a precursor to everybody will be asking the same question. We're not going to get into details of what we're selling. We're not because we're currently in negotiations to try to conclude them. We have confidence that they will get done. Some have been approved by the Board, some haven't. So that's where we have a list of assets held for sale and the others that are not in there because we just haven't had approval from the Board yet. So stick with us, what we're really saying is that we hope this is all finished by the end of the year, which is short enough, hopefully sooner than that, because we are confident that will get done, but we're in the final throes of it. So I really can't get involved into any details on this. It's sensitive to the negotiations that we're having with the post-buyers. Sam Damiani: Okay. And what about the use of proceeds, Tom? I mean, it would be obviously selling over. Thomas Hofstedter: Yes, good questions. The use of proceeds, what's the quantum of the use of proceeds? So I can't -- obviously, we pay down debt, we have a debenture that's coming due. So that's priority #1 would be pay down debt. If you do $2.6 billion, you have excess funds, and we really haven't addressed that nor at the stage to identify what the -- how we'll use the proceeds because we don't know what the proceeds are. So again, same answer. You have to stick with us for a couple of weeks, hopefully, no longer. Sam Damiani: Yes, it's a theoretical question. Obviously, you've stated the plan. And so I was just wondering what the priorities are if you $2.6 billion. Thomas Hofstedter: Yes, pay down that, number one, get our balance sheet in order. And then if there's any excess funds depending on the quantum, obviously, an NCIB would be high -- maybe giving back unitholders and an NCIB would be high. Okay. Larry, do you want to jump in too or... Larry Froom: I think Tom said it, I mean, there's quite a bit of proceeds that will come in and it would hopefully come in, in stages. So the first sales for sure will be going to pay back down debt. And then as we get further down and we're comfortable with our balance sheets and everything, then we'll look and it will be a Board decision then what to do with the excess cash? Do we buy back units or do we distribute to our unitholders. Sam Damiani: Okay. Last one for me. Some of the dispositions are clearly some higher cap rate assets and even deleveraging is often dilutive. Just wondering on your thoughts about the sustainability of the current distribution. Larry Froom: So you are correct, Sam, that it would be dilutive to FFO as the sales because some of them are higher cap rate sales, and we've taken the write-downs before that. So -- but our FFO payout ratio is only 50%. So we have a lot of room to work with. And I think the distributions are quite safe right now. Thomas Hofstedter: And any scenario, I can envision the distributions being challenged. I don't think that's the issue. I think we have plenty of cash. It's just a question to distribute and pay out. Debt is obviously number one. But after we do that, as I said beforehand, it's NCIB or distribute. Under no scenario, do we see any challenge to cutting distributions. Operator: The next question comes from Fred Blondeau at Green Street. . Frederic Blondeau: Just one quick for me. The fair value adjustment is quite sizable. I was wondering if you could give us a bit more color on what would be the breakdown of the adjustment between that $2.6 billion that's for sale and the core portfolio? Larry Froom: I mean if you look -- you're quite right, we've taken sizable write-downs -- not only this quarter, but in the 9 months, $830 million. To help you give you a sense of size, I will just comment on the assets that we have marked as held for sale, that is $865 million there. We probably comprised almost the majority of that -- of the write-down this quarter. So we had $482 million, and most of it was in office through Hess, Front St. and [ Shepherd ]. So most of that write-down from the office came from there. It wasn't solely there. There were other office properties that were written down. But I'd say just over 50% was from that. Operator: The next question comes from Mario Saric of Scotiabank. Mario Saric: Just a couple of questions on the process. Firstly, is there any -- are you willing to provide any color on the pricing level of the nonbinding bids that were received during the process? Thomas Hofstedter: Again, the answer is going to be no. We were subject to confidentiality, and we really don't want to get into there because it's complicated. It depends on the mix of the scenarios, the players who were involved in and why -- and it never got to the final stage anyhow which was accept the special committee. So I'd rather decline from answering that question. Mario Saric: Okay. And then I guess, somewhat related, did the Board ever consider kind of putting the bids received to unitholder vote? And if so, I guess, what are some of the drivers behind not doing so? Thomas Hofstedter: The committee did not get to the stage where they had -- the answer is no. They not up to the stage where they had an acceptable offer to present at a price that they were would suggest going forward with. Mario Saric: Okay. Maybe switching to the asset sales. On the $2.6 billion that are expected, do you have a sense of the potential required kind of special distribution if they were all to be completed within a calendar year? Thomas Hofstedter: You're talking about taxes. Larry Froom: Yes, there would be substantial Canadian sales there, obviously. I mean the retail announced is part of it. The Canadian retail is definitely part of it. So there would be a special distribution that would be required to be made. But again, I would just say we will give more details as each sale becomes firm, we will put out more detail -- full details of the disclosure of the price, the NOI we expect to lose from those sales and potential tax implications. Thomas Hofstedter: I might add that the tax implications are not for 2025. The would be closings, although we have nonbinding agreements we expect sometime this year, closing would take place in 2026. Mario Saric: Okay. And then I guess you talked about the mix being up for debate. But if we step back before the strategic review was announced and the potential kind of bids coming in, the intent was really for the organization and for the REIT to become more focused on U.S. residential and industrial. When we look at the $2.6 billion that's under consideration, would it be fair to say that you would substantially make your way towards that previous objective by doing so? Thomas Hofstedter: Yes. I can't get involved too great details, but obviously, what will be left with either 1 of the 2 buckets you mentioned or one of the buckets, but definitely office would be brought down and retail will be brought down. In other words, this is somewhat in line with our original strategic plan, but I think the completion of this initiative, the strategic plan will be fine-tuned. Operator: The next question comes from Jimmy Shan at RBC Capital Markets. . Khing Shan: So just on -- when you did the full auction process, you mentioned there were parties that was interested in some specific assets. So of the $2.6 billion essentially comprised of those assets in which you got interest in? Thomas Hofstedter: Yes. . Khing Shan: I'm sorry. Was that yes. Larry Froom: The answer is yes. Khing Shan: Okay. All right. So are there any residential or industrial in -- that's currently under negotiation to sell? Thomas Hofstedter: Again, as I mentioned before, we really don't want at this time to get involved in that level of detail. But again, as I said beforehand, we hope to have this all wrapped up soon enough. Khing Shan: I guess maybe the broader question is kind of what is the go-forward strategy? Is it to stick to the original strategy, sell what you can and just trying to step back and say, okay, what is -- what does H&R look like on a go-forward basis? . Thomas Hofstedter: Well, I guess the overall strategy was a declutter. We were too many divisions. We mentioned that the overall strategy was to get more focused on industrial/U.S. residential. They're healthier -- although they're not necessarily healthy, they're healthier asset classes than office. So the original strategy was declutter, and that's exactly what we will be doing. How far are we going? Will it end up being an industrial REIT or a residential REIT or both? I don't know at this stage, again, again, it's a little too early to tell. But the overall goal was to become less of a diversified REIT, and that's for sure what we will succeed to do. Khing Shan: Okay. And then in the past, you've talked about condo land for condo development being pretty tough. I mean you do have 145 Wellington, you do have the Front St. ones. I guess what's changed? Thomas Hofstedter: Well, it's interesting. What changes is 2 things. The office market got better, the residential market got worse. So our initiative to rezone our commercial properties was not for the here and now in either was to have some -- when the market does improve some optionality is whether it's office or residential. At this stage of the game, it looks like the office market is recovering faster and the winner of the races are going to be remaining is office rather than residential. I would say that in all cases other than 55 Young, the status quo, whether it's Union St. or Front St. or 25 [ Shepherd ] -- sorry, or 145 Wellington is always going to be commercial rather than residential. Khing Shan: And then on the use of proceeds, I know it's hypothetical, but in the past, you've been averse to doing substantial issuer bid, but it does look like it's going to be a decent sized number. Would you contemplate doing that? Thomas Hofstedter: I don't think so. We haven't run the Board give, but our objection to a substantial issuer bid is you can probably achieve the same goal by doing an NCIB at probably 17% less. I was never a fan of it. I'm still not a fan of it, but we can have offline in discussion convince me otherwise. Khing Shan: But it's safe to say that beyond paying down the debt, there'd be a [indiscernible] to a buyback. Thomas Hofstedter: You can do a special distribution cash instead of an SIB and you wouldn't have to worry about excess money in your bank account. Khing Shan: Okay. Sorry, last question, just in terms of -- since the original solicited bid wasn't -- or didn't get to the finish line or wasn't presented to the unitholders, like what did the special committee consider to be acceptable in terms of terms and pricing? Thomas Hofstedter: I wasn't on the special committee. I don't know. The experience tells me there was a moving target. If you had a real offer that was really acceptable that they can bring forward, I can maybe answer more, but they never -- they didn't have that at the end of the day. But again, I wasn't -- I was not in the special committee. I don't know what the answer to that question is. I'm sure it was a range. Operator: The next question comes from Matt Kornack at National Bank. Matt Kornack: Just with regards to the tax implications, I understand if you sell Canadian assets, you can kind of push that through to unitholders in a special distribution. But for the U.S., if you can't take advantage of the 1031 exchange, do you think there would be a cash tax component? Thomas Hofstedter: There would be a minor tax cap for minimum tax, but we have tax loss carryforwards. So we'd be utilizing those. I don't see any U.S. tax leakage -- any material tax leakage. Matt Kornack: Okay. And then just in terms of the quarter itself in terms of the sequential NOI, Larry, was there anything seasonality-wise in terms of the NOI reduction or there would have been a recovery or something to that effect? I know the portfolio has changed. So there may be a little bit more seasonality in it, but I was a little surprised with the move there. Larry Froom: No, there was -- I think this is a normal run rate. When I say normal run rate, I mean, we saw residential was down a little, and that's showing some weakness. But other than that, which is expected to recover, other than that, there was nothing unusual. . Matt Kornack: Okay. And then going back to the sale, I know you aren't talking specifics, but could you give kind of a broad sense as to what the disposition cap rate would be? And then also in terms of where your line of credit is in terms of current interest expense on that? Thomas Hofstedter: Well, listen, I'm not going to give specifics and without that, it's pretty hard to answer your question. If you have an office building that's leased hypothetically, obviously, and it falls off, it's not a cap rate discussion. In many cases, it's the present value of the residual cash flow plus dollar at the end, which represents by the pound. So cap rates would kind of be a useless discussion if I can't identify and not willing to identify the specific asset that we're talking about. And you're talking about Lantower, you can talk about a 5% cap and that's easy. In the sunbelt, you use 5.25%, whatever number you want, you can't do that in office. If there's a 7-year WALT and it all comes to a balloon at the end, that's going to be substantially different than something that has a longer-term cap rate. So I can't really discuss cap rates. But we will give you all the color in a couple of weeks, hopefully. Matt Kornack: I understand the dynamics there, but we don't have the same level of detail that you guys do. So more based on... Thomas Hofstedter: No, I know. Fair enough. But not giving the asset, it's very hard to give you -- have an intelligent conversation as to the impact without identifying the asset. Matt Kornack: Okay. Fair enough. But Larry, just in terms of the variable interest rate, where would that stand today on your line of credit? Larry Froom: Well, we disclosed that the average weighted rate is 4%. But the variable rate today is on our credit line, just about just 3.9%, something like that. Matt Kornack: And presumably, you have a lot available there, which is good. You have the flexibility to pay it down. What would be the next kind of pieces of debt that you would pay off with the proceeds? Larry Froom: Well, we've got $250 million coming up next year in a bank term loan. So that will be the next. We have another debenture later on in next year. That will be the next to be hit to be taken off the debt list. And from there, we will see. Matt Kornack: And is it mostly unencumbered portfolio or the $2.6 billion slated for sale? Larry Froom: Well, I can tell you that the assets held for sale that we're showing of $860, whatever, $5 million, that's totally free of any debt. It may be pretty much totally free of debt and the 2.6... Thomas Hofstedter: Well, in a nutshell, our Lantower and our industrial divisions have debt on it. The rest we don't have debt on it. So Larry is trying to answer your question as best as he can. But if it's not in the Lantower and industrial buckets, it's debt free for the most part. Larry Froom: Sorry, Matt. And just a correction on what I said. There is one mortgage on our assets held for sale, and that is on the Front St. property. That's about [indiscernible] million. Matt Kornack: Okay. Last one for me. And again, maybe that's too specific, but it sounds like these skewed to more Canadian asset sales. So you're becoming predominantly a U.S. REIT. Is that a fair point after this? Or how should we think about that? Thomas Hofstedter: Well, I'll let you answer the question. We are right now. Operator: Next question is from Sam Damiani at TD Cowen. Sam Damiani: Just a follow-up. I believe, Tom, in an answer a few minutes ago, you said that you don't see any material tax leakage from U.S. asset sales. Is that correct? Larry Froom: That's correct. . Sam Damiani: So that would suggest that the sales that are being contemplated are not those with inherent gains. Is it fair to take that away from that comment? Thomas Hofstedter: Well, yes and no, you have tax loss carry forward. So I don't know. That would not be correct. I don't believe what you're saying. You can have the gains, but we wouldn't be paying the taxes on them. We have significant tax loss carry forward. Sam Damiani: Okay. And then just the other one for me. I'm not sure this may have been asked, but the fair value marks taken in Q3, I think the language was to reflect the bids for the stuff that's held for sale, the $865 million. Does primarily, sorry, of course. So how much of that would still need to be taken based on the remaining $1.7 billion of the $2.6 billion planned? Larry Froom: Not, very little. If any, I don't think -- I think we've marked down -- as I said, we've taken our hits and we've taken them now and in the previous quarter. If we were to do the $2.6 billion, we would not be expecting to take anything major on that. Operator: The next question comes from Tal Woolley at CIBC Capital Markets. . Tal Woolley: One of the questions I've been trying to get an answer for investors about is that I think like when we're thinking about the process that there probably could be some agreement on what asset values are that there might not be that wide a bid-ask spread, but the problems sort of come up in affecting the transaction and that there are maybe transaction costs or tax implications that we can't see from the outside. You guys have the deferred tax liability on your balance sheet, but it's just -- can you -- is there any sort of sense you can give around what beyond that might be the cost? We've seen this come up with other diversified REITs going through processes like Cominar in the past. Thomas Hofstedter: I don't really understand the question. Larry Froom: I don't think there'll be -- it depends on the price, obviously, for deferred tax, how much ends up paying. But assuming it was even at our fair market value that we're holding it at, all that will be paid is the deferred taxes on our balance sheet. So that would end up becoming payable if everything was sold at the prices we are carrying them at. Other hidden costs would probably be like change of control payments and that kind of thing, which are normally not substantial in any deal. And I don't think ours would be any different in that -- to that effect. Operator: Next question comes from Mario Saric of Scotiabank. . Mario Saric: Just one quick follow-up. You mentioned that the $2.6 billion will be effectively done in stages. In terms of communication with the market going forward, coming back to Jimmy's question a little bit in terms of what is H&R going to look like over the next 2, 3, 5 years? What is the expectation for communication with the Street in terms of updated strategy, where you're going versus maybe just individually announcing the asset sales as they come up? Thomas Hofstedter: So the assets they come up, first of all, just for clarification, it will be lump that will be done by the end of the year rather. Closing will be probably over the first quarter, Q1 2026. So you'll have a pretty good handle on what in totality we're selling. You'll have a pretty good handle on -- we will announce at that point in time, but that was before the years out what our revised strategy is pending on the actual completion of these sales. So it's pretty hard to answer these general questions without -- in a vacuum because $2.6 billion is lumpy enough that it will formalize our strategy going forward. So I'm sorry for being evasive all the time, but it really -- you're going to know soon enough. You don't have to wait for 2026. One way or another, we expect by the end of this year to give you the answers to those questions. Mario Saric: And just to clarify again, Tom, I think you mentioned that you don't see a scenario unfolding in which the existing distribution is unsustainable. Is that correct? Thomas Hofstedter: That is correct. That is correct. Under no scenario do I see that being the case. Operator: Next question from Fred Blondeau at Green Street. Frederic Blondeau: Just a quick follow-up. It looks like the REIT will be quite different, of course, in '26 than what it is now. I was wondering if you -- we should expect some sort of management restructuring or major management changes or any announcements in that regard that before the end of the year or in the beginning of next year? Thomas Hofstedter: Not the end of the beginning of next year, could well be depending on how -- in other words, hypothetically, let's assume that we become 100% Lantower and life changes. And obviously, management -- the need for management over here changes. I think we can't answer that question again until we formalize the sales, formalize the strategy and then we'll see then management will follow with the residual what's left in our company. Operator: Next question from Sam Damiani at TD Cowen. Sam Damiani: I really appreciate this. But just trying to get some clarity and certainty on this $2.6 billion. I mean your comments, Tom, are pretty clear. You're very confident and you're telling everybody to wait and you're going to hear all the details by the end of the year. But what can you tell us today that gives us comfort that, that's -- that this is kind of a done deal in terms of getting across the finish line, getting these agreements signed and binding and then closing in early next year? Thomas Hofstedter: So just to be clear, one way or other, we're going to conclude that whatever this quarter, whether it happens or happens, I'm not develop telling you that it's going to happen or won't happen, but the special committee is done. They're closed up for shop. It now is back to the Board. We either execute on these deals or we don't. We have a pretty good understanding throughout this lengthy process of our company and where to go from there. So I think we'll be able to give you a high degree of comfort by the end of this year, by the end of December as to what the future strategy is going to look like, what our cash position is going to be and if there will be any further sales. Sam Damiani: I guess, but on the $2.6 billion specifically, are you saying just there that there is not -- like there's a chance that they're not -- like they don't get signed, they don't close. Is that what you're saying now? Thomas Hofstedter: Well, the signs get closed, there's definitely a possibility that it doesn't -- the deals don't happen. In this world today, in real estate, the deal is not done until it's done. You know that. It's a very tough environment out there. Sam Damiani: Yes. And so this is sort of the direction... Thomas Hofstedter: None of the players that we're dealing with have the deals that this helps you are contingent on financing. They all have their equity, they all have -- they don't need any debt or they all have their debt done already. So none of those -- it's not confidentiality, it's just getting to the finish line. Sam Damiani: Okay. And the path that the REIT is on now, having wound up the special committee, like this $2.6 billion of asset sales, this is not the finish line. Is that right? There's still further asset sales to achieve to get to whatever this goal is. Thomas Hofstedter: That I can say definitively, yes. That won't be done through the special committee, but there will definitely be a formalization of the strategy, whatever that is to conclude -- to get there will involve future sales. Operator: Next question from Matt Kornack at National Bank. . Matt Kornack: One quick follow-up, and I don't know if you will answer it. But are management or insiders part of the bidding for any of this $2.6 billion . Thomas Hofstedter: No, they are not. . Operator: Next question from Jimmy Shan at RBC Capital Markets. . Khing Shan: Sorry. Two more quick questions. So just going back to the $2.6 billion, I guess what determines an asset that makes it to the assets held for sale versus not? Larry Froom: Jimmy, we put the assets held for sale in that category because they've already been approved by our Board. The rest of the sales have not been approved by the Board yet. Khing Shan: Okay. So the determination is Board approval only. And why were they not approved by the Board yet? Larry Froom: For IFRS, it's a bit more. It's approved by the Board and highly confident that they will conclude within a year. That's the IFRS mandate of putting them into that bucket. Khing Shan: Okay. And so the other assets that are not on there, what -- I guess, it's just a matter of timing being not approved by the Board? Larry Froom: Yes. There's still negotiations and pricing hasn't been finalized. Khing Shan: Okay. And then in terms of the full auction process that was done post July, can you give us a sense of kind of how many parties looked under the hood and sort of how far did the parties get far -- how far did they go? Thomas Hofstedter: How far did they go in what? -- due diligence? Khing Shan: In terms of like how many parties were left at the table if there were any when you did the full auction process or is there none at all. Thomas Hofstedter: This has always been -- we're a diversified company. This is diversified. As it's diversified. I don't -- I think it's fair to say that it would be very hard for one player to come up and absorb the entire company. This was always a club deal. And there were various players within the clubs in and out as the asset composition changed. Towards the end, the player that was -- there was -- I don't know, round numbers, very generally speaking, there was 4 or 5 that looked at the entire company, but there were club deals in different partnerships. There was one that was much more -- spent more time and remain there throughout. But at the end of the day, there was no -- at the end of the day, there was nobody there left for the entire company at a price that the special committee wanted to take forward and bring forward to unitholders. And needless to say, this whole exercise has taught us, I guess the conclusion is that the sum of the parts are greater than the whole. And in a diversified company, it's a club deal anyhow, maybe it's better off just to do it by ourselves. That's one of the options we have. So we don't have to go to our strategy, be industrial, residential being residential being industrial. We could just continue to sell and achieve a higher price. I think that's something you can't abandon, but that's definitely the potential. We'll get clarity -- again, we'll have clarity on that before the year is out. Khing Shan: And to Matt's question, was management part of any of those such club deals? Thomas Hofstedter: Sorry, I couldn't hear what . Khing Shan: Was management also part of some of the club deals that may or may not have happened in the past? Thomas Hofstedter: Management were there, management was there to plug some holes where we didn't have a player. But at the end of the day, management was not there. Well, there was no deal at the end, but management could be there if there's -- for example, in all cases, there are certain assets that just nobody wanted or we needed in order to finish off a price for everything, management could step in or would step in. But at this stage, again, that management is not there at all. There's no necessity for management to be there. We're not giving you one price. There's no bidder for the entire company. Operator: We have no further questions at this time. I will turn it back over to management for closing comments. . Thomas Hofstedter: Thanks, everybody. Stay tuned. We hope to be back with you years out. Have a good day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
Operator: Welcome to Stantec's Third Quarter 2025 Results Webcast and Conference Call. Leading the call today are Gord Johnston, President and Chief Executive Officer; and Vito Culmone, Executive Vice President and Chief Financial Officer. Stantec invites those dialing in to view the slide presentation, which is available in the Investors section at stantec.com. Today's call is also webcast. Please be advised that if you have dialed in, while also viewing the webcast, you should mute your computer as there is a delay between the call and the webcast. All information provided during the conference call is subject to the forward-looking statements. qualifications set out on Slide 2, detailed in Stantec's management discussion and analysis and incorporated in full for the purposes of today's call. Unless otherwise noted, dollar amounts discussed in today's call are expressed in Canadian dollars and are generally rounded. With that, I'll turn the call over to Gord Johnston. Gordon Johnston: Good morning, everyone, and thank you for joining us today. I'm pleased to announce that Stantec delivered robust performance in the third quarter, generating organic growth across all our regions and business operating units. Global trends across water, transportation, energy transition and mission-critical sectors continue to drive strong demand for our services. And our diversification across sectors and geographies creates resilience within our operations. Net revenue grew to $1.7 billion in the third quarter, an increase of almost 12% compared to Q3 of last year, driven by organic and acquisition growth, each over 5%. Most notably, our Water business delivered almost 13% organic growth, Energy & Resources delivered nearly 10%. We grew adjusted EBITDA by close to 18% year-over-year with a record margin of 19%. We also delivered adjusted EPS growth of 17.7% compared to Q3 2024. Looking at our results in each of our geographies. In the U.S., net revenue increased over 14% in the third quarter, which was driven by 4.6% organic growth and almost 9% acquisition growth. In our Buildings business, net revenue increased by more than 40% in Q3 and over 20% year-to-date, driven by our acquisition of Page and continued organic growth. The integration of Page is going very well, and already, we're seeing many revenue synergies from the acquisition. We expect to have completed the financial integration into our systems by year-end. Private and public sector investments, particularly in mission-critical, Science and technology and Civic supported growth in buildings. Organic growth was also driven by our Water and Environmental Services businesses. Large public sector water supply and wastewater treatment projects contributed to double-digit growth in water. In energy transition, mining and infrastructure sectors as well as the continued work for a large utility provider supported growth in environmental services. In Canada, net revenue grew 7.6% in the quarter, driven completely by organic growth. We delivered double-digit growth in our Water and Energy & Resources businesses and high single-digit growth in infrastructure. The continued momentum on major wastewater projects contributed to over 20% organic growth in Water. Continued work on major industrial process projects also drove double-digit organic growth in Energy & Resources. Solid growth in infrastructure was supported by land development projects in Alberta, airport sector projects in Quebec as well as transit and rail projects and bridge sector work in Eastern Canada. Public sector investment drove growth in buildings, primarily in our health care and civic markets. Finally, our global business delivered net revenue growth of almost 11% in the third quarter, achieving 5.5% organic and 2.8% acquisition growth, along with positive foreign exchange impacts. Our industry-leading water business continued to deliver consecutive double-digit organic growth through long-term framework agreements and public sector investment in water infrastructure across the U.K., Australia and New Zealand. The ramp-up of new projects in Chile and Peru drove double-digit organic growth in Energy & Resources as the growing need for energy transition solutions continues to drive demand in mining for copper. We also achieved double-digit organic growth in our German infrastructure business due to continued momentum on a major electrical transmission project and increased volume on transit and rail projects. Now I'll turn the call over to Vito to review our third quarter financial results in more detail. Vito Culmone: Thank you, Gord, and good morning, everyone. We are very pleased with Stantec's third quarter financial results, which demonstrate the continued momentum of our business and the resilience of our operating model. Robust demand for our services, combined with favorable global trends allows us to continue achieving record-setting results. In Q3, we achieved gross revenue of $2.1 billion and net revenue of $1.7 billion, an increase of 11.8% compared to Q3 of 2024. This was driven by 5.6% organic growth and 5.2%, acquisition growth. As a percentage of net revenue, our project margins once again remained in line with our expectations at 54.4%. We achieved an all-time high adjusted EBITDA margin of 19% in the quarter, a 100 basis point increase compared to Q3 of last year. The increase in margin primarily reflects lower administration and marketing expenses as a percentage of net revenue due to our disciplined management of operations and higher utilization. And our adjusted EPS in the quarter increased 17.7% to $1.53. Turning to our cash flow, liquidity and capital resources. Our year-to-date operating cash flows are up 86% compared to 2024 from $296 million to $551 million, reflecting strong revenue growth, strong operational performance and continued strong collection efforts. DSO at the end of the third quarter was 73 days, a decrease of 4 days compared to year-end 2024 and in line with our Q2. Our net debt to adjusted EBITDA ratio at September 30 was 1.5x, reflecting the funding of our recent acquisition of Page. This remains within our internal range -- target range of 1 to 2x and positions us well for continued M&A. And as we have stated before, we are comfortable going above this range for a period of time for the right acquisition. Gord, I'll now hand the call back to you. Gordon Johnston: Great. Thanks, Vito. At the end of the third quarter, our contract backlog stood at $8.4 billion, an almost 15% increase year-over-year, representing approximately 13 months of work. Backlog continues to grow organically and is up 5.6% year-over-year. Organic backlog growth has been driven primarily by our U.S. and global operations, which achieved 6.6% and 6.8% growth, respectively. The acquisitions we've completed in 2025 contributed to 6.8% growth in backlog, primarily within our Buildings and Water businesses. Over the quarter, Stantec was awarded a number of significant project wins across each of our 5 business verticals, each project varying in size, scope and complexity. I'll highlight just a few of these wins. Stantec was selected as owner's engineer for Manitoba Hydro's $7 billion high-voltage direct current reliability project. The project aims to secure continuous grid reliability for communities across the province. And we've worked with Manitoba Hydro on power delivery projects in the province for over 50 years, and we look forward to continuing our work with them. Stantec's Infrastructure team was selected for a $745 million project to widen the SC-90 corridor in South Carolina. Our team will be responsible for shaping the overall project vision and layout, focusing on traffic operations, access management, bicycle and pedestrian infrastructure and impact minimization. And in Western Australia, our buildings team was selected to deliver specialist engineering services for 2 hospitals, one of which will be over 94,000 square meters in size and valued at nearly $1 billion. The second project includes refurbishment and expansion work at the Osborne Park Hospital valued at over $250 million. These projects will enhance health care for women, children and families. Given our solid third quarter results, our net revenue growth guidance for the full year, while increasing our adjusted EBITDA margin outlook to 17.2% to 17.5% on the strength of our operational performance and discipline in cost management. We maintain our mid-single-digit guidance for U.S. organic growth given persistent slower procurement cycles in the region. However, we remain optimistic that these are simply near-term challenges as we continue to see strong demand driven by the ongoing needs and the priorities of our clients. In Canada and in global, we still expect organic net revenue growth in the mid- to high single digits. Growth in Canada is expected to be driven by continued strong demand and elevated backlog levels. Following the release of Budget 2025 last week, we're encouraged to see the federal government prioritize infrastructure investments across various sectors. And while we don't expect immediate spending, the budget signals strong long-term support for our industry. In global, growth is supported by ongoing high levels of activity in our water business under the AMP8 program in the U.K. and other framework agreements in Australia and New Zealand. Strong demand for infrastructure in Europe and positive demand fundamentals in Energy & Resources are also supporting growth in our global business. Considering all of these factors, we expect growth in adjusted EPS to be in the range of 18.5% to 21.5% for the year and adjusted ROIC is expected to be greater than 12.5% -- given our uniquely diversified business, Stantec remains resilient amid evolving market conditions across all of our regions. We continue to progress towards the targets we laid out in our 2024 to 2026 strategic plan, including delivering net revenue of $7.5 billion by the end of next year. And with that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] And our first question from today comes from the line of Sabahat Khan from RBC Capital Markets. Sabahat Khan: Knowing it's kind of close to the end of the year, a good organic print this quarter. Just wondering if you're able to share at a high level how you're thinking about 2026? Just maybe -- and I know you guys provide guidance at Q4, but just given some of the moving pieces this year, any color you can provide either by major end markets or by region would be helpful. Gordon Johnston: Great. Thanks, Saba. And certainly, this is something we spend a lot of time talking about as well. And you're right, we're going to provide our formal guidance for 2026 in February. But directionally, we see really strong momentum going into next year. In global, the AMP8 programs in the U.K. are going to continue to ramp up as well as the frameworks in Australia and New Zealand. So we see continued strong support in our water business going forward. The need for copper to support grid strengthening, energy transition keeps continuing to support growth in our mining teams, particularly in South America, where I actually was down and visited with our offices last month. here in Canada. The federal budget that was recently released provides continued support for infrastructure really across the company -- country, sorry. And we see a lot of opportunities in the major projects that Prime Minister Carney announced last week and even those that he announced previously. And we're already working on a number of those projects, and we're in discussions and participating on a whole bunch of other ones. In the U.S., a little period of uncertainty, but we see that the macro fundamentals really are still strong there. Aging infrastructure, climate-related impacts, reshoring of manufacturing, data centers, mission-critical facilities. So all of those things, whether it's global, Canada, the U.S. are strong. And then I think one thing that we've talked about a lot, too, is that around the globe, certainly a lot of discussion for increased spending on defense work. And for that, that's -- for us, that's ports, that's dry docks, that's aircraft hangers and runways, housing, all sorts of various types of infrastructure. So we're actually really positive on the prospects and the momentum going into 2026. Sabahat Khan: Great. And then maybe if you could just dig in on the Canadian side, obviously, a large part of your business. Obviously, we saw [indiscernible] come out thus far. Can you just share some thoughts on -- is it just kind of the broad infrastructure programs in Canada that the Prime Minister is announcing that you're getting involved with? Or is it more kind of the energy base I know historically, some of the pipeline work in Western Canada was a big part of your business. Are you seeing maybe some of those opportunities as being more meaningful? Just curious kind of where within those buckets is Stantec exposed? Gordon Johnston: Yes. Great. Thanks, Saba. I think in both of those fields, both the opportunities that Prime Minister Carney has announced, and we see great opportunities. But you've seen the really solid organic growth that we've seen in Canada all year, really 8.5% year-to-date organic growth in Canada. And that's, of course, absent any of those projects that Prime Minister Carney had mentioned. So when we look at Canada, we've seen a lot of strength actually in Western Canada, in particular, in land development. We've seen great opportunities in transportation. A number of the projects we're working on bridge jobs in Toronto and a lot of sort of roadway projects here in Western Canada. But water has been incredibly strong all year for us. And we see really no slowdown of the -- both public sector work that we're doing. We've talked about the work we're doing with Metro Van in Vancouver, in Winnipeg and other locations, but a lot of private sector work coming along as well, advanced manufacturing, data centers and that sort of work. So that's very, very robust. And then, of course, as you said, the energy sector, we've seen some opportunities there as well as that group working on a number of -- the work that we do on industrial projects also comes out of that. And we've talked in previous quarters about some work that we're doing in Eastern Canada on some industrial projects. So Canada, pretty strong, pretty broad-based. And we're feeling pretty good about Canada overall and as we go into next year. Operator: And our next question comes from the line of Yuri Lynk from Canaccord Genuity. Yuri Lynk: Gord, I just want to push a little bit more on the outlook. I understand things are strong right now, but that's generally reflecting work that was booked 12, 18 months ago in some cases. Can you just talk about some of your forward most looking indicators? And I'm thinking, if you look around Canada, I know there's lots of good headlines, but the current economic data is pretty weak. Australia is soft outside of water. AMP8, one of the biggest customers there is struggling financially. The U.S. government shutdown. There's a whole bunch of worrying signs out there. So are you seeing any of that in proposal or RFP or whatever you look at on the most leading edge of your outlook? Gordon Johnston: Yes. No, great question. Maybe I'll address a couple of them individually there. So in the U.S., without question, there's been a confluence of factors that we've seen there caused a little bit of uncertainty and kind of slowed that -- the procurement cycles. I mean, certainly, that's not unique to Stantec, and you've seen that throughout the industry. So in the U.S., we've -- and you'll see that our backlog in the U.S. has been flat year-to-date. And a lot of that is -- we've been verbally awarded a number of projects, but we haven't been able to get them signed and contracted. So they haven't showed up in backlog. A little bit slower start on some of the things. Environmental Services in the U.S. and maybe a little bit slower so far waiting for some of those things to pick up. We're encouraged by the fact that the government is back at work now. We're also keeping a pretty close eye on that, that might only be for a couple of months until we have to go through this again. But the macros haven't changed in the U.S., whether it is the aging infrastructure and roadways related to and support from IIJA, and we still see those supports coming to some of the reshoring that we're seeing in the private sector. So we see some positivity there. You talked about AMP8 and one of the largest customers there is certainly having some financial difficulty, and we all read about that in the papers. But that really has no impact on our business because the way that the AMP cycles work is the water company commits to doing certain amount of capital spend in order to justify rate increases and so on and improvements in the overall operations. So that work has to get done. And people have said, well, what if that particular client was to get nationalized? Well, for us, we wouldn't want to see that happen. But if it did, the work still has to get done. And we've worked with Thames Water and all -- and for a number of successor companies for the last 200 years in the region. So we do see that regardless of what shakes out there, that AMP8 work is going to continue. So it certainly is a little bit of a cloudy environment out there, not all rays of sunshine, but we do see the demand drivers in our business being pretty strong. Vito Culmone: The only thing I'd add to that, Gord, is it's hard to argue with the points that you bring forward. But the diversity of our platform, I think, is an incredible asset and you're starting to -- you see it manifest itself through our year-to-date results and I think you'll continue to see that both geographically and across our segments. So notwithstanding, you're going to see pluses and minuses through it all. I think net debt to Gord's opening comments here, we will be positive moving into 2026, no doubt. Yuri Lynk: Okay. Good to hear. Second and last one for me. Just any update on the M&A pipeline? I understand over the last year or 2, there's been some large private players maybe working themselves towards a sale? Just any change in the pipeline? Gordon Johnston: Yes. It's a pretty robust industry right now, lots of discussions ongoing. You certainly read in the papers about some of these private firms coming to market. You also heard rumors about big firms in our space having discussions. And of course, we can't comment on any of those things other than to say we maintain very, very positive on M&A in general and specifically for Stantec. Our Board is supportive. The -- our investor community is supportive. We're supportive and the opportunity set is there. So we're continuing a number of conversations and look forward to bringing something forward at the appropriate time. Operator: And our next question comes from the line of Ian Gillies from Stifel. Ian Gillies: Following on some of the previous commentary and maybe just hit the nail on the head. With organic backlog growth in the U.S. supply year-to-date, you don't believe that impinges on your ability to generate some amount of organic growth in the U.S. as we go into next year? Vito Culmone: Yes, that's absolutely correct, Ian. We do not envision our year-to-date backlog being flat as an indicator of organic growth going into next year. We'll be positive in organic growth next year. We'll give guidance again at the appropriate time, but our expectations at this time, and you heard Gord echo opening comments around the U.S., including the U.S., we feel pretty good about it. Factors that are contributing to the year-to-date. First of all, backlog is generally lumpy. And obviously, we expect it to build here as we move into the first half of the year. Our year-to-date backlog, though, even in the U.S., our year-to-date, which is probably a better comparison or equally important comparison -- excuse me, our year-over-year is up 6.6%, I believe it is or over 6%. So overall, notwithstanding the confluence of factors that we've talked about that our peers have talked about, we clearly expect organic growth in the U.S. as we move into next year. Ian Gillies: Understood. That's very helpful. And maybe along similar lines and most of the other engineering firms have been asked about this, so I'll ask as well is, do you have any concerns about IIJA funds not being released like with some certainty, like, for instance, does your U.S. team still feel quite confident that the bulk of those funds will come out over the next, call it, 4 to 5 years and should continue to be that long-term tailwind and not be canceled? Gordon Johnston: Yes. And so I think our answer would be similar to what you've heard from some of our -- from the others who have reported as well that we have no indication that program like the IIJA would be canceled or funds would be withheld. We still see the continued momentum on that. And no, we think that, that program remains intact. Operator: And our next question comes from the line of Krista Friesen from CIBC. Krista Friesen: Maybe just thinking about your margin, obviously, a pretty impressive quarter and raising and narrowing the god for the remainder of the year. Can you speak to what's changed on that front relative to the beginning of the year when you first issued your guidance? Vito Culmone: Krista, yes, it's Vito. You're absolutely right. We're really pleased with a lot of hard work across all of the teams, of course, across our organization in delivering an EBITDA margin. Year-to-date, 17.7%, 100 basis points ahead of prior year or more than that actually. So really, really pleased with it. It all -- I sound like a broken record a little bit with this, but it all starts with project margins. So right customer, right project, right pricing, right risk profile. We spend a lot of time with that, and our professionals are excellent in the delivery of that. So our project margins year-to-date are 0.1% ahead of where we were last year. So without that, that's the fundamental. And then what you're seeing, of course, is admin and marketing as a percentage of NSR come down. So on a year-to-date basis, 37.6% versus 38.6% last year, again, 100 basis point improvement. And that's driven by a number of things. Clearly, scale is a big part of that. So as we grow and organic growth is a significant component of that, the ability to obviously deliver against that base in a more efficient way, that's important for us, and that's contributed meaningful to our year-to-date results. Our utilization, our utilization is another area that has contributed positive to it. Our occupancy costs are also contributing positively on a year-to-date basis. So net-net, you've got -- this business has significant operational leverage attached to it. And with continued organic growth, continued acquisitions contributing to, obviously, the net revenue growth, it provides a continued opportunity for EBITDA margin expansion going forward. While at the same time, very importantly, ensuring we continue to invest, invest in our people, invest in our offerings and invest in the market. That's equally, if not more important as well as we move our way through here. Krista Friesen: That's great color. And just a last one for me here. You mentioned the Page acquisition integration is progressing well and starting to realize some synergies there. Can you just provide us with a little bit more detail there? Yes. Vito Culmone: Not much more to add to the Gord's commentary. We knew Page very, very well coming into this acquisition. We work with them. And we have to say that everything post that close of the acquisition has just reconfirmed just an incredible team and really hit the ground running from an integration perspective. I think the pace to which we're seeing some of the opportunities, both in market and some of the efficiency reflects the fact that we knew each other so well and had spent a fair bit of time in these sorts of discussions well in advance. But Gordon, any additional comment on Page? Gordon Johnston: No, it's as we've really started working through the integration, everything that we thought was there has really shown itself to be true and then some. So it's actually been very, very positive. A lot of great project-based and pursuit based synergies there. So actually feeling really good about Page. I wish we could find another 5 Pages to join us. Operator: And our next question comes from the line of Benoit Poirier from Desjardins. Benoit Poirier: Yes. Great performance on the margin front and also great color that was provided on the previous question. So looking at 2026, could you provide maybe some comments whether the pace of improvement we've seen so far this year is sustainable going into 2026. And what are the puts and takes when looking at margins going into next year? Vito Culmone: That's a sneaky way of asking me for guidance already there, Benoit. But so we'll do that in February. I mean, I think when you look at the last several years, there's been steady year-over-year improvement, 0.3, 0.4, 0.5 -- this year, to your point, a little bit outpacing our historical track record, which is wonderful. One of the big factors in EBITDA margin expansion clearly is connected to a lot of what this call has been about, which is the pace of organic revenue activity in the business. So that is a big driver of obviously what you can deliver bottom line. But when you sort of zoom out, notwithstanding where we may be here in 2026 and what, which, again, we feel fairly comfortable with at this point and you look at a 2- or 3- or 4-year picture with the macro demand and whatnot, I think you can expect obviously continued EBITDA margin expansion. We're just going through -- we're entering our third year of our 3-year strat plan where we committed to 17% to 18%. Obviously, we're in the higher end of that range as we sit here in 2025. We expect to be at these levels or better, obviously, as we move into 2026, and we'll refine that next year. But it's the commercial activity that enables in large part for us to really lean into these margin expansions, and we expect that to continue. Benoit Poirier: Okay. That's great color. And maybe, Gord, you made some great comments about the opportunities you foresee in terms of defense. So I would be curious if you could on what is your exposure to defense right now? And how material could it be given the opportunities you see out there? I would be curious to see how it would compare to the opportunities with data center, let's say? Gordon Johnston: Yes. No, that's great. The beauty of the Stantec model is in that diversification piece. And so when you look at even in the U.S., where we do a lot of dry docks and aircraft hangers and those sorts of things, our exposure to the U.S. federal government overall is still in that 5-ish percent range. And so it's-- that's the beauty of the diversification model. I think you would see in other countries around the world, it's probably sub-5%, what we would be doing in that. But again, a lot of this is just our bread-and-butter infrastructure work just with a little bit different instead of a hangar for a commercial aircraft, it's for a military aircraft. And so this is stuff that we're all very, very comfortable with. And we don't expect that while there's been a lot of commitments to increasing spending on defense and some of these infrastructure things, we don't expect it's going to pop right away. It's going to take a while to build. And that's fine. We're spending a lot of time with our clients and ensuring that when they get the budget and they're ready to go that they're thinking of us top of mind. So I think we'll see it continue to grow, but I'm not sure that it will be -- that we'll see it being material. Benoit Poirier: Okay. That's great. And maybe last one for me. In terms of free cash flow, Vito, very strong performance in the quarter. It looks like that you were able to maintain DSO while typically they go up a bit sequentially from Q2 to Q3. So just wondering what is the matter of a stronger collection efforts? Is it a matter of business mix? Or what about the expectation, let's say, for Q4? Was there some pull forward in terms of free cash flow? I would be curious to get some thoughts around the strong free cash flow performance. Vito Culmone: Yes. And again, Benoit, I take you to there. You're right, free cash flow can be lumpy quarter-to-quarter, and this Q3 was outsized year-over-year gain. But clearly, the trend has been incredibly positive for us. As you heard in my commentary, our prepared commentary, our year-to-date numbers are up significantly. That's driven by, of course, the business and the expansion of the business, first and foremost. But clearly, our working capital management has -- it remains to be seen, but it looks like we've made a significant one-step onetime sort of move here that is continuing to stay with us. Our DSOs now are at 73, 74. We had an internal target of 80 for the longest time. I think we're getting pretty comfortable saying that perhaps the mid-70s is the new starting point for us. But we'll give ourselves another quarter before we do that. And I just need to -- we've made some changes internally. It's an area of focus for us primarily and just a huge shout out to all of our project managers across all of the entire network that are managing aggressively to that while obviously keeping our commitments to our clients and whatnot. So really, really pleased with it. Might give some back in Q4. I'm not worried about that in any way, shape or form. But full year will continue to be well ahead of where we were in the prior year. So very pleased with our working capital management. Operator: [Operator Instructions] Our next question comes from the line of Michael Tupholme from TD Cowen. Michael Tupholme: Gord, you've talked a fair bit about the water business, obviously, over time, but also I mentioned it this quarter, very strong organic growth. Often talk about the contribution from the U.K. AMP program and what that's meaning for our organic growth. I'm wondering if you can talk a little bit more about what you're seeing in Canada and the U.S. I think you've touched on it a little bit, but I'd be curious what kind of organic growth rates you're seeing in Water in those regions? And maybe you can talk a little bit about the drivers you're seeing as well? Gordon Johnston: Yes. Well, so in the U.S., really, really strong growth in water as well. Just trying to look on the number here, but it's definitely well into the doubled. Was it 20% in the quarter, Vito? Vito Culmone: In the U.S.? Gordon Johnston: But we'll grab that. Yes. No, I've got certainly double-digit growth in the U.S. in Water. And what's interesting whether it's -- and it's over 20% in Canada. But what's really interesting is that we've talked about it in sequential quarters, like we've had continued organic growth in our Water business, like all the way back to early 2019, and it just continues and continues to strengthen. So in... Vito Culmone: It was 10%, Gordon, in the U.S. Gordon Johnston: 10%, okay. So like in Canada, the type of work that we're doing are big public sector wastewater projects and water projects in Metro Vancouver, where we're working on the Iona Island relocation there, big biosolids project in Winnipeg that we've talked about $1 billion. So there's just a lot of big projects like that. Toronto continues with basement flooding enhancements and such. In the U.S., we see the same. A lot of it is municipal type work, water supply, water treatment, water scarcity type issues and some areas. And in the Gulf, certainly, it's flooding in excess of water. And so it's all just that sort of that core fundamentals that just keeps going with our water business where -- so whether it's not enough water, and we're working on water reuse and recycle, too much water and flooding and so we're doing big projects like the big pump station we did in New Orleans several years ago. We're currently working on shoreline protection type work, sea-level rise type work. Regulation like PFAS continues to provide opportunities in the short, but more so in the longer term. And then just the advanced manufacturing and reshoring of some of that, that, of course, you read about in the papers all the time. And very often, the first thing that clients need is water, access to water, water allocations, the treatment of high-purity water for manufacturing processes. So really, really strong drivers in water, and we don't see them slowing down in any way. Michael Tupholme: That's very helpful. The second question I wanted to ask is just about data center activity. Wondering if you can provide a bit of an update on activity levels and in that area, I guess, also curious what percentage of the revenue of the company is that represented by today and how you see that evolving and looking into 2026 as far as share of revenue contribution relative to 2025? Gordon Johnston: Yes. So we're currently working on over 100 data centers, mission-critical facilities ranging in size from 20 megawatts all the way up to a gigawatt. So a lot of projects on the go, but a pretty robust pipeline as well. I think right now, it would represent, Vito, I'd say like 3% 2%, 3% of the overall net revenue of the company. And do we see that growing? Yes. I mean that's growing at a bit of an outsized, but would it get to 4%, maybe 5%, but we don't see that we'd want it to go a lot more than that. We don't want to become 15% exposed to any sort of a high-growth area like that because just in the -- as we've talked about our diversification over time. So we feel good in that 3% to 5% range if data center is mission-critical, we're in that area, but certainly a high-growth area for us. Operator: And our next question comes from the line of Chris Murray from ATB Capital Markets. Chris Murray: Gordon, you mentioned earlier the 3-year financial targets hitting, I guess, the $7.5 billion by the end of next year. And so maybe just a couple of thoughts here. I mean, I'm looking at consensus right now, it's about 7.2, which means that you probably have to find some acquisition growth, I won't say in a hurry, but soon. But there's also, I guess, some questions. I think we kind of heard on the call about the whole idea behind being able to maintain a 7% CAGR because even if we go back a couple of years ago and what we've actually experienced over the last couple of years, hitting 7% next year on a 3-year CAGR is going to require just a stupid lift, which is probably not reasonable. So I guess the question I've got for you is the rest of the other metrics that we're seeing up and down, things like adjusted EBITDA, some of the financial metrics are all looking okay. Are you -- I guess the question I've got for you is like are you married to that 7.5% as a target? Or is it just more kind of aspirational and we can kind of think about how the game is going to play because the environment is shifting, and we could be heading into some choppy waters. So just thoughts on how those targets are set and how you're actually aiming at them. Vito Culmone: Yes, Chris, maybe I'll take that one, and Gordon, you can jump in if you -- the $7.5 billion was established, $7.5 billion was established obviously years ago based on exactly what you're describing, Chris, it was based on a CAGR of 7% organic. And then obviously, the rest of it filled in by acquisition. You're right. When you look at that 7% CAGR now relative to obviously what we did -- we're doing here in 2025, it's going to be hard probably for us to get 7% CAGR. But obviously, again, we'll stop just short of 2026 at this point. We'll see how the next few years. clearly expect organic growth next year and expect a good year there. And so we're not married to the 7.5%. It's not something that at the end of the day, we're linked to. This company is all about just obviously continued diversification, organic growth and M&A strategy. When you look at the pace of our M&A, you sort of say we expect to obviously be in market, expect to continue to do acquisitions. And as a result, that's what contributed, I think, to Gord's comment around our ability to be in that 7.5% range. But I would say the number itself isn't driving our activity. It's our strategy that's driving the activity, and it's proved out really well at this point. Gordon Johnston: No, absolutely right, Vito. And Chris, while you're -- if organic growth does slip below that 7% CAGR, there's some great optionality on the acquisition side that we would never rush anything or do anything that we didn't feel was the right thing to do long term in order to hit that 7.5 target. But it's a pretty robust environment right now. So feeling optimistic about some things that could happen there. Chris Murray: Okay. That's helpful. The other question, and I know this is something that we haven't looked at in a while, but Vito, I'll throw it out at you is just getting back into the market and maybe buying back stock again, we haven't really seen that. I know that the multiple has been fairly high, but now it's starting to come maybe back to what I would call a more normal range. Is maybe getting into a regular cadence on the NCIB is something that you guys are maybe more open to? Or is that something that you're just going to stay kind of full bore pressed on M&A as a use of capital? Vito Culmone: Yes. No, I take you back to our capital structure objectives. Obviously, we're going to generate a significant amount of free cash flow. We will continue to do that. Our capital allocation priorities are obviously, first and foremost, funding our internal capital needs, which are fairly modest. Our capital expenditures have been in the area of $100 million on an annual basis. This year, we'll be actually fairly below that. And then obviously, we have a dividend in place. We'll continue to respect that dividend and likely grow it as we have in the last several years. And then the NCIB there and M&A -- and M&A is there. Again, we see an incredible opportunity for this organization going forward with the right acquisitions, a fragmented market to prioritize acquisitions. And that also contributes to organic growth, right? I mean acquisitions are a big part of also across revenue synergies and whatnot to drive inorganic growth. But M&A is lumpy. Like when you're looking at M&A, over the years, you can't sort of predict it. So clearly, we'll continue to use the NCIB. You're absolutely right. We have been muted on share buybacks in the last couple of years, I think, now. But we'll continue to use the NCIB and have it on the shelf as required. And opportunistically, we wouldn't hesitate to get in the market and buy back our shares if required. But M&A is, we think, a really significant value creator for this organization going forward as is our stock buyback program. Operator: And our next question comes from the line of Maxim Sytchev from NBCM. Maxim Sytchev: Gord, maybe the first question for you and just turning back to the U.S. I mean one of the things that we're hearing is that the procurement methodology has changed a little bit from the federal government that is a bit more book-and-burn sort of less visibility, but work is still coming through. Is this also something that perhaps explains that dichotomy between backlog and organic growth, which still remains pretty robust? So just any color you can provide with this, that would be so helpful. Gordon Johnston: Yes. Without question, the overall procurement cycle and process for a number of federal, state and local governments have changed with some of the executive orders that have come from President Trump. And so that was a little bit slowness there the first part of the year. Now we've been awarded a number of projects, and we're just waiting to get them signed. And certainly, the shutdown slowed things down there. So I think as we see, hopefully, folks start to come back and gain to work through the -- they work through the backlog of paper on their desk, we get some things signed and then they'll turn into backlog for us and others in the industry. So I think we're still long-term bullish on the U.S. market there, a lot of good opportunities, and we'll just keep working on it. Maxim Sytchev: Yes, for sure. And then do you mind providing a bit of color in terms of the environmental services organic growth? I mean we're seeing a bit of a slowdown while water is actually accelerating. So do you mind maybe talking about the puts and takes in terms of what explains that divergence as well? Gordon Johnston: Yes, absolutely. So a couple of things there. One is that even more than other groups, our ES group has got a number of large U.S. federal projects that we've been awarded just waiting for signature. So we do see those coming. No question of discussion of cancellation or deferral. We just need to get some signs that we can get them going here early in the early in the new year. So I think longer term, we see both in Canada. Canada, we've got some good projects that are going to be starting up in the near term as well in the U.S., too. So I think we've seen a little bit of a slowness in ES this year or organic growth really quarter-over-quarter has been kind of low single digits. I do think we'll see a bit of an acceleration in that as we move into 2026. Maxim Sytchev: Okay. Super helpful. And then last question, if I may. You called out the German market, which is obviously sort of a recent beachhead for you guys seeing very nice growth. Do you mind maybe talking about what is driving that? I presume some of that is defense, transport, but any incremental color would be more helpful. Gordon Johnston: Yes. So our group in Germany, incredibly well managed with lots of opportunity, particularly since the government took off the debt break there and investing another EUR 500 billion. So some of the work that we're doing now in addition to the typical work that we do, which is roadways and bridges and rail projects. We're working a lot of folks on right now on a big electrical transmission project. And there's a real north-south need for electrical transmission in Germany as well. So -- and that's a market that we've just begun to move into probably over the last 6 to 9 months. So I see a lot of growth there. So in addition to the strength of our existing business, which is growing really, really well. We're absolutely looking for other opportunities to bolt on to the beachhead the foothold that we've got now in Germany and continue to grow it. Good market, predictable well-run companies. So we're looking to look for opportunities to continue to expand. Maxim Sytchev: Okay. And sorry, does that imply sort of inorganic growth as well. That's how we should be interpreting this? Gordon Johnston: Yes. I think we -- certainly was going to see a lot of organic growth, and we're absolutely looking at inorganic opportunities as well. Operator: Our next question comes from the line of Jonathan Goldman from Scotiabank. Jonathan Goldman: If we think back to the commentary on the last call, I think in the U.S., you called out in July, you had seen high single-digit organic growth. I'm just curious how things progress sequentially through August, September, October and November? And if there's been any reversal in the trend because, I guess, with the 4.6% in the quarter, it does seem like it's deteriorated August and September. Vito Culmone: Yes, Jonathan, you're absolutely right. We did call out, obviously, that July number. We ended up where we ended up, which was just under 5% there. So it wasn't a big drop from July. And I wouldn't say there's further deterioration at this point. All the commentary with respect to the U.S., we sort of made it here today. I don't have anything else to add. The only other thing, one small tidbit here, it's not a bigger picture -- piece is -- clearly, as we go into Q4, we have a very significant comp that we're cycling here with Q4 for the year, and U.S. organic was a part of that where I believe we were 10% or so last year or just under 10%. So that's just the reality of what we need to cycle. But overall, no additional commentary in the U.S., as we've mentioned, and we wouldn't say there's actually deteriorating. If anything, over the last little bit, the last few weeks, a month or whatnot, maybe just a bit more buoyancy, quite frankly, and you've seen that reflected in our commentary. Jonathan Goldman: Okay. That's good color. And then I guess maybe switching to the margin guidance. If you take the full year guide and by my math, if you back it out, it looks like you're implying Q4 margins would be down year-on-year, something in the range of 30 to 40 basis points. Clearly, that's not year-to-date trend. And obviously, there's moving pieces. But why would margins be down year-to-date given all the improvements in the business you've undertaken? Vito Culmone: Yes. I don't know that margins are going to be down going into next year. That's not what necessarily what we're predicting. Obviously, you do have we will see the page integration manifest itself fully next year with next quarter with our with our financial integration, you always can have some ups and downs with the financial integration. Again, nothing concerning, but that could impact margins. And the only other thing I'd say is back to that or the consolidated organic growth that we had last year, clearly, depending on where we're at, just cycle in a big quarter, that ends up manifesting itself through a margin back to operational scale and one up. But no, we're very, very pleased with our margins and don't expect any significant pullback in the trends and thematics that we've talked about when it comes to EBITDA margin expansion. Jonathan Goldman: Okay. That's helpful color. And I guess last one. If we're looking at M&A, at this point, I guess, maybe relative to other periods, what would be the main bottleneck at the moment? Is it valuations culture fit, maybe a paucity of attractive targets? And how does the cycle time from identification to closing late now versus other historical periods? Gordon Johnston: Yes, sure. I'll start and then Vito will be able to chime in if you like. But I think, Jonathan, we there's really nothing slowing the process down right now. It's just very robust, a lot of conversations on the go. Cycle times vary from discussion to discussion. Sometimes we work with a client or a company partner with them for 5 or more years before we finally decide, hey, you want to do this? And then because we know each other really well, it can proceed pretty quickly. Other times, there's an established process that can take 3, 4, 6 months. 6 would be an outlier, I would think. But -- so they're really -- they're all over where -- in terms of timing and where we would see them. But certainly, a number of ongoing discussions and both exclusive and through processes that are in play right now. So yes, I think it's just a normal cadence here. And when the time is right, if the stars aligned, we'll be glad to share news with you guys. Vito Culmone: Not much more to add there, Gord. Each one has a life of its own. That's it. Jonathan Goldman: Anything to say on valuations. I think you referenced maybe store organic growth could also translate into a silver lining on valuations. But how have those trended year-to-date versus, I guess, last year or maybe the last couple of years. Vito Culmone: Yes. No major changes on valuation. I mean, obviously, it's sometimes a little bit sector dependent and significant areas of growth in one sector obviously have a higher valuation, which is quite obviously expected and implicit obviously in the valuations of us and our peer groups. So I don't think valuations in any way, shape or form are an issue. We look at these things clearly from a strategic perspective, always above value creation over a reasonable period of time, revenue synergies, the valuation isn't getting in the way at this point for us. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Gord Johnston for any further remarks. Gordon Johnston: Great. Well, thank you, operator, and thanks to everyone for joining us this morning. We're really pleased with our Q3 results. And certainly, if you have any follow-up questions following the call today, please read out to Jess Nieukerk Newkirk, our VP of Investor Relations. So thanks again, and look forward to catching up with everybody in the next little while. Operator: Thank you. Ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good morning, everyone. Thank you for standing by, and welcome to BIO-key International's Third Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, November 14, 2025. [Operator Instructions]. I will now turn the call over to Bill Jones, Investor Relations. You may proceed. William Jones: Thank you, operator. Hosting today are BIO-key's Chairman and CEO, Mike DePasquale, and its CFO, Ceci Welch. . As a reminder, today's call and webcast as well as answers to investor questions include forward-looking statements which are subject to risks and uncertainties that may cause actual results to differ materially from current expectations. Words like anticipate, believe, expect, plan and project and similar words identify and express forward-looking statements. These statements are made based on the beliefs, assumptions and information currently available to management as of today, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. For a more complete description of such risks and uncertainties, which affect future performance, please see Risk Factors in the company's annual report, Form 10-K as filed with the SEC. Listeners are cautioned not to place undue reliance on such forward-looking statements made as of today, and the company makes no obligation to revise or disclose revisions to forward-looking statements to reflect circumstances or events occurring after today's call. And now with that, I'll turn the call over to Mike to begin. Michael DePasquale: Thanks, Bill, and thank you all for joining us today. After my remarks and CC's financial review, we will open up the call to investor questions. From a big picture standpoint, we reported revenue of approximate $1.55 million in Q3 '25, roughly in line with revenue in the first 2 quarters this year, and we reported year-to-date revenue of slightly under $5 million. The roughly $600,000 decrease in both the third quarter and year-to-date revenue in 2025 compared to last year. It is largely due to quarter-to-quarter variability resulting from the timing of some larger customer orders. We had particular strength in last year's third quarter from 2 large orders, one from a long-time banking customer, which was more of a catch-up for expanding their deployment and another one from an ongoing rollout of solutions by a long-time defense industry customer. Both customers are still very, very active. And the defense customer had a $140,000 order after the quarter closed in October that we really expected to get in the third quarter rolled over to the fourth quarter. And we continue -- and we expect continuing deployments in orders even this quarter and beyond. In addition, we expect our large banking customer to renew their contract, their subscription contract in early 2026 on their steadily expanding deployment of our solution. The customer has over 29 million users enrolled in our solution with the potential for meaningful future additions. They made a major expanded investment in our solutions in 2023 and 2024, including a $900,000 upgrade to our fingerprint only biometric customer identification technology. And this option or solution allows them to identify clients with just a single fingerprint scan eliminating the need for any other identifiers, including a card or an ID number. And that, in essence, is saving them approximately 30 seconds per transaction, which time is money, which is meaningful for them. Their current annual license fee is now over $1 million scheduled for renewal in early 2026. And whether they choose a 1- or a 2-year contract, we expect that we'll see $1 million to $3 million in business and renewal in the first quarter. Across the board, and this is general within our business, we enjoy very high renewal rates in excess of 90%, meaning our churn rate is in the single digits. The lumpiness that we see in our quarter revenues is more of a function of timing of renewals, new deployments, our large customer expansions, and there can also be true-ups for additional software licenses. Q3 is generally a seasonally slower period for us, particularly in Europe due to the summer holiday period. But we expect to close out the year very strong as we advance our channel sales efforts in the broader Europe, Middle East and Africa regions, where we are now focused solely on BIO-key branded solutions. Additionally, we're in the final stages of developing new marketing messaging for our website and our business development. This messaging and collateral should be implemented during the fourth quarter to get us well positioned for the start of the new year. To support this project, we engaged an external marketing firm earlier in the year to work with us on our new website content and targeted marketing strategies. We're finalizing a major website overhaul, focused on improving again the content, the navigation with a plan released prior to the Gartner IAM Conference, which is held mid-December. We also plan to release a significant update to our PortalGuard identity platform. PortalGuard operates as a single MFA, multifactor authentication user experience providing a broad set of 17 factors of authentication, including, of course, our identity-bound biometric options to meet virtually any use case. Version 7, which is the new version represents our most significant update ever. It features major platform modernization, enhanced configurability with improved deployment capabilities. Development is expected to conclude within the coming weeks, after which we'll undergo rigorous internal and third-party security testing. The time line for general availability is late Q1 or early Q2 in 2026. Also in Q3, we introduced our new FBI FAP 20 certified EcoID III fingerprint scanner, which is aimed primarily for the regulated industries. Although BIO-key is primarily a software company, providing a total solution, including state-of-the-art hardware is essential in supporting our annual recovering revenue software model. The EcoID III reader pairs encrypted device to host communications with liveness detection for faster, more secure authentication. We've delivered initial volume EcoID III orders for defense and government customers in Q3. We also expect government-related and highly regulated industries like financial services, higher education and health care to gravitate towards our new reader. Our PortalGuard platform, our IDaaS, Passkey:YOU solution, all pair very, very nicely with the new EcoID III fingerprint sensor. As I mentioned on our call last quarter, we launched our cyber defense initiative in response to increased global defense spending, particularly in Europe and the Middle East, and our success with some significant high-profile deployments in these markets. Incorporated in these rising defense budgets is a significant emphasis on cyber resiliency and security as a priority. Today, two of the top four largest global defense agencies by spending are using BIO-key technology to secure all of their critical information. We are well positioned to capitalize on these growing defense budgets and spending and are advancing a growing pipeline of opportunities based on the deployment of our solutions by some of the most respected military security and defense ministries and agencies. Supporting this initiative, we are adding select resources to engage with contractors who will help us expand our market reach. We expect to see a growing base of new contract activity from these efforts, building on deployments this quarter and beyond. A primary factor in defense industry deployments is our ability to support critical infrastructure and access to sensitive environments with advanced biometrics and our multifactor authentication technologies without reliance on mobile devices or hardware tokens. Biometric authentication is better suited than these engagements given its enhanced security, accuracy, convenience and ability to better prevent fraud and unauthorized access compared to traditional methods. Biometrics minimize false positives and improve the precision of access control. In addition, uniquely tying individuals to actions and access events, aids in monitoring traceability and insider threat management or improved accountability and audit trails. Streamlining access processes also reduces time spent on logins and boost productivity for defense personnel while maintaining strict security. For defense agencies managing highly sensitive data and infrastructure, we believe biometrics are growing as a preferred choice over traditional methods alone. And our references in that space gives us a unique competitive advantage. We are gaining momentum, as I just described in the defense sector as well as in banking, government, higher education as the rising incidence of security incidents highlight potential cybersecurity vulnerabilities. In addition, growing regulatory requirements and increasingly stringent cyber insurance underwriting standards requiring MFA adoption helped create opportunities for our superior biometrics and portable authentication options. We are excited about the growth prospects into next year. And though given our size, and as I just described, the variability of our business, our business may continue to fluctuate on a quarterly basis based on the timing of larger orders. But as we work to build the business, we'll continue to keep a sharp focus as well on our cost structure, seeking to reduce our breakeven levels and support our goal of positive cash flow and profitability. Ceci will walk through the numbers but let me highlight that we have been able to reduce our operating expenses by over 10% through the first 9 months of 2025, while at the same time, expanding our global reach and suite of solutions. Finally, as far as funding our runway to profitability after the close of the third quarter, we were able to raise approximately $3 million net of fees and related expenses through a warrant exercise transaction priced at $1.02 per share. This funding significantly expands our cash liquidity, puts us in a stronger position to pursue growth. And as we expect, they close a strong close to 2025, we are in a very, very good position from a financial perspective to be able to grow our business and actually overachieve our objectives coming into the new year. With that, let me turn the call over to Ceci to review the financials, and then we'll take questions. Cecilia Welch: Thank you, Mike. We released our results this morning, and we plan to file our 10-Q later today. Let me walk through some of our highlights. Our Q3 '25 revenue was $1.5 million versus $2.1 million in Q3, down approximately $595,000 year-over-year, principally due to the large orders Mike referenced in Q3 2024 that we did not have in this quarter. Those orders accounted for approximately $665,000 of year-over-year difference, offset by some new orders. As a result, our license fee revenue was $918,000 in Q3 '25 versus $1.4 million in Q3 '24. Service revenue increased slightly to $268,000 in Q3 '25 versus $267,000 in Q3 '24 as growth of recurring service revenue more than offset the decline in customer service revenue, supporting large customer upgrades in Q3 '24. . Hardware sales declined to approximately $364,000 in Q3 '25 from $436,000 in Q3 '24 due to the timing hardware shipments in support of ongoing customer rollouts. Partially offsetting the timing difference was the sale of fully reserved inventory in Q3 '25. And now we have approximately $2.8 million remaining in fully reserved inventory for which we have several potential customers. Q3 '25 gross margin remained strong at 77% compared to 78% in Q3 '24 as the absence of third-party license software offset a lower portion of our license revenue. BIO-key may further inroads in trimming operating expenses, which decreased 8% to $2.1 million in Q3 '25 versus $2.3 million in Q3 '24. This reflects a 13% or $208,000 decrease in SG&A expense, offset by a 5% or $31,000 increase in research, development and engineering expenses required to support the generation product introduction, including the EcoID III and our forthcoming PortalGuard upgrade. Reflecting lower revenues tempered by lower operating expenses, BIO-key Q3 '25 net loss was $965,000 or $0.15 per share as compared to $739,000 or $0.39 per share in Q3 '24. For the first 9 months of 2025, our net loss was $2.9 million or $0.50 per share as compared to a net loss of $2.9 million or $1.69 per share a year ago. Per share amounts were based on 6.6 million and 1.9 million weighted average shares outstanding in Q3 '25 and Q3 '24, respectively, and 5.8 million and 1.7 million for the first 9 months of 2025, respectively. Reflecting shares issued for warrant exercises and other finance-related activities. As of September 30, BIO-key had current assets of $3.7 million, including $2 million in cash compared with 2024 year-end current assets of $1.9 million and $438,000 in cash. Accounts receivable and different factor increased 21% to $959,000 at September 30, 2025 from $792,000 at year-end 2024. BIO-key also secured gross proceeds of $1 million for working capital and to support ongoing operations with the September 30 issuance of a senior secured promissory note. As Mike mentioned, subsequent to the close of the third quarter, we generated net proceeds of $2.9 million from the exercise of warrant agreements to purchase BIO-key shares at an exercise price of $1.02. Accordingly, the cash proceeds of the financing were not reflected in our Q3 balance sheet, '25. And with that, all of you, operator, let's proceed with the question-and-answer session. Operator: [Operator Instructions] And your first question comes from [ Dan Khamis ], a private investor. Unknown Attendee: Well, it's been about 10 months, I think, since you announced the Bank of Egypt win, was that a recurring revenue deal? Or were the permanent licenses? And are you expecting similar revenue from that client customer in 2026? . Michael DePasquale: Absolutely. Yes, the answer to that question is that was an initial deployment that we announced just about a year, give or take, 10 months ago. And we are expecting an expanded deployment and that may even happen here in the fourth quarter. So the answer to that question is, yes, that is a growing. deployment. . Unknown Attendee: I see. And a follow-up on that is, since you partnered, I think, with Raya on that, does that mean your margins are lower on that project? . Michael DePasquale: Not at all. Our gross margins on software are 90-plus percent, and so they remain 90-plus percent from a gross perspective. I'll make a comment about partners just as kind of an aside. You may have noticed over the last month or so, we've made a number of announcements with partner companies that are bringing us into local markets throughout the Middle East, in Africa and in Europe, and you're going to see even more coming in the near term. That's a force multiplier. These are very significant. If you read these press releases that we've made, these are significant players who have significant resource in the local markets and have influence in particular industries, some in government, some in banking, health care and so forth. And what you get there is you get local cultural support, you can influence, and given that 90-plus percent of business in EMEA, in general, that's Europe, Middle East, Africa comes through partners. This growing base in our -- what we call our CAP Program, right, Channel Alliance Program is going to pay significant dividends for us as we proceed forward. And every one of these partners that we've signed like Raya comes with a deal, right, historically, right? Partners get signed and then you go out kind of license to hunt, try to find an opportunity. What's happening here, particularly again in EMEA, is that we're signing these partners because they have a deal. We've already been working with them and they want to go out and represent what they perceive to be the most unique and capable identity and access management, biometrically enabled platform that's available. And you can see, again, based on all those announcements that we're getting, we're making very, very good progress. Unknown Attendee: Yes, that's helpful. Just on the Bank of Egypt still, the first step was to handle the NBE employees, right, and then move on to B2B and B2C. Are we looking at non-employee expansion as a, say, 2027 target? Michael DePasquale: Well, I think 2 things. Number one, the initial deployment was I believe, in the range of 20-or-so thousand users, and that was not the full employee base. So there is still an expansion in the existing enterprise employee base. And the answer to the second question, which you see what we call CIAM, Customer Identity and Access Management, the answer to that is, yes, there is definitely an opportunity to take this to customers. Similar in nature to what we do with Capitec Bank in South Africa, where they're utilizing our biometric technology not only internally for employee and employee access, but for customer access. . Unknown Attendee: Okay. So -- but is that 2027? Is that by any chance next year? Michael DePasquale: I think all of this is on the table for some -- again, the employee expansion is on the table for this year. And I believe in 2026, they'll begin looking at the CIAM deployment. Unknown Attendee: On the defense side, I think in the second quarter CC, you mentioned iterating to multimillion dollars with your largest defense ministry. Last week, you announced one of the largest Middle East sector deployments in the region. With another unnamed defense organization. Is this contract on the same scale as this longer-term defense ministry? Michael DePasquale: It's even bigger. It has bigger potential. So the answer is yes, they're very large. Most of these defense ministry opportunities, depending upon the size of the country are large opportunities. And they have a really good expansion potential because usually, you're starting with a base population so that they can get going and then they're expanding out to additional users and enrolling additional users. So these are large deals, and they have a really long tail, and they're very sticky, meaning once you get involved, they do a lot of betting they look at a lot of different options. But once you get involved, you're there for a significant period of time. Unknown Attendee: Sounds really good. With all these bank and defense wins, do you have any kind of feel for what your current ARR is, the recurring revenue? Michael DePasquale: Our ARR is growing. I would say we certainly are in the because you have to back out when you look at our total number includes hardware and software. But I think our ARR base, including renewals on our traditional contracts, right, the traditional PortalGuard business that we purchased probably are in the $6 million to $7 million range right now. And our churn, as I mentioned in my prepared remarks, is in the single-digit range as well. So I would say that's a good number. . Unknown Attendee: Yes, that's a remarkable churn. Your Echo III ID or EcoID III release said the price point, high-quality scanners was significantly reduced. Is the price lowered relative to EcoID II? Or does this third version compete with a different quality of scanner? Michael DePasquale: Definitely competes with a higher-quality device. We sell to, what I call, FBI-certified PIV-certified readers. One is called the PIVPro, which we've been selling for many, many years. That's a very high-quality optical device, glass platinum. The EcoID III competes with that device at a lower price point. So it's $49.99, list price quantity 1 versus the PivPro, which is in the high 60s, low 70s. That's number one. Number two, the new EcoID III is much higher quality and carries liveness detection and full encryption on device. The EcoID II did not have that capability. So the EcoID II was priced a little bit lower at $44.99, but it didn't have encryption and it did not have liveness detection innate in the device like the EcoID III does. We sold, I guess, initial order is about 7,500, a little under 10,000 units to one of our defense customers out of the gate as soon as we were able to deliver the product in Q3. Unknown Attendee: Okay. It's been a year about since you received the boomerang stock. I assume the 9-month put period is over and you didn't return the stock. Is there any update on the value of that asset now? Michael DePasquale: I think we'll be looking at that as we do our audit for calendar 2025, fiscal 2025. But I know they've made a number of small acquisitions and I know they're involved in some strategic scenarios, nothing that I can speak to, but it appears that, that value is certainly intact. . Unknown Attendee: One more question, I guess, for this round here. I think your -- have you done any research into -- well, I mean the stock is trading anywhere from 1x to 100x the flow for the last 3 weeks, any research you've done to figure out what's driving that kind of action? . Michael DePasquale: It's a tough question to answer. First, I think announcements typically drive volume, right? And so we've seen significant volume in the stock on some of the announcements we've made. Why our stock would trade 450 million shares on 1 single day and turn $400 million in trade value is it's almost cereal, and I don't have a particular answer for that. I think there's a lot of interest in our space. There's an awful lot of interest in security. And in particular, we have a very unique offering in a very strong niche in defense and banking, and we have great references. So if you look at where we are today from a market capitalization perspective, if you look at the numbers, we're very undervalued. . And so perhaps there's interest in investing and taking a position in a potential company that has a lot of upside. But those are only theories and I can't really say and understand at any level why we see those days with that kind of volume. Unknown Attendee: Okay. Is there anybody else in the queue right now? Michael DePasquale: Operator? Operator: Yes. We do have another questioner in. Unknown Attendee: Okay. I'll get off then. Operator: And your next question comes from Jack Vander Aarde are with Maxim Group. . Jack Vander Aarde: Mike, I'm juggling a few conference calls this morning, so I had to join this call a little late. So I apologize if I'm being redundant, the guidance, this is something new that popped up. And so I just want to know what kind of led to your decision process to feel confident enough to install a formal guidance parameters. And then can we expect formal guidance framework for 2026 on the next earnings call? . Michael DePasquale: Thanks, Jack. First of all, I appreciate you're pretty busy today. Yes, we're pretty confident in our position right now. I think, again, you've seen the announcements. You've seen that we're starting to see the results of the investments we've made, in particular, in this, I described partner network that we've been building. So we have more confidence because typically, these deals are RFP or they're very large opportunities that are being worked and their competitive. And you'll know a couple 3 months before you get the contract signed that you actually won the order and won the business. So the pipeline now is pretty solid, and we feel good about that. So that's the reason behind that. . I'd love to be able to give guidance and as we get more predictable, we'll do that. But look at this quarter, look at the third quarter. Quite frankly, we expected at least $200,000, $250,000 more in business that didn't materialize not because the business went away, but just because of the timing, one of our customers, one of our defense customers had to change budgets. And so it caused 1.5 weeks delay in processing the order. That's an order we expected in the third quarter, wound up falling to the early part of October. Nothing to do with the business or the efficacy of that contract just timing. So that's what makes it difficult for us, Jack. And I hope that we'll be more predictable in the beginning part of the year, we'll be able to do that. . Jack Vander Aarde: Okay. Great. Two more questions there, Mike. I guess the first one was, I recall, a large renewal that was coming up, I think, in 1Q, '26. Is this still on track? And is that the case? . Michael DePasquale: Yes. . Jack Vander Aarde: Okay. Great. And then just, obviously, there's -- we just had the longest government -- U.S. government shutdown in history, had that -- does that have any impact on your business in the fourth quarter? Or just any of the growth initiatives or just anything operationally did that have an impact? . Michael DePasquale: Not at all. Not at all. We didn't see any impact at all. Typically, we're flying way above that in the context of security. And so it's kind of a mandate. And we've never really seen any of that impact anything that we do. Just doesn't...... Jack Vander Aarde: And then can you just touch on maybe as you look at 2026 outside of the large renewal in 1Q '26. Are there any other major upcoming renewals throughout the year that I should be aware of? And then also any expansion opportunities that you see coming up throughout the year? Michael DePasquale: Well, I think there's a lot of that on all sites. In particular, again, our pipeline of new deals, new opportunities that are spawning as a result of our footprint growing in both defense and banking, in health care. So you're going to see a lot more happen over the coming over the coming months and coming quarters. You're going to see renewals from, again, that large banking and finance contract that we've had, we've had for years and continues to grow and expand. And you're going to see expansions like we discussed in the last question period with customers like the National Bank of Egypt and others that are continuing to expand their existing deployments, right? Not only for employees or internal use, but also ultimately out to customers. So I think there's an awful lot of that on the horizon. And I go back to the point that I was trying to make with Dan, and that is the expanding partner network is a force multiplier for our company. That is going to have a huge impact in our ability to double and triple our business in the coming quarters and the coming years. Jack Vander Aarde: Great. Maybe just one more follow-up. Speaking to your channel partners, can you just give us an update on all the various channel programs you do have. The Channel Alliance Program, I recall, was a major growth area, a couple of years ago, and I just haven't gotten a clear update on that. What's the status of the Channel Alliance Program and some of your other partnerships? . Michael DePasquale: Yes. Well, again, in Channel Alliance Program, you've seen a number of announcements we've made just recently. I won't repeat that. But those are all partners that are part of the Channel Alliance Program that we have. We have distributors. We have MSPs, what we call, managed service providers. We have MSSPs, managed service security providers, right, or managed security service providers. We have resellers. So there's various components within the CAP Program for different types of partners that service end user customers. And that is just continuing to grow. But more importantly, it's not quantity, it's quality. What you want are significant players who have a cultural and a local expertise who deliver services to large companies, mostly large companies and do it over a period of time where they have credibility. And when they come in and recommend the solution, the customer takes a look at it. So that's what we're driving. We're not trying to drive quantity anymore. We're trying to drive quality. Jack Vander Aarde: Yes. No, I'm happy you said that. And I think just another part of that though is, are they -- are any of your channel -- are your Channel Alliance Partners, or is there a portion of them that are exclusively reselling and pushing BIO-key? Are they also servicing other or providing other vendors support as well. How does that kind of, I guess, break out within the Channel Alliance Program? . Michael DePasquale: Yes, that's a great question. We do have some partners that exclusively sell the BIO-key IAM solution. But most of these players sell all the core broad software like Microsoft and Oracle, and you name it, and all of the network security, Cisco and so forth. They typically provide all of that to an end-user customer and the security piece is one component of their overall solution or service for that client. So it really depends. But as it relates to security, we have some that exclusively sell BIO-key and some that sell other solutions as well. But remember, our unique competitive advantage, and I don't care if you look at Okta, SailPoint, Ping, ForgeRock, it doesn't really matter. We have the biometric component that they don't natively have. So that's our differentiator. So even if we're not exclusive, we tend to be exclusive because they don't have what we have. Jack Vander Aarde: Got it. Great. And then I guess I'll ask one more. And Ceci, maybe this is a question for you as well. Just the margins were really strong again for the licensing revenue, which is great to see. I think that's helping the breakeven case. I look at the operating expenses and you guys have done a good job of keeping those tamed. Going forward, do I expect any changes in the operating expenses? Or is this -- are there any further cost savings? Just curious because it does seem like you're tracking towards that breakeven number on maybe even a smaller base of revenue because of those strong margins. Cecilia Welch: Yes, we are just analyzing everything. So it's just something that every quarter people are looking to spend on this, that and the other thing. And we're just trying to make good decisions on those types of things. As we said in the past, we've lowered all of our rents for all of our places. We're just doing what we can. And so we will continue to do that, just keep our eyes on the prize, so to speak. Jack Vander Aarde: Great. And Mike, do you echo those comments, though, just in terms of do you see profitability breakeven on the horizon? Michael DePasquale: Absolutely. No question in my mind. I do see it. I think it's a combination of things. It's, again, the pipeline. It's some of the larger renewals. It's also us managing and scaling around our existing resource pool, which, again, with the CAP Program gives us the ability to do that, right? Typically level 1 and level 2 support for these customers comes from the partner, right? We're there as a backup. This business scales very, very nicely with the model that we built. And even on the hardware side, the hardware that we sell, we get really good margins. We don't do anything without a 50% plus margin, even on the hardware side. Blended, we're in that 70%,80% range, and we think we can stay there. Operator: And your next question is a follow-up from Dan Khamis. Unknown Attendee: So it looks like your revenues are going to be flat or down year-over-year. The very good news, of course, is that the expenses have come down. But in terms of revenue, have you isolated the basic reason for flatness? Was it the loss of swivel revenue? Or what caused it to be flat, I guess, is my question. Michael DePasquale: Definitely, the transition from third-party to BIO-key product that took a little while to get productive. We're productive now. So I think you're going to see actually far better results. That's number one. And I think number two is we had an anomaly last year with our banking customer having to catch up. And so in particular, in the third quarter, we had over $0.5 million in revenue that was not recurring. It was pretty much a onetime shock. So I think that's it. I mean there is nothing here in this business other than timing that I am concerned about right now. I think we're in a really, really good position. We're lowering our breakeven point. We're growing our partner network, which again is a force multiplier to get more deals and more business. And we're operating in a market that has just insatiable demand. I mean, defense banking, huge market opportunities for advanced security. And we've got the solutions, and we've got the references and the quals to be able to solve those issues. And it goes back to what we call zero trust, but more importantly, it goes back to no phone, no token and fundamentally utilizing a passwordless solution that can be used across the enterprise because, again, our focus is enterprise right now. But we're blending and moving the CIAM. And I just think we've invested very, very heavily over the last 4 years in R&D, in sales and in marketing and expanding our footprint globally, especially now in the Middle East. You're going to see more of an expansion coming in the Asian markets. Stay tuned for that. That's going to have a huge impact on us. Unknown Attendee: Okay. Just as a final thought, I think with the $3 million in cash, you're probably still at about 1x book value. I know you and Jim have been doing some buying in the second and third quarters, maybe about $25,000 worth. I would just like to hear your take on why you think BKY is the best investment for that $25,000. Cecilia Welch: I think we're fundamentally undervalued, look at us, take any multiple, take any comp. And I think, again, we're just we've been traditionally undervalued. We've done a lot of financing. So I want to be brutally honest, right? I understand that, that created overhang, and it creates sometimes investor trepidation. There's no doubt or debate about it. But I felt, we felt, keeping the company alive with the notorious base installed base of customers we have. We're in a really good position. And I think we are we're not grabbing the value that we deserve. And I think you're going to see that unlocked in the near term in the future. Operator: Showing no further questions. This concludes the question-and-answer session. I'll ask Mike DePasquale to provide closing remarks. . Michael DePasquale: Thank you, and thank you again for joining our call today. We greatly appreciate your interest in investment in BIO-key and look forward to updating you on our progress. If you have any questions, please reach out to our IR team via phone or e-mail, and they will be very responsive. Their contact information is in today's release -- our earnings release. With that, operator, this will conclude the call. Thank you, everyone, and have a terrific weekend. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Scholar Rock's Third Quarter 2025 Conference Call. [Operator Instructions] This call is being recorded on Friday, November 14, 2025. I would now like to turn the conference over to Scholar Rock. Please go ahead. Laura Ekas: Good morning. I'm Laura Ekas, Vice President of Investor Relations at Scholar Rock. With me today are David Hallal, Chairman and Chief Executive Officer; Akshay Vaishnaw, President of R&D; Keith Woods, Chief Operating Officer; and Vikas Sinha, Chief Financial Officer. For those of you participating via conference call, the accompanying slides can be accessed in the Events section on the Investors page of our website. During today's call is outlined on Slide 2, David will provide introductory remarks and a business update. Akshay will review our R&D progress. Keith will provide an update on our commercial readiness activities and Vikas will provide a financial update. We will then open the call for questions. Before we begin, I'd like to remind you that during this call, we will be making various statements about Scholar Rock's expectations, plans and prospects that constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any future date. I encourage you to go to the Investors & Media section of our website for our most up-to-date SEC statements and filings. With that, I'd like to turn the call over to David. David? David Hallal: Thank you, Laura, and good morning. Thanks to everyone for joining our third quarter earnings call today. In April, when I was appointed CEO after 8 years in the Board Chairman role, and on the same day, we brought in Akshay, Keith and Vikas, we were confident that Scholar Rock was positioned to be the next great global biotech powerhouse. We based this on several factors. First, our conviction that the global opportunity with apitegromab in SMA alone offers the potential for many years of sustainable growth that will power our company through the end of this decade and into the next. Second, as world leaders in myostatin biology, our ability to deliver transformative therapies to patients suffering with additional rare, severe and debilitating neuromuscular disorders. And third, leveraging our innovative platform to advance our novel subcutaneously administered myostatin inhibitor, SRK-439. When we joined Scholar Rock, the most significant milestone ahead was the September 22 PDUFA date for apitegromab in SMA, which had been granted priority review. Our BLA was supported by robust data demonstrating apitegromab's efficacy and safety for children and adults living with SMA. Based upon our 188-patient prospective randomized, double-blind, placebo-controlled multinational Phase III trial. This trial showed a statistically significant and clinically meaningful benefit in motor function as measured by the Gold Standard Hammersmith Motor Function Scale for SMA. While we were disappointed to receive a complete response letter on September 22, we were pleased that the strength of our Phase III data was reflected in the FDA's review of our BLA and that the sole approvability issue referenced in the CRL was the status of our third-party fill/finish facility in Bloomington, Indiana, which is owned by Novo Nordisk. We know that it is not a matter of if but when apitegromab will be approved in the U.S. for patients living with SMA. We are emboldened by the commitment we have made to the more than 35,000 patients globally living with SMA who have received an SMN-targeted therapy. We are working expeditiously to deliver on our ambition that globally any patient with SMA who can benefit from apitegromab should have access to apitegromab. And now more than ever, we are confident in the significant opportunity that we have ahead of us to serve the SMA community as we work with the termination to bring this important medicine to children and adults with SMA. This is indeed what we know well and what we do well. I would like to now provide a regulatory update on apitegromab. We had our Type A meeting with the FDA on Wednesday. We are grateful to the agency for their full participation, particularly in the context of a government shutdown. The meeting was in person and included the relevant leaders and decision-makers from the agency, including the neurology division and the Office of Compliance. Our team was joined by Kenneth Hobby, President of Cure SMA and representatives from Novo Nordisk. We were encouraged by the meeting. It was constructive and collaborative. It was clear that there is a shared understanding of the high unmet need for the SMA community and a shared sense of urgency to bring apitegromab to children and adults with this disease. Novo Nordisk detailed the progress they have made in implementing their remediation plan at the Bloomington facility and affirmed that they expect the facility to be ready for reinspection by the end of this year. We discussed the path forward and await the final minutes of the meeting. We will continue to work closely with the FDA and anticipate resubmitting the BLA and U.S. launch following approval of apitegromab for children and adults with SMA in 2026. I'd like to now turn to adding redundancy to our supply chain. When Novo Nordisk purchased the Bloomington site in December of 2024, they plan to internalize the plant for their own products. In light of that, Scholar Rock implemented a plan to add an additional U.S.-based fill/finish facility. Now with the OAI classification, Scholar Rock has accelerated our timelines for an additional vialer. We have selected a world-class commercial facility that has a proven track record and has successfully completed recent site inspections, including with the FDA and EMA. As you know, one of the bottlenecks to rapidly adding a new vialer is securing commercial capacity. This can be a lengthy process. Importantly, we have secured commercial capacity commencing in the first quarter of 2026, and tech transfer is now underway. We anticipate submitting an sBLA for this facility later in 2026. In summary, we will continue to work with urgency to bring this important medicine to the SMA community. We look forward to providing clarity on resubmission timelines as soon as we are able. In addition to the large opportunity we have to serve children and adults with SMA, we continue to strategically advance our pipeline. This includes the Phase II OPAL study progressing apitegromab in a second rare debilitating neuromuscular disorder as well as advancing SRK-439 into the clinic. Akshay will provide additional detail on these activities shortly. Importantly, to reach our ambitions, I am pleased to opportunistically strengthened our balance sheet during the third quarter, and we continue to operate with a tight financial plan. which Vikas will discuss later in the call. This plan is aligned to thoughtful strategic investments to drive long-term value creation. We remain confident in the strength of our strategy, the grid of our team and the transformative potential of apitegromab and our pipeline. The regulatory challenges we face today are temporary, but the opportunities ahead to serve patients are extraordinary. With that, I'll turn the call over to Akshay to provide more detailed update on our R&D progress. Akshay? Akshay Vaishnaw: Thank you, David, and good morning, everybody. As David noted, we continue to work with urgency to bring apitegromab to children and adults with SMA as quickly as possible. SMA is a rare severe neuromuscular disease resulting in irreversible loss of motor neuron and progressive muscle wasting that diminishes the independence of both children and adults. Apitegromab has the potential to reverse the trajectory of SMA from a loss of motor function to a gain of motor function as demonstrated in the Phase III SAPPHIRE study, underscoring the importance of the potential benefit of this therapeutic. I'd now like to turn to Wednesday's Type A meeting. I was pleased to lead our team at that meeting in Bethesda. As David said, the meeting was in person and included the relevant leaders and decision-makers from the agency, including the neurology division and the Office of Compliance. Our team was joined by Kenneth Hobby, President of Cure SMA and representatives from Novo Nordisk. The meeting was constructive and collaborative. We reviewed the comprehensive data from apitegromab development program, including the Phase II TOPAZ study, which demonstrated that delayed treatment results in suboptimal motor function outcomes. These data underscore the impact of delayed treatment and the urgency to make apitegromab available to the SMA community. At the Type A meeting, it was clear that the CRL we received on September 22 was based solely on the need of the Bloomington facility to be in compliance with CGMP or Current Good Manufacturing Practice regulations. During the meeting, Novo Nordisk, detailed the progress they have made in implementing a robust remediation plan at the Bloomington facility. Novo Nordisk also shared with the FDA that it expects the facility to be ready for the inspection by the end of the year. We remain in close coordination with Novo Nordisk as we await the minutes from the Type A meeting. After Novo's completion of remediation of the Bloomington facility and a site reinspection by the FDA, we anticipate recommission of the BLA and U.S. launch following approval of apitegromab in 2026. As part of our long-term growth plans to serve patients around the world with apitegromab we're also accelerating timelines to bring a second fill/finish facility online. This process requires rigorous validation and regulatory approval to ensure the same quality, safety and efficacy of the drug product. Importantly, we have secured commercial capacity commencing in the first quarter of 2026 and anticipate submitting an sBLA for the second facility later in 2026. Outside of the U.S., we continue to expect a decision from the EMA on our apitegromab Marketing Authorization Application, or MAA, near the middle of next year. Further to our commitment to a broad SMA community, we announced today that we've initiated dosing in our Phase II OPAL trial evaluating apitegromab in infants and toddlers under the age of 2. The trial is enrolling participants who have been treated with an SMN1 targeted gene therapy or who are receiving treatment with an approved SMN2 targeted therapy. It is designed to investigate 2 different doses of apitegromab for a duration of 48 weeks and will assess PK/PD, efficacy and safety. In the OPAL study, early intervention with apitegromab could support muscle during the critical early development phase, complementing SMN targeted therapies that aim to preserve motor neurons. By promoting muscle growth when motor neurons and muscles are still forming, apitegromab has a unique opportunity to improve motor outcomes in young children with SMA. Beyond SMA, we're on track to initiate clinical development activities for apitegromab in a second neuromuscular disorder by year-end. We plan to provide additional information on the disease and the clinical development strategy in early 2026. And finally, we continue to advance our world-leading Anti-myostatin Platform beyond apitegromab. The FDA has cleared the IND for SRK-439, and we're on track to initiate a Phase I study in healthy volunteers before the end of this year. This program is built on the validated approach that delivered apitegromab. Specifically, 439 was designed to be an innovative, subcutaneously administered myostatin inhibitor binding to both pro and latent myostatin with high affinity and selectivity. Based on preclinical data, 439 has the potential to potently inhibit myostatin and increase muscle mass. We expect to have data from the SAD portion of the Phase I study in 2026. In summary, our focus remains on bringing apitegromab to patients and investing with financial discipline to deliver on the promise of our broader pipeline. The strength of our data and the momentum across our programs gives us confidence in the impact we can deliver. Now at this point, I'll turn the call over to Keith to discuss our commercial launch strategy and planning. Keith? R. Keith Woods: Thanks, Akshay. The SMA community is demanding more. Even with currently available treatments, they need a treatment that directly addresses progressive muscle wasting. Apitegromab demonstrated that ability in our Phase III SAPPHIRE study, and we will be ready to deliver apitegromab to the SMA community upon approval. This is not a matter of if, but when. Our understanding for the demand of apitegromab and our confidence in its potential to address the unmet need for children and adults with SMA continues to strengthen. As we look at SMA globally, nearly a decade following the launch of the first SMN-targeted therapy, the demand for treatment continues to grow. After the first 3 quarters of 2025, annual revenue for current SMA treatments are trending to approximately $5 billion globally with the continued growth of SMN targeted therapies, the need for the world's first muscle-targeted therapy is greater than it has ever been before. Our small, lean and highly experienced U.S. customer-facing team is active in the field and we are using this additional time to enhance our engagement activities and to strengthen our performance against key prelaunch readiness metrics. As a reminder, we are just under 4 months in to our pre-commercial field deployment, whereas most biotech companies typically benefit from a longer runway prior to approval. Nationwide, there are approximately 140 SMA treatment centers and more than 2,600 SMA prescribing physicians. With this additional time, we are working to both broaden and deepen our engagement with these potential prescribing physicians. However, an SMA patient is not just treated by one of these physicians but by a broader cross-specialty SMA treatment team. This team can include physical therapy, pulmonology, orthopedics and more. This additional time is enabling us to better understand the patient journey and the roles of the SMA treatment team in each of these 140 treatment centers and how they influence patient care. Additionally, our market access team is expanding their focus beyond that of national payers to also include top regional payers. This builds on our ambition that any patient with SMA who can benefit from apitegromab should have access to apitegromab. Furthermore, our unwavering commitment to the SMA patient community continues by a partnership at a local and national events and to educate on the importance of targeting muscle. We are deepening our collaboration with the advocacy groups, and we are also building lasting relationships, 1 patient, 1 caregiver, 1 family at a time. In Europe, our efforts continue to drive SMA education and awareness, laying the groundwork to ensure we reach patients efficiently across key markets. Our opportunity to serve patients around the world in SMA is significant. There are an estimated 35,000 people with SMA who have received an SMN-targeted therapy and who could be eligible for treatment with apitegromab. We are making strategic disciplined investments in our launch infrastructure, and we will be ready to execute rapidly once apitegromab is approved. In short, we are ready the strategy is clear. The team is in place and our commitment to the SMA community has never been stronger. Now I will turn the call over to Vikas. Vikas? Vikas Sinha: Thank you, Keith. Our overarching objectives are to fund our R&D activities to expand our leadership in the myostatin and muscle space to support a strong commercial launch and to extend our runway to meet our eventual timelines for apitegromab approval. In line with these objectives, I'm pleased to provide our third quarter financial results and to discuss our approach to managing our cash runway and investment prioritization moving forward. Turning first to our third quarter results. We ended the third quarter with $369.6 million in cash and cash equivalents. For the quarter, we reported $103 million in operating expenses which includes $18.3 million in noncash stock-based compensation. Excluding stock-based compensation, operating expenses were $85.3 million, which reflects ongoing investments in infrastructure to support apitegromab regulatory approval, commercial readiness and our clinical pipeline. During the third quarter, we strengthened our balance sheet, adding $141.7 million. This cash came from 2 sources. First, we executed our ATM and sold approximately 2.8 million shares, which resulted in net proceeds of $91.7 million. And second, we drew down $50 million from our existing debt facility. As we await apitegromab approval, we continue to operate with a tight financial plan focused on thoughtful capital allocation to advance our clinical pipeline and strategic investments to support commercial readiness. Accordingly, we have adjusted our go-forward operating plan. We have deferred investments across a number of areas, including new hiring, launch expenses that are gated to approval, certain R&D activities, including a third indication for apitegromab and other discretionary spend. Now I'll turn to the 6 prioritized investments we are making. The acceleration of a second fill/finish facility for apitegromab, SMA commercial launch readiness, ONYX apitegromab extension study, the Phase II OPAL study, the second indication for apitegromab and the commencement of SRK-439's clinical development. Turning to our balance sheet. Our current cash balance is $369.6 million, which we expect to be augmented by approximately $60 million in cash from the exercise of outstanding common warrants by year-end. With this, we expect our cash to be sufficient to fund operations into 2027. This cash runway has conservative assumptions and does not reflect any upside from potential sale of apitegromab or a priority review voucher. To further strengthen our balance sheet, we intend to expand our credit facility while preserving our non-dilutive financing options. We will provide further clarity on this as well as our anticipated operating expenses for 2026 during our fourth quarter earnings call. Scholar Rock continues to operate from a position of financial strength with a disciplined approach to capital allocation and a clear focus on supporting our strategic priorities. With that, I'll turn the call back to David. David? David Hallal: Thanks, Vikas. In closing, Scholar Rock remains focused on near-term execution while building with financial discipline for the future. Our conviction in apitegromab and in our broader strategy is stronger than ever, and we are moving with urgency and purpose to deliver meaningful impact for patients. Our priorities are clear: execute with urgency to bring apitegromab, the world's first and only muscle targeted treatment that improves motor function to children and adults living with SMA as rapidly as possible. Advance apitegromab development activities in the second rare debilitating neuromuscular disease, and that will be followed by additional indications where we can have a transformative impact for patients. We want to progress SRK-439 into the clinic and continue to invest in our future with discipline to support these high-value initiatives. Before I close, I want to share my sincere appreciation for Cure SMA and the SMA patient community. Over these past weeks, I have had the opportunity to meet with many individuals and families living with SMA and the words of support that have been shared with us and with me directly have been tremendously meaningful as we work harder, better and faster to bring this impactful medicine to those who can benefit. With that, we'll now open the line for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Mani Foroohar from Leerink Partners. Mani Foroohar: Congrats on the progress through what's been obviously a choppy period for everyone in the government. I think a couple of quick questions. I know I'm violating the one question rule. One, in terms of thinking about further financing opportunities to top up the tank as necessary, how do you think about debt versus royalty/equity? Like how do you think about relative cost of capital? And what's the most appropriate use once you get to a launch. And then another commercial question. In the early days of launch, it is probable that you will be transitioning from one facility to another. To what extent does that introduce any operational risk going from products from one facility to another? And how can that be addressed ahead of time by you guys now? David Hallal: Thanks, Mani. Why don't we take the first question first with the cost on the financing options and then I'll come back on the redundancy of supply chain with fill/finish. Vikas? Vikas Sinha: Yes. Thank you, David. Mani, our first objective here is to bridge the financing until the approval. And the first path to go from the lowest cost of capital is to take additional -- extend our loan facility a little bit more. We are in discussions with that. That will be our first opportunity. Royalty probably comes next. And if it goes too long, and then we have to take a little bit of equity, that will be the last and the most expensive one, which we are trying to avoid at any cost and trying to get it as more non-dilutive first. Does that answer your question? Mani Foroohar: Yes. So a follow-up. That would imply that, relatively speaking, we should expect you guys to wind down/use ATM much less going forward? Like how does that fit into the strategy? Vikas Sinha: Yes. Obviously, our first objective is to work with the loan facility and expand upon that. And ATMs are put in place just to take some small augmentation of the capital at an opportunistic view. And we did take it down in the last quarter. Because we are only $50 million loan facility available. We're expanding that loan facility as we discussed. And as soon as we have the new facility in place, will share it with all of you. David Hallal: And then, Mani, regarding the second vialer, a couple of bottlenecks I've shared with you and others in the past. One of the big ones I highlighted in the call was obviously finding a commercial line that is available, that is -- got the ideal configuration for our vial and our team under the leadership of Lisa Wyman, our Chief Tech and Quality Officer just did an extraordinary job in accelerating our second vialer progress to secure commercial capacity in Q1 and commenced tech transfer in lightning speed since that middle of October timeline when the OAI hit, we thought that, that was really important. Now to get there and to get there quickly, you want to change as little as possible in your second vialer as in your primary vialer, whether or not it's vial configuration, analytical testing, like -- so that actually helps you with speed as well. And those are the things that we'll be focused on. And then the impact in the marketplace really should be almost seamless whether or not we are distributing our apitegromab from the Bloomington facility or the new second vialer, it should really be quite seamless operationally to the marketplace, and we would expect it to be that way. Operator: Our next question comes from the line of Eric Schmidt from Cantor. Eric Schmidt: Congrats on the progress as well. David and team, for those of us who've kind of been reading the Gory play by play around the Catalent facility in Bloomington, and know some of the prior history and all the past issues. How do you kind of provide confidence that this remediation effort is on good footing and that the inspection will prove positive? And then maybe secondarily, do you expect that to be a Class I or Class II acceptance for the resubmission? David Hallal: Thanks, Eric. And no doubt, there is a history in the facility. We think the history is really anchored around the quality system, the quality culture and the facility. I think importantly, it largely links back to ownership that did not include sort of the steady hand of Novo Nordisk and their commitment to quality and compliance. And so one of the things that I've been saying often, and certainly, the gory details are gory, right? We got the observations, and we notified you all of those observations back on August 6, our last earnings call, which feels like a lifetime away now. And then we've kind of been riding through the CRL and the OAI. But what we have had a front row seat to is the collaboration with Novo, the commitment from the top of the organization, the changes in the staff that they are making. The integration of the Novo quality system into that facility and then the substantial progress that they've been making on a robust remediation plan, which as they noted to the FDA on Wednesday, they feel like there -- the facility is going to be reinspection ready by the end of this year. We don't think that Novo takes that lightly. We think that they are going through a series of internal exercises to make sure that they are reinspection ready. We would imagine that they'll continue to communicate with the FDA and gather feedback on what might be missing from their remediation plan that they would then need to tweak before any reinspection would take place, but we are surely been pleased with the seriousness and the urgency that from the top of that organization right through that facility, they are taking the remediation plan. Regarding Class I or Class II, I'll turn that over to Akshay for his thoughts as he was presiding over our team in person in Bethesda on Wednesday, and the team just did a fantastic job. Akshay? Akshay Vaishnaw: Thanks, David. Eric, I just want to reiterate that it was a very constructive and collaborative meeting. And I think the agency, as you might expect, shares, the need for urgency as we all work together to try and get apitegromab to patients. So it's not for us obviously, to second guess and say, will it be Class I or Class II. But we were very heartened by the comments they made and the approach they committed to, to help effect the [indiscernible] to patients. So we need to work with Novo to get their work done. Let's wish them the best get the site reinspected, resubmit the BLA. And I'm confident the agency is going to act with urgency and commitment to this community of patients, which they've always shown when it comes to SMA. Operator: Our next question comes from the line of Tess Romero from JPMorgan. Tessa Romero: So to be clear, the BLA that you plan to submit in 2026 for apitegromab will include Catalent as your primary fill/finish and you plan to file the sBLA for the additional fill/finish facility later in 2026 following the potential approval of the BLA. Why is that the right path versus using an additional fill/finish only? And then a follow-up is just on the EMA review. How is that going with respect to manufacturing-related items. David Hallal: Thanks, Tess. Yes. I mean I think given where we are, given the tone and tenor of the meeting that Akshay presided over this week and again, the progress that Novo has been making which really enabled them to communicate to the FDA that they are on track to be reinspection ready by the end of this year. We just think that, that is the absolute right path for us. We would expect that our BLA would be resubmitted with Catalent as our primary filler. And we would expect a second filler to be added to our file, which was frankly always going to be our plan anyway given the fact that Novo wants that facility for internal purposes. And so that is the path that we are following, obviously, everything that we are doing to accelerate our second vialer is a great insurance policy for us no matter what would happen and I was really gratified by our team's efforts over the course of just the past month with the major progress that they have made to secure commercial capacity at a second vialer and already have tech transfer underway, and of course, we'll be expecting the commencement of our commercial capacity to be leveraged beginning in Q1 of 2026. Regarding the EMA, I'd love to have Akshay comment on that. Obviously, quality and compliance is important to all regulators, including them. Akshay Vaishnaw: Indeed. And just to review the status of the MAA, the question and answers that go back and forth have proceeded well. So the review continues in exactly the timeframe you'd expect. And as we guided on the formal comments, we expect a decision by the middle of next year. Now vis-a-vis the Catalent manufacturing status and the EMA, there is a mutual recognition procedure. And so there is an interdependency. And I think we obviously agree with that. Though I would point out that everything we're doing for the 2026 resubmission, we, Novo and all our collaborators for the 2026 resubmission of our BLA here in the U.S. launch following approval by the FDA is in line with supporting our MAA. So there's not much more I can say right now, and obviously, we'll keep you updated. But let's stay, on track and as we proceed with the BLA, we hope that supports the EU approval as well. Operator: Our next question comes from the line of Tazeen Ahmad from Bank of America. Tazeen Ahmad: Thanks for the detailed update. So can I ask when is the latest that you can have this reinspection for Catalent to be completed and given the green light in order to meet your expectations for a 2026 launch? And then just to play the scenarios for a second. And for whatever reason, the second inspection for Catalent doesn't resolve all issues. How quickly could you pivot to make any application with your second fill/finish? And how would that impact your timelines for 2026. Like would you be able to switch that sBLA filing to a BLA filing and keep the timelines the same as you just mentioned? David Hallal: Yes. Thanks, Tazeen. It's again, a good question, getting back to what -- or targeting back to Eric's point, there's a history at the facility. It was under prior ownership. They've had a few difficult inspections that have led to Form 483s and in this case, some repeat observations. So I understand and we understand that everybody could share some level of concern and/or skepticism that just getting a reinspection is not the objective. It's a successful reinspection. And we share with Novo Nordisk that, that is the objective. And to really put their own team through not only the remediation plan, but rigorous exercises to be reinspection ready, and we know that they are doing that. Related to your point about what if it doesn't resolve all issues, I think there's 2 ways to look at this Tazeen. Are there still observations in the facility and -- but yet do those observations warrant or not sort of a reclassification of the facility because that's really what we're playing for, a reclassification from OAI to either VAI or NAI. And for that, certainly, that is what the objective is. I think regarding your timeline, I think a reinspection could technically go pretty well into 2026, and we would still be within a frame of our guidance of resubmitting our BLA and then the U.S. launch upon approval. We're obviously pleased that the tone and tenor of our Type A meeting led by Akshay with the FDA with all the key decision makers, all the key groups, I think was constructive. It was collaborative. And there really was a shared understanding of the unmet need and a shared understanding that urgency is necessary to serve a very important patient population. And so we're hoping that all of the steps that would be required that gets us to a reinspection would be done in an expeditious way within the regulatory framework that exists and that Novo will do their part. We don't think that they take lightly indicating to the FDA that they will be reinspection ready by the end of this year. We don't think that, that's a low bar. We think they're holding themselves given the commitment to quality and compliance in the culture of Novo Nordisk, we think they say that with a pretty high hurdle in mind. But back to your question about should like a media right hit that facility. In other words, should the inspection not go well. Then what role would the second vialer play? Well, everything that we've done to accelerate that second vialer would be obviously extremely important for us in terms of should we need to pivot, and it's not an addition of this vial on an sBLA, but it's actually our primary resubmission strategy. There are a number of ways that the FDA, and we expect they've done this in the past. And given the shared urgency would understand some level of potential pathways to expedite adding a second vialer as your first vialer in the form of a BLA. And everything that we're doing to expedite this process, we think, will aid us in case the impact of the inspection is not what we all expect it to be, which is a successful reinspection. And as we continue to work with that second vialer, we can provide further guidance to you as we progress from tech transfer, which is now underway directly into the filling lines that we will be executing in Q1 and Q2, and we'll provide those updates over time. Operator: Our next question comes from the line of Kripa Devarakonda from Truist Securities. Kripa Devarakonda: Congratulations on all the progress. Thanks for all the details. So in terms of timelines for resubmission of BLA, I feel like we're all asking the same question, but is the plan to wait for the reinspection and for the OAI to be resolved before you submit the BLA and I understand that Novo has said that they're going to be inspection ready by year-end, but could Novo request an inspection? And finally, would you be able to address whether Novo hired any outside consultant to help with this process? David Hallal: Yes. Maybe related to the timelines on resubmission. I think that Akshay can comment on our thinking and recognizing that with the collaboration with the FDA and the shared urgency, it's a little dynamic. We don't have our Type A meeting minutes yet, but Akshay can share at least our go-forward plan with respect to that. Akshay Vaishnaw: Yes. I mean I think base case, Chris, it's safe to say that the reinspection would have to resubmit after that. But as David said, it is a dynamic situation, and we'll do everything possible to resubmit in a fashion to expedite the approval of this drug, which patients need so badly. And we were heartened by the degree of support from the agency during our Type A meeting. So a lot is going to happen in the coming weeks and early part of next year, and we look forward to resubmitting this BLA. David Hallal: But, for sure, Kripa, given that, again, it's reiterated our sole and primary issue is the classification of this facility and their state of compliance. I think it's a safe assumption that we'd like to see that clear. And be ready to go immediately with a resubmission. That's sort of our go-forward plan at this point. Akshay Vaishnaw: And I think it's worth adding, David, that resubmission is really compared to the initial BLA resubmission. It's a very different asset. It's a much more contained effort around just the safety update and the CMC aspects of the file. So it's very -- we're ready to file that resubmission at very short notice. David Hallal: Kripa, related to the -- could Novo request a reinspection. I think in a way, they're signaling that they're ready. We would imagine that Novo and the agency still has some wood to chop. Just how do we feel about the remediation plan? Is there anything left before reinspection needs to be done? I would expect that to be happening, okay? That would be an expectation. But in a way, they put themselves on notice with the FDA that they stand ready to be reinspected toward the end of this year. And we think that, that is really, really important. But as you know, this reinspection will not be announced. It would be like your typical unannounced inspection. And so that you can put yourself on notice and communicate with the Office of Compliance that you're reinspection ready. As they notified at our Type A meeting at the end of this year, but we would expect the FDA to -- when they do reinspect the facility, it would likely be an unannounced inspection. And then your final question about like third parties, I think Novo is really looking very broadly, and they have been working with outside experts and helping them through all of these things, including the remediation plan and the progress with the remediation plan. And we have been pleased with the level of quality and urgency that they are applying to this remediation plan, and we're thankful to them for that. Operator: Our next question comes from the line of Etzer Darout from Barclays. Etzer Darout: Just because investors have sort of been circling this September 2026 date in terms of sort of timing for a potential approval, David, maybe if you could help us understand what could -- maybe the FDA minutes unveiled to you on the type of resubmission that you have to make, maybe their timelines around the decision once you have filed -- refiled the BLA? David Hallal: Yes. Thanks, Etzer. It's a great question. And again, something that I think Akshay wanted to have some robust conversations with the agency on at our Type A meeting. We're obviously not -- we don't have meeting minutes in hand, and we certainly want to allow the agency to do their work. But Akshay can comment on how we're thinking about the resubmission timing and again, whether or not it would be Class I or Class II. Akshay Vaishnaw: Yes, as far as the minutes are concerned, I think it's always good to get the minutes in hand and reconfirm the impressions that we're conveying to you this morning that they're documented in the minutes of the progress that Novo has made of commitment that everyone is showing to the agency of the matter, Novo's comment about being ready for reinspection and everything we've discussed so far. So we await those minutes, and we're confident that they'll reflect what we're conveying this morning. Now as far as the resubmission is concerned, we just discussed that with the last question. And of course, we'll resubmit as soon as the inspection is done or earlier, if possible. But we'll be guided by the agency through all of that. And we'll also be guided on the review timelines. Now the minutes we get won't spell out the nature of the review timelines for the resubmission. That's not their practice. They await resubmission of the BLA before that's done. But one thing I can tell you is that David emphasized the tone and tenor of the meeting that there was support to act with urgency to get on all parties, including the agency to get this drug to patients as soon as possible. Operator: Our next question comes from the line of Marc Frahm from TD Cowen. Marc Frahm: And all the detailed disclosures around this meeting. Maybe in that light, just as you move forward and Novo hopefully is, in fact, in position to be reinspected. Just what do you expect to be able to disclose and kind of on what timeline, particularly given that it isn't even your facility directly, but it is a partner. Will you be able to disclose right when it gets inspected not until maybe some 483s are received? Just what are the disclosure plans there? David Hallal: Thanks, Marc. I think our disclosure plans will really kind of look in the mirror and focus on us and the things that are material to us that we think are important this year. Obviously, the reinspection timeline when it happens, the outcome of it is really important. So I think we want to be open to sharing the important information with you. Obviously, the way this would work is an inspection takes a week to a couple of weeks. There's generally a closeout meeting. At that closeout meeting there's generally some kind of preliminary assessment when a Form 483, as we've noted in the past, I think, again, it's hard to believe when we first disclosed these Form 483 observations was only last quarter because it feels like for me, it's been a long time. But as you know, a Form 483 usually travels 75% of the time with any inspection. But of course, we wouldn't expect a Form 483 to result in an OAI most of the times. And I think that's what startled all of us. But I think that all along Novo has been approaching this very aggressively. So I think we'll just maintain as we have open lines of communication with you all when we have important information to share, we'll certainly do that. And I think what we've done in the past is even if it wasn't something for us, what we did learn of, let's just say, the classification of the facility as we did just last month in October. We tried to get out in front of that and disclose that and have some dialogue with you all on what that meant. And we'll continue to make a commitment to do the same here as we continue on this journey to an eventual resubmission and U.S. launch upon approval. Marc Frahm: Okay. That's helpful. And then maybe just on the idea of waiting for the reinspection to kind of happen in the reclassification before filing. But also in your prior answer is, you noted this would be kind of like an unannounced reinspection once they've communicated that they really are in position to be ready. But kind of a forcing mechanism to that at some level, it could be a submission of a BLA from anyone using this facility. So maybe is there some value of maybe filing ahead to kind of try to force the timeline on the inspection? Or is your expectation that there are just so many other products flowing through this facility that that's kind of going to happen on its own without you guys being the forcing? David Hallal: Well, Marc, a couple of the things you said are really important. One is that we've heard this too, right? I mean the thing that creates urgency are pending applications. And right now, we don't have a pending application. We have a pending resubmission. At the same time, I would note that we were generally pleased with how constructive and collaborative, the in-person Type A meeting was and that there was this shared understanding of the unmet need and shared urgency. So while we're not on file, I would say a lot of the things, and you're absolutely right on your last point, that there are other pending applications at that site, and that can serve us well. We do think our Type A meeting serves as a really good central point of highlighting while we're not on file, there is real urgency here for a community that is desperately wanting to benefit from the world's first and only muscle-directed therapy. And so we have to continue to work with the agency, be collaborative with them find everyone's right footing on what the right thing to do is, and that is really our go-forward plan. And we think we've built sort of a foundation and framework with the agency frankly, all the way through the initial priority review period up till September 22 and even through Wednesday, a really strong foundation for collaboration for us to work together to resolve this issue. Akshay Vaishnaw: Yes. Thanks, David. And I just want to reiterate the importance of that collaborative approach. And you mentioned forcing function, so to speak, by resubmitting ahead of the reinspection. I don't know that that's wise. We want to be working closely with the FDA and be guided by them now. as we said, it's a dynamic situation. And if they invite us or they support any kind of resubmission in a particular timeframe in and around the reinspection, we will, of course, we are ready and we can resubmit very efficiently. But this is not about a forcing function. We have to collaborate with the FDA. Operator: Our next question comes from the line of Evan Seigerman from BMO Capital Markets. Evan Seigerman: With the delays for apitegromab, can you talk more about what your sales or market research team's efforts are to identify patients ahead of the launch? You had mentioned efforts to work with centers of excellence to understand the patient journey better. But do you feel you are developing a more robust number of patients which you could target for therapy following approval, potentially leading to a little bit of a faster uptake than people were probably initially expecting? David Hallal: Yes. It's a great question. Keith was highlighting it earlier in the call, and I'll turn it over to him for further comments on launch prep. R. Keith Woods: Yes. Thanks for the question. I guess I'd say first of all, when the September 22 date occurred, that was after 2 months of the team being able to spend time out in the field. And now with the extended time, we're getting to not just visit with the physicians, but we're also getting to meet the SMA treatment teams and getting that full feel. And what is that additionally, not just the SMA treatment teams, we're spending more time with patient advocacy events and getting to speak with patients and their families. And I can tell you what we're hearing is that there's a clear understanding of the unmet medical need and the approach of attacking this disease from a dual modality no longer just the motor neuron but also directly targeting the muscle, and this is being well accepted as we get the opportunity to meet with more people in the community. You add to the fact of the safety profile that apitegromab has demonstrated. And quite frankly, all of our studies, not just our SMA studies, but if you take a look at EMBRAZE, that was also all adults all treated with 10-milligram per kilogram and exceptional safety results. I guess I would end with the fact that at the end of the day, we're offering the world's first muscle-targeted therapy, and in the event, if you have a choice to either be in a situation of having experienced muscle loss or the potential for muscle gain, why wouldn't you want to use apitegromab. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Mount Logan Capital's Third Quarter 2025 Results Conference Call. Before we begin, I'd like to remind listeners that today's discussion will include forward-looking statements. These statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. These statements and other comments are not guarantees of future performance, but rather are subject to risk and uncertainty, some of which are beyond our control. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a description of the risks associated with Mount Logan Capital's business, please see our most recent filings with the SEC. In addition, we'll be referring to certain non-GAAP financial measures during this call. Additional details and reconciliations of GAAP to non-GAAP financial measures are in today's earnings release. This morning's conference call is hosted by Mount Logan's Chairman and Chief Executive Officer, Ted Goldthorpe; our Chief Financial Officer, Nikita Klassen; our President, Henry Wang; and the Head of Investor Relations, Scott Chan. As a reminder, all references to dollar amounts on this call are in U.S. dollars unless otherwise stated. I'll now turn the call over to Mr. Goldthorpe. You may begin. Edward Goldthorpe: Thank you, everyone. Good morning, and thank you, everyone, for joining us today. What a year it has been for our company and team. We are incredibly excited to discuss Mount Logan Capital's third quarter with you today, which reflected the culmination of several years of preparation and hard work that enabled us to redomicile from Canada to the U.S., translate our financials from IFRS to GAAP and now trade on the NASDAQ Capital Market under the ticker MLCI. This year has been the heaviest lift for our team yet, and I'm deeply grateful for everyone's contributions and support to get us here. A special thank you to our shareholders and Board members for supporting our vision for Mount Logan, including the 180 Degree Capital shareholders, management team and Board, which overwhelmingly supported the combination of our respective businesses and specifically the vision we have for growth in 2026 and beyond. We're excited to welcome everyone to Mount Logan's first earnings call as a U.S.-listed alternative asset management platform and insurance solutions platform. While we will spend time discussing our financial results today, given the intra-quarter transaction and related movements on the legacy term portfolio and transaction expenses, there is some noise in the numbers, and therefore, I want to spend some additional time today laying out the vision we have for our platform as we look ahead to 2026 and our ambitions for driving significant AUM, FRE and SRE expansion for the years to come. We'll also provide a quick update on our capital allocation expectations through year-end before we turn the call over to Nikita to review our third quarter financial performance in more detail. Today, Mount Logan is an alternative asset management and insurance solutions platform that manages in excess of $2 billion of assets for various investment vehicles and accounts. We operate within what we believe to be the most attractive areas in the financial services space, private credit and insurance solutions. Since 2018, we've carefully built and shaped the Mount Logan platform with 3 focuses: one, build our FRE and AUM foundation on permanent and semi-permanent capital for a wide array of investors. Mount Logan has the support of large institutional investors, the retail investor community and through ability and insurance platform; two, employ rigorous and disciplined process around originating and underwriting the assets and investments we manage on behalf of those same investors; and three, maintain expansive credit and product capabilities in support of truly differentiated origination funnel, which ensures Mount Logan is not overly reliant or correlated to any single product or market. Today, we have a diverse expertise that spans the credit spectrum and enables us to be truly opportunistic as we seek attractive risk-adjusted returns in various market climates on behalf of our investors. We've experienced success scaling our business through organic and inorganic initiatives. As of today, we believe our business has the team, capabilities and through the merger with TURN Capital to drive investment into our business to accelerate growth in 2026 and beyond. Since the acquisition, we've completed efforts with respect to integrating front, middle and back-office functions. And we've already seen the benefits of adding 180 Degree Capital's network in the middle market to ours, which has enabled us to expand the universe of clients we serve within our suite of private credit solutions now with an improved line into public companies. With the modest integration lift now complete, our focus is on accelerating growth while maintaining stringent discipline on investments and costs. On the Insurance Solutions side, we see an immediate opportunity to invest capital into Ability to increase its capital base, take on additional reinsurance obligations. We've continued to invest in our insurance solutions team and believe we have the policies and procedures in place to grow this business significantly over the coming years. Our insurance solutions vertical is incredibly strategic to Mount Logan, and we view it as a core vertical for driving growth in our business as both our ability to manage our policyholder obligations and assets prudently to achieve positive spread earnings is the key to our organic thesis. On the asset management front, Mount Logan continued to advance its strategy as a leading consolidator in the business development company or BDC universe. Our approach centers on building scale and stability through permanent capital vehicles. In July, the merger of Portman Ridge and Logan Ridge was completed, creating what is now called BCP Investment Corporation. This created a larger, more efficient vehicle with substantial synergies, both from a portfolio perspective and given the significant overlap through the elimination of expenses, driving improved earnings capacity. From an economics perspective, Mount Logan will receive increased distributions from Sierra Crest Investment Management and its affiliates as Sierra Crest will serve as the investment adviser to the significantly larger BDC and BCP Investment Corp. Mount Logan today maintains a minority stake in Sierra Crest, which will allow -- which will continue to benefit Mount Logan as BCP Investment Corporation grows. In parallel, through our minority stake in Runway Growth Finance, we're able to support the recently announced merger of Runway Growth Finance Corporation with SWK Holdings. This combination will expand Runway's capability into health care and life sciences lending and demonstrate the continued consolidation taking place across the BDC ecosystem given the significant benefits that exist for investors in these funds as they scale. Collectively, these initiatives reinforce Mount Logan's long-term strategy of scaling permanent capital vehicles, diversifying credit capabilities and driving operating leverage across our platform for the benefit of our investors and policyholders. While the near-term financial benefit to Mount Logan remains limited, over time, these transactions will accrete to the benefit of Mount Logan and its shareholders as AUM and FRE increase. We enter this next phase of Mount Logan's growth with an incredible amount of momentum. Our platform is now fully equipped to capitalize on opportunities across both asset management and insurance solutions, and we're already seeing an acceleration into year-end of actionable opportunities. Before I hand the call over to Nikita to walk through the results of the quarter, I also want to touch on our capital allocation framework given our strengthened balance sheet today. We expect to remain opportunistic in how we deploy the capital with a focus on balancing growth, reinvestment of our business and return of capital to our shareholders. Supporting various initiatives to advance our business is a priority for our team, and we expect AUM growth to primarily come from our management of Ability, the Opportunistic Credit Interval Fund, or SOFIX, and our stakes in BDC managers, Sierra Crest Investment Management and Runway Group, which support FRE expansion. We also have a robust pipeline of acquisition opportunities, which will scale our existing permanent and semi-permanent capital vehicles, increase our retail product and distribution capabilities and help us to originate new or differentiated pools of assets for the benefit of our managed vehicles and accounts. The final component of our capital allocation strategy is centered around both near-term liquidity opportunities for our shareholders as outlined as part of the 180 Degree Capital transaction, along with the implementation of a sustainable dividend policy going forward. Our team remains committed to providing up to $25 million for shareholder liquidity at or above the closing merger value over the next 24 months. We continue to expect to launch a tender for up to $15 million in the weeks to come, which we anticipate will be at or around $9.43 per share, consistent with the valuation closing of the merger. This price represents a premium to our current share price as of yesterday's close. Therefore, we expect to be opportunistic in how we deploy the remaining capital over the coming 24 months. We hope this commitment supports trading liquidity in our shares as growth initiatives progress over the next 2 years. To ensure liquidity mechanisms focused on providing value to our shareholders, Mount Logan's management team, Board and affiliate entities will not participate in any tenders or share repurchases associated with the liquidity programs. This decision reinforces management's confidence in the long-term outlook for Mount Logan and the strength of our business combination. On the dividend front, Mount Logan was proud to have paid a dividend for the 25th consecutive quarter while listed in Canada, and we're excited to announce the Board has approved a dividend of $0.03 per share for the quarter. Our dividend policy is built on the belief that investors should receive direct benefit of our stable fee playing earnings model, and we hope today's declaration and our past track record clearly demonstrate our belief in returning capital to shareholders. As our platform scales, we hope to grow our dividend while maintaining financial flexibility to reinvest for future expansion. With that, I will now turn the call over to Nikita to review our third quarter financial performance. Nikita Klassen: Thanks, Ted. Good morning, everyone. Before reviewing our third quarter results, we want to note that as part of the acquisition of 180 Degree Capital, Mount Logan has transitioned its financial reporting from IFRS to U.S. GAAP. All the financial results discussed on today's call are presented under U.S. GAAP, which, while required as a U.S. registrant, also enhances the transparency and comparability of our financial performance going forward and with our peers. Further, some results are not directly comparable year-over-year as the acquisition of 180 Degree Capital did not close until mid-September 2025. I'll now walk through our third quarter financial highlights. This quarter was an incredibly transitional quarter, one that reflected substantial integration costs and accounting reset and the investments being made to scale our platform. For the 3 months ended September 30, we reported a net loss of $13.4 million compared to a loss of $2.4 million last year, largely related to non-cash items. This loss was driven by a gross $19 million impairment charge tied to the Logan Ridge Investment Management contract as Logan Ridge completed its merger with Portman Ridge in July, with Portman Ridge being the surviving entity and renamed BC Partners Investment Corporation. As part of this transaction, Mount Logan recognized a profit sharing interest with an affiliate of Sierra Crest, the adviser of BCIC, which reduced the net impairment by $11.2 million. The company also recognized a $4.5 million gain on acquisition of 180 Degree Capital as consideration paid, i.e., the shares issued were less than the fair market value of the net assets acquired. We also recognized an incremental $3 million worth of transaction costs as the transaction was finalized. Total revenues for the quarter came in at $11.4 million, down 10% year-over-year, while 9 months ended revenues for 2025 rose 7% to $43.6 million. On a non-GAAP basis, segment income, which is equal to the sum of fee-related earnings and spread-related earnings, was $30.7 million for the quarter versus $4.7 million last year. Year-to-date, segment income was $8.1 million compared to $16.5 million in the prior period, largely due to lower cost of funds in comparison to 2024, primarily due to the onetime benefit of an in-force update to the long-term care business in the first quarter of 2024, which was not present in 2025. At quarter end, total assets were $1.64 billion, up 5% since year-end and shareholders' equity increased to $231 million, a 26% increase year-to-date. In our asset management business, fee-related earnings were $2.5 million for the quarter and $7 million year-to-date, roughly flat with the prior year. Management fees were $1.9 million, down from $2.8 million last year, mainly due to the Logan Ridge and Portman Ridge merger, which ended our prior advisory contract. We anticipate the profit sharing interest, which added $262,000 to FRE this period will continue to be accretive to FRE going forward. Additionally, the Ovation fund wind down, which began in the third quarter of 2024 has resulted in lower management fees going forward. These headwinds were partially offset by growing fee streams from our Vista Life & Casualty investment management mandate and growth in our integral fund, SOFIX. Incentive fees were $0.4 million, down year-over-year as the Ovation funds continue their wind down and due to voluntary fee waivers at SOFIX, while equity investment earnings rose to $0.5 million, benefiting from stronger results at Sierra Crest after the merger and elimination of expense waivers within this adviser. On the expenses side, we saw higher transaction and integration costs tied to the 180-degree merger and accelerated stock compensation expense as all historically issued stock comp vested upon close of the merger. These are both onetime items. FRE excludes these onetime items and also includes other corporate costs that are reported within the Asset Management segment, such as non-fee-related compensation, amortization and impairment of intangible assets and interest expense. Fee-generating expenses decreased due to lower professional fee spend from disciplined cost control. Overall, FRE margins held steady, supported by recurring management fees, disciplined cost control and new recurring income from our profit-sharing interest with Sierra Crest. Turning to Insurance Solutions. Spread-related earnings were $1.1 million for the quarter compared with $2.2 million a year ago. Our results reflected lower investment yields and higher cost of funds, partially offset by tighter expense management. Net investment income was $17 million, down 12% year-over-year as lower short-term rates and higher cash balances weighed on floating rate income. The long-term care block remains stable and our multiyear guaranteed annuity or MYGA reinsurance business continues to expand. We added National Security Group as a new treaty partner in the second quarter. Total assets grew to $1.55 billion within our Insurance Solutions segment with strong credit quality and ample liquidity. The net investment spread was 12 basis points this quarter or 48 basis points annualized. We expect to build towards 75 to 100 basis point range on an annualized basis as capital is deployed into higher-yielding assets than our legacy investment portfolio. Mount Logan's balance sheet remains conservatively positioned. We ended the quarter with $162 million in cash and cash equivalents, up nearly 43% from a year ago. We continue to monetize the legacy 180 Degree Capital portfolio assets in an orderly fashion and look forward to deploying that capital to fuel growth in our Asset Management and Insurance Solutions segment. We closed the quarter with $22 million in cash and cash equivalents within the Asset Management and Corporate segment, we intend to deploy towards future growth, as Ted discussed previously. Total debt stood at $74 million in the Asset Management segment and $17 million in Insurance Solutions. 41% debt-to-capital ratio. Operating cash flow also improved during the quarter as integration costs rolled off. In closing, this quarter was about completing the transition, aligning our structure, simplifying our reporting and setting the foundation for growth. We have 2 complementary engines, a capital-light asset management platform and a liability-driven insurance solutions business, which designed to generate durable recurring income. Our focus from here is straightforward: grow fee revenue, expand spreads and maintain disciplined capital management. We're well capitalized and positioned to compound value for shareholders over time. And with that, I'll turn the call back over to Ted. Edward Goldthorpe: Thank you, Nikita. Overall, we are incredibly excited for Mount Logan's next phase of growth as we scale our U.S. domiciled asset management and insurance solutions businesses. We have a fortified balance sheet that provides significant flexibility to invest for the future, and we are well positioned to capitalize on the opportunities we are seeing in the market. We believe the substantial time and resources invested in our business during 2025 set the stage for meaningful growth in 2026 and 2027, helping to drive long-term value creation for our shareholders. This concludes our prepared remarks. We would now like to transition the call to Q&A. If the operator could please go ahead. Operator: [Operator Instructions] Our first question for today comes from Adam Waldo of Lismore Partners, my apologies. Our next question comes from Matthew Lee of Canaccord Genuity. Matthew Lee: Just want to talk about the trajectory for both SRE and FRE here. You now have the capital to invest to get the flywheel moving a bit. How should we be thinking about SRE and FRE growth in F '26? And what do you think is the run rate kind of going even further medium term, just given the capital position right now? Nikita Klassen: Thanks, Matt. So let's start with FRE. So as we said, FRE was pretty much flat quarter-over-quarter. In going into 2026, I think that's really where we're going to see things start to ramp up, particularly around BC Investment Corporation. This really adds a lot of scale to our platform. Our management fees are expected to increase to about $720,000 a quarter compared to what we recognized in the prior quarter. And under this new structure, they intend to pay incentive fees as well which will probably yield to us about $500,000 annually. So this is the upside that we didn't previously had when we have -- when we were the investment manager to Logan Ridge. Otherwise, again, the focus is always on cost and really making sure that we can grow these fees without expanding on the cost side, which we believe we've really invested in that over these past few years. So expect positive growth from there. Additionally, with SOFIX, one of our other growth engines, we have waived $415,000 of incentive fees to date as it continues to scale. So expect that vehicle to continue to add to FRE pretty strongly. And then lastly, Ability, our biggest growth engine. It has provided $1.6 million in fees for the quarter and $6.4 million annualized. And so as we continue to manage more of that book of investments and the vehicle continues to scale, I expect pretty strong growth there. On the SRE side, there are things within our control and things that are not within our control, largely related to cost of funds. But what we can control is really looking at sort of where rates are going and what we can do on the NII side to control it. We do have a hedge that limits some of our exposure on the downside that's helping. And then it's really just also looking at the cash drag and being able to find investment opportunities, which is challenging in a tighter spread environment. So generally speaking, it's looking pretty good. As we mentioned, we're trying to move towards a 75 to 100 basis point SRE margin going into next year. It's really just what we can control there. Matthew Lee: Okay. Maybe asked a different way. I mean, your FRE is kind of trending towards $10 million a year at the current run rate. Your SRE is kind of recovering off a low first half. I mean, should we be thinking about this as kind of like combined $15 million to $20 million for 2026? Or is it too early for guidance? Nikita Klassen: I'd say on an organic basis, that's fair. And then it's really just how we look to deploy the capital from the current transaction and where we can see upside from there. Edward Goldthorpe: Yes. So I think the plan today is we do have a bunch of cash, and we're going to do a couple of different things with it. One is we're going to buy back -- we're going to do this tender that we've talked about at a big premium to market. We're going to do -- we have a really good pipeline of M&A opportunities. And number three is put capital into the insurance company. There is a lag. When we put money into the insurance company, there is a bit of a lag between capital deployment and SRE benefit. So you should really see real benefit on SRE in the second half of next year. Matthew Lee: Got it. And maybe I'll touch on that, you mentioned M&A opportunities. I mean, 180 is now kind of digested. What sort of opportunity are you seeing in the market? Edward Goldthorpe: Yes. I mean I'd say this is like the perfect storm in a good way for us, which is, number one is now because we're listed on the NASDAQ, it gives us a currency that is deemed to be more attractive for many shareholders. And number two is we're getting size and scale where people feel like that works for them. More importantly, the scale matters. And I think a lot of -- the M&A environment tends to ebb and flow a little bit. Our pipeline has never been more robust. So we have 3 or 4 really strategic, very accretive things in our pipeline that we expect to announce, hopefully, some of them by the first quarter that will be real catalysts, I think, for growth for our business. So again, I think we're combining -- this year was a consolidation year. We kind of merged with TURN, we merged our BDCs. We've kind of like cut some costs. Next year, we really expect to be growing both from an organic and inorganic basis. Operator: There are currently no further questions in the queue. [Operator Instructions] We have a question from Chuck Burns of CIBC. Charles Burns: Congratulations on the -- taking this over the finish line this year, this transaction. I just have a couple of questions. The U.S. market transition, how is that progressing with regard to institutional interest and maybe brokerage coverage? Edward Goldthorpe: Yes, it's a good question, actually. So I would say this is kind of like we had to get through this last quarter and get this announced. And I think this tender is going to be obviously a good catalyst for us to engage with the Street. So we are -- we obviously are being very, very proactive in many different ways of engaging with institutional shareholders. And because of this NASDAQ listing in our size, it gives us an opportunity to have a more robust dialogue with people than previously. So I think that's a big, big focus of ours now that the quarter is out, now that the transaction is closed and now that we're going to announce this tender. Charles Burns: Okay. And the second question is there's been a lot of noise in the markets regarding private credit and the media has been kind of all over that issue. How is that impacting Mount Logan? Edward Goldthorpe: Very good question. I would say People have been calling for a [indiscernible] in private credit since I got in the business like 20 years ago. I mean I would say the recent -- the 4 big recent headlines all have similar things in common. And I'm referring to like first brands and some other things. First of all, first brands, most of the capital -- only 2% of the capital structure was in private credit hands. Most of that was either syndicated risk or in other channels. And again, the most of each of these 4 idiosyncratic situations, Tricolor, that one, generally speaking, were frauds or misappropriation of funds. They weren't necessarily tied to a macro theme. And then secondly, like -- our business, Mount Logan is really levered, generally speaking, towards corporate credit, and we haven't seen a big deterioration in corporate credit at all quite yet. And I'm not saying it's not going to happen. We just haven't seen it. All of these things, the catalyst to cause the stress came out of the asset-based part of their business. and the asset-based finance part of their business. And that's where -- that's like we're not really -- we're not leveraged those kind of channels. Operator: Our next question comes from [ Ben Brockhoff ] of [ Brockhoff Capital. ] Unknown Analyst: I wanted to ask about return on equity and whether you're seeing any changes on that because of spread compression or other reasons. I know you had guided to about, call it, 25% or 26% ROEs in one of the last presentations. I wanted to see if you had any commentary on that guidance, either short term or long term. Edward Goldthorpe: Yes, I'll answer that. So I would say like if you just take a step back, right, like there's a couple of tailwinds for ROE. One is scale. So like we have public company costs that we are amortizing on a lower base. Number two is obviously our insurance company is expected to grow. So we have a little bit of a transition period because we're sitting a lot of cash post merger. But once we kind of fully integrate all of that, there should be some good tailwinds on our ROE. The 25% you're referring to is the incremental ROE we get from investing in our insurance company. It doesn't necessarily measure it overall. But we do expect to drive pretty robust ROEs on a go-forward basis. Operator: At this time, we currently have no further questions. So I'll hand it back to the management team for any further remarks. Edward Goldthorpe: Thank you, everyone, for your time today. Looking ahead, our focus remains on disciplined execution and delivering measurable milestones that will showcase the strength of the platform we've built. As always, we are happy to make ourselves available for any questions you may have. We look forward to speaking with you to recap the fourth quarter and full year 2025 results in March of 2026. I hope everyone has a good weekend and a good American Thanksgiving. Thank you. Operator: Thank you all for joining today's call. You may now disconnect your lines.